.
.
.
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OMB APPROVAL
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OMB Number: 3235-0570
Expires: Nov. 30, 2005
Estimated average burden
hours per response: 5.0
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</Table>
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: 10/31/04
----------------
Item 1. Reports to Stockholders.
AIM AGGRESSIVE GROWTH FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM AGGRESSIVE GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES capitalization; the Growth subset o The returns shown in the Management's
measures the performance of Russell 2500 Discussion of Fund Performance are based
o Effective 9/30/03, Class B shares are companies with higher price/book ratios on net asset values calculated for
not available as an investment for and higher forecasted growth values. shareholder transactions. Generally
retirement plans maintained pursuant to accepted accounting principles require
Section 401 of the Internal Revenue Code, o The unmanaged Russell adjustments to be made to the net assets
including 401(k) plans, money purchase Midcap--Registered Trademark-- Growth of the fund at period end for financial
pension plans and profit sharing plans. Index is a subset of the Russell reporting purposes, and as such, the net
Plans that have existing accounts Midcap--Registered Trademark-- Index, asset values for shareholder transactions
invested in Class B shares will continue which represents the performance of the and the returns based on those net asset
to be allowed to make additional stocks of domestic mid-capitalization values may differ from the net asset
purchases. companies; the Growth subset measures the values and returns reported in the
performance of Russell Midcap companies Financial Highlights.
o Class R shares are available only to with higher price/book ratios and higher
certain retirement plans. Please see the forecasted growth values. The fund files its complete schedule of
prospectus for more information. portfolio holdings with the Securities
o The unmanaged Lipper Mid-Cap Growth and Exchange Commission ("SEC") for the
PRINCIPAL RISKS OF INVESTING IN THE FUND Fund Index represents an average of the 1st and 3rd quarters of each fiscal year
performance of the 30 largest on Form N-Q. The fund's Form N-Q filings
o Investing in small and mid-size mid-capitalization growth funds tracked are available on the SEC's Web site at
companies involves risks not associated by Lipper, Inc., an independent mutual http://www.sec.gov. Copies of the fund's
with investing in more established fund performance monitor. Forms N-Q may be reviewed and copied at
companies. Also, small companies have the SEC's Public Reference Room at 450
business risk, significant stock price o The unmanaged MSCI World Index is a Fifth Street, N.W., Washington, D.C.
fluctuations and illiquidity. group of global securities tracked by 20549-0102. You can obtain information on
Morgan Stanley Capital International. the operation of the Public Reference
o International investing presents Room, including information about
certain risks not associated with o The fund is not managed to track the duplicating fee charges, by calling
investing solely in the United States. performance of any particular index, 1-202-942-8090 or by electronic request
These include risks relating to including the indexes defined here, and at the following e-mail address:
fluctuations in the value of the U.S. consequently, the performance of the fund publicinfo@sec.gov. The SEC file numbers
dollar relative to the values of other may deviate significantly from the for the fund are 811-1424 and 2-25469.
currencies, the custody arrangements made performance of the indexes. Performance The fund's most recent portfolio
for the fund's foreign holdings, of an index of funds reflects fund holdings, as filed on Form N-Q, are also
differences in accounting, political expenses; performance of a market index available at AIMinvestments.com.
risks and the lesser degree of public does not.
information required to be provided by A description of the policies and
non-U.S. companies. The fund may invest o A direct investment cannot be made in procedures that the fund uses to
up to 25% of its assets in the securities an index. Unless otherwise indicated, determine how to vote proxies relating to
of non-U.S. issuers. index results include reinvested portfolio securities is available without
dividends, and they do not reflect sales charge, upon request, from our Client
ABOUT INDEXES USED IN THIS REPORT charges. Services department at 800-959-4246 or on
the AIM Web site, AIMinvestments.com. On
o The unmanaged Standard & Poor's OTHER INFORMATION the home page, scroll down and click on
Composite Index of 500--Registered AIM Funds Proxy Policy. The information
Trademark-- Stocks (the S&P 500) is an o Industry classifications used in this is also available on the Securities and
index of common stocks frequently used as report are generally according to the Exchange Commission's Web site, sec.gov.
a general measure of U.S. stock market Global Industry Classification Standard,
performance. which was developed by and is the Information regarding how the fund voted
exclusive property and a service mark of proxies related to its portfolio
o The unmanaged Russell 2500--Registered Morgan Stanley Capital International Inc. securities during the 12 months ended
Trademark-- Index measures the performance and Standard & Poor's. 6/30/04 is available at our Web site. Go
of the 2,500 smallest companies in the to AIMinvestments.com, access the About
Russell 3000--Registered Trademark-- Us tab, click on Required Notices and
Index, which measures the performance of then click on Proxy Voting Activity.
the 3,000 largest U.S. companies based on Next, select your fund from the drop-down
total market menu.
</Table>
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THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H.
GRAHAM] It is our pleasure to introduce you to Bruce Crockett, the
new Chairman of the Board of Trustees of the AIM Funds. Bob
ROBERT H. GRAHAM Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
[PHOTO OF position in 2000. However, as you may be aware, the U.S.
MARK H. Securities and Exchange Commission recently adopted a rule
WILLIAMSON] requiring that an independent fund trustee, meaning a
trustee who is not an officer of the fund's investment
MARK H. WILLIAMSON advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
[PHOTO OF Advisors' recent settlements with certain regulators.
BRUCE L. Accordingly, the AIM Funds' Board recently elected Mr.
CROCKETT] Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
BRUCE L. CROCKETT effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain Chairman of AIM
Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
acquired certain funds that had been advised by CIGNA. He had been a member of
the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------- --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND FOCUSED ON STOCKS OF COMPANIES WITH and value stocks generally outperformed
SOLID EARNINGS growth stocks.
For the fiscal year ended October 31, The fund's information technology and YOUR FUND
2004, AIM Aggressive Growth Fund, Class A industrials holdings helped it outperform
shares, returned 7.01% at net asset the Lipper Mid-Cap Growth Fund Index. We continued to focus on small- and
value. PERFORMANCE SHOWN AT NAV DOES NOT mid-cap stocks of companies with high
INCLUDE FRONT-END SALES CHARGES, WHICH MARKET CONDITIONS growth potential, as demonstrated by
WOULD HAVE REDUCED THE PERFORMANCE. For consistent and accelerating earnings
the performance of other share classes, The U.S. economy showed signs of strength growth. The fund's stock selection
please see page 3. The fund during the fiscal year ended October 31, process is based on a rigorous three-step
underperformed the S&P 500 Index and the 2004. Gross domestic product (GDP), the process that includes quantitative,
Russell Midcap Growth Index, which broadest measure of overall economic fundamental and valuation analysis to
returned 9.41% and 8.77%, respectively, activity, expanded at an annualized rate identify stocks of companies that exhibit
but outperformed the Lipper Mid-Cap of 4.2% in the fourth quarter of 2003 consistent, sustainable, above average
Growth Fund Index, which returned 6.18% before tapering off to a more modest 3.9% earnings growth potential. We believe it
over the same period. in the third quarter of 2004. is only through in-depth fundamental
research that includes careful financial
Since the beginning of 2004, we Generally positive economic statement analysis and meetings with
continued to see stocks of more developments prompted the U.S. Federal company management teams that these
economically sensitive or more cyclical Reserve (the Fed) to raise its federal opportunities can be found.
companies in energy, materials and funds target rate from a decades-low
telecommunication services--typically not 1.00%, where it stood at the beginning of During the reporting period, we were
considered growth sectors--perform well. the fiscal year, to 1.75% at the close of generally optimistic about the economy.
On the other hand, information technology the reporting period. Geopolitical We were concerned that increasing
and health care--our classic growth uncertainty and terrorism concerns, as personal debt and rising interesting
sectors--were among the worst performing well as soaring oil prices, had a rates could lead to reduced consumer
sectors. The fund lagged the S&P 500 detrimental effect on consumer sentiment. spending, which potentially could
Index and the Russell Midcap Growth Index In mid-October, Fed Chairman Alan adversely affect stock prices in the
because its consumer discretionary Greenspan said that "so far this year, short run. As such, we continued to
holdings generally underperformed those the rise in the value of imported position the fund with a "barbell
of the indexes. Its relative lack of oil--essentially a tax on U.S. approach"--a balanced exposure to more
exposure to the consumer staples, residents--has amounted to about aggressive, cyclically sensitive stocks
materials and telecommunication services three-fourths of 1 percent of GDP." and high quality, less aggressive stocks.
sectors also hurt the fund's performance This positioning was designed to
relative to the S&P 500 Index and the Mid-cap stocks generally were the potentially benefit investors in the
Russell Midcap Growth Index. best-performing equity segment, followed event of a market rally while providing
by small-cap stocks and large-cap stocks, some downside protection if markets
weaken.
We increased the fund's holdings most
significantly in the information
technology sector.
</Table>
<Table>
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PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. Robert Half International Inc. 2.2% 1. Data Processing
& Outsourced Services 7.2%
[PIE CHART] 2. Textron Inc. 2.2
2. Semiconductors 6.6
Information Technology 32.2% 3. Investors Financial Services
Corp. 2.2 3. Communications Equipment 6.5
Consumer Discretionary 20.3%
4. Alliance Data Systems Corp. 2.2 4. Asset Management
Health Care 16.9% & Custody Banks 5.6
5. SunGard Data Systems Inc. 2.0
Industrials 15.4% 5. Health Care Services 4.9
6. Caremark Rx, Inc. 1.9
Financials 9.2% 6. Specialty Stores 4.2
7. Sirva Inc. 1.8
Money Market Funds Plus 7. Pharmaceuticals 4.2
Other Assets Less Liabilities 4.5% 8. Fiserv, Inc. 1.8
8. Application Software 4.2
Materials 0.9% 9. Fisher Scientific International
Inc. 1.8 9. Apparel Retail 3.9
Energy 0.6%
10. Cintas Corp. 1.7 10. Restaurants 3.7
The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any
particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
However, at the close of the reporting scientific equipment and instruments. In THE VIEWS AND OPINIONS EXPRESSED IN
period, approximately 7% of the fund's our opinion, the Alliance Data Systems MANAGEMENT'S DISCUSSION OF FUND
assets was in the data processing and benefited from a highly competent PERFORMANCE ARE THOSE OF A I M ADVISORS,
outsourced services--a relatively more management team and a dominant position INC. THESE VIEWS AND OPINIONS ARE SUBJECT
defensive industry. Stocks that we owned relative to its competitors. Fisher TO CHANGE AT ANY TIME BASED ON FACTORS
within this industry included Alliance Scientific, which saw its profit for the SUCH AS MARKET AND ECONOMIC CONDITIONS.
Data Systems, SunGard Data Systems and second quarter of 2004 increase 26% in THESE VIEWS AND OPINIONS MAY NOT BE
Fiserv. We believe that these companies comparison to the same period last year, RELIED UPON AS INVESTMENT ADVICE OR
are high-quality, well-established and benefited from increased sales of its RECOMMENDATIONS, OR AS AN OFFER FOR A
well-managed firms with strong business medical products. PARTICULAR SECURITY. THE INFORMATION IS
models and high recurring revenue. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
Detracting from fund performance were OF ANY MARKET, COUNTRY, INDUSTRY,
At the beginning of the year, our Corinthian Colleges, a post secondary SECURITY OR THE FUND. STATEMENTS OF FACT
strategy of being exposed to in the education company, and Taro ARE FROM SOURCES CONSIDERED RELIABLE, BUT
employment-related services in the Pharmaceutical, which develops and A I M ADVISORS, INC. MAKES NO
industrial sector worked well for us as markets pharmaceutical products. REPRESENTATION OR WARRANTY AS TO THEIR
we began to see signs of improving labor Corinthian College's stock declined after COMPLETENESS OR ACCURACY. ALTHOUGH
markets. One of the holdings in the the Securities and Exchange Commission HISTORICAL PERFORMANCE IS NO GUARANTEE OF
sector, Apollo Group Inc., a provider of began an informal investigation of the FUTURE RESULTS, THESE INSIGHTS MAY HELP
higher education programs for working company concerning its earnings YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
adults, was a strong contributor. We took projections. Taro's stock depreciated PHILOSOPHY.
profits and sold the stock after it after the company reported first- and
reached our valuation target. second-quarter 2004 earnings that failed See important fund and index
to meet analysts' expectations. The fund disclosures inside front cover.
During the period, we decreased the no longer held either stock at the close
fund's holdings most substantially in the of the fiscal year.
energy sector. As part of our strategy,
we paid great attention to risk, making IN CLOSING KARL F. FARMER
every effort to protect investors' money Mr. Farmer, Chartered
by sidestepping short-term market trends. We remained committed to our bottom-up [FARMER Financial Analyst,
While energy was the best-performing stock selection processes and we PHOTO] joined AIM in July of
sector of the S&P 500 Index for the constantly reviewed each security's 1998, after spending
fiscal year, we believed that high oil fundamentals and price target to ensure a six years as a pension
prices were unsustainable and there was continued fit. We believe that our actuary, focusing on retirement plans and
more downside than upside potential in strategy of focusing our investments in other benefit programs. He earned a B.S.
this sector. companies that show sustainable, in economics from Texas A&M University,
above-average earnings growth while graduating magna cum laude. He
Stocks that enhanced fund performance avoiding high risk stocks has the subsequently earned his M.B.A. in finance
included Alliance Data Systems, a potential to provide shareholders with from The Wharton School at the University
provider of transaction, credit and consistent risk-adjusted return over a of Pennsylvania.
marketing services, and Fischer long term investment horizon.
Scientific International, one of the JAY K. RUSHIN
world's leading wholesale distributors of Mr. Rushin, Chartered
[RUSHIN Financial Analyst,
========================================= ========================================= PHOTO] became lead portfolio
manager of AIM
FUND VS. INDEXES TOTAL NET ASSETS $2.0 BILLION Aggressive Growth Fund
on April 20, 2004. He began his
TOTAL RETURNS, 10/31/03-10/31/04, TOTAL NUMBER OF HOLDINGS* 104 investment career in 1994 when he joined
EXCLUDING APPLICABLE SALES CHARGES. IF AIM as a portfolio administrator. In
SALES CHARGES WERE INCLUDED, RETURNS ========================================= 1996, he left AIM to work as an associate
WOULD BE LOWER. equity analyst. He returned to AIM as an
equity analyst on AIM's small-cap funds
Class A Shares 7.01% in 1998 and was promoted to senior
analyst in 2000. He assumed his current
Class B Shares 6.15 duties as portfolio manager in 2001. A
native of Gaithersburg, MD, Mr. Rushin
Class C Shares 6.15 holds a B.A. in English from Florida
State University.
Class R Shares 6.58
Assisted by the Aggressive Growth Team
S&P 500 Index (Broad-based Index) 9.41
[RIGHT ARROW GRAPHIC]
Russell Midcap Growth Index
(Style-specific Index) 8.77 FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE TURN
Lipper Mid-Cap Growth Fund Index TO PAGE 5.
(Peer-group Index) 6.18
Source: Lipper, Inc.
=========================================
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE to estimate the expenses that you paid To do so, compare this 5% hypothetical
over the period. Simply divide your example with the 5% hypothetical examples
As a shareholder of the fund, you incur account value by $1,000 (for example, an that appear in the shareholder reports of
two types of costs: (1) transaction $8,600 account value divided by $1,000= the other funds.
costs, which may include sales charges 8.6), then multiply the result by the
(loads) on purchase payments; contingent number in the table under the heading Please note that the expenses shown in
deferred sales charges on redemptions; entitled "Actual Expenses Paid During the table are meant to highlight your
and redemption fees, if any; and (2) Period" to estimate the expenses you paid ongoing costs only and do not reflect any
ongoing costs, including management fees; on your account during this period. transactional costs, such as sales
distribution and/or service fees (12b-1); charges (loads) on purchase payments,
and other fund expenses. This example is HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
intended to help you understand your PURPOSES redemptions, and redemption fees, if any.
ongoing costs (in dollars) of investing Therefore, the hypothetical information
in the fund and to compare these costs The table below also provides information is useful in comparing ongoing costs
with ongoing costs of investing in other about hypothetical account values and only, and will not help you determine the
mutual funds. The example is based on an hypothetical expenses based on the fund's relative total costs of owning different
investment of $1,000 invested at the actual expense ratio and an assumed rate funds. In addition, if these
beginning of the period and held for the of return of 5% per year before expenses, transactional costs were included, your
entire period, May 1, 2004-October 31, which is not the fund's actual return. costs would have been higher.
2004. The hypothetical account values and
expenses may not be used to estimate the
ACTUAL EXPENSES actual ending account balance or expenses
you paid for the period. You may use this
The table below provides information information to compare the ongoing costs
about actual account values and actual of investing in the fund and other funds.
expenses. You may use the information in
this table, together with the amount you
invested,
</Table>
<Table>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,023.40 $ 6.71 $1,018.50 $ 6.70
Class B 1,000.00 1,020.10 10.51 1,014.73 10.48
Class C 1,000.00 1,020.10 10.51 1,014.73 10.48
Class R 1,000.00 1,022.50 7.98 1,017.24 7.96
(1)The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 2.34%, 2.01%, 2.01% and 2.25% for Class A, B, C and R shares, respectively.
(2)Expenses are equal to the fund's annualized expense ratio (1.32%, 2.07%, 2.07% and 1.57% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 5/1/84-10/31/04 (Index results from 4/30/84)
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results AIM AGGRESSIVE
include reinvested dividends. GROWTH FUND S&P 500 RUSSELL 2500
Performance of an index of funds DATE CLASS A SHARES INDEX INDEX
reflects fund expenses and management 5/1/1984 $ 9450 $ 10000 $ 10000
fees; performance of a market index does 10/84 9584 10628 10391
not. Performance shown in the chart does 10/85 10680 12682 12368
not reflect deduction of taxes a 10/86 12467 16891 15869
shareholder would pay on fund 10/87 10038 17972 14274
distributions or sale of fund shares. 10/88 12099 20624 18023
Performance of the indexes does not 10/89 14280 26060 21324
reflect the effects of taxes. 10/90 11410 24111 16218
Since the last reporting period, the 10/91 21333 32167 25594
fund has elected to use the S&P 500 Index 10/92 23382 35368 28425
as its broad-based market index because 10/93 35285 40641 36336
the S&P 500 Index is such a widely 10/94 41974 42208 36994
recognized gauge of the stock market. The 10/95 59377 53355 44906
fund will no longer measure its 10/96 68138 66203 53343
performance against the Russell 2500 10/97 79962 87454 68877
Index, the index published in previous 10/98 66885 106704 63574
reports to shareholders. Because this is 10/99 93434 134087 75017
the first reporting period since we have 10/00 137878 142237 92475
adopted the new index, SEC guidelines 10/01 82050 106836 81227
require that we compare the fund's 10/02 68908 90707 73805
performance to both the old and the new 10/03 84979 109562 104573
index. 10/04 $ 90902 $ 119874 $ 117479
In evaluating this chart, please note Source: Lipper, Inc.
that the chart uses a logarithmic scale
along the vertical axis (the value
scale). This means that each scale CLASS B SHARES Class R shares' inception date is 6/3/02.
increment always represents the same Inception (3/1/99) 3.01% Returns since that date are historical
percent change in price; in a linear 5 Years -1.59 returns. All other returns are blended
chart each scale increment always 1 Year 1.15 returns of historical Class R share
represents the same absolute change in CLASS C SHARES performance and restated Class A share
price. In this example, the scale Inception (3/1/99) 3.14% performance (for periods prior to the
increment between $5,000 and $10,000 is 5 Years -1.31 inception date of Class R shares) at net
the same as that between $10,000 and 1 Year 5.15 asset value, adjusted to reflect the
$20,000. In a linear chart, the latter CLASS R SHARES higher Rule 12b-1 fees applicable to
scale increment would be twice as large. 10 Years 7.75% Class R shares.
The benefit of using a logarithmic scale 5 Years -0.83
is that it better illustrates performance 1 Year 6.58 The performance data quoted represent
during the fund's early years before past performance and cannot guarantee
reinvested distributions and compounding ========================================= comparable future results; current
create the potential for the original In addition to returns as of the close of performance may be lower or higher.
investment to grow to very large numbers. the fiscal year, industry regulations Please visit AIMinvestments.com for the
Had the chart used a linear scale along require us to provide average annual most recent month-end performance.
its vertical axis, you would not be able total returns as of 9/30/04, the most Performance figures reflect reinvested
to see as clearly the movements in the recent calendar quarter-end. distributions, changes in net asset value
value of the fund and the indexes during ========================================= and the effect of the maximum sales
the fund's early years. We use a charge unless otherwise stated.
logarithmic scale in financial reports of AVERAGE ANNUAL TOTAL RETURNS Investment return and principal value
funds that have more than five years of will fluctuate so that you may have a
performance history. As of 9/30/04, most recent calendar gain or loss when you sell shares.
quarter-end, including applicable sales
AVERAGE ANNUAL TOTAL RETURNS charges Class A share performance reflects the
As of 10/31/04, including applicable maximum 5.50% sales charge, and Class B
sales charges CLASS A SHARES and Class C share performance reflects
Inception (5/1/84) 11.19% the applicable contingent deferred sales
CLASS A SHARES 10 Years 7.43 charge (CDSC) for the period involved.
Inception (5/1/84) 11.37% 5 Years -1.57 The CDSC on Class B shares declines from
10 Years 7.43 1 Year 4.77 5% beginning at the time of purchase to
5 Years -1.67 0% at the beginning of the seventh year.
1 Year 1.16 CLASS B SHARES The CDSC on Class C shares is 1% for the
Inception (3/1/99) 2.30% first year after purchase. Class R shares
5 Years -1.51 do not have a front-end sales charge;
1 Year 4.89 returns shown are at net asset value and
do not reflect a 0.75% CDSC that may be
CLASS C SHARES imposed on a total redemption of
Inception (3/1/99) 2.43% retirement plan assets within the first
5 Years -1.22 year.
1 Year 8.89
Had the advisor not waived fees and/or
CLASS R SHARES reimbursed expenses in the past, Class A
10 Years 7.77% and Class R share performance would have
5 Years -0.71 been lower. The performance of the fund's
1 Year 10.48 share classes will differ due to
different sales charge structures and
class expenses.
====================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM AGGRESSIVE GROWTH FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Please note that past performance is not
AVERAGE ANNUAL TOTAL RETURNS indicative of future results. More recent
The following information has been For periods ended 10/31/04 returns may be more or less than those
prepared to provide Institutional Class Inception (3/15/02) 0.91% shown. All returns assume reinvestment of
shareholders with a performance overview 1 Year 7.49 distributions at net asset value.
specific to their holdings. Institutional Investment return and principal value
Class shares are offered exclusively to ========================================= will fluctuate so your shares, when
institutional investors, including AVERAGE ANNUAL TOTAL RETURNS redeemed, may be worth more or less than
defined contribution plans that meet For periods ended 9/30/04 their original cost. See full report for
certain criteria. Inception (3/15/02) -0.70% information on comparative benchmarks.
1 Year 11.43 Please consult your fund prospectus for
more information. For the most current
========================================= month-end performance, please call
800-451-4246 or visit AIMinvestments.com.
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Performance of Institutional
Class shares will differ from performance
of other share classes due to differing
sales charges and class expenses.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com AGRO-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over balance or expenses you paid for the
the period. Simply divide your account period. You may use this information to
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 compare the ongoing costs of investing in
ongoing costs, including management fees; account value divided by $1,000 = 8.6), the fund and other funds. To do so,
and other fund expenses. This example is then multiply the result by the number in compare this 5% hypothetical example with
intended to help you understand your the table under the heading entitled the 5% hypothetical examples that appear
ongoing costs (in dollars) of investing "Actual Expenses Paid During Period" to in the shareholder reports of the other
in the fund and to compare these costs estimate the expenses you paid on your funds.
with ongoing costs of investing in other account during this period.
mutual funds. The example is based on an Please note that the expenses shown in
investment of $1,000 invested at the HYPOTHETICAL EXAMPLE FOR the table are meant to highlight your
beginning of the period and held for the COMPARISON PURPOSES ongoing costs only. Therefore, the
entire period, May 1, 2004, to October hypothetical information is useful in
31, 2004. The table below also provides information comparing ongoing costs only, and will
about hypothetical account values and not help you determine the relative total
ACTUAL EXPENSES hypothetical expenses based on the fund's costs of owning different funds.
actual expense ratio and an assumed rate
The table below provides information of return of 5% per year before expenses,
about actual account values and actual which is not the fund's actual return.
expenses. You may use the information in The hypothetical account values and
this table, together with the amount you expenses may not be used to estimate the
invested, to actual ending account
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,026.30 $4.02 $1,021.17 $4.01
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 2.63% for the Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio, 0.79% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com AGRO-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS-95.48%
ADVERTISING-1.94%
Lamar Advertising Co.-Class A(a)(b) 350,000 $ 14,497,000
- ---------------------------------------------------------------------------
Omnicom Group Inc. 300,000 23,670,000
===========================================================================
38,167,000
===========================================================================
AIRLINES-0.80%
Southwest Airlines Co. 1,000,000 15,770,000
===========================================================================
APPAREL RETAIL-3.93%
Aeropostale, Inc.(a)(c) 475,000 14,986,250
- ---------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 500,000 11,230,000
- ---------------------------------------------------------------------------
Foot Locker, Inc. 500,000 12,200,000
- ---------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a)(b) 490,800 15,254,064
- ---------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a)(c) 1,000,000 23,440,000
===========================================================================
77,110,314
===========================================================================
APPLICATION SOFTWARE-4.15%
Amdocs Ltd. (United Kingdom)(a) 625,000 15,718,750
- ---------------------------------------------------------------------------
Citrix Systems, Inc.(a)(b) 750,000 18,097,500
- ---------------------------------------------------------------------------
Cognos, Inc. (Canada)(a) 450,000 17,779,500
- ---------------------------------------------------------------------------
Mercury Interactive Corp.(a) 425,000 18,457,750
- ---------------------------------------------------------------------------
Synopsys, Inc.(a) 700,000 11,368,000
===========================================================================
81,421,500
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-5.61%
Affiliated Managers Group, Inc.(a)(b) 300,000 16,752,000
- ---------------------------------------------------------------------------
Investors Financial Services Corp.(b) 1,100,000 42,339,000
- ---------------------------------------------------------------------------
Legg Mason, Inc.(b) 450,000 28,669,500
- ---------------------------------------------------------------------------
T. Rowe Price Group Inc. 400,000 22,308,000
===========================================================================
110,068,500
===========================================================================
BIOTECHNOLOGY-2.79%
Amylin Pharmaceuticals, Inc.(a)(b) 675,000 14,377,500
- ---------------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a) 235,000 9,973,400
- ---------------------------------------------------------------------------
Invitrogen Corp.(a) 300,000 17,370,000
- ---------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a)(b) 200,000 12,996,000
===========================================================================
54,716,900
===========================================================================
BROADCASTING & CABLE TV-2.09%
Radio One, Inc.-Class D(a) 1,000,000 14,690,000
- ---------------------------------------------------------------------------
Univision Communications Inc.-Class A(a)(b) 850,000 26,316,000
===========================================================================
41,006,000
===========================================================================
BUILDING PRODUCTS-1.26%
American Standard Cos. Inc.(a) 678,000 24,794,460
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-6.52%
ADTRAN, Inc. 239,400 $ 5,171,040
- ---------------------------------------------------------------------------
Andrew Corp.(a) 925,000 12,931,500
- ---------------------------------------------------------------------------
Avaya Inc.(a)(b) 1,250,000 18,000,000
- ---------------------------------------------------------------------------
Avocent Corp.(a) 350,000 12,460,000
- ---------------------------------------------------------------------------
Comverse Technology, Inc.(a)(b) 1,500,000 30,960,000
- ---------------------------------------------------------------------------
Plantronics, Inc. 528,600 22,994,100
- ---------------------------------------------------------------------------
Polycom, Inc.(a) 500,000 10,325,000
- ---------------------------------------------------------------------------
Tekelec(a) 682,500 15,233,400
===========================================================================
128,075,040
===========================================================================
COMPUTER & ELECTRONICS RETAIL-0.98%
Best Buy Co., Inc. 325,000 19,246,500
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.65%
Joy Global Inc. 375,000 12,671,250
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-7.24%
Alliance Data Systems Corp.(a)(b) 1,000,000 42,280,000
- ---------------------------------------------------------------------------
Fiserv, Inc.(a) 1,000,000 35,540,000
- ---------------------------------------------------------------------------
Paychex, Inc.(b) 750,000 24,595,500
- ---------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 1,500,000 39,735,000
===========================================================================
142,150,500
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.81%
Cintas Corp.(b) 750,000 32,355,000
- ---------------------------------------------------------------------------
Corporate Executive Board Co. (The)(c) 200,000 12,730,000
- ---------------------------------------------------------------------------
CoStar Group Inc.(a) 250,000 10,092,500
===========================================================================
55,177,500
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.47%
Cooper Industries, Ltd.-Class A (Bermuda) 225,000 14,377,500
- ---------------------------------------------------------------------------
EnerSys(a) 1,100,000 14,520,000
===========================================================================
28,897,500
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.99%
Agilent Technologies, Inc.(a)(b) 750,000 18,795,000
- ---------------------------------------------------------------------------
Littelfuse, Inc.(a) 250,000 8,155,000
- ---------------------------------------------------------------------------
Tektronix, Inc. 400,000 12,132,000
===========================================================================
39,082,000
===========================================================================
EMPLOYMENT SERVICES-2.23%
Robert Half International Inc. 1,650,000 43,774,500
===========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.94%
Family Dollar Stores, Inc.(b) 625,000 $ 18,468,750
===========================================================================
HEALTH CARE EQUIPMENT-3.05%
Cytyc Corp.(a) 385,000 10,044,650
- ---------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 600,000 34,416,000
- ---------------------------------------------------------------------------
PerkinElmer, Inc. 750,000 15,405,000
===========================================================================
59,865,650
===========================================================================
HEALTH CARE FACILITIES-1.95%
Health Management Associates, Inc.-Class A(b) 500,000 10,330,000
- ---------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 350,000 11,347,000
- ---------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 500,000 16,515,000
===========================================================================
38,192,000
===========================================================================
HEALTH CARE SERVICES-4.90%
Caremark Rx, Inc.(a) 1,250,000 37,462,500
- ---------------------------------------------------------------------------
DaVita, Inc.(a) 600,000 17,772,000
- ---------------------------------------------------------------------------
Express Scripts, Inc.(a)(b) 400,000 25,600,000
- ---------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 450,000 15,259,500
===========================================================================
96,094,000
===========================================================================
HOTELS, RESORTS & CRUISE LINES-0.83%
Royal Caribbean Cruises Ltd. (Liberia)(b) 350,000 16,310,000
===========================================================================
INDUSTRIAL CONGLOMERATES-2.17%
Textron Inc.(c) 625,000 42,593,750
===========================================================================
INDUSTRIAL MACHINERY-1.28%
Danaher Corp.(b) 200,000 11,026,000
- ---------------------------------------------------------------------------
Eaton Corp. 221,000 14,132,950
===========================================================================
25,158,950
===========================================================================
INVESTMENT BANKING & BROKERAGE-1.86%
Ameritrade Holding Corp.(a) 1,000,000 13,020,000
- ---------------------------------------------------------------------------
Edwards (A.G.), Inc.(b) 250,000 9,065,000
- ---------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 175,000 14,376,250
===========================================================================
36,461,250
===========================================================================
IT CONSULTING & OTHER SERVICES-1.35%
Acxiom Corp. 600,000 15,000,000
- ---------------------------------------------------------------------------
CACI International Inc.-Class A(a) 188,800 11,511,136
===========================================================================
26,511,136
===========================================================================
LEISURE PRODUCTS-0.72%
Brunswick Corp. 300,000 14,076,000
===========================================================================
MOVIES & ENTERTAINMENT-0.92%
Regal Entertainment Group-Class A(b) 912,200 18,161,902
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
OIL & GAS DRILLING-0.59%
Patterson-UTI Energy, Inc.(c) 600,000 $ 11,538,000
===========================================================================
PAPER PRODUCTS-0.47%
Bowater Inc. 250,000 9,210,000
===========================================================================
PHARMACEUTICALS-4.21%
Allergan, Inc. 34,100 2,440,196
- ---------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 550,000 20,707,500
- ---------------------------------------------------------------------------
Eon Labs, Inc.(a) 354,939 8,735,049
- ---------------------------------------------------------------------------
Impax Laboratories, Inc.(a)(b) 922,200 13,611,672
- ---------------------------------------------------------------------------
IVAX Corp.(a)(b) 937,500 16,968,750
- ---------------------------------------------------------------------------
MGI Pharma, Inc.(a) 400,000 10,668,000
- ---------------------------------------------------------------------------
Valeant Pharmaceuticals International 400,000 9,600,000
===========================================================================
82,731,167
===========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.99%
CB Richard Ellis Group, Inc.-Class A(a) 750,000 19,425,000
===========================================================================
RESTAURANTS-3.69%
Brinker International, Inc.(a)(b) 750,000 24,225,000
- ---------------------------------------------------------------------------
CBRL Group, Inc. 500,000 18,130,000
- ---------------------------------------------------------------------------
Ruby Tuesday, Inc. 675,000 16,672,500
- ---------------------------------------------------------------------------
Wendy's International, Inc. 400,000 13,348,000
===========================================================================
72,375,500
===========================================================================
SEMICONDUCTOR EQUIPMENT-3.10%
KLA-Tencor Corp.(a)(b) 500,000 22,765,000
- ---------------------------------------------------------------------------
Novellus Systems, Inc.(a)(b) 1,000,000 25,910,000
- ---------------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 350,000 12,113,500
===========================================================================
60,788,500
===========================================================================
SEMICONDUCTORS-6.63%
Marvell Technology Group Ltd. (Bermuda)(a)(c) 375,000 10,713,750
- ---------------------------------------------------------------------------
AMIS Holdings, Inc.(a) 1,100,000 16,720,000
- ---------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 625,000 16,906,250
- ---------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 1,500,000 17,730,000
- ---------------------------------------------------------------------------
Microchip Technology Inc.(b) 1,000,000 30,250,000
- ---------------------------------------------------------------------------
Micron Technology, Inc.(a)(b) 1,000,000 12,180,000
- ---------------------------------------------------------------------------
RF Micro Devices, Inc.(a)(b) 1,525,000 9,927,750
- ---------------------------------------------------------------------------
Semtech Corp.(a)(b) 750,000 15,660,000
===========================================================================
130,087,750
===========================================================================
SPECIALTY CHEMICALS-0.48%
Valspar Corp. (The) 200,000 9,332,000
===========================================================================
SPECIALTY STORES-4.23%
Advance Auto Parts, Inc.(a) 61,000 2,386,320
- ---------------------------------------------------------------------------
Linens 'n Things, Inc.(a) 750,000 18,060,000
- ---------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Staples, Inc.(b) 1,000,000 $ 29,740,000
- ---------------------------------------------------------------------------
Tiffany & Co. 500,000 14,665,000
- ---------------------------------------------------------------------------
Tractor Supply Co.(a) 500,000 18,140,000
===========================================================================
82,991,320
===========================================================================
TECHNOLOGY DISTRIBUTORS-1.26%
CDW Corp. 400,000 24,812,000
===========================================================================
THRIFTS & MORTGAGE FINANCE-0.70%
New York Community Bancorp, Inc.(b) 750,000 13,770,000
===========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.87%
MSC Industrial Direct Co., Inc.-Class A 500,000 17,070,000
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
TRUCKING-1.83%
Sirva Inc.(a) 1,500,000 $ 36,000,000
===========================================================================
Total Common Stocks (Cost $1,607,325,016) 1,874,154,089
===========================================================================
MONEY MARKET FUNDS-4.94%
Liquid Assets Portfolio-Institutional
Class(d) 48,442,076 48,442,076
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 48,442,076 48,442,076
===========================================================================
Total Money Market Funds (Cost
$96,884,152) 96,884,152
===========================================================================
TOTAL INVESTMENTS-100.42%
(excluding investments purchased with cash
collateral from securities loaned) (Cost
$1,704,209,168) 1,971,038,241
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-13.03%
Liquid Assets Portfolio-Institutional
Class(d)(e) 127,900,554 127,900,554
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(d)(e) 127,900,554 127,900,554
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $255,801,108) 255,801,108
===========================================================================
TOTAL INVESTMENTS-113.45% (Cost
$1,960,010,276) 2,226,839,349
===========================================================================
OTHER ASSETS LESS LIABILITIES-(13.45%) (263,934,602)
===========================================================================
NET ASSETS-100.00% $1,962,904,747
___________________________________________________________________________
===========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) A portion of this security is subject to call options written. See Note 1F
and Note 9.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,607,325,016)* $1,874,154,089
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $352,685,260) 352,685,260
============================================================
Total investments (cost $1,960,010,276) 2,226,839,349
____________________________________________________________
============================================================
Cash 990,624
- ------------------------------------------------------------
Receivables for:
Investments sold 45,624,834
- ------------------------------------------------------------
Fund shares sold 1,096,985
- ------------------------------------------------------------
Dividends 545,715
- ------------------------------------------------------------
Premium options written 402,609
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 152,955
- ------------------------------------------------------------
Other assets 31,627
============================================================
Total assets 2,275,684,698
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 50,838,522
- ------------------------------------------------------------
Fund shares reacquired 3,237,399
- ------------------------------------------------------------
Options written, at market value (premiums
received $830,758) 1,000,960
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 289,833
- ------------------------------------------------------------
Collateral upon return of securities
loaned 255,801,108
- ------------------------------------------------------------
Accrued distribution fees 586,155
- ------------------------------------------------------------
Accrued trustees' fees 2,700
- ------------------------------------------------------------
Accrued transfer agent fees 820,724
- ------------------------------------------------------------
Accrued operating expenses 202,550
============================================================
Total liabilities 312,779,951
============================================================
Net assets applicable to shares outstanding $1,962,904,747
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,288,155,491
- ------------------------------------------------------------
Undistributed net investment income (loss) (256,874)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (591,652,741)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 266,658,871
============================================================
$1,962,904,747
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,640,288,448
____________________________________________________________
============================================================
Class B $ 248,424,615
____________________________________________________________
============================================================
Class C $ 71,229,207
____________________________________________________________
============================================================
Class R $ 2,834,226
____________________________________________________________
============================================================
Institutional Class $ 128,251
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 170,545,391
____________________________________________________________
============================================================
Class B 27,157,561
____________________________________________________________
============================================================
Class C 7,787,511
____________________________________________________________
============================================================
Class R 296,658
____________________________________________________________
============================================================
Institutional Class 13,141
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.62
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.62 divided by
94.50%) $ 10.18
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.15
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.15
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.55
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.76
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $250,914,612
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,050) $ 8,323,244
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $631,176)* 1,249,812
===========================================================================
Total investment income 9,573,056
===========================================================================
EXPENSES:
Advisory fees 14,026,309
- ---------------------------------------------------------------------------
Administrative services fees 476,287
- ---------------------------------------------------------------------------
Custodian fees 216,364
- ---------------------------------------------------------------------------
Distribution fees:
Class A 4,656,901
- ---------------------------------------------------------------------------
Class B 2,595,972
- ---------------------------------------------------------------------------
Class C 763,418
- ---------------------------------------------------------------------------
Class R 11,194
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 7,320,608
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 106
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 53,801
- ---------------------------------------------------------------------------
Other 1,046,299
===========================================================================
Total expenses 31,167,259
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements 238,837
===========================================================================
Net expenses 30,928,422
===========================================================================
Net investment income (loss) (21,355,366)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 455,938,443
- ---------------------------------------------------------------------------
Option contracts written 261,654
===========================================================================
456,200,097
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (287,875,082)
- ---------------------------------------------------------------------------
Option contracts written (170,202)
===========================================================================
(288,045,284)
===========================================================================
Net gain from investment securities and option contracts 168,154,813
===========================================================================
Net increase in net assets resulting from operations $ 146,799,447
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (21,355,366) $ (22,556,283)
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts 456,200,097 61,969,001
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (288,045,284) 408,592,565
================================================================================================
Net increase in net assets resulting from operations 146,799,447 448,005,283
================================================================================================
Share transactions-net:
Class A (469,733,957) (198,927,862)
- ------------------------------------------------------------------------------------------------
Class B (28,990,427) (13,011,938)
- ------------------------------------------------------------------------------------------------
Class C (14,524,768) (6,417,966)
- ------------------------------------------------------------------------------------------------
Class R 1,554,735 879,113
- ------------------------------------------------------------------------------------------------
Institutional Class (2,730,852) 1,928,983
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (514,425,269) (215,549,670)
================================================================================================
Net increase (decrease) in net assets (367,625,822) 232,455,613
================================================================================================
NET ASSETS:
Beginning of year 2,330,530,569 2,098,074,956
================================================================================================
End of year (including undistributed net investment income
(loss) of $(256,874) and $(235,341) for 2004 and 2003,
respectively) $1,962,904,747 $2,330,530,569
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-7
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $12,113.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $187,437 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $476,287 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $7,320,608 for Class A, Class B, Class C and Class R shares
and $106 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
F-8
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended October 31, 2004, the Class A, Class
B, Class C and Class R shares paid $4,656,901, $2,595,972, $763,418 and $11,194,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$227,703 in front-end sales commissions from the sale of Class A shares and
$24,499, $28,619, $9,130 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $37,783,111 $ 543,189,076 $ (532,530,111) $ -- $48,442,076 $ 311,874 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 37,783,111 543,189,076 (532,530,111) -- 48,442,076 306,762 --
=================================================================================================================================
Subtotal $75,566,222 $1,086,378,152 $(1,065,060,222) $ -- $96,884,152 $ 618,636 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $261,330,936 $ 376,727,435 $ (510,157,817) $ -- $127,900,554 $ 318,715 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 261,330,936 376,727,435 (510,157,817) -- 127,900,554 312,461 --
=================================================================================================================================
Subtotal $522,661,872 $ 753,454,870 $(1,020,315,634) $ -- $255,801,108 $ 631,176 $ --
=================================================================================================================================
Total $598,228,094 $1,839,833,022 $(2,085,375,856) $ -- $352,685,260 $1,249,812 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $36,617,685 and $34,757,881,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$33,422 and credits in custodian fees of $5,865 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$39,287.
F-9
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $12,315
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $250,914,612 were
on loan to brokers. The loans were secured by cash collateral of $255,801,108
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $631,176 for
securities lending transactions.
F-10
NOTE 9--OPTIONS WRITTEN
<Table>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------------------------------
Written 20,359 1,201,222
- -------------------------------------------------------------------------------------
Closed (2,250) (204,468)
- -------------------------------------------------------------------------------------
Expired (2,000) (165,996)
=====================================================================================
End of year 16,109 $ 830,758
_____________________________________________________________________________________
=====================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31,
2004 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
Aeropostale, Inc. Dec-04 $35 863 $63,170 $ 69,040 $ (5,870)
- ------------------------------------------------------------------------------------------------------------------------------
Corporate Executive Board Co. (The) Dec-04 $65 476 79,490 80,920 (1,430)
- ------------------------------------------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. Nov-04 $30 3,750 254,994 365,625 (110,631)
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc. Dec-04 $25 4,250 177,560 233,750 (56,190)
- ------------------------------------------------------------------------------------------------------------------------------
Patterson-UTI Energy, Inc. Nov-04 $20 6,000 173,156 165,000 8,156
- ------------------------------------------------------------------------------------------------------------------------------
Textron Inc. Dec-04 $70 770 82,388 86,625 (4,237)
==============================================================================================================================
16,109 $830,758 $1,000,960 $(170,202)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 263,785,561
- ----------------------------------------------------------------------------
Temporary book/tax differences (256,874)
- ----------------------------------------------------------------------------
Capital loss carryforward (588,779,431)
- ----------------------------------------------------------------------------
Shares of beneficial interest 2,288,155,491
============================================================================
Total net assets $1,962,904,747
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on option contracts written of $(170,202).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
F-11
The Fund utilized $451,377,424 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------------
October 31, 2009 $125,040,407
- ---------------------------------------------------------------------------------
October 31, 2010 463,739,024
=================================================================================
Total capital loss carryforward $588,779,431
_________________________________________________________________________________
=================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--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, 2004 was $2,480,691,107 and $3,053,547,607, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $301,188,049
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (37,232,286)
==============================================================================
Net unrealized appreciation of investment securities $263,955,763
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,962,883,586.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$21,333,833 and shares of beneficial interest decreased by $21,333,833. This
reclassification had no effect on the net assets of the Fund.
F-12
NOTE 13 -- SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 19,503,343 $ 183,246,538 35,791,336 $ 277,895,468
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,785,031 24,931,760 4,508,173 33,128,293
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,454,243 13,022,624 2,072,120 15,430,661
- --------------------------------------------------------------------------------------------------------------------------
Class R 233,461 2,175,865 162,296 1,283,289
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 275,456 2,002,058
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 366,882 3,476,875 337,998 2,617,107
- --------------------------------------------------------------------------------------------------------------------------
Class B (384,365) (3,476,875) (351,540) (2,617,107)
==========================================================================================================================
Reacquired:
Class A (69,860,562) (656,457,370) (62,095,032) (479,440,437)
- --------------------------------------------------------------------------------------------------------------------------
Class B (5,651,768) (50,445,312) (5,947,043) (43,523,124)
- --------------------------------------------------------------------------------------------------------------------------
Class C (3,075,625) (27,547,392) (2,982,429) (21,848,627)
- --------------------------------------------------------------------------------------------------------------------------
Class R (66,756) (621,130) (51,154) (404,176)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (272,069) (2,730,852) (9,111) (73,075)
==========================================================================================================================
(54,968,185) $(514,425,269) (28,288,930) $(215,549,670)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are record owners of more than 5% of the
outstanding shares of the Fund and in aggregate they own 16% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
F-13
AGGRESSIVE
GROWTH FUND
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.99 $ 7.30 $ 8.68 $ 18.41 $ 13.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.07)(a) (0.09)(a) (0.09)(a) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.71 1.76 (1.29) (6.34) 11.08
=================================================================================================================================
Total from investment operations 0.63 1.69 (1.38) (6.43) 10.95
=================================================================================================================================
Less distributions from net realized gains -- -- -- (3.30) (6.44)
=================================================================================================================================
Net asset value, end of period $ 9.62 $ 8.99 $ 7.30 $ 8.68 $ 18.41
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.01% 23.15% (15.90)% (40.51)% 47.53%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,640,288 $1,983,600 $1,798,318 $2,516,407 $4,444,515
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.29%(c)(d) 1.30% 1.32% 1.17% 1.04%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.86)%(c) (0.96)% (1.00)% (0.79)% (0.77)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 115% 78% 68% 89% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $1,862,760,352.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.30%.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.62 $ 7.04 $ 8.45 $ 18.12 $ 13.81
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.67 1.71 (1.26) (6.20) 11.04
===========================================================================================================================
Total from investment operations 0.53 1.58 (1.41) (6.37) 10.75
===========================================================================================================================
Less distributions from net realized gains -- -- -- (3.30) (6.44)
===========================================================================================================================
Net asset value, end of period $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.12
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 6.15% 22.44% (16.69)% (40.90)% 46.29%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $248,425 $262,098 $226,806 $294,303 $374,010
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.04%(c)(d) 2.05% 2.07% 1.94% 1.86%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.61)%(c) (1.71)% (1.75)% (1.55)% (1.59)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 115% 78% 68% 89% 79%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $259,597,199.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.62 $ 7.04 $ 8.45 $ 18.11 $ 13.81
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.67 1.71 (1.26) (6.19) 11.03
=================================================================================================================================
Total from investment operations 0.53 1.58 (1.41) (6.36) 10.74
=================================================================================================================================
Less distributions from net realized gains -- -- -- (3.30) (6.44)
=================================================================================================================================
Net asset value, end of period $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.11
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.15% 22.44% (16.69)% (40.86)% 46.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $71,229 $81,079 $72,676 $96,640 $120,591
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.04%(c)(d) 2.05% 2.07% 1.94% 1.86%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.61)%(c) (1.71)% (1.75)% (1.55)% (1.59)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 115% 78% 68% 89% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $76,341,843.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
<Table>
<Caption>
CLASS R
-----------------------------------------------
YEAR ENDED JUNE 3, 2002
OCTOBER 31, (DATE SALES
----------------------- COMMENCED) TO
2004 2003 OCTOBER 31, 2002
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.96 $ 7.29 $ 8.89
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.10)(a) (0.04)(a)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.69 1.77 (1.56)
=============================================================================================================
Total from investment operations 0.59 1.67 (1.60)
=============================================================================================================
Net asset value, end of period $ 9.55 $ 8.96 $ 7.29
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 6.58% 22.91% (18.00)%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,834 $1,164 $ 137
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets 1.54%(c)(d) 1.55% 1.62%(e)
=============================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.21)% (1.30)%(e)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(f) 115% 78% 68%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,238,723.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.55%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------
YEAR ENDED MARCH 15, 2002
OCTOBER 31, (DATE SALES
--------------------- COMMENCED) TO
2004 2003 OCTOBER 31, 2002
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.08 $7.32 $ 9.53
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.03)(a) (0.02)(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.71 1.79 (2.19)
============================================================================================================
Total from investment operations 0.68 1.76 (2.21)
============================================================================================================
Net asset value, end of period $9.76 $9.08 $ 7.32
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) 7.49% 24.04% (23.19)%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 128 $2,589 $ 138
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets 0.72%(c)(d) 0.71% 0.81%(e)
============================================================================================================
Ratio of net investment income (loss) to average net assets (0.29)%(c) (0.37)% (0.49)%(e)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(f) 115% 78% 68%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $1,271,385.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.73%.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the
F-16
NOTE 15 -- LEGAL PROCEEDINGS (CONTINUED)
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
F-17
NOTE 15 -- LEGAL PROCEEDINGS (CONTINUED)
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
F-18
NOTE 15 -- LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Aggressive Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Aggressive Growth Fund (a portfolio of AIM Equity Funds), including the schedule
of investments, as of October 31, 2004, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Aggressive Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 1200
Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ===============================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ===============================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com AGRO-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM BLUE CHIP FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM BLUE CHIP FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL AND, SECONDARILY, CURRENT INCOME.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Standard & Poor's The fund files its complete schedule of
Composite Index of 500 Stocks (the S&P portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are 500--Registered Trademark-- Index) is an and Exchange Commission (SEC) for the
not available as an investment for index of common stocks frequently used 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to as a general measure of U.S. stock on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue market performance. are available on the SEC's Web site at
Code, including 401(k) plans, money http://www.sec.gov. Copies of the fund's
purchase pension plans and profit o The fund is not managed to track the Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing performance of any particular index, the SEC's Public Reference Room at 450
accounts invested in Class B shares will including the indexes defined here, and Fifth Street, N.W., Washington, D.C.
continue to be allowed to make consequently, the performance of the 20549-0102. You can obtain information
additional purchases. fund may deviate significantly from the on the operation of the Public Reference
performance of the index. Room, including information about
o Investor Class shares are closed to duplicating fee charges, by calling
most investors. For more information on o A direct investment cannot be made in 1-202-942-8090 or by electronic request
who may continue to invest in the an index. Unless otherwise indicated, at the following e-mail address:
Investor Class shares, please see the index results include reinvested publicinfo@sec.gov. The SEC file numbers
prospectus. dividends, and they do not reflect sales for the fund are 811-1424 and 2-25469.
charges. Performance of an index of The fund's most recent portfolio
o Class R shares are available only to funds reflects fund expenses; holdings, as filed on Form N-Q, are also
certain retirement plans. Please see the performance of a market index does not. available at AIMinvestments.com.
prospectus for more information.
OTHER INFORMATION A description of the policies and
PRINCIPAL RISKS OF INVESTING IN THE FUND procedures that the fund uses to
o The Conference Board is a determine how to vote proxies relating
o International investing presents not-for-profit organization that to portfolio securities is available
certain risks not associated with conducts research and publishes without charge, upon request, from our
investing solely in the United States. information and analysis to help Client Services department at
These include risks relating to businesses strengthen their performance. 800-959-4246 or on the AIM Web site,
fluctuations in the value of the U.S. AIMinvestments.com. Scroll down on the
dollar relative to the values of other o The returns shown in the Management's home page and click on AIM Funds Proxy
currencies, the custody arrangements Discussion of Fund Performance are based Voting Policies. The information is also
made for the fund's foreign holdings, on net asset values calculated for available on the Securities and Exchange
differences in accounting, political shareholder transactions. Generally Commission's Web site, sec.gov.
risks and the lesser degree of public accepted accounting principles require
information required to be provided by adjustments to be made to the net assets Information about how the fund voted
non-U.S. companies. The fund may invest of the fund at period end for financial proxies related to its portfolio
up to 25% of its assets in the reporting purposes, and as such, the net securities during the 12 months ended
securities of non-U.S. issuers. asset values for shareholder 6/30/04 is available at our Web site. Go
transactions and the returns based on to AIMinvestments.com, click on About
ABOUT INDEXES USED IN THIS REPORT those net asset values may differ from Us, then on Required Notices and then
the net asset values and returns select your fund from the drop-down
o The unmanaged Lipper Large-Cap Core reported in the Financial Highlights. menu.
Fund Index represents an average of the
performance of the 30 largest o Industry classifications used in this
large-capitalization core equity funds report are generally according to the
tracked by Lipper, Inc., an independent Global Industry Classification Standard,
mutual fund performance monitor. which was developed by and is the
exclusive property and a service mark of
o The unmanaged MSCI World Index is a Morgan Stanley Capital International
group of global securities tracked by Inc. and Standard & Poor's.
Morgan Stanley Capital International.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
[PHOTO OF requiring that an independent fund trustee, meaning a
MARK H. trustee who is not an officer of the fund's investment
WILLIAMSON] advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
MARK H. WILLIAMSON Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
[PHOTO OF Crockett, one of the fourteen independent trustees on the
BRUCE L. AIM Funds' Board, as Chairman. His appointment became
CROCKETT] effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
BRUCE L. CROCKETT Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
acquired certain funds that had been advised by CIGNA. He had been a member of
the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ----------------------------------- -----------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND CONTINUED TO OFFER BROAD two-year high in July, before declining
DIVERSIFICATION in August, September and October. The
organization also reported that its
For the fiscal year ended October 31, included expansion of gross domestic index of leading economic indicators
2004, AIM Blue Chip Fund Class A shares product (GDP), the broadest measure of declined in October 2004, its fifth
returned 2.34% at net asset value (NAV). overall economic activity. While consecutive monthly decline.
PERFORMANCE SHOWN AT NAV DOES NOT remaining positive, GDP growth tapered
INCLUDE FRONT-END SALES CHARGES, WHICH off somewhat from an annualized rate of YOUR FUND
WOULD HAVE REDUCED THE PERFORMANCE. The 4.2% in the fourth quarter of 2003 to a
fund underperformed the S&P 500 Index, more modest 3.9% in the third quarter of The fund's investment strategy continued
which returned 9.41%. The fund's peer 2004. to be built on a combination of risk
group index, the Lipper Large-Cap Core control from broad diversification and
Fund Index, returned 6.92%. (Fiscal year Generally positive economic investment flexibility from active stock
returns for all of the fund's share developments prompted the U.S. Federal selection. Our bottom-up stock selection
classes appear in the table on page 3.) Reserve (the Fed) to raise its federal approach blends growth and
funds target rate from a decades-low growth-at-a-reasonable-price strategies;
The fund underperformed its two 1.00%, where it stood at the beginning we follow earnings fundamentals and
benchmark indexes largely because its of the fiscal year, to 1.75% by the relative values to identify
investment strategy tended to give it a fiscal year's close. In its anecdotal market-leading companies from all market
relatively higher growth and larger report on the economy released in late sectors.
market-capitalization profile than that October 2004, the Fed said economic
of its indexes. For the fiscal year, activity continued to expand in For the fiscal year, the fund's broad
large-cap stocks generally September and early October. The Fed diversification across all market
underperformed small- and mid-cap said that higher energy costs were sectors provided some exposure to
equities, and growth stocks generally constraining consumer and business better-performing sectors, including
underperformed value stocks. Also, spending; that capital spending and energy, materials and industrials. But
managers' emphasis on quality hiring were rising modestly; and that its focus on quality market-leading
market-leading companies meant that the residential real estate activity companies with above-average growth
fund failed to benefit from the remained robust, but non-residential rates was not beneficial during the
sometimes significant appreciation activity remained relatively weak. year, as many quality large-cap growth
realized by stocks of deep cyclical companies in sectors such as information
and/or more speculative companies. This generally positive economic news technology, health care and financials
was offset somewhat by geopolitical underperformed the S&P 500 Index.
MARKET CONDITIONS uncertainty and terrorism concerns, as
well as soaring oil prices. In The fund's overweight position in
The U.S. economy showed signs of mid-October, Fed Chairman Alan Greenspan information technology stocks relative
strength during the fiscal year ended said that "so far this year, the rise in to the S&P 500 Index hindered fund
October 31, 2004. Economic news was the value of imported oil--essentially a performance, as these stocks as a group
generally positive, and it tax on U.S. residents--has amounted to performed poorly during the year, and
about 3/4 [of one] percent of GDP." The some of the fund's holdings in the
Conference Board reported that consumer sector lagged those of the index. Energy
sentiment hit a stocks were generally strong
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. ExxonMobil Corp. 3.5% 1. Pharmaceuticals 7.3%
[PIE CHART]
2. Microsoft Corp. 3.4 2. Systems Software 6.1
Consumer Discretionary 11.7%
3. Citigroup Inc. 3.2 3. Industrial Conglomerates 6.0
Consumer Staples 9.9%
4. General Electric Co. 3.2 4. Other Diversified Financial
Energy 4.9% Services 5.3
5. Pfizer Inc. 2.8
Materials 2.3% 5. Semiconductors 3.9
6. Wal-Mart Stores, Inc. 2.6
Telecommunication Services 1.8% 6. Hypermarkets & Super Centers 3.5
7. Cisco Systems, Inc. 2.3
Utilities 1.6% 7. Integrated Oil & Gas 3.5
8. Johnson & Johnson 2.3
Money Market Funds Plus Other 8. Investment Banking & Brokerage 3.3
Assets Less Liabilities 0.8% 9. Tyco International Ltd.
(Bermuda) 2.1 9. Computer Hardware 3.3
Information Technology 20.2%
10. JPMorgan Chase & Co. 2.1 10. Communications Equipment 2.9
Financials 17.7%
Industrials 15.4%
Health Care 13.7%
*Excluding 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>
performers for the year, and while most energy demand--may continue to benefit The views and opinions expressed in
of the fund's holdings in the sector the company. Management's Discussion of Fund
enjoyed double-digit price returns, the Performance are those of A I M Advisors,
fund's underweight position in the Intel was a market-leading company Inc. These views and opinions are
sector hurt its relative performance. whose stock hindered fund performance. subject to change at any time based on
Intel, the world's largest chip maker, factors such as market and economic
The fund was underweight in the announced in September that its conditions. These views and opinions may
relatively underperforming financials quarterly sales and earnings would fall not be relied upon as investment advice
sector, but our emphasis on large-cap short of expectations due to or recommendations, or as an offer for a
diversified financial companies hindered weaker-than-anticipated demand. The particular security. The information is
performance, as many of these companies company continued to grow its revenues not a complete analysis of every aspect
derive revenue from equity trading and earnings, albeit at a somewhat of any market, country, industry,
volume, initial public offering activity slower pace than previously forecast. We security or the Fund. Statements of fact
and merger and acquisition activity--all continued to hold the stock at the close are from sources considered reliable,
of which remained somewhat subdued of the fiscal year because we remained but A I M Advisors, Inc. makes no
during the year due to economic and confident in its long-term potential. representation or warranty as to their
geopolitical uncertainty. completeness or accuracy. Although
At fiscal year end, our positioning historical performance is no guarantee
The fund benefited from its was in line with our belief that the of future results, these insights may
overweight exposure to the economy was poised for continued growth. help you understand our investment
strong-performing industrials sector, in We were overweight relative to our index management philosophy.
which many holdings, including General in the information technology and
Electric, aided performance. Also, while industrials sectors, equally weighted in See important fund and index
about equally weighted, the fund's the health care and consumer sectors, disclosures inside front cover.
returns in the health care sector and underweight in the energy,
exceeded those of its index, as holdings financials, materials, KIRK L. ANDERSON
such as Johnson & Johnson outperformed telecommunications services and Mr. Anderson is a
the average stock in the sector. utilities sectors. [ANDERSON portfolio manager of
PHOTO] AIM Blue Chip Fund. He
ExxonMobil was another market-leading IN CLOSING joined AIM in 1994 and
company whose stock helped fund assumed his current
performance. The company explores for During the fiscal year, we continued to position in 2003. Mr. Anderson earned a
and produces crude oil and natural gas; seek out a diversified collection of B.A. in political science from Texas A&M
it also manufactures, transports and stocks of large, established companies University and an M.S. in finance from
markets petroleum products around the considered to be market leaders in their the University of Houston.
globe. Rising oil and natural gas prices respective sectors, as we believed that
have contributed to record earnings for over the long term, the market will MONIKA H. DEGAN
the company. We held the stock at the recognize quality companies that can Ms. Degan, Chartered
end of the fiscal year because we demonstrate consistent, sustainable, [DEGAN Financial Analyst, is
expected a strengthening world above-average growth with premium PHOTO] the lead manager of AIM
economy--and rising valuations. We have confidence in our Blue Chip Fund. Ms.
investment process and strategy, and we Degan, who has been in
appreciate your continued participation the investment business since 1991,
in the fund. joined AIM in 1995 as an investment
officer and portfolio analyst for equity
securities and was promoted to her
current position in 1997. She received a
B.B.A. in finance and an M.B.A. in
finance and international business, both
from the University of Houston.
Assisted by the Large Cap Growth Team
======================================== ========================================
FUND VS. INDEXES
TOTAL NET ASSETS $2.6 billion
TOTAL RETURNS, 10/31/03-10/31/04,
EXCLUDING APPLICABLE SALES CHARGES. IF TOTAL NUMBER OF HOLDINGS* 90
SALES CHARGES WERE INCLUDED, RETURNS
WOULD BE LOWER. ========================================
CLASS A SHARES 2.34%
CLASS B SHARES 1.76
CLASS C SHARES 1.76
CLASS R SHARES 2.35
INVESTOR CLASS SHARES 2.53
S&P 500 INDEX (BROAD MARKET
INDEX/STYLE-SPECIFIC INDEX) 9.41
LIPPER LARGE-CAP CORE FUND INDEX
(PEER GROUP INDEX) 6.92
Source: Lipper, Inc.
======================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, costs of investing in the fund and other
to estimate the expenses that you paid funds. To do so, compare this 5%
As a shareholder of the fund, you incur over the period. Simply divide your hypothetical example with the 5%
two types of costs: (1) transaction account value by $1,000 (for example, an hypothetical examples that appear in the
costs, which may include sales charges $8,600 account value divided by $1,000 = shareholder reports of the other funds.
(loads) on purchase payments; contingent 8.6), then multiply the result by the
deferred sales charges on redemptions; number in the table under the heading Please note that the expenses shown
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During in the table are meant to highlight your
ongoing costs, including management Period" to estimate the expenses you ongoing costs only and do not reflect
fees; distribution and/or service fees paid on your account during this period. any transactional costs, such as sales
(12b-1); and other fund expenses. This charges (loads) on purchase payments,
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
understand your ongoing costs (in PURPOSES redemptions, and redemption fees, if
dollars) of investing in the fund and to any. Therefore, the hypothetical
compare these costs with ongoing costs The table below also provides information is useful in comparing
of investing in other mutual funds. The information about hypothetical account ongoing costs only, and will not help
example is based on an investment of values and hypothetical expenses based you determine the relative total costs
$1,000 invested at the beginning of the on the fund's actual expense ratio and of owning different funds. In addition,
period and held for the entire period, an assumed rate of return of 5% per year if these transactional costs were
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's included, your costs would have been
actual return. The hypothetical account higher.
ACTUAL EXPENSES values and expenses may not be used to
estimate the actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may use this information to
expenses. You may use the information in compare the ongoing
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $997.30 $ 7.48 $1,017.65 $ 7.56
Class B 1,000.00 994.30 10.73 1,014.38 10.84
Class C 1,000.00 994.30 10.73 1,014.38 10.84
Class R 1,000.00 996.30 8.23 1,016.89 8.31
Investor 1,000.00 997.30 6.98 1,018.15 7.05
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was -0.27%, -0.57%, -0.57%, -0.37% and -0.27% for Class A, B, C, R and Investor Class shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.49%, 2.14%, 2.14%, 1.64% and 1.39% for Class A, B, C, R and
Investor Class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 10/31/94-10/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM BLUE CHIP FUND LIPPER LARGE-CAP S&P 500
management fees. Index results include DATE CLASS A SHARES CORE FUND INDEX INDEX
reinvested dividends, but they do not
reflect sales charges. Performance of an 10/31/1994 $ 9450 $10000 $10000
index of funds reflects fund expenses 1/95 9589 9909 10032
and management fees; performance of a 4/95 10509 10736 11046
market index does not. Performance shown 7/95 11360 11761 12142
in the chart does not reflect deduction 10/95 11696 12163 12641
of taxes a shareholder would pay on fund 1/96 12537 13207 13907
distributions or sale of fund shares. 4/96 13289 13686 14380
Performance of the indexes does not 7/96 13213 13408 14152
reflect the effects of taxes. 10/96 14721 14710 15685
1/97 16131 16216 17568
In evaluating this chart, please note 4/97 16305 16361 17992
that the chart uses a logarithmic scale 7/97 19735 19537 21527
along the vertical axis (the value 10/97 19093 18896 20720
scale). This means that each scale 1/98 20364 20064 22294
increment always represents the same 4/98 23167 22777 25381
percent change in price; in a linear 7/98 23502 23263 25683
chart each scale increment always 10/98 22789 22322 25280
represents the same absolute change in 1/99 27249 26101 29541
price. In this example, the scale 4/99 27881 27018 30921
increment between $5,000 and $10,000 is 7/99 27963 26954 30872
the same as that between $10,000 and 10/99 29399 27546 31768
$20,000. In a linear chart, the latter 1/00 31880 28882 32596
scale increment would be twice as large. 4/00 33727 30359 34050
The benefit of using a logarithmic scale 7/00 33873 30190 33640
is that it better illustrates 10/00 32811 30201 33699
performance during the early years 1/01 30517 28671 32303
before reinvested distributions and 4/01 26380 26261 29636
compounding create the potential for the 7/01 24481 25335 28822
original investment to grow to very 10/01 21290 22553 25312
large numbers. Had the chart used a 1/02 22579 23920 27091
linear scale along its vertical axis, 4/02 20985 23047 25897
you would not be able to see as clearly 7/02 17797 19717 22015
the movements in the value of the fund 10/02 17492 19343 21490
and the indexes during the fund's early 1/03 16486 18640 20858
years. We use a logarithmic scale in 4/03 17946 19914 22451
financial reports of funds that have 7/03 19274 21418 24357
more than five years of performance 10/03 20280 22605 25958
history. 1/04 21476 24228 28064
4/04 20811 23755 27585
AVERAGE ANNUAL TOTAL RETURNS 7/04 20451 23561 27563
As of 10/31/04, including applicable 10/04 $20765 $24169 $28401
sales charges Source: Lipper, Inc.
CLASS A SHARES In addition to returns as of the close Class R shares' inception date is
10 Years 7.58 of the fiscal year, industry regulations 6/3/02. Returns since that date are
5 Years -7.77 require us to provide average annual historical returns. All other returns
1 Year -3.27 total returns as of 9/30/04, the most are blended returns of historical
recent calendar quarter-end. Class R share performance and restated
CLASS B SHARES Class A share performance (for periods
Inception (10/1/96) 3.87% AVERAGE ANNUAL TOTAL RETURNS prior to the inception date of Class R
5 Years -7.70 As of 9/30/04, including applicable shares) at net asset value, adjusted
1 Year -3.24 sales charges to reflect the higher Rule 12b-1 fees
applicable to Class R shares.
CLASS C SHARES CLASS A SHARES
Inception (8/4/97) 0.08% 10 Years 7.70 The performance data quoted represent
5 Years -7.32 5 Years -6.75 past performance and cannot guarantee
1 Year 0.76 1 Year 0.46 comparable future results; current
performance may be lower or higher.
CLASS R SHARES CLASS B SHARES Please visit AIMinvestments.com for the
10 Years 8.04% Inception (10/1/96) 3.75% most recent month-end performance.
5 Years -6.85 5 Years -6.69 Performance figures reflect reinvested
1 Year 2.35 1 Year 0.66 distributions, changes in net asset
value and the effect of the maximum
INVESTOR CLASS SHARES CLASS C SHARES sales charge unless otherwise stated.
10 Years 8.21% Inception (8/4/97) -0.09% Investment return and principal value
5 Years -6.69 5 Years -6.31 will fluctuate so that you may have a
1 Year 2.53 1 Year 4.66 gain or loss when you sell shares.
CLASS R SHARES Class A share performance reflects
10 Years 8.16% the maximum 4.75% sales charge, and
5 Years -5.82 Class B and Class C share performance
1 Year 6.11 reflects the applicable contingent
deferred sales charge (CDSC) for the
INVESTOR CLASS SHARES period involved. The CDSC on Class B
10 Years 8.33% shares declines from 5% beginning at the
5 Years -5.66 time of purchase to 0% at the beginning
1 Year 6.50 of the seventh year. The CDSC on Class C
shares is 1% for the first year after
Investor Class shares' inception date is purchase. Class R shares do not have a
9/30/03. Returns since that date are front-end sales charge; returns shown
historical returns. All other returns are at net asset value and do not reflect
are blended returns of historical a 0.75% CDSC that may be imposed on a
Investor Class share performance and total redemption of retirement plan
restated Class A share performance (for assets within the first year. The
periods prior to the inception date of performance of the fund's share classes
Investor Class shares) at net asset will differ due to different sales charge
value and reflect the higher Rule 12b-1 structures and class expenses.
fees applicable to Class A shares.
====================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM BLUE CHIP FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Please note that past performance is not
AVERAGE ANNUAL TOTAL RETURNS indicative of future results. More recent
The following information has been For periods ended 10/31/04 returns may be more or less than those
prepared to provide Institutional Class Inception (3/15/02) -3.19% shown. All returns assume reinvestment of
shareholders with a performance overview 1 Year 3.05 distributions at net asset value.
specific to their holdings. Institutional Investment return and principal value
Class shares are offered exclusively to ========================================= will fluctuate so your shares, when
institutional investors, including AVERAGE ANNUAL TOTAL RETURNS redeemed, may be worth more or less than
defined contribution plans that meet For periods ended 9/30/04 their original cost. See full report for
certain criteria. Inception (3/15/02) -3.80% information on comparative benchmarks.
1 Year 7.01 Please consult your fund prospectus for
more information. For the most current
========================================= month-end performance, please call
800-451-4246 or visit AIMinvestments.com.
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Performance of Institutional
Class shares will differ from performance
of other share classes due to differing
sales charges and class expenses.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com BCH-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account value period. You may use this information to
by $1,000 (for example, an $8,600 account compare the ongoing costs of investing in
As a shareholder of the fund, you incur value divided by $1,000 = 8.6), then the fund and other funds. To do so,
ongoing costs, including management fees; multiply the result by the number in the compare this 5% hypothetical example with
and other fund expenses. This example is table under the heading entitled "Actual the 5% hypothetical examples that appear
intended to help you understand your Expenses Paid During Period" to estimate in the shareholder reports of the other
ongoing costs (in dollars) of investing the expenses you paid on your account funds.
in the fund and to compare these costs during this period.
with ongoing costs of investing in other Please note that the expenses shown in
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR the table are meant to highlight your
investment of $1,000 invested at the COMPARISON PURPOSES ongoing costs only. Therefore, the
beginning of the period and held for the hypothetical information is useful in
entire period, May 1, 2004, to October The table below also provides information comparing ongoing costs only, and will
31, 2004. about hypothetical account values and not help you determine the relative total
hypothetical expenses based on the fund's costs of owning different funds.
ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
The table below provides information which is not the fund's actual return.
about actual account values and actual The hypothetical account values and
expenses. You may use the information in expenses may not be used to estimate the
this table, together with the amount you actual ending account balance or expenses
invested, to estimate the expenses that you paid for the
you paid over the
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,000.90 $3.72 $1,021.42 $3.76
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 0.09% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 0.74% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com BCH-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.17%
AEROSPACE & DEFENSE-2.17%
Honeywell International Inc. 700,000 $ 23,576,000
- --------------------------------------------------------------------------
United Technologies Corp. 350,000 32,487,000
==========================================================================
56,063,000
==========================================================================
AIR FREIGHT & LOGISTICS-1.01%
United Parcel Service, Inc.-Class B 330,000 26,129,400
==========================================================================
ALUMINUM-0.71%
Alcoa Inc. 567,200 18,434,000
==========================================================================
APPAREL RETAIL-0.70%
Gap, Inc. (The) 900,000 17,982,000
==========================================================================
BIOTECHNOLOGY-2.09%
Amgen Inc.(a) 570,000 32,376,000
- --------------------------------------------------------------------------
Genentech, Inc.(a)(b) 475,000 21,626,750
==========================================================================
54,002,750
==========================================================================
BUILDING PRODUCTS-0.90%
Masco Corp. 675,000 23,125,500
==========================================================================
COMMUNICATIONS EQUIPMENT-2.91%
Cisco Systems, Inc.(a) 3,100,000 59,551,000
- --------------------------------------------------------------------------
Motorola, Inc. 900,000 15,534,000
==========================================================================
75,085,000
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.88%
Best Buy Co., Inc.(b) 385,000 22,799,700
==========================================================================
COMPUTER HARDWARE-3.26%
Dell Inc.(a) 1,375,000 48,207,500
- --------------------------------------------------------------------------
International Business Machines Corp. 400,000 35,900,000
==========================================================================
84,107,500
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.87%
EMC Corp.(a) 1,750,000 22,522,500
==========================================================================
CONSUMER FINANCE-2.54%
American Express Co. 635,000 33,699,450
- --------------------------------------------------------------------------
MBNA Corp. 550,000 14,096,500
- --------------------------------------------------------------------------
SLM Corp. 390,000 17,651,400
==========================================================================
65,447,350
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.65%
Automatic Data Processing, Inc. 527,300 22,879,547
- --------------------------------------------------------------------------
First Data Corp. 475,000 19,608,000
==========================================================================
42,487,547
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DEPARTMENT STORES-0.64%
J.C. Penney Co., Inc. 475,000 $ 16,430,250
==========================================================================
DIVERSIFIED BANKS-2.52%
Bank of America Corp. 850,000 38,071,500
- --------------------------------------------------------------------------
Wells Fargo & Co. 450,000 26,874,000
==========================================================================
64,945,500
==========================================================================
DIVERSIFIED CHEMICALS-0.96%
Dow Chemical Co. (The) 550,000 24,717,000
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.65%
Apollo Group, Inc.-Class A(a) 300,000 19,800,000
- --------------------------------------------------------------------------
Cendant Corp. 1,100,000 22,649,000
==========================================================================
42,449,000
==========================================================================
ELECTRIC UTILITIES-1.01%
FPL Group, Inc. 275,000 18,947,500
- --------------------------------------------------------------------------
Southern Co. (The) 225,000 7,107,750
==========================================================================
26,055,250
==========================================================================
ENVIRONMENTAL SERVICES-0.80%
Waste Management, Inc. 725,000 20,648,000
==========================================================================
FOOD DISTRIBUTORS-0.69%
Sysco Corp. 550,000 17,748,500
==========================================================================
FOOTWEAR-1.02%
NIKE, Inc.-Class B 325,000 26,425,750
==========================================================================
GENERAL MERCHANDISE STORES-0.85%
Target Corp. 440,000 22,008,800
==========================================================================
HEALTH CARE EQUIPMENT-2.81%
Medtronic, Inc. 650,000 33,221,500
- --------------------------------------------------------------------------
Waters Corp.(a) 375,000 15,483,750
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 305,000 23,664,950
==========================================================================
72,370,200
==========================================================================
HOME IMPROVEMENT RETAIL-1.91%
Home Depot, Inc. (The) 1,200,000 49,296,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.51%
Carnival Corp. (Panama)(b) 425,000 21,488,000
- --------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 365,000 17,421,450
==========================================================================
38,909,450
==========================================================================
HOUSEHOLD PRODUCTS-2.77%
Colgate-Palmolive Co. 450,000 20,079,000
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 1,005,000 51,435,900
==========================================================================
71,514,900
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-0.56%
Fortune Brands, Inc. 200,000 $ 14,564,000
==========================================================================
HYPERMARKETS & SUPER CENTERS-3.54%
Costco Wholesale Corp.(b) 525,000 25,168,500
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1,225,000 66,052,000
==========================================================================
91,220,500
==========================================================================
INDUSTRIAL CONGLOMERATES-6.01%
3M Co. 250,000 19,392,500
- --------------------------------------------------------------------------
General Electric Co. 2,405,000 82,058,600
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 1,720,000 53,578,000
==========================================================================
155,029,100
==========================================================================
INDUSTRIAL GASES-0.65%
Air Products & Chemicals, Inc. 315,000 16,751,700
==========================================================================
INDUSTRIAL MACHINERY-2.05%
Danaher Corp.(b) 580,000 31,975,400
- --------------------------------------------------------------------------
Eaton Corp. 325,000 20,783,750
==========================================================================
52,759,150
==========================================================================
INTEGRATED OIL & GAS-3.47%
Exxon Mobil Corp. 1,820,000 89,580,400
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.98%
SBC Communications Inc. 1,005,000 25,386,300
==========================================================================
INTERNET RETAIL-0.76%
eBay Inc.(a) 200,000 19,522,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.34%
Goldman Sachs Group, Inc. (The) 315,000 30,989,700
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 550,000 29,667,000
- --------------------------------------------------------------------------
Morgan Stanley 500,000 25,545,000
==========================================================================
86,201,700
==========================================================================
IT CONSULTING & OTHER SERVICES-0.52%
Accenture Ltd.-Class A (Bermuda)(a) 550,000 13,315,500
==========================================================================
MANAGED HEALTH CARE-1.47%
UnitedHealth Group Inc. 525,000 38,010,000
==========================================================================
MOVIES & ENTERTAINMENT-0.92%
Viacom Inc.-Class B 650,000 23,718,500
==========================================================================
MULTI-LINE INSURANCE-1.77%
American International Group, Inc. 750,000 45,532,500
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.61%
Dominion Resources, Inc. 245,000 15,758,400
==========================================================================
OIL & GAS DRILLING-0.41%
ENSCO International Inc. 350,000 10,692,500
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.00%
Schlumberger Ltd. (Netherlands) 410,000 $ 25,805,400
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-5.28%
Citigroup Inc. 1,875,000 83,193,750
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 1,370,000 52,882,000
==========================================================================
136,075,750
==========================================================================
PERSONAL PRODUCTS-2.07%
Avon Products, Inc. 625,000 24,718,750
- --------------------------------------------------------------------------
Gillette Co. (The) 690,000 28,621,200
==========================================================================
53,339,950
==========================================================================
PHARMACEUTICALS-7.28%
Allergan, Inc.(b) 230,000 16,458,800
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 250,000 11,150,000
- --------------------------------------------------------------------------
Johnson & Johnson 1,000,000 58,380,000
- --------------------------------------------------------------------------
Lilly (Eli) & Co. 290,000 15,923,900
- --------------------------------------------------------------------------
Pfizer Inc. 2,450,000 70,927,500
- --------------------------------------------------------------------------
Wyeth 375,000 14,868,750
==========================================================================
187,708,950
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.03%
Allstate Corp. (The) 550,000 26,449,500
==========================================================================
RAILROADS-0.77%
Canadian National Railway Co. (Canada) 370,000 19,998,500
==========================================================================
RESTAURANTS-1.36%
McDonald's Corp. 1,200,000 34,980,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-1.01%
Applied Materials, Inc.(a) 800,000 12,880,000
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a)(b) 290,000 13,203,700
==========================================================================
26,083,700
==========================================================================
SEMICONDUCTORS-3.92%
Analog Devices, Inc. 420,000 16,909,200
- --------------------------------------------------------------------------
Intel Corp. 1,600,000 35,616,000
- --------------------------------------------------------------------------
Linear Technology Corp. 355,000 13,447,400
- --------------------------------------------------------------------------
Microchip Technology Inc. 500,000 15,125,000
- --------------------------------------------------------------------------
Xilinx, Inc. 650,000 19,890,000
==========================================================================
100,987,600
==========================================================================
SOFT DRINKS-0.84%
PepsiCo, Inc. 435,000 21,567,300
==========================================================================
SPECIALTY STORES-0.59%
Bed Bath & Beyond Inc.(a) 375,000 15,296,250
==========================================================================
SYSTEMS SOFTWARE-6.08%
Microsoft Corp. 3,100,000 86,769,000
- --------------------------------------------------------------------------
Oracle Corp.(a) 2,125,000 26,902,500
- --------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SYSTEMS SOFTWARE-(CONTINUED)
Symantec Corp.(a) 375,000 $ 21,352,500
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,000,000 21,880,000
==========================================================================
156,904,000
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.18%
Fannie Mae 435,000 30,515,250
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.87%
Vodafone Group PLC-ADR (United Kingdom) 870,000 22,437,300
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,015,015,477) 2,557,896,547
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.06%
1.61%, 12/16/04 (Cost $1,496,976)(c) $1,500,000 1,496,976
==========================================================================
MONEY MARKET FUNDS-0.56%
Liquid Assets Portfolio-Institutional
Class(d) 7,279,701 $ 7,279,701
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 7,279,701 7,279,701
==========================================================================
Total Money Market Funds (Cost
$14,559,402) 14,559,402
==========================================================================
TOTAL INVESTMENTS-99.79% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,031,071,855) 2,573,952,925
==========================================================================
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.36%
STIC Prime Portfolio-Institutional
Class(d)(e) 34,975,975 $ 34,975,975
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $34,975,975) 34,975,975
==========================================================================
TOTAL INVESTMENTS-101.15% (Cost
$2,066,047,830) 2,608,928,900
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.15%) (29,754,052)
==========================================================================
NET ASSETS-100.00% $2,579,174,848
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$2,016,512,453)* $ 2,559,393,523
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $49,535,377) 49,535,377
============================================================
Total investments (cost $2,066,047,830) 2,608,928,900
============================================================
Receivables for:
Investments sold 17,741,398
- ------------------------------------------------------------
Fund shares sold 1,201,975
- ------------------------------------------------------------
Dividends 2,809,147
- ------------------------------------------------------------
Investment for trustee deferred compensation and retirement
plans 154,126
- ------------------------------------------------------------
Other assets 49,427
============================================================
Total assets 2,630,884,973
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 6,373,237
- ------------------------------------------------------------
Fund shares reacquired 6,807,910
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 275,117
- ------------------------------------------------------------
Collateral upon return of securities
loaned 34,975,975
- ------------------------------------------------------------
Accrued distribution fees 1,444,569
- ------------------------------------------------------------
Accrued trustees' fees 4,120
- ------------------------------------------------------------
Accrued transfer agent fees 1,351,948
- ------------------------------------------------------------
Accrued operating expenses 477,249
============================================================
Total liabilities 51,710,125
============================================================
Net assets applicable to shares outstanding $ 2,579,174,848
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,728,825,373
- ------------------------------------------------------------
Undistributed net investment income (loss) (228,692)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and futures
contracts (1,692,302,903)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 542,881,070
============================================================
$ 2,579,174,848
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,236,433,569
____________________________________________________________
============================================================
Class B $ 1,032,773,714
____________________________________________________________
============================================================
Class C $ 222,839,537
____________________________________________________________
============================================================
Class R $ 6,000,455
____________________________________________________________
============================================================
Investor Class $ 32,083,995
____________________________________________________________
============================================================
Institutional Class $ 49,043,578
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 113,014,179
____________________________________________________________
============================================================
Class B 99,354,990
____________________________________________________________
============================================================
Class C 21,438,780
____________________________________________________________
============================================================
Class R 550,240
____________________________________________________________
============================================================
Investor Class 2,927,332
____________________________________________________________
============================================================
Institutional Class 4,403,381
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.94
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.94 divided by
94.50%) $ 11.58
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 10.39
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 10.39
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 10.91
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 10.96
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 11.14
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $34,048,041
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $61,297) $ 35,608,376
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $18,674)* 479,651
- --------------------------------------------------------------------------
Interest 3,768
==========================================================================
Total investment income 36,091,795
==========================================================================
EXPENSES:
Advisory fees 18,508,235
- --------------------------------------------------------------------------
Administrative services fees 575,871
- --------------------------------------------------------------------------
Custodian fees 287,107
- --------------------------------------------------------------------------
Distribution fees:
Class A 4,938,054
- --------------------------------------------------------------------------
Class B 11,670,174
- --------------------------------------------------------------------------
Class C 2,664,429
- --------------------------------------------------------------------------
Class R 27,995
- --------------------------------------------------------------------------
Investor Class 88,542
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R & Investor 10,479,508
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 690
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 67,595
- --------------------------------------------------------------------------
Other 1,761,913
==========================================================================
Total expenses 51,070,113
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (300,558)
==========================================================================
Net expenses 50,769,555
==========================================================================
Net investment income (loss) (14,677,760)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 141,430,751
- --------------------------------------------------------------------------
Futures contracts 121,194
==========================================================================
141,551,945
==========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (63,358,526)
==========================================================================
Net gain from investment securities and futures contracts 78,193,419
==========================================================================
Net increase in net assets resulting from operations $ 63,515,659
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (14,677,760) $ (14,101,484)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts 141,551,945 (105,157,212)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts (63,358,526) 519,286,935
==============================================================================================
Net increase in net assets resulting from operations 63,515,659 400,028,239
==============================================================================================
Share transactions-net:
Class A (236,834,043) (162,460,380)
- ----------------------------------------------------------------------------------------------
Class B (213,672,955) (136,334,779)
- ----------------------------------------------------------------------------------------------
Class C (73,035,331) (51,018,964)
- ----------------------------------------------------------------------------------------------
Class R 4,401,189 1,425,250
- ----------------------------------------------------------------------------------------------
Investor Class 30,994,771 99,068
- ----------------------------------------------------------------------------------------------
Institutional Class 48,256,952 (43,881)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (439,889,417) (348,333,686)
==============================================================================================
Net increase (decrease) in net assets (376,373,758) 51,694,553
==============================================================================================
NET ASSETS:
Beginning of year 2,955,548,606 2,903,854,053
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(228,692) and $(193,930), respectively) $2,579,174,848 $2,955,548,606
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is long-term growth of capital with
a secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-7
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$350 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $350 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may
F-8
be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended October 31,
2004, AIM waived fees of $11,809.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $242,427 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $575,871 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $10,479,508 for Class A, Class B, Class C, Class R and
Investor Class shares and $690 for Institutional Class shares. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R, Investor Class and Institutional Class
shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the
1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and
Investor Class shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares, 1.00% of the average daily
net assets of Class B and Class C shares, 0.50% of the average daily net assets
of Class R shares and 0.25% of the average daily net assets of the Investor
Class shares. Of these amounts, up to 0.25% of the average daily net assets of
the Class A, Class B, Class C, Class R or Investor Class shares may be paid to
furnish continuing personal shareholder services to customers who purchase and
own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B, Class C, Class R and Investor Class
shares paid $4,938,054, $11,670,174, $2,664,429, $27,995 and $88,542,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$330,881 in front-end sales commissions from the sale of Class A shares and
$9,771, $99,868, $15,188 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-9
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $32,255,406 $208,774,062 $(233,749,767) $ -- $ 7,279,701 $232,259 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 32,255,406 208,774,062 (233,749,767) -- 7,279,701 228,718 --
===========================================================================================================================
Subtotal $64,510,812 $417,548,124 $(467,499,534) $ -- $14,559,402 $460,977 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 447,700 $401,247,004 $(401,694,704) $ -- $ -- $14,488 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 84,068,150 (49,092,175) -- 34,975,975 4,186 --
===========================================================================================================================
Subtotal $ 447,700 $485,315,154 $(450,786,879) $ -- $34,975,975 $18,674 $ --
===========================================================================================================================
Total $64,958,512 $902,863,278 $(918,286,413) $ -- $49,535,377 $479,651 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $12,437,600 and $3,790,920,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$46,302 and credits in custodian fees of $20 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $46,322.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $14,743
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.
F-10
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $34,048,041 were
on loan to brokers. The loans were secured by cash collateral of $34,975,975
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $18,674 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 502,259,018
- -----------------------------------------------------------------------------
Temporary book/tax differences (228,692)
- -----------------------------------------------------------------------------
Capital loss carryforward (1,651,680,851)
- -----------------------------------------------------------------------------
Shares of beneficial interest 3,728,825,373
=============================================================================
Total net assets $ 2,579,174,848
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $1,642,177,803 of capital loss carryforward in the fiscal
year ended October 31, 2005.
F-11
The Fund utilized $138,205,191 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------------------------------------------------
October 31, 2008 $ 85,920,513
- ----------------------------------------------------------------------------
October 31, 2009 845,288,837
- ----------------------------------------------------------------------------
October 31, 2010 617,527,392
- ----------------------------------------------------------------------------
October 31, 2011 102,944,109
============================================================================
Total capital loss carryforward $1,651,680,851
____________________________________________________________________________
============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Growth & Income Fund into the Fund, are realized on
securities held in each fund on such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--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, 2004 was $827,221,607 and $1,262,244,981, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $545,012,455
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (42,753,437)
==============================================================================
Net unrealized appreciation of investment securities $502,259,018
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $2,106,669,882.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$14,647,924 and shares of beneficial interest decreased by $14,647,924. Further,
as a result of tax deferrals acquired in the reorganization of INVESCO Growth &
Income Fund into the Fund, undistributed income was decreased by $4,926,
undistributed net realized gain was decreased by $13,855,504 and shares of
beneficial interest increased by $13,860,430. These reclassifications had no
effect on the net assets of the Fund.
F-12
NOTE 12--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 21,493,299 $ 237,822,246 30,092,109 $ 289,868,346
- --------------------------------------------------------------------------------------------------------------------------
Class B 7,106,647 75,074,355 12,053,281 111,049,162
- --------------------------------------------------------------------------------------------------------------------------
Class C 2,785,689 29,371,888 4,161,204 38,212,257
- --------------------------------------------------------------------------------------------------------------------------
Class R 672,346 7,394,140 164,023 1,619,420
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 513,156 5,688,744 12,285 130,138
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 4,421,094 48,593,658 -- --
==========================================================================================================================
Issued in connection with acquisitions:(c)
Class A 63,333 676,707 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class B 14,065 143,763 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C 98,131 1,002,254 -- --
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 3,554,717 38,013,823 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,357,674 26,110,071 1,670,042 16,099,491
- --------------------------------------------------------------------------------------------------------------------------
Class B (2,474,910) (26,110,071) (1,741,215) (16,099,491)
==========================================================================================================================
Reacquired:
Class A (45,616,888) (501,443,066) (49,132,867) (468,428,217)
- --------------------------------------------------------------------------------------------------------------------------
Class B (25,052,874) (262,781,002) (25,556,829) (231,284,450)
- --------------------------------------------------------------------------------------------------------------------------
Class C (9,864,695) (103,409,473) (9,824,798) (89,231,221)
- --------------------------------------------------------------------------------------------------------------------------
Class R (270,057) (2,992,951) (20,044) (194,170)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (1,149,919) (12,707,797) (2,907) (31,070)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (30,273) (336,706) (4,720) (43,881)
==========================================================================================================================
(41,379,465) $(439,889,417) (38,130,436) $(348,333,686)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 8% of the outstanding shares of the
Fund. AIM Distributors has an agreement with the entity to sell Fund shares.
The Fund, AIM and/or AIM affiliates may make payments to this entity, which
is considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, distributions, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion of
the shares owned of record by these shareholders are also owned
beneficially.
(b) Investor Class shares commenced sales on September 30, 2003.
(c) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Growth & Income Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Growth & Income Fund shareholders on October 21, 2003. The
acquisition was accomplished by a tax-free exchange of 3,730,246 shares of
the Fund for 5,685,449 shares of INVESCO Growth & Income Fund outstanding as
of the close business on October 31, 2003. INVESCO Growth & Income Fund's
net assets at that date of $39,836,547 including $4,907,031 of unrealized
appreciation were combined with those of the Fund. The aggregate net assets
of the Fund immediately before the acquisition were $2,958,513,063.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.69 $ 9.22 $ 11.22 $ 17.29 $ 15.49
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.02) (0.04)(a) (0.04) (0.05)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.27 1.49 (1.96) (6.03) 1.85
====================================================================================================================
Total from investment operations 0.25 1.47 (2.00) (6.07) 1.80
====================================================================================================================
Net asset value, end of period $ 10.94 $ 10.69 $ 9.22 $ 11.22 $ 17.29
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 2.34% 15.94% (17.82)% (35.11)% 11.60%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,236,434 $1,439,518 $1,402,589 $2,067,602 $3,163,453
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 1.44%(c)(d) 1.47% 1.40% 1.28% 1.19%
====================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.19)%(c) (0.17)% (0.33)% (0.29)% (0.31)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 29% 28% 28% 31% 22%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $1,410,872,545.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.45%.
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.22 $ 8.88 $ 10.87 $ 16.87 $ 15.22
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.08) (0.10)(a) (0.13) (0.17)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.27 1.42 (1.89) (5.87) 1.82
====================================================================================================================
Total from investment operations 0.17 1.34 (1.99) (6.00) 1.65
====================================================================================================================
Net asset value, end of period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.87
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 1.66% 15.09% (18.31)% (35.57)% 10.87%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,032,774 $1,223,821 $1,198,513 $1,806,464 $2,746,149
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 2.09%(c)(d) 2.12% 2.05% 1.94% 1.88%
====================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.84)%(c) (0.82)% (0.98)% (0.94)% (1.00)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 29% 28% 28% 31% 22%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $1,167,017,423.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.10%.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.22 $ 8.88 $ 10.87 $ 16.86 $ 15.21
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.08) (0.10)(a) (0.13) (0.17)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 1.42 (1.89) (5.86) 1.82
===============================================================================================================================
Total from investment operations 0.17 1.34 (1.99) (5.99) 1.65
===============================================================================================================================
Net asset value, end of period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.86
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 1.66% 15.09% (18.31)% (35.53)% 10.82%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $222,840 $290,396 $302,555 $487,838 $720,186
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 2.09%(c)(d) 2.12% 2.05% 1.94% 1.88%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.84)%(c) (0.82)% (0.98)% (0.94)% (1.00)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 29% 28% 28% 31% 22%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $266,442,859.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.10%.
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.66 $ 9.22 $ 10.53
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.00) (0.02)(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.28 1.44 (1.29)
====================================================================================================
Total from investment operations 0.25 1.44 (1.31)
====================================================================================================
Net asset value, end of period $10.91 $10.66 $ 9.22
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 2.35% 15.62% (12.44)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,000 $1,578 $ 37
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.59%(c)(d) 1.62% 1.55%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (0.34)%(c) (0.32)% (0.49)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 29% 28% 28%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $5,598,909.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.60%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
------------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2004 2003
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.69 $10.16
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.24 (0.00)
==================================================================================================
Net gains on securities (both realized and unrealized) 0.03 0.53
==================================================================================================
Total from investment operations 0.27 0.53
==================================================================================================
Net asset value, end of period $ 10.96 $10.69
__________________________________________________________________________________________________
==================================================================================================
Total return(a) 2.53% 5.22%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $32,084 $ 100
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets 1.34%(b)(c) 1.29%(d)
==================================================================================================
Ratio of net investment income (loss) to average net assets (0.09)%(b) (0.01)%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(e) 29% 28%
__________________________________________________________________________________________________
==================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $35,416,969.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.35%.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------
MARCH 15, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
---------------------- OCTOBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.81 $ 9.26 $ 12.13
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.06 0.02(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.29 1.49 (2.89)
======================================================================================================
Total from investment operations 0.33 1.55 (2.87)
======================================================================================================
Net asset value, end of period $ 11.14 $10.81 $ 9.26
______________________________________________________________________________________________________
======================================================================================================
Total return(b) 3.05% 16.74% (23.66)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $49,044 $ 136 $ 160
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets 0.74%(c)(d) 0.77% 0.77%(e)
======================================================================================================
Ratio of net investment income to average net assets 0.51%(c) 0.53% 0.30%(e)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(f) 29% 28% 28%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $5,968,822.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.75%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-16
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
F-17
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Blue Chip Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Blue
Chip Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Blue Chip Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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
Trustee and Executive Vice
President
2003 Director, President and Chief Executive None
Officer, A I M Management Group Inc.
(financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc. and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
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 State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Services, Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ================================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ================================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com BCH-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM CAPITAL DEVELOPMENT FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM CAPITAL DEVELOPMENT FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
o Effective 9/30/03, Class B shares are o The unmanaged Standard & Poor's o The returns shown in the Management's
not available as an investment for Composite Index of 500 Stocks (the S&P Discussion of Fund Performance are based
retirement plans maintained pursuant to 500--Registered Trademark-- Index) is an on net asset values calculated for
Section 401 of the Internal Revenue Code, index of common stocks frequently used as shareholder transactions. Generally
including 401(k) plans, money purchase a general measure of U.S. stock market accepted accounting principles require
pension plans and profit sharing plans. performance. adjustments to be made to the net assets
Plans that have existing accounts of the fund at period end for financial
invested in Class B shares will continue o The unmanaged MSCI World Index is a reporting purposes, and as such, the net
to be allowed to make additional group of global securities tracked by asset values for shareholder transactions
purchases. Morgan Stanley Capital International. and the returns based on those net asset
values may differ from the net asset
o Class R shares are available only to o The unmanaged Russell values and returns reported in the
certain retirement plans. Please see the Midcap--Registered Trademark-- Index Financial Highlights.
prospectus for more information. represents the performance of the stocks
of domestic mid-capitalization o Industry classifications used in this
PRINCIPAL RISKS OF INVESTING IN THE FUND companies. report are generally according to the
Global Industry Classification Standard,
o Investing in small and mid-size o The unmanaged Lipper Mid-Cap Core Fund which was developed by and is the
companies involves risks not associated Index represents an average of the exclusive property and a service mark of
with investing in more established performance of the 30 largest Morgan Stanley Capital International Inc.
companies. Also, small companies have mid-capitalization core funds tracked by and Standard & Poor's.
business risk, significant stock price Lipper, Inc., an independent mutual fund
fluctuations and illiquidity. performance monitor. The fund files its complete schedule of
portfolio holdings with the Securities
o International investing presents o The unmanaged Russell and Exchange Commission ("SEC") for the
certain risks not associated with 2500--Trademark-- Index measures the 1st and 3rd quarters of each fiscal year
investing solely in the United States. performance of the 2,500 smallest on Form N-Q. The fund's Form N-Q filings
These include risks relating to companies in the Russell 3000--Registered are available on the SEC's Web site at
fluctuations in the value of the U.S. Trademark-- Index, which http://www.sec.gov. Copies of the fund's
dollar relative to the values of other measures the performance of the 3,000 Forms N-Q may be reviewed and copied at
currencies, the custody arrangements made largest U.S. companies based on total the SEC's Public Reference Room at 450
for the fund's foreign holdings, market capitalization. Fifth Street, N.W., Washington, D.C.
differences in accounting, political 20549-0102. You can obtain information on
risks and the lesser degree of public o The fund is not managed to track the the operation of the Public Reference
information required to be provided by performance of any particular index, Room, including information about
non-U.S. companies. The fund may invest including the indexes defined here, and duplicating fee charges, by calling
up to 25% of its assets in the securities consequently, the performance of the fund 1-202-942-8090 or by electronic request
of non-U.S. issuers. may deviate significantly from the at the following e-mail address:
performance of the indexes. publicinfo@sec.gov. The SEC file numbers
for the fund are 811-1424 and 2-25469.
o A direct investment cannot be made in The fund's most recent portfolio
an index. Unless otherwise indicated, holdings, as filed on Form N-Q, are also
index results include reinvested available at AIMinvestments.com.
dividends, and they do not reflect sales
charges. Performance of an index of funds A description of the policies and
reflects fund expenses; performance of a procedures that the fund uses to
market index does not. determine how to vote proxies relating to
portfolio securities is available without
charge, upon request, from our Client
Services department at 800-959-4246 or on
the AIM Web site, AIMinvestments.com. On
the home page, scroll down and click on
AIM Funds Proxy Policy. The information
is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted
proxies related to its portfolio
securities during the 12 months ended
6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About
Us tab, click on Required Notices and
then click on Proxy Voting Activity.
Next, select your fund from the drop-down
menu.
</Table>
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THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H.
GRAHAM] It is our pleasure to introduce you to Bruce Crockett, the
new Chairman of the Board of Trustees of the AIM Funds. Bob
ROBERT H. GRAHAM Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
[PHOTO OF position in 2000. However, as you may be aware, the U.S.
MARK H. Securities and Exchange Commission recently adopted a rule
WILLIAMSON] requiring that an independent fund trustee, meaning a
trustee who is not an officer of the fund's investment
MARK H. WILLIAMSON advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
[PHOTO OF Advisors' recent settlements with certain regulators.
BRUCE L. Accordingly, the AIM Funds' Board recently elected Mr.
CROCKETT] Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
BRUCE L. CROCKETT effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain Chairman of AIM
Investments--Registered Trademark-- .
Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
acquired certain funds that had been advised by CIGNA. He had been a member of
the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------ -------------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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FUND CHOOSES STOCKS VALUED BELOW THEIR growth-at-a-reasonable-price (GARP)
POTENTIAL FOR GROWTH discipline, focusing on companies' cash
flow, balance sheets, business models,
For the fiscal year ended October 31, Generally positive economic management teams, earnings sustainability
2004, AIM Capital Development Fund's developments prompted the U.S. Federal and catalysts for growth. This strategy
Class A shares returned 9.87% at net Reserve (the Fed) to raise its federal does not change with prevailing market
asset value (NAV). PERFORMANCE SHOWN AT funds target rate from a decades-low trends.
NAV DOES NOT INCLUDE FRONT-END SALES 1.00%, where it stood at the beginning of
CHARGES, WHICH WOULD HAVE REDUCED THE the fiscal year, to 1.75% by the fiscal We build the fund's portfolio on a
PERFORMANCE. The results for the other year's close. In its anecdotal report on stock-by-stock basis, so our sector
share classes of the fund and the fund's the economy released in late October, the weightings are a result of our choices of
comparison indexes are shown in the table Fed said economic activity continued to individual stocks and our ongoing review
on page 3. expand in September and early October. of company fundamentals. However, market
The Fed said that higher energy costs conditions often affect stocks similarly
The fund's performance was in line were constraining consumer and business within industries and sectors, so it can
with the return of the S&P 500 Index, spending; that capital spending and be helpful to discuss fund performance in
which returned slightly less than the hiring were rising modestly; and that those terms.
fund at 9.41%, and that of its peer residential real estate activity remained
group, which returned slightly more than robust, but non-residential activity The industrials, energy and health
the fund at 10.56%. The fund remained relatively weak. care sectors were the largest
under-performed its style-specific index, contributors to fund returns for the
the Russell Midcap Index, which returned The generally positive economic news period. Because of the expanding
15.09%. The fund's underperformance of was offset somewhat by geopolitical worldwide economy, the fund benefited
this benchmark was largely a result of an uncertainty and terrorism concerns, as from investments in the industrials
underweight position and stock selection well as soaring oil prices. In sector, as many companies enjoyed strong
in the financials sector. mid-October, Fed Chairman Alan Greenspan earnings and cash flow growth. Within the
said that "so far this year, the rise in energy sector, exploration and production
MARKET CONDITIONS the value of imported oil--essentially a companies benefited from historically
tax on U.S. residents--has amounted to high oil and natural gas prices, which
The U.S. economy showed signs of strength about 3/4 [of one] percent of GDP." resulted from strong global demand and
during the fiscal year ended October 31, Though troublesome to consumers, these geopolitical uncertainty. Energy service
2004. Economic news was generally record-breaking oil prices and increased companies also experienced strong demand.
positive, and it included expansion of worldwide demand were beneficial to fund The energy sector was by far the highest
gross domestic product (GDP), the holdings in the energy sector. returning sector year-to-date in 2004.
broadest measure of overall economic
activity. While positive, GDP growth YOUR FUND The fund's investments in the health
tapered off somewhat from an annualized care sector and in each industry within
rate of 7.4% in the third quarter of 2003 We continued our strategy of investing in the sector outperformed their
to a more modest 3.9% in the third stocks that we believe are undervalued counterparts in the Russell Midcap Index.
quarter of 2004. relative to their future growth The fund was not directly affected by
potential. We employed the problems encountered by larger
capitalization pharmaceutical
manufacturing and distribution
</Table>
<Table>
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PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. iShares Nasdaq Biotechnology 1. Data Processing &
Index Fund 1.4% Outsourced Services 4.5%
[PIE CHART]
2. Robinson (C.H.) Worldwide, Inc. 1.4 2. Application Software 4.3
Industrials 13.5%
3. XTO Energy Inc. 1.4 3. Real Estate 4.0
Information Technology 21.7%
4. Tempur-Pedic International Inc. 1.3 4. Health Care Equipment 4.0
Materials 4.4%
5. Autodesk, Inc. 1.3 5. Health Care Services 3.8
Telecommunication Services 2.0%
6. Williams Cos., Inc. (The) 1.3 6. Oil & Gas Refining,
Utilities 1.1% Marketing & Transportation 3.2
7. CB Richard Ellis Group, Inc.-
Money Market Funds Plus Other Class A 1.3 7. Diversified Commercial
Assets Less Liabilities 2.3% Services 2.9
8. Harris Corp. 1.3
Consumer Discretionary 19.1% 8. Semiconductor Equipment 2.7
9. Fisher Scientific International
Consumer Staples 4.1% Inc. 1.3 9. Casinos & Gaming 2.4
Energy 7.1% 10. Harrah's Entertainment, Inc. 1.3 10. Apparel Retail 2.2
Financials 12.1%
Health Care 12.6%
The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any
particular security.
*Excluding money market fund holdings.
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</Table>
2
<Table>
companies. Political uncertainty and the significant share price appreciation over As of October 31, 2004, the portfolio had
fear of pharmaceutical firms being hit the year, and as of the end of the fiscal over 90% of its assets in companies
with product recalls and lawsuits has year, we remained confident in its within the market capitalization range of
resulted in low valuations for health potential for growth. the Russell Midcap Index.
care companies, which might present a
buying opportunity for the fund, as we XTO is a 25-year-old energy company IN CLOSING
look for stocks that are valued below with a market niche in acquiring domestic
their potential for growth. oil- and natural gas-producing properties Throughout the period, we sought out
from larger energy companies. These undervalued companies that exemplified
All sectors contributed positively to larger companies must concentrate their strength in their business models,
fund performance during the period. efforts on their most lucrative sites, management teams and cash flows. When we
However, relative to the Russell Midcap which are now often overseas. XTO engages found such companies that also had a
Index, the financials and utilities in developmental drilling to increase compelling reason for continued growth,
sectors contributed least to fund reserves and production from these we considered their stocks for inclusion
performance. In financials, a number of properties. The company has earned high in the fund's portfolio.
the fund's insurance holdings detracted, returns on capital due to its high
as some were hurt by the damage claims drilling success rate and oil and gas The views and opinions expressed in
resulting from the hurricanes in Florida. price hedging program. Along with the Management's Discussion of Fund
The fund had scant holdings in the rest of the energy sector, XTO benefited Performance are those of A I M Advisors,
utility sector for the year, as most from rising oil and national gas prices Inc. These views and opinions are subject
utility stocks typically do not possess during the period, and the fund continued to change at any time based on factors
many of the growth characteristics we to own holdings in this company at the such as market and economic conditions.
look for in selecting stocks for the end of the fiscal year. These views and opinions may not be
fund. Utilities recovering from perceived relied upon as investment advice or
financial distress were particularly Two stocks that detracted from fund recommendations, or as an offer for a
strong performers within the Russell performance were United Online and Siebel particular security. The information is
Midcap Index. Systems. Internet service provider United not a complete analysis of every aspect
Online's stock price fell following its of any market, country, industry,
Two stocks that benefited fund report of weaker-than-expected subscriber security or the fund. Statements of fact
performance were Brunswick and XTO additions. The fund no longer owns shares are from sources considered reliable, but
Energy. Brunswick manufactures sports and in this company. Software manufacturer A I M Advisors, Inc. makes no
fitness equipment, fishing and camping Siebel Systems also detracted from fund representation or warranty as to their
gear and marine products. The company's performance. We sold this position on completeness or accuracy. Although
two lines of boats, Bayliner and SeaRay, fears of continued earnings misses due to historical performance is no guarantee of
account for a large percentage of its overall weakness in software companies. future results, these insights may help
revenues. We chose this holding during you understand our investment management
2003 because of management's plans to As of the close of the fiscal year, we philosophy.
improve returns on capital and the belief had positioned the fund to benefit from a
that an expanding economy would enable mild economic expansion and a gradual See important fund and index
more consumers to purchase boats and increase in interest rates. We continued disclosures inside front cover.
other leisure products. The company has our focus on the stocks of
experienced mid-capitalization companies.
=========================================
MICHAEL CHAPMAN PAUL J. RASPLICKA
FUND VS. INDEXES Mr. Chapman, Chartered Mr. Rasplicka,
[CHAPMAN Financial Analyst, [RASPLICKA Chartered Financial
TOTAL RETURNS, 10/31/03-10/31/04, PHOTO] began his investment PHOTO] Analyst, is lead
EXCLUDING APPLICABLE SALES CHARGES. IF career in 1995. He portfolio manager of
SALES CHARGES WERE INCLUDED, RETURNS joined AIM in 2001 and AIM Capital Development
WOULD BE LOWER. was promoted to his current position as Fund. Mr. Rasplicka began his investment
portfolio manager of AIM Capital career in 1982. A native of Denver, Mr.
Class A Shares 9.87% Development Fund in 2002. Mr. Chapman has Rasplicka is a magna cum laude graduate
a B.S. in petroleum engineering and an of the University of Colorado at Boulder
Class B Shares 9.13 M.A. in energy and mineral resources from with a B.S. in business administration.
the University of Texas. He received an M.B.A. from the University
Class C Shares 9.14 of Chicago. He is also a Chartered
Investment Counselor.
Class R Shares 9.65
Assisted by the Small and Mid-Cap Core
S&P 500 Index (Broad Market Team.
Index) 9.41
[RIGHT ARROW GRAPHIC]
Russell Midcap Index
(Style-specific Index) 15.09 FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE TURN
Lipper Mid-Cap Core Fund Index TO PAGE 5.
(Peer Group Index) 10.56
Source: Lipper, Inc.
=========================================
TOTAL NET ASSETS $1.1 BILLION
TOTAL NUMBER OF HOLDINGS* 108
=========================================
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3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, to use this information to compare the
estimate the expenses that you paid over ongoing costs of investing in the fund
As a shareholder of the fund, you incur the period. Simply divide your account and other funds. To do so, compare this
two types of costs: (1) transaction value by $1,000 (for example, an $8,600 5% hypothetical example with the 5%
costs, which may include sales charges account value divided by $1,000 = 8.6), hypothetical examples that appear in the
(loads) on purchase payments; contingent then multiply the result by the number in shareholder reports of the other funds.
deferred sales charges on redemptions; the table under the heading entitled
and redemption fees, if any; and (2) "Actual Expenses Paid During Period" to Please note that the expenses shown in
ongoing costs, including management fees; estimate the expenses you paid on your the table are meant to highlight your
distribution and/or service fees (12b-1); account during this period. ongoing costs only and do not reflect any
and other fund expenses. This example is transactional costs, such as sales
intended to help you understand your HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
ongoing costs (in dollars) of investing PURPOSES contingent deferred sales charges on
in the fund and to compare these costs redemptions, and redemption fees, if any.
with ongoing costs of investing in other The table below also provides information Therefore, the hypothetical information
mutual funds. The example is based on an about hypothetical account values and is useful in comparing ongoing costs
investment of $1,000 invested at the hypothetical expenses based on the fund's only, and will not help you determine the
beginning of the period and held for the actual expense ratio and an assumed rate relative total costs of owning different
entire period, May 1, 2004 - October 31, of return of 5% per year before expenses, funds. In addition, if these
2004. which is not the fund's actual return. transactional costs were included, your
The hypothetical account values and costs would have been higher.
ACTUAL EXPENSES expenses may not be used to estimate the
actual ending account balance or expenses
The table below provides information you paid for the period. You may
about actual account values and actual
expenses. You may use the information in
this table,
</Table>
<Table>
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ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,017.10 $ 7.30 $1,017.90 $ 7.30
Class B 1,000.00 1,013.90 10.58 1,014.63 10.58
Class C 1,000.00 1,013.90 10.58 1,014.63 10.58
Class R 1,000.00 1,016.00 8.06 1,017.14 8.06
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 1.71%, 1.39%, 1.39% and 1.60% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.44%, 2.09%, 2.09% and 1.59% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 6/17/96 (inception of Class A shares) - 10/31/04 (Index results are from 6/30/96.)
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results AIM CAPITAL LIPPER MID-CAP
include reinvested dividends. Performance DEVELOPMENT FUND CORE FUND RUSSELL 2500 RUSSELL MIDCAP S&P 500
of an index of funds reflects fund DATE CLASS A SHARES INDEX INDEX INDEX INDEX
expenses and management fees; performance 6/17/1996 $ 9450 $ 10000 $ 10000 $ 10000 $ 10000
of a market index does not. Performance 07/96 8977 9248 9268 9381 9558
shown in the chart does not reflect 10/96 10480 10150 10158 10396 10593
deduction of taxes a shareholder would 01/97 11131 10956 11094 11325 11865
pay on fund distributions or sale of fund 04/97 9648 10218 10566 11097 12152
shares. Performance of the indexes does 07/97 12766 12500 12714 13322 14539
not reflect the effects of taxes. 10/97 13768 12844 13117 13387 13994
01/98 13503 12751 13219 13818 15057
Since the last reporting period, the 04/98 15744 14679 14857 15644 17142
fund has elected to use the S&P 500 Index 07/98 13797 13281 13210 14637 17346
as its broad-based market index since the 10/98 12180 12151 12107 13984 17074
S&P 500 Index is such a widely recognized 01/99 13974 13923 13453 15478 19952
gauge of U.S. stock market performance. 04/99 13302 14083 13987 16572 20884
The fund will no longer measure its 07/99 14144 14733 14649 16638 20851
performance against the Russell 2500 10/99 14400 14755 14286 16378 21456
Index, the index published in previous 01/00 17811 17743 16345 17725 22015
reports to shareholders. Because this is 04/00 20296 19138 17429 19226 22997
the first reporting period since we have 07/00 19835 19276 17232 19054 22720
adopted the new index, SEC guidelines 10/00 20591 19864 17611 20265 22760
require that we compare the fund's 01/01 20387 19618 18017 20164 21817
performance to both the old and the new 04/01 18927 18505 17339 19281 20016
index. The fund has also included a 07/01 19047 18395 17467 18898 19466
style-specific index, the Russell Midcap 10/01 16108 16121 15469 16613 17095
Index. The fund believes this index more 01/02 17787 17915 17438 18616 18297
closely reflects the performance of the 04/02 18949 18482 18270 19145 17490
securities in which the fund invests. In 07/02 15178 15094 14738 15936 14869
addition, the unmanaged Lipper Mid-Cap 10/02 14038 14708 14055 15280 14514
Core Fund Index, which may or may not 01/03 13971 14677 14129 15379 14087
include AIM Capital Development Fund, is 04/03 14815 15491 15162 16439 15163
included for comparison to a peer group. 07/03 16670 17616 17883 18722 16451
10/03 18270 19415 19915 20763 17531
In evaluating this chart, please note 01/04 19771 21003 21891 22624 18954
that the chart uses a logarithmic scale 04/04 19738 20681 21289 22267 18631
along the vertical axis (the value 07/04 19086 20480 21132 22425 18616
scale). This means that each scale 10/04 $ 20079 $ 21465 $ 22372 $ 23895 $ 19182
increment always represents the same Source: Lipper, Inc.
percent change in price; in a linear
chart each scale increment always
represents the same absolute change in
price. In this example, the scale AVERAGE ANNUAL TOTAL RETURNS Class R shares' inception date is 6/3/02.
increment between $5,000 and $10,000 is As of 10/31/04, including applicable Returns since that date are historical
the same as that between $10,000 and sales charges returns. All other returns are blended
$20,000. In a linear chart, the latter returns of historical Class R share
scale increment would be twice as large. CLASS A SHARES performance and restated Class A share
The benefit of using a logarithmic scale Inception (6/17/96) 8.68% performance (for periods prior to the
is that it better illustrates performance 5 Years 5.66 inception date of Class R shares) at net
during the fund's early years before 1 Year 3.83 asset value, adjusted to reflect the
reinvested distributions and compounding higher Rule 12b-1 fees applicable to
create the potential for the original CLASS B SHARES Class R shares. Class A shares' inception
investment to grow to very large numbers. Inception (10/1/96) 7.43% date is 6/17/96.
Had the chart used a linear scale along 5 Years 5.85
its vertical axis, you would not be able 1 Year 4.13 The performance data quoted represent
to see as clearly the movements in the past performance and cannot guarantee
value of the fund and the indexes during CLASS C SHARES comparable future results; current
the fund's early years. We use a Inception (8/4/97) 5.66% performance may be lower or higher.
logarithmic scale in financial reports of 5 Years 6.17 Please visit AIMinvestments.com for the
funds that have more than five years of 1 Year 8.14 most recent month-end performance.
performance history. Performance figures reflect reinvested
CLASS R SHARES distributions, changes in net asset
Inception 9.24% value and the effect of the maximum
5 Years 6.69 sales charge unless otherwise stated.
1 Year 9.65 Investment return and principal value
========================================= will fluctuate so that you may have a
In addition to returns as of the close of gain or loss when you sell shares.
the fiscal year, industry regulations
require us to provide average annual Class A share performance reflects
total returns as of 9/30/04, the most the maximum 5.50% sales charge, and
recent calendar quarter-end. Class B and Class C share performance
========================================= reflects the applicable contingent
AVERAGE ANNUAL TOTAL RETURNS deferred sales charge (CDSC) for the
As of 9/30/04, including applicable sales period involved. The CDSC on Class B
charges shares declines from 5% beginning at the
time of purchase to 0% at the beginning
CLASS A SHARES of the seventh year. The CDSC on Class C
Inception (6/17/96) 8.46% shares is 1% for the first year after
5 Years 6.00 purchase. Class R shares do not have a
1 Year 9.19 front-end sales charge; returns shown
are at net asset value and do not reflect
CLASS B SHARES a 0.75% CDSC that may be imposed on a
Inception (10/1/96) 7.20% total redemption of retirement plan
5 Years 6.18 assets within the first year.
1 Year 9.74
The performance of the fund's share
CLASS C SHARES classes will differ due to different
Inception (8/4/97) 5.39% sales charge structures and class
5 Years 6.50 expenses.
1 Year 13.75
CLASS R SHARES
Inception 9.03%
5 Years 7.03
1 Year 15.31
====================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM CAPITAL DEVELOPMENT FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Please note that past performance is not
AVERAGE ANNUAL TOTAL RETURNS indicative of future results. More recent
The following information has been For periods ended 10/31/04 returns may be more or less than those
prepared to provide Institutional Class Inception (3/15/02) 2.86% shown. All returns assume reinvestment of
shareholders with a performance overview 1 Year 10.38 distributions at net asset value.
specific to their holdings. Institutional Investment return and principal value
Class shares are offered exclusively to ========================================= will fluctuate so your shares, when
institutional investors, including AVERAGE ANNUAL TOTAL RETURNS redeemed, may be worth more or less than
defined contribution plans that meet For periods ended 9/30/04 their original cost. See full report for
certain criteria. Inception (3/15/02) 1.99% information on comparative benchmarks.
1 Year 16.11 Please consult your fund prospectus for
more information. For the most current
========================================= month-end performance, please call
800-451-4246 or visit AIMinvestments.com.
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Performance of Institutional
Class shares will differ from performance
of other share classes due to differing
sales charges and class expenses.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com CDV-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account value period. You may use this information to
by $1,000 (for example, an $8,600 account compare the ongoing costs of investing in
As a shareholder of the fund, you incur value divided by $1,000 = 8.6), then the fund and other funds. To do so,
ongoing costs, including management fees; multiply the result by the number in the compare this 5% hypothetical example with
and other fund expenses. This example is table under the heading entitled "Actual the 5% hypothetical examples that appear
intended to help you understand your Expenses Paid During Period" to estimate in the shareholder reports of the other
ongoing costs (in dollars) of investing the expenses you paid on your account funds.
in the fund and to compare these costs during this period.
with ongoing costs of investing in other Please note that the expenses shown in
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR the table are meant to highlight your
investment of $1,000 invested at the COMPARISON PURPOSES ongoing costs only. Therefore, the
beginning of the period and held for the hypothetical information is useful in
entire period, May 1, 2004, to October The table below also provides information comparing ongoing costs only, and will
31, 2004. about hypothetical account values and not help you determine the relative total
hypothetical expenses based on the fund's costs of owning different funds.
ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
The table below provides information which is not the fund's actual return.
about actual account values and actual The hypothetical account values and
expenses. You may use the information in expenses may not be used to estimate the
this table, together with the amount you actual ending account balance or expenses
invested, to estimate the expenses that you paid for the
you paid over the
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,019.10 $4.36 $1,020.81 $4.37
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 1.91% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 0.86% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com CDV-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.73%
ADVERTISING-1.59%
Lamar Advertising Co.-Class A(a)(b) 136,000 $ 5,633,120
- --------------------------------------------------------------------------
R.H. Donnelley Corp.(a) 210,700 11,430,475
==========================================================================
17,063,595
==========================================================================
AIR FREIGHT & LOGISTICS-1.38%
Robinson (C.H.) Worldwide, Inc. 274,900 14,828,106
==========================================================================
APPAREL RETAIL-2.22%
Limited Brands 487,700 12,085,206
- --------------------------------------------------------------------------
Ross Stores, Inc. 446,900 11,740,063
==========================================================================
23,825,269
==========================================================================
APPLICATION SOFTWARE-4.27%
Amdocs Ltd. (United Kingdom)(a) 473,400 11,906,010
- --------------------------------------------------------------------------
Autodesk, Inc. 273,600 14,432,400
- --------------------------------------------------------------------------
Intuit Inc.(a)(b) 274,300 12,442,248
- --------------------------------------------------------------------------
Mercury Interactive Corp.(a) 161,000 6,992,230
==========================================================================
45,772,888
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.72%
Calamos Asset Management, Inc.-Class A(a) 338,600 6,602,700
- --------------------------------------------------------------------------
Franklin Resources, Inc. 194,900 11,814,838
==========================================================================
18,417,538
==========================================================================
BROADCASTING & CABLE TV-0.44%
Cox Radio, Inc.-Class A(a) 300,000 4,770,000
==========================================================================
BUILDING PRODUCTS-1.05%
American Standard Cos. Inc.(a) 306,900 11,223,333
==========================================================================
CASINOS & GAMING-2.44%
Harrah's Entertainment, Inc.(b) 234,400 13,717,088
- --------------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 590,600 12,508,908
==========================================================================
26,225,996
==========================================================================
COMMERCIAL PRINTING-1.11%
Donnelley (R.R.) & Sons Co. 379,764 11,943,578
==========================================================================
COMMUNICATIONS EQUIPMENT-1.77%
Harris Corp. 224,400 13,807,332
- --------------------------------------------------------------------------
Scientific-Atlanta, Inc. 189,300 5,184,927
==========================================================================
18,992,259
==========================================================================
COMPUTER HARDWARE-0.89%
PalmOne, Inc.(a)(b) 331,200 9,594,864
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.50%
Emulex Corp.(a) 510,000 5,360,100
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.77%
Cummins Inc. 117,100 $ 8,206,368
==========================================================================
CONSUMER ELECTRONICS-1.19%
Garmin Ltd. (Cayman Islands)(b) 255,500 12,775,000
==========================================================================
CONSUMER FINANCE-0.91%
AmeriCredit Corp.(a)(b) 503,600 9,769,840
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.53%
Alliance Data Systems Corp.(a) 268,600 11,356,408
- --------------------------------------------------------------------------
Certegy Inc. 164,550 5,816,842
- --------------------------------------------------------------------------
CSG Systems International, Inc.(a) 516,000 8,673,960
- --------------------------------------------------------------------------
DST Systems, Inc.(a)(b) 278,000 12,468,300
- --------------------------------------------------------------------------
Iron Mountain Inc.(a)(b) 311,850 10,306,642
==========================================================================
48,622,152
==========================================================================
DEPARTMENT STORES-1.02%
Kohl's Corp.(a)(b) 216,200 10,974,312
==========================================================================
DISTILLERS & VINTNERS-0.89%
Constellation Brands, Inc.-Class A(a) 244,000 9,572,120
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.89%
Corrections Corp. of America(a) 284,500 9,886,375
- --------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 595,500 12,505,500
- --------------------------------------------------------------------------
United Rentals, Inc.(a) 560,300 8,656,635
==========================================================================
31,048,510
==========================================================================
DRUG RETAIL-0.60%
Shoppers Drug Mart Corp. (Canada)(a) 212,100 6,452,340
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.27%
Cooper Industries, Ltd.-Class A (Bermuda) 214,000 13,674,600
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.66%
Aeroflex Inc.(a) 580,000 6,438,000
- --------------------------------------------------------------------------
Amphenol Corp.-Class A(a) 332,400 11,411,292
==========================================================================
17,849,292
==========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.54%
Benchmark Electronics, Inc.(a) 170,000 5,774,900
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
EMPLOYMENT SERVICES-0.50%
Manpower Inc. 118,200 $ 5,348,550
==========================================================================
ENVIRONMENTAL SERVICES-1.74%
Republic Services, Inc. 435,000 13,398,000
- --------------------------------------------------------------------------
Stericycle, Inc.(a) 115,900 5,253,747
==========================================================================
18,651,747
==========================================================================
GENERAL MERCHANDISE STORES-1.40%
Dollar General Corp. 498,400 9,594,200
- --------------------------------------------------------------------------
Dollar Tree Stores, Inc.(a)(b) 188,800 5,456,320
==========================================================================
15,050,520
==========================================================================
HEALTH CARE DISTRIBUTORS-0.79%
Henry Schein, Inc.(a) 133,900 8,466,497
==========================================================================
HEALTH CARE EQUIPMENT-3.99%
Bio-Rad Laboratories, Inc.-Class A(a) 131,400 6,835,428
- --------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 240,100 13,772,136
- --------------------------------------------------------------------------
Varian Inc.(a) 278,300 10,152,384
- --------------------------------------------------------------------------
Waters Corp.(a) 292,400 12,073,196
==========================================================================
42,833,144
==========================================================================
HEALTH CARE FACILITIES-1.47%
Community Health Systems Inc.(a) 435,000 11,666,700
- --------------------------------------------------------------------------
Select Medical Corp. 241,400 4,149,666
==========================================================================
15,816,366
==========================================================================
HEALTH CARE SERVICES-3.79%
Caremark Rx, Inc.(a) 410,277 12,296,002
- --------------------------------------------------------------------------
Covance Inc.(a)(b) 198,900 7,900,308
- --------------------------------------------------------------------------
DaVita, Inc.(a) 338,550 10,027,851
- --------------------------------------------------------------------------
Express Scripts, Inc.(a) 162,800 10,419,200
==========================================================================
40,643,361
==========================================================================
HOME FURNISHINGS-1.35%
Tempur-Pedic International Inc.(a) 891,300 14,474,712
==========================================================================
HOMEBUILDING-1.05%
Ryland Group, Inc. (The) 118,200 11,275,098
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.51%
Starwood Hotels & Resorts Worldwide, Inc.(b) 113,800 5,431,674
==========================================================================
HOUSEWARES & SPECIALTIES-2.00%
Jarden Corp.(a) 287,700 10,104,024
- --------------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 408,400 11,312,680
==========================================================================
21,416,704
==========================================================================
HYPERMARKETS & SUPER CENTERS-1.05%
BJ's Wholesale Club, Inc.(a)(b) 389,800 11,315,894
==========================================================================
INDUSTRIAL GASES-1.04%
Airgas, Inc. 455,000 11,193,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INDUSTRIAL MACHINERY-1.72%
Eaton Corp. 84,000 $ 5,371,800
- --------------------------------------------------------------------------
Parker Hannifin Corp. 185,600 13,108,928
==========================================================================
18,480,728
==========================================================================
INSURANCE BROKERS-1.08%
Willis Group Holdings Ltd. (Bermuda) 320,900 11,536,355
==========================================================================
INTEGRATED OIL & GAS-0.97%
Murphy Oil Corp. 129,500 10,362,590
==========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.41%
iShares Nasdaq Biotechnology Index Fund(a)(b) 222,500 15,161,150
==========================================================================
LEISURE PRODUCTS-1.99%
Brunswick Corp. 262,700 12,325,884
- --------------------------------------------------------------------------
Polaris Industries Inc.(b) 152,700 9,062,745
==========================================================================
21,388,629
==========================================================================
METAL & GLASS CONTAINERS-0.98%
Pactiv Corp.(a) 444,200 10,523,098
==========================================================================
MULTI-LINE INSURANCE-0.95%
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 08/27/2003: Cost
$10,000,000)(a)(c)(e) 1,000,000 9,000,000
- --------------------------------------------------------------------------
Quanta Capital Holdings Ltd. (Bermuda)(a)(b) 138,100 1,242,900
==========================================================================
10,242,900
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.13%
Questar Corp. 251,900 12,091,200
==========================================================================
OFFICE ELECTRONICS-0.60%
Zebra Technologies Corp.-Class A(a) 121,725 6,450,208
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.59%
BJ Services Co.(b) 213,200 10,873,200
- --------------------------------------------------------------------------
Key Energy Services, Inc.(a) 539,500 6,204,250
==========================================================================
17,077,450
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.37%
XTO Energy Inc. 439,125 14,657,992
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-3.16%
Ashland Inc. 226,300 13,039,406
- --------------------------------------------------------------------------
Kinder Morgan, Inc. 105,800 6,810,346
- --------------------------------------------------------------------------
Williams Cos., Inc. (The) 1,120,100 14,012,451
==========================================================================
33,862,203
==========================================================================
PACKAGED FOODS & MEATS-0.54%
Flowers Foods, Inc. 228,400 5,792,224
==========================================================================
PAPER PACKAGING-1.41%
Sealed Air Corp.(a)(b) 107,000 5,300,780
- --------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
PAPER PACKAGING-(CONTINUED)
Smurfit-Stone Container Corp.(a) 563,800 $ 9,787,568
==========================================================================
15,088,348
==========================================================================
PERSONAL PRODUCTS-1.02%
NBTY, Inc.(a) 398,800 10,982,952
==========================================================================
PHARMACEUTICALS-1.12%
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 423,647 12,031,575
==========================================================================
REAL ESTATE-4.01%
Fieldstone Investment Corp. (Acquired
11/10/2003-11/11/2003; Cost
$9,984,140)(d)(e) 661,900 11,417,775
- --------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc.-Class
A 574,555 9,847,873
- --------------------------------------------------------------------------
KKR Financial Corp. (Acquired 08/05/2004;
Cost $10,250,000)(a)(d)(e) 1,025,000 10,506,250
- --------------------------------------------------------------------------
New Century Financial Corp. 100,000 5,515,000
- --------------------------------------------------------------------------
Saxon Capital, Inc.(a) 296,600 5,694,720
==========================================================================
42,981,618
==========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.30%
CB Richard Ellis Group, Inc.-Class A(a) 540,400 13,996,360
==========================================================================
REGIONAL BANKS-1.08%
Zions Bancorp 175,200 11,592,984
==========================================================================
RESTAURANTS-0.86%
Ruby Tuesday, Inc.(b) 372,400 9,198,280
==========================================================================
SEMICONDUCTOR EQUIPMENT-2.73%
Cabot Microelectronics Corp.(a)(b) 212,200 7,645,566
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a) 247,700 11,277,781
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 402,000 10,415,820
==========================================================================
29,339,167
==========================================================================
SEMICONDUCTORS-2.07%
ATI Technologies Inc. (Canada)(a) 322,100 5,813,905
- --------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 185,100 5,006,955
- --------------------------------------------------------------------------
Microchip Technology Inc.(b) 374,762 11,336,551
==========================================================================
22,157,411
==========================================================================
SPECIALTY CHEMICALS-0.95%
Great Lakes Chemical Corp. 397,300 10,178,826
==========================================================================
SPECIALTY STORES-1.03%
Advance Auto Parts, Inc.(a) 281,200 11,000,544
==========================================================================
SYSTEMS SOFTWARE-1.24%
McAfee Inc.(a) 550,000 13,310,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.90%
CDW Corp. 156,100 $ 9,682,883
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.08%
Radian Group Inc.(b) 242,800 11,637,404
==========================================================================
TRUCKING-1.07%
Sirva Inc.(a) 477,300 11,455,200
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.04%
NII Holdings Inc.(a)(b) 246,600 10,916,982
- --------------------------------------------------------------------------
SpectraSite, Inc.(a) 213,100 10,932,030
==========================================================================
21,849,012
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $800,639,901) 1,048,763,518
==========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
OPTIONS
PURCHASED-0.04%
PUTS-0.04%
Murphy Oil Corp.
(Integrated Oil &
Gas) 1,295 $80 Nov-04 301,087
- -------------------------------------------------------------------------
XTO Energy Inc. (Oil
& Gas Exploration &
Production) 4,391 30 Nov-04 76,843
=========================================================================
Total Options Purchased (Cost $884,638) 377,930
=========================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-1.91%
Liquid Assets Portfolio-Institutional
Class(f) 10,261,930 10,261,930
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 10,261,930 10,261,930
==========================================================================
Total Money Market Funds (Cost $20,523,860) 20,523,860
==========================================================================
TOTAL INVESTMENTS-99.68% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $822,048,399) 1,069,665,308
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-12.89%
Liquid Assets Portfolio-Institutional
Class(f)(g) 69,189,281 69,189,281
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 69,189,281 69,189,281
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $138,378,562) 138,378,562
==========================================================================
TOTAL INVESTMENTS-112.57% (Cost $960,426,961) 1,208,043,870
==========================================================================
OTHER ASSETS LESS LIABILITIES-(12.57%) (134,877,684)
==========================================================================
NET ASSETS-100.00% $1,073,166,186
__________________________________________________________________________
==========================================================================
</Table>
F-3
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The market value of this security at
October 31, 2004 represented 0.75% of the Fund's Total Investments. See Note
1A.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at October 31, 2004 was $21,924,025, which
represented 2.04% of the Fund's net assets.
(e) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at October 31, 2004 was
$30,924,025, which represented 2.88% of the Fund's net assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$801,524,539)* $1,049,141,448
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $158,902,422) 158,902,422
============================================================
Total investments (cost $960,426,961) 1,208,043,870
============================================================
Receivables for:
Investments sold 23,158,959
- ------------------------------------------------------------
Fund shares sold 1,040,163
- ------------------------------------------------------------
Dividends 140,573
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 72,551
- ------------------------------------------------------------
Other assets 46,726
============================================================
Total assets 1,232,502,842
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 18,056,931
- ------------------------------------------------------------
Fund shares reacquired 1,569,825
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 117,451
- ------------------------------------------------------------
Collateral upon return of securities
loaned 138,378,562
- ------------------------------------------------------------
Accrued distribution fees 630,739
- ------------------------------------------------------------
Accrued trustees' fees 2,277
- ------------------------------------------------------------
Accrued transfer agent fees 387,654
- ------------------------------------------------------------
Accrued operating expenses 193,217
============================================================
Total liabilities 159,336,656
============================================================
Net assets applicable to shares outstanding $1,073,166,186
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 738,072,716
- ------------------------------------------------------------
Undistributed net investment income (loss) (98,307)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities 87,611,149
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 247,580,628
============================================================
$1,073,166,186
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 617,193,910
____________________________________________________________
============================================================
Class B $ 376,354,647
____________________________________________________________
============================================================
Class C $ 73,929,300
____________________________________________________________
============================================================
Class R $ 5,621,711
____________________________________________________________
============================================================
Institutional Class $ 66,618
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 34,565,765
____________________________________________________________
============================================================
Class B 22,421,759
____________________________________________________________
============================================================
Class C 4,407,579
____________________________________________________________
============================================================
Class R 316,184
____________________________________________________________
============================================================
Institutional Class 3,674
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 17.86
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $17.86 divided by
94.50%) $ 18.90
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 16.79
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 16.77
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 17.78
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 18.13
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $135,274,803
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3,998) $ 9,123,366
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $316,380)* 782,270
==========================================================================
Total investment income 9,905,636
==========================================================================
EXPENSES:
Advisory fees 7,018,923
- --------------------------------------------------------------------------
Administrative services fees 282,196
- --------------------------------------------------------------------------
Custodian fees 120,476
- --------------------------------------------------------------------------
Distribution fees:
Class A 2,031,361
- --------------------------------------------------------------------------
Class B 3,967,972
- --------------------------------------------------------------------------
Class C 729,633
- --------------------------------------------------------------------------
Class R 14,320
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 3,027,243
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 54
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 32,363
- --------------------------------------------------------------------------
Other 650,014
==========================================================================
Total expenses 17,874,555
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (125,412)
==========================================================================
Net expenses 17,749,143
==========================================================================
Net investment income (loss) (7,843,507)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from investment securities 92,544,722
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 9,292,934
- --------------------------------------------------------------------------
Foreign currencies (36,281)
==========================================================================
9,256,653
==========================================================================
Net gain from investment securities and foreign currencies 101,801,375
==========================================================================
Net increase in net assets resulting from operations $ 93,957,868
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (7,843,507) $ (7,651,741)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 92,544,722 64,445,148
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investments
securities and foreign currencies 9,256,653 180,427,376
==============================================================================================
Net increase in net assets resulting from operations 93,957,868 237,220,783
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (13,528,020) --
- ----------------------------------------------------------------------------------------------
Class B (10,257,718) --
- ----------------------------------------------------------------------------------------------
Class C (1,789,455) --
- ----------------------------------------------------------------------------------------------
Class R (30,198) --
- ----------------------------------------------------------------------------------------------
Institutional Class (242) --
==============================================================================================
Decrease in net assets resulting from distributions (25,605,633) --
==============================================================================================
Share transactions-net:
Class A 31,588,830 (40,295,276)
- ----------------------------------------------------------------------------------------------
Class B (40,086,908) (45,852,897)
- ----------------------------------------------------------------------------------------------
Class C 1,351,823 (3,420,452)
- ----------------------------------------------------------------------------------------------
Class R 4,312,014 902,244
- ----------------------------------------------------------------------------------------------
Institutional Class 55,370 --
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,778,871) (88,666,381)
==============================================================================================
Net increase in net assets 65,573,364 148,554,402
==============================================================================================
NET ASSETS:
Beginning of year 1,007,592,822 859,038,420
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(98,307) and $(85,597), respectively) $1,073,166,186 $1,007,592,822
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-8
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
F-9
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$350 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $350 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $8,699.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $96,092 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $282,196 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $3,027,243 for Class A, Class B, Class C and Class R shares
and $14 for Institutional Class shares after AISI reimbursed fees for the
Institutional Class shares of $40. AISI may make payments to intermediaries that
provide omnibus account services, sub-accounting services and/or networking
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended October 31, 2004, the Class A, Class
B, Class C and Class R shares paid $2,031,361, $3,967,972, $729,633 and $14,320,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
October 31, 2004, AIM Distributors advised the Fund that it retained $171,202 in
front-end sales commissions from the sale of Class A shares and $519, $25,762,
$5,602 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-10
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $16,395,571 $221,684,483 $(227,818,124) $ -- $10,261,930 $235,656 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 16,395,571 221,684,483 (227,818,124) -- 10,261,930 230,234 --
===========================================================================================================================
Subtotal $32,791,142 $443,368,966 $(455,636,248) $ -- $20,523,860 $465,890 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $77,943,886 $210,017,597 $(218,772,202) $ -- $69,189,281 $158,802 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 77,943,886 210,017,597 (218,772,202) -- 69,189,281 157,578 --
===========================================================================================================================
Subtotal $155,887,772 $420,035,194 $(437,544,404) $ -- $138,378,562 $316,380 $ --
===========================================================================================================================
Total $188,678,914 $863,404,160 $(893,180,652) $ -- $158,902,422 $782,270 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $27,195,023 and $10,946,219,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$16,199 and credits in custodian fees of $4,382 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$20,581.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $7,855
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.
F-11
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $135,274,803 were
on loan to brokers. The loans were secured by cash collateral of $138,378,562
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $316,380 for
securities lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
Distributions paid from long-term capital gain $25,605,633 $ --
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed long-term gain $ 88,000,687
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 247,191,090
- ----------------------------------------------------------------------------
Temporary book/tax differences (98,307)
- ----------------------------------------------------------------------------
Shares of beneficial interest 738,072,716
============================================================================
Total net assets $1,073,166,186
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales and the deferral of losses on certain
straddles. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(36,281).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
F-12
NOTE 10--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, 2004 was $748,265,373 and $776,755,843, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $260,704,530
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (13,477,159)
==============================================================================
Net unrealized appreciation of investment securities $247,227,371
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $960,816,499.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$7,830,797, undistributed net realized gain (loss) was decreased by $2,894,200
and shares of beneficial interest decreased by $4,936,597. This reclassification
had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,956,116 $ 121,226,684 7,864,878 $ 109,808,336
- -------------------------------------------------------------------------------------------------------------------------
Class B 2,589,525 42,660,392 2,057,426 27,535,873
- -------------------------------------------------------------------------------------------------------------------------
Class C 1,128,395 18,630,607 834,828 11,240,012
- -------------------------------------------------------------------------------------------------------------------------
Class R 275,328 4,806,109 74,458 986,707
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,080 55,129 -- --
=========================================================================================================================
Issued as reinvestment of dividends:
Class A 727,483 12,170,787 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class B 564,080 8,923,747 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class C 96,104 1,519,408 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class R 1,810 30,198 -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 14 241 -- --
=========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 834,769 14,693,499 340,670 4,868,315
- -------------------------------------------------------------------------------------------------------------------------
Class B (886,014) (14,693,499) (358,616) (4,868,315)
=========================================================================================================================
Reacquired:
Class A (6,701,600) (116,502,140) (11,106,766) (154,971,927)
- -------------------------------------------------------------------------------------------------------------------------
Class B (4,698,851) (76,977,548) (5,230,794) (68,520,455)
- -------------------------------------------------------------------------------------------------------------------------
Class C (1,149,534) (18,798,192) (1,117,790) (14,660,464)
- -------------------------------------------------------------------------------------------------------------------------
Class R (30,395) (524,293) (5,766) (84,463)
=========================================================================================================================
(289,690) $ (2,778,871) (6,647,472) $ (88,666,381)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There is one entity that is record owner of more than 5% of the
outstanding shares of the Fund and owns 7% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution,
third party record keeping and account servicing. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by this shareholder are also owned beneficially.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.66 $ 12.80 $ 14.69 $ 21.79 $ 15.24
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.08)(a) (0.04)(a) (0.04) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.70 3.94 (1.85) (4.27) 6.68
=================================================================================================================================
Total from investment operations 1.62 3.86 (1.89) (4.31) 6.55
=================================================================================================================================
Less distributions from net realized gains (0.42) -- -- (2.79) --
=================================================================================================================================
Net asset value, end of period $ 17.86 $ 16.66 $ 12.80 $ 14.69 $ 21.79
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.87% 30.16% (12.87)% (21.76)% 42.98%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $617,194 $545,691 $456,268 $576,660 $759,838
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.40%(c)(d) 1.53% 1.38% 1.33% 1.28%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.46)%(c) (0.56)% (0.29)% (0.21)% (0.60)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 74% 101% 120% 130% 101%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $580,388,749.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.41%.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.79 $ 12.21 $ 14.10 $ 21.16 $ 14.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.16)(a) (0.14)(a) (0.15) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.60 3.74 (1.75) (4.12) 6.52
=================================================================================================================================
Total from investment operations 1.42 3.58 (1.89) (4.27) 6.26
=================================================================================================================================
Less distributions from net realized gains (0.42) -- -- (2.79) --
=================================================================================================================================
Net asset value, end of period $ 16.79 $ 15.79 $ 12.21 $ 14.10 $ 21.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.13% 29.32% (13.40)% (22.29)% 42.01%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $376,355 $392,382 $346,456 $454,018 $617,576
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.05%(c)(d) 2.18% 2.03% 1.99% 1.99%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.21)% (0.94)% (0.87)% (1.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 74% 101% 120% 130% 101%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $396,797,209.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.06%
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.78 $ 12.20 $ 14.10 $ 21.15 $ 14.89
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.16)(a) (0.14)(a) (0.14) (0.25)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.59 3.74 (1.76) (4.12) 6.51
============================================================================================================================
Total from investment operations 1.41 3.58 (1.90) (4.26) 6.26
============================================================================================================================
Less distributions from net realized gains (0.42) -- -- (2.79) --
============================================================================================================================
Net asset value, end of period $ 16.77 $ 15.78 $ 12.20 $ 14.10 $ 21.15
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 9.07% 29.34% (13.48)% (22.24)% 42.04%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $73,929 $68,356 $56,298 $66,127 $82,982
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.05%(c)(d) 2.18% 2.03% 1.99% 1.99%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.21)% (0.94)% (0.87)% (1.30)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 74% 101% 120% 130% 101%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $72,963,303.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.06%.
<Table>
<Caption>
CLASS R
-----------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.62 $12.79 $ 16.62
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.10)(a) (0.03)(a)
- -------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.68 3.93 (3.80)
=======================================================================================================
Total from investment operations 1.58 3.83 (3.83)
=======================================================================================================
Less distributions from net realized gains (0.42) -- --
=======================================================================================================
Net asset value, end of period $17.78 $16.62 $ 12.79
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 9.65% 29.95% (23.05)%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,622 $1,154 $ 10
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets 1.55%(c)(d) 1.68% 1.54%(e)
=======================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(c) (0.71)% (0.44)%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 74% 101% 120%
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,864,084.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.56%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------
MARCH 15, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
------------------- OCTOBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.83 $12.84 $ 17.25
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a) 0.01(a) 0.02(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.71 3.98 (4.43)
======================================================================================================
Total from investment operations 1.72 3.99 (4.41)
======================================================================================================
Less distributions from net realized gains (0.42) -- --
======================================================================================================
Net asset value, end of period $18.13 $16.83 $ 12.84
______________________________________________________________________________________________________
======================================================================================================
Total return(b) 10.38% 31.08% (25.57)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 67 $ 10 $ 7
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets
With fee waivers and/or expense reimbursements 0.86%(c) 0.87% 0.84%(d)
- ------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.15%(c) 1.25% 0.99%(d)
======================================================================================================
Ratio of net investment income to average net assets 0.08%(c) 0.10% 0.25%(d)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(e) 74% 101% 120%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $14,384.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG, AIM and ADI breached various Federal and state
securities, business and consumer protection laws. Under the terms of the
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or
F-17
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
the Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits
have been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Capital Development Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Capital Development Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
period ended October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Capital Development Fund as of October 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and Captaris, Inc.
(unified messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired 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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment
the Boss Group Ltd. (private investment company); Annuity and Life Re
and management) and Magellan Insurance (Holdings), Ltd. (insurance
Company company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund
company) and Texana Timber LP (non-profit)
(sustainable forestry company)
- ------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered
investment company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical
Trustee (California) Group, Inc.
Formerly: Associate Justice of the
California Court of Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, None
Trustee YWCA of the USA
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests
Limited Partnership (real estate
development company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M N/A
Senior Vice President and Management Group Inc. (financial
Chief Compliance Officer services holding company); Senior
Vice President and Chief Compliance
Officer, A I M Advisors, Inc. Vice
President and Chief Compliance
Officer, A I M Capital Management,
Inc. and A I M Distributors, Inc.;
and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors,
Inc.; Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel,
Liberty Funds Group, LLC and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of N/A
Vice President Money Market Research and Special
Projects, A I M Capital Management,
Inc.; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc; Director and President, Fund
Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group,
Inc., A I M Advisors, Inc.; and
Director and Chairman, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 1200
Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2004, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $27,155,633 for
the Fund's tax year ended October 31, 2004.
For its tax year ended October 31, 2004, the fund designates 0%, or the maximum
amount allowable of its dividend distributions as qualified dividend income.
Your actual amount of qualified dividend income for the calendar year will be
reported on Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
<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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ===============================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR OR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ===============================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com CDV-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM CHARTER FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM CHARTER FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES
o The fund is not managed to track the The fund files its complete schedule of
o Effective 9/30/03, Class B shares are performance of any particular index, portfolio holdings with the Securities and
not available as an investment for including the indexes defined here, and Exchange Commission (SEC) for the 1st and
retirement plans maintained pursuant to consequently, the performance of the fund 3rd quarters of each fiscal year on Form
Section 401 of the Internal Revenue Code, may deviate significantly from the N-Q. The fund's Form N-Q filings are
including 401(k) plans, money purchase performance of the index. available on the SEC's Web site at
pension plans and profit sharing plans. http://www.sec.gov. Copies of the fund's
Plans that have existing accounts invested o A direct investment cannot be made in an Forms N-Q may be reviewed and copied at
in Class B shares will continue to be index. Unless otherwise indicated, index the SEC's Public Reference Room at 450
allowed to make additional purchases. results include reinvested dividends, and Fifth Street, N.W., Washington, D.C.
they do not reflect sales charges. 20549-0102. You can obtain information on
o Class R shares are available only to Performance of an index of funds reflects the operation of the Public Reference
certain retirement plans. Please see the fund expenses; performance of a market Room, including information about
prospectus for more information. index does not. duplicating fee charges, by calling
1-202-942- 8090 or by electronic request
PRINCIPAL RISKS OF INVESTING IN THE FUND OTHER INFORMATION at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers
o International investing presents certain o The Conference Board is a not-for-profit for the fund are 811-1424 and 2-25469. The
risks not associated with investing solely organization that conducts research and fund's most recent portfolio holdings, as
in the United States. These include risks publishes information and analysis to help filed on Form N-Q, are also available at
relating to fluctuations in the value of businesses strengthen their performance. AIMinvestments.com.
the U.S. dollar relative to the values of
other currencies, the custody arrangements o The returns shown in the Management's A description of the policies and
made for the fund's foreign holdings, Discussion of Fund Performance are based procedures that the fund uses to determine
differences in accounting, political risks on net asset values calculated for how to vote proxies relating to portfolio
and the lesser degree of public shareholder transactions. Generally securities is available without charge,
information required to be provided by accepted accounting principles require upon request, from our Client Services
non-U.S. companies. The fund may invest up adjustments to be made to the net assets department at 800-959-4246 or on the AIM
to 20% of its assets in the securities of of the fund at period end for financial Web site, AIMinvestments.com. On the home
non-U.S. issuers. reporting purposes, and as such, the net page, scroll down and click on AIM Funds
asset values for shareholder transactions Proxy Policy. The information is also
ABOUT INDEXES USED IN THIS REPORT and the returns based on those net asset available on the Securities and Exchange
values may differ from the net asset Commission's Web site, sec.gov.
o The unmanaged Lipper Large-Cap Core Fund values and returns reported in the
Index represents an average of the Financial Highlights. Information regarding how the fund voted
performance of the 30 largest proxies related to its portfolio
largecapitalization core equity funds o Industry classifications used in this securities during the 12 months ended
tracked by Lipper, Inc., an independent report are generally according to the 6/30/04 is available at our Web site. Go
mutual fund performance monitor. Global Industry Classification Standard, to AIMinvestments.com, access the About Us
which was developed by and is the tab, click on Required Notices and then
o The unmanaged MSCI World Index is a exclusive property and a service mark of click on Proxy Voting Activity. Next,
group of global securities tracked by Morgan Stanley Capital International Inc. select your fund from the drop-down menu.
Morgan Stanley Capital International. and Standard & Poor's.
o The unmanaged Russell 1000--Registered
Trademark--Index represents the
performance of the stocks of
large-capitalization companies.
o The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P 500
- --Registered Trademark--Index) is an
index of common stocks frequently used as
a general measure of U.S. stock market
performance.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--REGISTERED TRADEMARK--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H. It is our pleasure to introduce you to Bruce Crockett, the
GRAHAM] new Chairman of the Board of Trustees of the AIM Funds. Bob
Graham has served as Chairman of the Board of Trustees of
ROBERT H. GRAHAM the AIM Funds ever since Ted Bauer retired from that
position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
[PHOTO OF requiring that an independent fund trustee, meaning a
MARK H. trustee who is not an officer of the fund's investment
WILLIAMSON advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
MARK H. WILLIAMSON Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
[PHOTO OF AIM Funds' Board, as Chairman. His appointment became
BRUCE L. effective on October 4, 2004. Mr. Graham will remain on the
CROCKETT funds' Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain
BRUCE L. CROCKETT Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those funds since 1978.
Mr. Crockett has more than 30 years of experience in finance and general
management and has been Chairman of Crockett Technologies Associates since 1996.
He is the first independent chairman of the funds' board in AIM's history, as he
is not affiliated with AIM or AMVESCAP in any way. He is committed to ensuring
that the AIM Funds adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------- ------------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc. A I
M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors,
and A I M Distributors, Inc. is the distributor for the retail funds represented
by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND MANAGERS MAINTAINED YOUR FUND
LONG-TERM INVESTMENT FOCUS
Throughout the fiscal year, we sought out
For the fiscal year ended October 31, Generally positive economic developments attractively priced stocks of large
2004, AIM Charter Fund Class A shares prompted the U.S. Federal Reserve (the companies with management attuned to the
returned 9.58% at net asset value (NAV). Fed) to raise its federal funds target interests of shareholders. In this
PERFORMANCE SHOWN AT NAV DOES NOT INCLUDE rate from a decades-low 1.00%, where it effort, we emphasized companies with high
FRONT-END SALES CHARGES, WHICH WOULD HAVE stood at the beginning of the fiscal or increasing returns on capital with
REDUCED THE PERFORMANCE. By contrast, its year, to 1.75% by the fiscal year's strong growth prospects over the long
broad market index, the S&P 500 Index, close. In its anecdotal report on the term. By doing so, we hoped to achieve
returned 9.41%; its style-specific index, economy released in late October, the Fed the fund's investment objective--growth
the Russell 1000 Index, returned 9.33%; said economic activity continued to of capital. In keeping with our long-term
and its peer group index, the Lipper expand in September and early October. investment focus, we did not make any
Large-Cap Core Fund Index, returned The Fed said that higher energy costs significant changes to the portfolio, and
6.92%. (Fiscal year returns for all of were constraining consumer and business we worked to balance the fund's exposure
the fund's share classes appear in the spending; that capital spending and between defensive and economically
table on page 3.) The fund's performance hiring were rising modestly; and that sensitive stocks. This positioning is
was due primarily to strong stock residential real estate activity remained intended to provide investors with market
selection, particularly within the energy robust, but non-residential activity participation if markets rally while
and industrials sectors. remained relatively weak. providing some downside protection if
markets weaken.
MARKET CONDITIONS This generally positive economic news was
offset somewhat by geopolitical During the first half of the fiscal
The U.S. economy showed signs of strength uncertainty and terrorism concerns, as year, we sold some of our consumer
during the fiscal year ended October 31, well as soaring oil prices. In discretionary holdings as investors bid
2004. Economic news was generally mid-October, Fed Chairman Alan Greenspan them up amid signs of a sustained
positive, and it included expansion of said that "so far this year, the rise in economic recovery. Later in the year, we
gross domestic product (GDP), the the value of imported oil--essentially a reduced the fund's energy holdings as
broadest measure of overall economic tax on U.S. residents--has amounted to valuations in that sector rose and oil
activity. While remaining positive, GDP about 3/4 [of one] percent of GDP." The prices approached record highs. We
growth tapered off somewhat from an Conference Board reported that consumer selectively sold stocks when they reached
annualized rate of 4.2% in the fourth sentiment hit a twoyear high in July, our target valuations. The result was
quarter of 2003 to a more modest 3.9% in before declining in August, September and that energy holdings declined from
the third quarter of 2004. October. The organization also reported overweight to essentially equal weight
that its index of leading economic relative to the fund's style-specific
indicators declined in October, its fifth index, while consumer discretionary
consecutive monthly decline. holdings declined from being somewhat
overweight to underweight.
In keeping with our valuation-
sensitive investment strategy, we used
proceeds from the sale of consumer
discretionary and energy holdings to add
to our health care and
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Microsoft Corp. 3.2% 1. Pharmaceuticals 12.7%
[PIE CHART]
2. General Mills, Inc. 2.9 2. Packaged Foods & Meats 8.2
Energy 8.2%
3. Merck & Co. Inc. 2.6 3. Integrated Oil & Gas 7.0
Consumer Discretionary 7.5%
4. Tyco International Ltd. (Bermuda) 2.6 4. Systems Software 5.2
Money Market Funds Plus Other
5. Pfizer Inc. 2.4 5. Semiconductors 5.1
Assets Less Liabilities 5.7%
6. Wyeth 2.1 6. Industrial Conglomerates 4.3
Materials 2.6%
7. GlaxoSmithKline PLC-ADR 7. Publishing 3.7
Telecommunication Services 1.3% (United Kingdom) 2.1
8. Food Retail 2.9
Utilities 1.2% 8. Washington Mutual, Inc. 2.1
9. Railroads 2.8
Information Technology 16.9% 9. BP PLC-ADR (United Kingdom) 2.1
10. Diversified Banks 2.5
Consumer Staples 15.6% 10. Computer Associates
International, Inc. 2.0
Industrials 15.3%
Financials 13.0%
Health Care 12.7%
The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any
particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
information technology holdings. We were when many investors were still concerned adjusted performance that could serve as
particularly attracted to well-known about accounting issues at the company. a balance to their more aggressive
companies with long track records of By focusing on business fundamentals, equity investments. Thank you for your
success whose stock prices had been our research identified it as an continued participation in AIM Charter
depressed by potentially shortterm established business with significant Fund.
industry-wide difficulties. Concerns market share and relatively predictable
about the potential for legislation cash flow--giving us confidence about The views and opinions expressed in
permitting drug reimportation, sparse our estimates of its fair value, which Management's Discussion of Fund
product pipelines and high-profile were higher than the company's stock Performance are those of A I M Advisors,
product withdrawals hurt many health price at that time. Tyco's new Inc. These views and opinions are
care stocks, particularly pharmaceutical management has been demanding of the subject to change at any time based on
stocks. We added to the fund's company's various operating units, and factors such as market and economic
information technology holdings after recent earnings reports have been conditions. These views and opinions may
Intel, a fund holding, issued an positive. not be relied upon as investment advice
earnings warning in September, which or recommendations, or as an offer for a
caused an indiscriminate sell-off of Stocks that hindered fund performance particular security. The information is
information technology stocks. included Merck, which surprised not a complete analysis of every aspect
investors (including us) when it of any market, country, industry,
In this environment, we identified voluntarily withdrew its pain relief security or the fund. Statements of fact
health care stocks that we believed medication VIOXX--REGISTERED TRADEMARK-- are from sources considered reliable,
offered compelling relative value based from markets worldwide after tests but A I M Advisors, Inc. makes no
on their strong free cash flows, even showed it may increase patients' risk of representation or warranty as to their
factoring in the difficult industry heart attacks. The news caused the completeness or accuracy. Although
backdrop. Likewise, we identified select company's stock price to fall historical performance is no guarantee
semiconductor stocks and purchased them dramatically. While some correction in of future results, these insights may
on weakness. We believed that most of the company's stock price was warranted, help you understand our investment
their price weakness was due to Intel's we believed the market punished the management philosophy.
announcement, rather than any material stock too severely. As a result, we
erosion in their margins, despite a continued to hold Merck at the close of See important fund and index
slight slowdown in chip orders. the fiscal year because we believed the disclosures inside front cover.
company's strong free cash flow and
Strong stock selection in the energy, compelling yield offered the potential RONALD S. SLOAN
industrials and information technology for future gains with lower downside Mr. Sloan, Chartered
sectors helped the fund's performance risk going forward. [SLOAN Financial Analyst, is
for the fiscal year. Sectors that PHOTO] lead portfolio manager
hindered fund performance included IN CLOSING of AIM Charter Fund. He
consumer discretionary, financials and has been in the
health care. We were pleased to have provided investment industry since 1971 and joined
investors with positive total returns AIM in 1998. Mr. Sloan holds a B.S. in
Stocks that helped fund performance for the fiscal year. Throughout the business administration and an M.B.A.
included once-controversial Tyco, a year, we worked to provide shareholders from the University of Missouri.
stock we've held for some time. We with a reliable long-term risk-
purchased the stock Assisted by the Mid/Large Cap Core Team
====================================================================================
FUND VS. INDEXES
TOTAL RETURNS, 10/31/03-10/31/04, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 9.58%
Class B Shares 8.81
Class C Shares 8.79
Class R Shares 9.35
S&P 500 Index (Broad Market Index) 9.41
Russell 1000 Index
(Style-specific Index) 9.33
Lipper Large Cap Core Fund Index
(Peer Group Index) 6.92
TOTAL NET ASSETS $2.9 billion
TOTAL NUMBER OF HOLDINGS* 66
Source: Lipper, Inc.
==================================================================================== [RIGHT ARROW GRAPHIC]
For a presentation of your fund's
long-term performance record,
please turn to page 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, costs of investing in the fund and
to estimate the expenses that you paid other funds. To do so, compare this 5%
As a shareholder of the fund, you incur over the period. Simply divide your hypothetical example with the 5%
two types of costs: (1) transaction account value by $1,000 (for example, hypothetical examples that appear in
costs, which may include sales charges an $8,600 account value divided by the shareholder reports of the other
(loads) on purchase payments; $1,000 = 8.6), then multiply the result funds.
contingent deferred sales charges on by the number in the table under the
redemptions; and redemption fees, if heading entitled "Actual Expenses Paid Please note that the expenses shown
any; and (2) ongoing costs, including During Period" to estimate the expenses in the table are meant to highlight
management fees; distribution and/or you paid on your account during this your ongoing costs only and do not
service fees (12b-1); and other fund period. reflect any transactional costs, such
expenses. This example is intended to as sales charges (loads) on purchase
help you understand your ongoing costs payments, contingent deferred sales
(in dollars) of investing in the fund HYPOTHETICAL EXAMPLE FOR charges on redemptions, and redemption
and to compare these costs with ongoing COMPARISON PURPOSES fees, if any. Therefore, the
costs of investing in other mutual hypothetical information is useful in
funds. The example is based on an The table below also provides comparing ongoing costs only, and will
investment of $1,000 invested at the information about hypothetical account not help you determine the relative
beginning of the period and held for values and hypothetical expenses based total costs of owning different funds.
the entire period, May 1, 2004 - on the fund's actual expense ratio and In addition, if these transactional
October 31, 2004. an assumed rate of return of 5% per costs were included, your costs would
year before expenses, which is not the have been higher.
ACTUAL EXPENSES fund's actual return. The hypothetical
account values and expenses may not be
The table below provides information used to estimate the actual ending
about actual account values and actual account balance or expenses you paid
expenses. You may use the information for the period. You may use this
in this table, information to compare the ongoing
</Table>
<Table>
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,009.10 $6.46 $1,018.70 $ 6.50
Class B 1,000.00 1,006.90 9.99 1,015.18 10.03
Class C 1,000.00 1,006.00 9.98 1,015.18 10.03
Class R 1,000.00 1,009.20 7.47 1,017.70 7.51
(1) The actual ending account value is based on the actual total return of the
fund for the period May 1, 2004, to October 31, 2004, after actual expenses and
will differ from the hypothetical ending account value which is based on the
fund's expense ratio and a hypothetical annual return of 5% before expenses. The
actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 0.91%, 0.69%, 0.60% and 0.92% for Class A, B, C and R
shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.28%, 1.98%,
1.98% and 1.48% for Class A, B, C and R shares, respectively) multiplied by the
average account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
===================================================================================================================================
[ARRROW For More Information Visit
BUTTON AIMinvestments.com
IMAGE]
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 11/26/68-10/31/04; index data from 11/30/68
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and Date AIM Charter Fund S&P 500
management fees. Index results include Class A Shares Index
reinvested dividends, but they do not
reflect sales charges. Performance of
an index of funds reflects fund 11/26/1968 $ 9450 $ 10000
expenses and management fees; 10/69 9577 9238
performance of a market index does not. 10/70 7043 8214
Performance shown in the chart does not 10/71 9192 9598
reflect deduction of taxes a 10/72 12774 11702
shareholder would pay on fund 10/73 14167 11703
distributions or sale of fund shares. 10/74 9745 8335
Performance of the indexes does not 10/75 11909 10500
reflect the effects of taxes. 10/76 14380 12616
10/77 16096 11855
In evaluating this chart, please 10/78 21539 12607
note that the chart uses a logarithmic 10/79 27424 14555
scale along the vertical axis (the 10/80 42322 19228
value scale). This means that each 10/81 45448 19338
scale increment always represents the 10/82 49290 22487
same percent change in price; in a 10/83 63951 28771
linear chart each scale increment 10/84 58999 30603
always represents the same absolute 10/85 67497 36519
change in price. In this example, the 10/86 88821 48638
scale increment between $5,000 and 10/87 94792 51750
$10,000 is the same as that between 10/88 100381 59387
$10,000 and $20,000. In a linear chart, 10/89 134197 75038
the latter scale increment would be 10/90 139372 69426
twice as large. The benefit of using a 10/91 191818 92625
logarithmic scale is that it better 10/92 199832 101840
illustrates performance during the 10/93 233649 117023
early years before reinvested 10/94 227680 121537
distributions and compounding create 10/95 289223 153633
the potential for the original 10/96 337503 190629
investment to grow to very large 10/97 433958 251819
numbers. Had the chart used a linear 10/98 482479 307250
scale along its vertical axis, you 10/99 646804 386098
would not be able to see as clearly the 10/00 734728 409564
movements in the value of the fund and 10/01 450077 307629
the indexes during the fund's early 10/02 411779 261188
years. We use a logarithmic scale in 10/03 478519 315480
financial reports of funds that have 10/04 $524869 $345173
more than five years of performance Source: Lipper, Inc.
history.
CLASS R SHARES
AVERAGE ANNUAL TOTAL RETURNS 10 Years 8.47% The performance data quoted
As of 10/31/04, including applicable sales 5 Years -4.32 represent past performance and cannot
charges 1 Year 9.35 guarantee comparable future results;
current performance may be lower or
CLASS A SHARES In addition to returns as of the close higher. Please visit AIMinvestments.com
Inception (11/26/68) 11.65% of the fiscal year, industry for the most recent month-end
10 Years 8.08 regulations require us to provide performance. Performance figures
5 Years -5.19 average annual total returns as of reflect reinvested distributions,
1 Year 3.53 9/30/04, the most recent calendar changes in net asset value and the
quarter-end. effect of the maximum sales charge
CLASS B SHARES unless otherwise stated. Investment
Inception (6/26/95) 6.85% AVERAGE ANNUAL TOTAL RETURNS return and principal value will
5 Years -5.12 As of 9/30/04, including applicable sales fluctuate so that you may have a gain
1 Year 3.81 charges or loss when you sell shares.
CLASS C SHARES CLASS A SHARES Class A share performance reflects
Inception (8/4/97) 1.48% Inception (11/26/68) 11.65% the maximum 5.50% sales charge, and
5 Years -4.79 10 Years 8.07 Class B and Class C share performance
1 Year 7.79 5 Years -4.30 reflects the applicable contingent
1 Year 5.84 deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
CLASS B SHARES shares declines from 5% beginning at
Inception (6/26/95) 6.79% the time of purchase to 0% at the
5 Years -4.23 beginning of the seventh year. The CDSC
1 Year 6.23 on Class C shares is 1% for the first
year after purchase. Class R shares do
CLASS C SHARES not have a front-end sales charge;
Inception (8/4/97) 1.35% returns shown are at net asset value
5 Years -3.90 and do not reflect a 0.75% CDSC that
1 Year 10.20 may be imposed on a total redemption of
retirement plan assets within the first
CLASS R SHARES year.
10 Years 8.45%
5 Years -3.43 The performance of the fund's share
1 Year 11.71 classes will differ due to different
sales charge structures and class
Class R shares' inception date is expenses.
6/3/02. Returns since that date are
historical returns. All other returns
are blended returns of historical Class
R share performance and restated Class
A share performance (for periods prior
to the inception date of Class R
shares) at net asset value, adjusted to
reflect the higher Rule 12b-1 fees
applicable to Class R shares.
===================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM CHARTER FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Please note that past performance is not
AVERAGE ANNUAL TOTAL RETURNS indicative of future results. More recent
The following information has been For periods ended 10/31/04 returns may be more or less than those
prepared to provide Institutional Class Inception (7/30/91) 8.75% shown. All returns assume reinvestment of
shareholders with a performance overview 10 Years 9.18 distributions at net asset value.
specific to their holdings. Institutional 5 Years -3.66 Investment return and principal value
Class shares are offered exclusively to 1 Year 10.21 will fluctuate so your shares, when
institutional investors, including redeemed, may be worth more or less than
defined contribution plans that meet ========================================= their original cost. See full report for
certain criteria. AVERAGE ANNUAL TOTAL RETURNS information on comparative benchmarks.
For periods ended 9/30/04 Please consult your fund prospectus for
Inception (7/30/91) 8.71% more information. For the most current
10 Years 9.17 month-end performance, please call
5 Years -2.77 800-451-4246 or visit AIMinvestments.com.
1 Year 12.53
=========================================
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Performance of Institutional
Class shares will differ from performance
of other share classes due to differing
sales charges and class expenses.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com CHT-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over may not be used to estimate the actual
the period. Simply divide your account ending account balance or expenses you
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 paid for the period. You may use this
ongoing costs, including management fees; account value divided by $1,000 = 8.6), information to compare the ongoing costs
and other fund expenses. This example is then multiply the result by the number in of investing in the fund and other funds.
intended to help you understand your the table under the heading entitled To do so, compare this 5% hypothetical
ongoing costs (in dollars) of investing "Actual Expenses Paid During Period" to example with the 5% hypothetical examples
in the fund and to compare these costs estimate the expenses you paid on your that appear in the shareholder reports of
with ongoing costs of investing in other account during this period. the other funds.
mutual funds. The example is based on an
investment of $1,000 invested at the HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown in
beginning of the period and held for the COMPARISON PURPOSES the table are meant to highlight your
entire period, May 1, 2004, to October ongoing costs only. Therefore, the
31, 2004. The table below also provides information hypothetical information is useful in
about hypothetical account values and comparing ongoing costs only, and will
ACTUAL EXPENSES hypothetical expenses based on the fund's not help you determine the relative total
actual expense ratio and an assumed rate costs of owning different funds.
The table below provides information of return of 5% per year before expenses,
about actual account values and actual which is not the fund's actual return.
expenses. You may use the information in The hypothetical account values and
this table, together with the amount you expenses
invested, to
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,012.90 $3.79 $1,021.37 $3.81
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 1.29% for the Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio, 0.75% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com CHT-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.34%
AEROSPACE & DEFENSE-1.26%
Northrop Grumman Corp. 700,000 $ 36,225,000
==========================================================================
BREWERS-1.48%
Heineken N.V. (Netherlands)(a)(b) 1,347,106 42,595,608
==========================================================================
BUILDING PRODUCTS-1.40%
Masco Corp. 1,174,500 40,238,370
==========================================================================
COMMUNICATIONS EQUIPMENT-1.03%
Nokia Oyj-ADR (Finland) 1,924,100 29,669,622
==========================================================================
COMPUTER HARDWARE-1.59%
International Business Machines Corp. 510,000 45,772,500
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.36%
First Data Corp. 945,000 39,009,600
==========================================================================
DEPARTMENT STORES-1.91%
Kohl's Corp.(c) 1,081,700 54,907,092
==========================================================================
DIVERSIFIED BANKS-2.53%
Bank of America Corp. 1,011,000 45,282,690
- --------------------------------------------------------------------------
Wachovia Corp. 554,850 27,304,168
==========================================================================
72,586,858
==========================================================================
DIVERSIFIED CHEMICALS-1.19%
Dow Chemical Co. (The) 758,000 34,064,520
==========================================================================
ELECTRIC UTILITIES-1.23%
FPL Group, Inc. 511,200 35,221,680
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.17%
Emerson Electric Co. 525,000 33,626,250
==========================================================================
ENVIRONMENTAL SERVICES-1.99%
Waste Management, Inc. 2,006,500 57,145,120
==========================================================================
FOOD RETAIL-2.91%
Kroger Co. (The)(c) 3,460,000 52,280,600
- --------------------------------------------------------------------------
Safeway Inc.(c) 1,720,000 31,372,800
==========================================================================
83,653,400
==========================================================================
HOUSEHOLD PRODUCTS-1.07%
Kimberly-Clark Corp. 513,000 30,610,710
==========================================================================
HOUSEWARES & SPECIALTIES-1.05%
Newell Rubbermaid Inc. 1,400,000 30,184,000
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.94%
Wal-Mart Stores, Inc. 500,000 26,960,000
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
INDUSTRIAL CONGLOMERATES-4.26%
General Electric Co. 1,434,500 $ 48,945,140
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 2,360,000 73,514,000
==========================================================================
122,459,140
==========================================================================
INDUSTRIAL MACHINERY-2.48%
Dover Corp. 1,040,800 40,872,216
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 329,500 30,406,260
==========================================================================
71,278,476
==========================================================================
INTEGRATED OIL & GAS-7.03%
Amerada Hess Corp. 290,500 23,446,255
- --------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 1,015,000 59,123,750
- --------------------------------------------------------------------------
ChevronTexaco Corp. 467,000 24,779,020
- --------------------------------------------------------------------------
ConocoPhillips 305,300 25,739,843
- --------------------------------------------------------------------------
Exxon Mobil Corp. 892,700 43,938,694
- --------------------------------------------------------------------------
Murphy Oil Corp. 310,900 24,878,218
==========================================================================
201,905,780
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.34%
ALLTEL Corp. 700,000 38,451,000
==========================================================================
INTERNET RETAIL-0.80%
IAC/InterActiveCorp.(a)(c) 1,070,000 23,133,400
==========================================================================
INVESTMENT BANKING & BROKERAGE-1.04%
Morgan Stanley 582,250 29,747,152
==========================================================================
IT CONSULTING & OTHER SERVICES-1.01%
Accenture Ltd.-Class A (Bermuda)(c) 1,200,000 29,052,000
==========================================================================
LIFE & HEALTH INSURANCE-1.16%
Prudential Financial, Inc. 716,200 33,281,814
==========================================================================
OFFICE ELECTRONICS-1.62%
Xerox Corp.(c) 3,156,300 46,618,551
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.14%
Baker Hughes Inc. 763,000 32,679,290
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.29%
Citigroup Inc. 670,000 29,727,900
- --------------------------------------------------------------------------
Principal Financial Group, Inc. 955,000 36,060,800
==========================================================================
65,788,700
==========================================================================
PACKAGED FOODS & MEATS-8.23%
Campbell Soup Co. 2,107,000 56,551,880
- --------------------------------------------------------------------------
General Mills, Inc. 1,880,000 83,190,000
- --------------------------------------------------------------------------
Kraft Foods Inc.-Class A 1,600,000 53,296,000
- --------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
PACKAGED FOODS & MEATS-(CONTINUED)
Sara Lee Corp. 1,865,000 $ 43,417,200
==========================================================================
236,455,080
==========================================================================
PAPER PRODUCTS-1.44%
Georgia-Pacific Corp. 1,200,000 41,508,000
==========================================================================
PHARMACEUTICALS-12.68%
Bristol-Myers Squibb Co. 1,635,000 38,308,050
- --------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 1,430,000 60,632,000
- --------------------------------------------------------------------------
Johnson & Johnson 495,000 28,898,100
- --------------------------------------------------------------------------
Merck & Co. Inc. 2,420,000 75,770,200
- --------------------------------------------------------------------------
Pfizer Inc. 2,395,000 69,335,250
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,168,000 30,368,000
- --------------------------------------------------------------------------
Wyeth 1,540,000 61,061,000
==========================================================================
364,372,600
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.97%
ACE Ltd. (Cayman Islands) 750,000 28,545,000
- --------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 828,122 28,123,023
==========================================================================
56,668,023
==========================================================================
PUBLISHING-3.71%
Gannett Co., Inc. 450,000 37,327,500
- --------------------------------------------------------------------------
New York Times Co. (The)-Class A(a) 952,900 38,163,645
- --------------------------------------------------------------------------
Tribune Co. 720,000 31,104,000
==========================================================================
106,595,145
==========================================================================
RAILROADS-2.76%
Norfolk Southern Corp. 1,334,000 45,289,300
- --------------------------------------------------------------------------
Union Pacific Corp. 538,000 33,877,860
==========================================================================
79,167,160
==========================================================================
REGIONAL BANKS-1.87%
BB&T Corp. 709,300 29,159,323
- --------------------------------------------------------------------------
SunTrust Banks, Inc. 351,150 24,713,937
==========================================================================
53,873,260
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
SEMICONDUCTORS-5.07%
Analog Devices, Inc. 855,000 $ 34,422,300
- --------------------------------------------------------------------------
Intel Corp. 1,889,500 42,060,270
- --------------------------------------------------------------------------
National Semiconductor Corp.(c) 2,139,000 35,721,300
- --------------------------------------------------------------------------
Xilinx, Inc. 1,097,000 33,568,200
==========================================================================
145,772,070
==========================================================================
SOFT DRINKS-0.99%
Coca-Cola Co. (The) 700,000 28,462,000
==========================================================================
SYSTEMS SOFTWARE-5.23%
Computer Associates International, Inc. 2,099,000 58,163,290
- --------------------------------------------------------------------------
Microsoft Corp. 3,287,000 92,003,130
==========================================================================
150,166,420
==========================================================================
THRIFTS & MORTGAGE FINANCE-2.11%
Washington Mutual, Inc. 1,564,560 60,564,118
==========================================================================
Total Common Stocks & Other Equity
Interests
(Cost $2,396,059,963) 2,710,469,509
==========================================================================
MONEY MARKET FUNDS-5.78%
Liquid Assets Portfolio-Institutional
Class(d) 83,058,993 83,058,993
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 83,058,993 83,058,993
==========================================================================
Total Money Market Funds (Cost
$166,117,986) 166,117,986
==========================================================================
TOTAL INVESTMENTS-100.12% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,562,177,949) 2,876,587,495
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.95%
STIC Prime Portfolio-Institutional
Class(d)(e) 27,336,279 27,336,279
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $27,336,279) 27,336,279
==========================================================================
TOTAL INVESTMENTS-101.07% (Cost $2,589,514,228) 2,903,923,774
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.07%) (30,677,348)
==========================================================================
NET ASSETS-100.00% $2,873,246,426
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security has been pledged as collateral for
security lending transactions as of October 31, 2004.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at October 31, 2004 represented 1.47% of the
Fund's Total Investments. See Note 1A.
(c) Non-income producing security.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$2,396,059,963)* $2,710,469,509
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $193,454,265) 193,454,265
============================================================
Total investments (cost $2,589,514,228) 2,903,923,774
- ------------------------------------------------------------
Receivables for:
Investments sold 91,749
- ------------------------------------------------------------
Fund shares sold 677,874
- ------------------------------------------------------------
Dividends 3,441,529
- ------------------------------------------------------------
Investments matured (Note 10) 2,616,170
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 225,690
- ------------------------------------------------------------
Other assets 61,803
============================================================
Total assets 2,911,038,589
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 7,281,636
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 444,079
- ------------------------------------------------------------
Collateral upon return of securities
loaned 27,336,279
- ------------------------------------------------------------
Accrued distribution fees 1,338,545
- ------------------------------------------------------------
Accrued trustees' fees 4,421
- ------------------------------------------------------------
Accrued transfer agent fees 1,070,958
- ------------------------------------------------------------
Accrued operating expenses 316,245
============================================================
Total liabilities 37,792,163
============================================================
Net assets applicable to shares outstanding $2,873,246,426
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,220,676,279
- ------------------------------------------------------------
Undistributed net investment income 5,696,221
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (667,535,620)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 314,409,546
============================================================
$2,873,246,426
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,843,623,034
____________________________________________________________
============================================================
Class B $ 885,499,723
____________________________________________________________
============================================================
Class C $ 138,305,296
____________________________________________________________
============================================================
Class R $ 2,533,768
____________________________________________________________
============================================================
Institutional Class $ 3,284,605
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 151,588,810
____________________________________________________________
============================================================
Class B 76,298,853
____________________________________________________________
============================================================
Class C 11,883,687
____________________________________________________________
============================================================
Class R 209,486
____________________________________________________________
============================================================
Institutional Class 262,233
____________________________________________________________
============================================================
Class A :
Net asset value per share $ 12.16
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.16 divided by
94.50%) $ 12.87
____________________________________________________________
============================================================
Class B :
Net asset value and offering price per
share $ 11.61
____________________________________________________________
============================================================
Class C :
Net asset value and offering price per
share $ 11.64
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 12.10
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.53
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $26,097,344
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $182,690) $ 55,078,131
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $25,015)* 2,075,348
- --------------------------------------------------------------------------
Interest 956
==========================================================================
Total investment income 57,154,435
==========================================================================
EXPENSES:
Advisory fees 20,136,790
- --------------------------------------------------------------------------
Administrative services fees 585,397
- --------------------------------------------------------------------------
Custodian fees 243,906
- --------------------------------------------------------------------------
Distribution fees:
Class A 5,883,153
- --------------------------------------------------------------------------
Class B 10,549,491
- --------------------------------------------------------------------------
Class C 1,572,686
- --------------------------------------------------------------------------
Class R 11,195
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 8,357,015
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,847
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 73,380
- --------------------------------------------------------------------------
Other 1,564,364
==========================================================================
Total expenses 48,979,224
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (360,129)
==========================================================================
Net expenses 48,619,095
==========================================================================
Net investment income 8,535,340
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 284,896,878
- --------------------------------------------------------------------------
Foreign currencies 47,518
==========================================================================
284,944,396
==========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (662,843)
==========================================================================
Net gain from investment securities and foreign currencies 284,281,553
==========================================================================
Net increase in net assets resulting from operations $292,816,893
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,535,340 $ 3,496,816
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 284,944,396 (177,091,373)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (662,843) 649,909,999
==============================================================================================
Net increase in net assets resulting from operations 292,816,893 476,315,442
==============================================================================================
Distributions to shareholders from net investment income:
Class A (4,234,798) --
- ----------------------------------------------------------------------------------------------
Class R (2,682) --
- ----------------------------------------------------------------------------------------------
Institutional Class (14,410) --
==============================================================================================
Decrease in net assets resulting from distributions (4,251,890) --
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A (343,025,821) (380,938,708)
- ----------------------------------------------------------------------------------------------
Class B (360,933,716) (215,082,650)
- ----------------------------------------------------------------------------------------------
Class C (39,355,393) (29,277,194)
- ----------------------------------------------------------------------------------------------
Class R 642,358 1,521,693
- ----------------------------------------------------------------------------------------------
Institutional Class 1,074,851 339,875
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (741,597,721) (623,436,984)
==============================================================================================
Net increase (decrease) in net assets (453,032,718) (147,121,542)
==============================================================================================
NET ASSETS:
Beginning of year 3,326,279,144 3,473,400,686
==============================================================================================
End of year (including undistributed net investment income
of $5,696,221 and $1,365,253, respectively) $2,873,246,426 $3,326,279,144
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-6
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first
$30 million of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $30 million up to and including $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $44,820. Under the terms of a master
sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM
Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $267,010 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
F-7
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, 2004, AIM was
paid $585,397 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $8,357,015 for Class A, Class B, Class C and Class R shares
and $1,847 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to selected dealers and financial
institutions who furnish continuing personal shareholder services to customers
who purchase and own shares of such classes. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended October 31, 2004, the Class A, Class B, Class C and
Class R shares paid $5,883,153, $10,549,491, $1,572,686 and $11,195,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$234,197 in front-end sales commissions from the sale of Class A shares and
$3,448, $59,959, $6,679 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 98,974,452 $487,207,080 $ (503,122,539) $ -- $ 83,058,993 $1,032,599 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 98,974,452 487,207,080 (503,122,539) -- 83,058,993 1,017,734 --
===================================================================================================================================
Subtotal $197,948,904 $974,414,160 $(1,006,245,078) $ -- $166,117,986 $2,050,333 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 22,552,000 $ 341,863,851 $ (364,415,851) $ -- $ -- $ 21,732 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 46,453,174 (19,116,895) -- 27,336,279 3,283 --
===================================================================================================================================
Subtotal $ 22,552,000 $ 388,317,025 $ (383,532,746) $ -- $ 27,336,279 $ 25,015 $ --
===================================================================================================================================
Total $220,500,904 $1,362,731,185 $(1,389,777,824) $ -- $193,454,265 $2,075,348 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
F-8
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $43,476,128 and $115,762,500,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $48,299, which resulted in a
reduction of the Fund's total expenses of $48,299.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $15,947
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $26,097,344 were
on loan to brokers. The loans were secured by cash collateral of $27,336,279
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $25,015 for securities
lending transactions.
F-9
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------
Distributions paid from ordinary income $4,251,890 $ --
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 8,592,013
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 264,884,884
- ----------------------------------------------------------------------------
Temporary book/tax difference (394,478)
- ----------------------------------------------------------------------------
Capital loss carryforward (620,512,272)
- ----------------------------------------------------------------------------
Shares of beneficial interest 3,220,676,279
============================================================================
Total net assets $2,873,246,426
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the treatment of defaulted bonds.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $282,887,750 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $488,443,372
- -----------------------------------------------------------------------------
October 31, 2011 132,068,900
=============================================================================
Total capital loss carryforward $620,512,272
_____________________________________________________________________________
=============================================================================
* Capital loss carryforward as of the date listed above is
reduced for limitations, if any, to the extent required by
the Internal Revenue Code.
</Table>
NOTE 10--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, 2004 was $1,066,339,251 and $1,695,085,970, respectively.
Receivable for investments matured represents the estimated proceeds to the
Fund by Candescent Technologies Corp. which is in default with respect to the
principal payments on $60,700,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00% which was due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 376,858,000
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (111,973,116)
===============================================================================
Net unrealized appreciation of investment securities $ 264,884,884
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $2,639,038,890.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on October 31, 2004, undistributed net investment income was
increased by $47,518 and undistributed net realized gain (loss) was decreased by
$47,518. This reclassification had no effect on the net assets of the Fund.
F-10
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,951,437 $ 94,832,462 16,680,459 $ 167,057,570
- --------------------------------------------------------------------------------------------------------------------------
Class B 3,877,677 44,222,154 8,128,480 78,572,729
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,217,568 13,934,813 2,035,003 19,657,080
- --------------------------------------------------------------------------------------------------------------------------
Class R 95,004 1,120,376 182,932 1,841,485
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 515,765 6,344,104 53,551 570,090
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 345,517 3,966,625 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class R 234 2,681 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 714 8,400 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 12,968,092 155,893,419 3,640,846 37,843,518
- --------------------------------------------------------------------------------------------------------------------------
Class B (13,548,346) (155,893,419) (3,789,510) (37,843,518)
==========================================================================================================================
Reacquired:
Class A (50,261,476) (597,718,327) (58,788,618) (585,839,796)
- --------------------------------------------------------------------------------------------------------------------------
Class B (21,841,949) (249,262,451) (26,845,101) (255,811,861)
- --------------------------------------------------------------------------------------------------------------------------
Class C (4,652,957) (53,290,206) (5,102,475) (48,934,274)
- --------------------------------------------------------------------------------------------------------------------------
Class R (40,399) (480,699) (29,999) (319,792)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (434,182) (5,277,653) (22,226) (230,215)
==========================================================================================================================
(63,807,301) $(741,597,721) (63,856,658) $(623,436,984)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 13.20% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell the Fund Shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to the
Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The Trust
has no knowledge as to whether all or any portion of the shares owned of
record by these shareholders are also owned beneficially.
F-11
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.12 $ 9.57 $ 10.46 $ 18.07 $ 17.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.04(a) 0.01(b) (0.03) (0.04)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.00 1.51 (0.90) (6.70) 2.30
=================================================================================================================================
Total from investment operations 1.06 1.55 (0.89) (6.73) 2.26
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.88) (1.35)
=================================================================================================================================
Total distributions (0.02) -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 12.16 $ 11.12 $ 9.57 $ 10.46 $ 18.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 9.58% 16.20% (8.51)% (38.75)% 13.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,843,623 $2,008,702 $2,096,866 $3,159,304 $5,801,869
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.26%(d) 1.30% 1.22% 1.16% 1.06%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.27%(d) 1.30% 1.22% 1.17% 1.08%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.54%(d) 0.39% 0.09%(b) (0.24)% (0.20)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,961,051,091.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.67 $ 9.24 $ 10.18 $ 17.72 $ 16.97
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) (0.08)(b) (0.13) (0.17)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 1.46 (0.86) (6.53) 2.27
=================================================================================================================================
Total from investment operations 0.94 1.43 (0.94) (6.66) 2.10
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 11.61 $ 10.67 $ 9.24 $ 10.18 $ 17.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 8.81% 15.48% (9.23)% (39.14)% 12.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $885,500 $1,149,943 $1,204,617 $1,719,470 $3,088,611
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.00% 1.92% 1.86% 1.80%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.97%(d) 2.00% 1.92% 1.87% 1.82%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.16%)(d) (0.31)% (0.61%)(b) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,054,949,073.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.70 $ 9.27 $ 10.21 $ 17.77 $ 17.01
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) (0.08)(b) (0.13) (0.17)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 1.46 (0.86) (6.55) 2.28
=========================================================================================================================
Total from investment operations 0.94 1.43 (0.94) (6.68) 2.11
=========================================================================================================================
Less distributions from net realized gains -- -- -- (0.88) (1.35)
=========================================================================================================================
Net asset value, end of period $ 11.64 $ 10.70 $ 9.27 $ 10.21 $ 17.77
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 8.79% 15.43% (9.21)% (39.14)% 12.78%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $138,305 $163,859 $170,444 $248,533 $412,872
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.00% 1.92% 1.86% 1.80%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.97%(d) 2.00% 1.92% 1.87% 1.82%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.16)%(d) (0.31)% (0.61)%(b) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $157,268,602.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.08 $ 9.56 $ 10.94
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.02(a) 0.00
====================================================================================================
Net gains (losses) on securities (both realized and
unrealized) 1.00 1.50 (1.38)
====================================================================================================
Total from investment operations 1.04 1.52 (1.38)
====================================================================================================
Less dividends from net investment income (0.02) -- --
====================================================================================================
Net asset value, end of period $12.10 $11.08 $ 9.56
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 9.35% 15.90% (12.61)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,534 $1,714 $ 16
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.46%(c)(d) 1.50% 1.42%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets 0.34%(c) 0.19% (0.11)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 36% 28% 103%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,239,072.
(d) After fee waivers and/or expense reimbursements. Prior to fee waivers
and/or expense reimbursements ratio of expenses to average net assets
was 1.47%
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL
--------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.45 $ 9.80 $10.67 $ 18.33 $17.33
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13(a) 0.09(a) 0.06(b) 0.04 0.52
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.03 1.56 (0.93) (6.82) 1.83
================================================================================================================
Total from investment operations 1.16 1.65 (0.87) (6.78) 2.35
================================================================================================================
Less distributions:
Dividends from net investment income (0.08) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.88) (1.35)
================================================================================================================
Total distributions (0.08) -- -- (0.88) (1.35)
================================================================================================================
Net asset value, end of period $12.53 $11.45 $ 9.80 $ 10.67 $18.33
________________________________________________________________________________________________________________
================================================================================================================
Total return(c) 10.21% 16.84% (8.15)% (38.46)% 14.02%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,285 $2,061 $1,457 $ 1,648 $3,234
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.74%(d) 0.79% 0.79% 0.68% 0.66%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.75%(d) 0.79% 0.83% 0.69% 0.68%
================================================================================================================
Ratio of net investment income to average net assets 1.06%(d) 0.90% 0.52%(b) 0.25% 0.20%
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions.
(d) Ratios are based on average daily net assets of $4,378,524.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
related issues in the AIM Funds, including those formerly advised by IFG. A
final settlement also has been reached with the Colorado Division of Securities
("CODS") with respect to this matter. In their enforcement actions and
investigations, these regulators alleged, in substance, that IFG and AIM failed
to disclose in the prospectuses for the AIM Funds that they advised and to the
independent directors/trustees of such Funds that IFG and AIM had entered into
certain arrangements permitting market timing of such Funds, thereby breaching
their fiduciary duties to such Funds. As a result of the foregoing, the
regulators alleged that IFG, AIM and ADI breached various Federal and state
securities, business and consumer protection laws. Under the terms of the
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
F-17
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Charter Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Charter Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Charter Fund as of October 31, 2004, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s)
Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. and A I M Management
Group Inc., A I M Advisors, Inc.; and
Director and Chairman, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP A I M Capital
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center Management, Inc.
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney 11 Greenway Plaza
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 1200 Suite 100
Houston, TX 77010-4035 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2004, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2004, the Fund designated 100% or the maximum
amount allowable, of its dividend distributions as qualified dividend income.
Your actual amount of qualified dividend income for the calendar year will be
reported on Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
<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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund Fixed Income
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) =============================================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS AND
AIM Total Return Fund*(1) OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR AND READ
AIM Trimark Endeavor Fund IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund =============================================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com CHT-AR-1
<Table>
[YOUR GOALS. OUR SOLUTIONS.] -- REGISTERED TRADEMARK --
- --------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management -- REGISTERED TRADEMARK --
Plans Accounts
- --------------------------------------------------------------------------------------------
</Table>
AIM Constellation Fund
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- -- Registered Trademark -- -- REGISTERED TRADEMARK --
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====================================================================================================================================
AIM CONSTELLATION FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Lipper Multi-Cap Growth The fund files its complete schedule of
Fund Index represents an average of the portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are performance of the 30 largest and Exchange Commission ("SEC") for the
not available as an investment for multi-capitalization growth funds tracked 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to by Lipper, Inc., an independent mutual on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue fund performance monitor. are available on the SEC's Web site at
Code, including 401(k) plans, money http://www.sec.gov. Copies of the fund's
purchase pension plans and profit o The unmanaged MSCI World Index is a Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing group of global securities tracked by the SEC's Public Reference Room at 450
accounts invested in Class B shares will Morgan Stanley Capital International. Fifth Street, N.W., Washington, D.C.
continue to be allowed to make 20549-0102. You can obtain information
additional purchases. o The fund is not managed to track the on the operation of the Public Reference
performance of any particular index, Room, including information about
o Class R shares are available only to including the indexes defined here, and duplicating fee charges, by calling
certain retirement plans. Please see the consequently, the performance of the 1-202-942-8090 or by electronic request
prospectus for more information. fund may deviate significantly from the at the following e-mail address:
performance of the indexes. Performance publicinfo@sec.gov. The SEC file numbers
PRINCIPAL RISKS OF INVESTING IN THE FUND of an index of funds reflects fund for the fund are 811-1424 and 2-25469.
expenses; performance of a market index The fund's most recent portfolio
o Investing in small and mid-size does not. holdings, as filed on Form NQ, are also
companies involves risks not associated available at AIMinvestments.com.
with investing in more established o A direct investment cannot be made in
companies. Also, small companies have an index. Unless otherwise indicated, A description of the policies and
business risk, significant stock price index results include reinvested procedures that the fund uses to
fluctuations and illiquidity. dividends, and they do not reflect sales determine how to vote proxies relating
charges. to portfolio securities is available
ABOUT INDEXES USED IN THIS REPORT without charge, upon request, from our
OTHER INFORMATION Client Services department at
o The unmanaged Standard & Poor's 800-959-4246 or on the AIM Web site,
Composite Index of 500 Stocks (the S&P o Industry classifications used in this AIMinvestments.com. On the home page,
500--Registered Trademark--) is an report are generally according to the scroll down and click on AIM Funds Proxy
index of common stocks frequently used Global Industry Classification Standard, Policy. The information is also
as a general measure of U.S. stock which was developed by and is the available on the Securities and Exchange
market performance. exclusive property and a service mark of Commission's Web site, sec.gov.
Morgan Stanley Capital International
o The unmanaged Russell 1000 Inc. and Standard & Poor's. Information regarding how the fund voted
- --Registered Trademark--Growth Index is proxies related to its portfolio
a subset of the unmanaged Russell 1000-- o The returns shown in the Management's securities during the 12 months ended
Registered Trademark--Index, which Discussion of Fund Performance are based 6/30/04 is available at our Web site. Go
represents the performance of the stocks on net asset values calculated for to AIMinvestments.com, access the About
of large-capitalization companies; the shareholder transactions. Generally Us tab, click on Required Notices and
Growth subset measures the performance accepted accounting principles require then click on Proxy Voting Activity.
of Russell 1000 companies with higher adjustments to be made to the net assets Next, select your fund from the
price/book ratios and higher forecasted of the fund at period end for financial drop-down menu.
growth values. reporting purposes, and as such, the net
asset values for shareholder
transactions and the returns based on
those net asset values may differ from
the net asset values and returns
reported in the Financial Highlights.
o Bloomberg is an independent financial
research and reporting firm.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H.
GRAHAM] It is our pleasure to introduce you to Bruce Crockett, the
new Chairman of the Board of Trustees of the AIM Funds. Bob
ROBERT H. GRAHAM Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
position in 2000. However, as you may be aware, the U.S.
[PHOTO OF Securities and Exchange Commission recently adopted a rule
MARK H. requiring that an independent fund trustee, meaning a
WILLIAMSON] trustee who is not an officer of the fund's investment
advisor, serve as chairman of the funds' Board. In
MARK H. WILLIAMSON addition, a similar provision was included in the terms of
AIM Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
[PHOTO OF Crockett, one of the fourteen independent trustees on the
BRUCE L. AIM Funds' Board, as Chairman. His appointment became
CROCKETT] effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
BRUCE L. CROCKETT Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
acquired certain funds that had been advised by CIGNA. He had been a member of
the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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FUND POSITIONED FOR CONTINUED ECONOMIC strongest-performing sectors of the S&P
EXPANSION 500 Index; information technology,
health care and consumer staples were
For the fiscal year ended October 31, at an annualized rate of 4.2% in the the weakest-performing sectors. Mid-cap
2004, AIM Constellation Fund, Class A fourth quarter of 2003 before tapering stocks generally were best-performing
shares, returned 3.20% at net asset off to a more modest 3.9% in the third equity segment, followed by small-cap
value (NAV). Performance shown at NAV quarter of 2004. stocks and large-cap stocks.
does not include front-end sales
charges, which would have reduced the Generally positive economic YOUR FUND
performance. For the performance of developments prompted the U.S. Federal
other share classes, please see page 3. Reserve (the Fed) to raise its federal As we were generally optimistic about
The fund's Class A shares at NAV tracked funds target rate from a decades-low the economy, we continued to favor
the performance of the Russell 1000 1.00%, where it stood at the beginning earnings momentum stocks over
Growth Index, which returned 3.38%, but of the fiscal year, to 1.75% at the core-growth holdings in the portfolio.
underperformed the S&P 500 Index and the close of the reporting period. In its At the close of the reporting period,
Lipper Multi-Cap Growth Fund Index, report on the economy released in late earnings momentum stocks composed about
which returned 9.41% and 5.75%, October, the Fed said economic activity 65% of the portfolio while core-growth
respectively, over the same period. continued to expand in September and holdings made up about 35%. Earnings
early October. The Fed said that higher momentum stocks tend to perform better
At the close of the reporting period, energy costs were constraining consumer than core-growth holdings in an
nearly two-thirds of the fund's assets and business spending; but that capital improving economic environment. However,
were invested in large-cap growth spending and hiring were rising they tend to be more volatile during
stocks. The fund underperformed the S&P modestly. market downturns. Core-growth
500 Index because that benchmark holdings--the stocks of companies with
includes value stocks, which generally Geopolitical uncertainty and consistent long-term earnings growth
outperformed growth stocks over the terrorism concerns, as well as soaring records--may provide some protection in
period. We believe the fund oil prices, had a mitigating effect on a declining market, but they may not
underperformed the Lipper Multi-Cap economic growth and consumer sentiment. appreciate as much when stocks are
Growth Fund Index because it had less In mid-October, Fed Chairman Alan rising.
exposure to mid- and small-cap stocks, Greenspan said that "so far this year,
which generally outperformed large-cap the rise in the value of imported oil-- This strategy proved more beneficial
stocks, than some of its peers. essentially a tax on U.S. residents-- to the fund earlier in the fiscal year,
has amounted to about 3/4 (of one) when more economically sensitive sectors
MARKET CONDITIONS percent of GDP." such as information technology performed
well. The portfolio's largest sector
The U.S. economy showed signs of Bloomberg reported that 80% of the weighting was in information technology,
strength during the fiscal year ended companies in the S&P 500 Index that had which was the best-performing sector in
October 31, 2004. Gross domestic product reported third-quarter earnings by the 2003. However, information technology
(GDP), the broadest measure of overall close of the fiscal year had either met stocks struggled for much of 2004, and
economic activity, expanded or exceeded expectations; just 20% the fund's weighting in this sector
missed expectations. Energy, utilities detracted from performance.
and telecommunication services were the
The sectors that had the most
positive impact on fund performance were
energy, consumer
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PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Microsoft Corp. 2.6% 1. Health Care Equipment 6.8%
[PIE CHART] 2. Biomet, Inc. 2.5 2. Communications Equipment 6.3
Information Technology 30.1% 3. Microchip Technology Inc. 2.3 3. Semiconductors 6.2
Health Care 17.6% 4. Cisco Systems, Inc. 2.2 4. Pharmaceuticals 5.7
Consumer Discretionary 13.8% 5. Dell Inc. 2.0 5. Systems Software 5.0
Industrials 13.1% 6. Pfizer Inc. 1.9 6. Industrial Machinery 3.6
Financials 8.8% 7. Yahoo! Inc. 1.8 7. Consumer Finance 3.6
Materials 5.5% 8. Robert Half International Inc. 1.6 8. Specialty Stores 3.4
Energy 5.4% 9. Staples, Inc. 1.6 9. Data Processing & Outsourced
Consumer Staples 4.7% 10. Johnson & Johnson 1.5 Services 2.8
Money Market Funds Plus Other 10. Computer Hardware 2.8
Assets Less Liabilities 0.5%
Telecommunication Services 0.5%
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
*Excluding money market fund holdings.
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2
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discretionary and health care. During subsequently settled and the company CHRISTIAN A. COSTANZO
the year, we increased the fund's continued to report solid earnings, so Mr. Costanzo joined AIM
exposure to energy, industrials and we continued to hold this stock in the [COSTANZO in 1995 as an analyst
materials. While these are not portfolio. Lam Research's stock was PHOTO] and assumed his current
traditionally regarded as growth adversely affected by the decline in duties in 1997. Prior
sectors, we found companies with technology stocks in general, even to joining AIM, he
attractive earnings in these sectors. though the company reported strong worked as a business analyst from 1991
Moreover, we believe industrials and earnings. However, there was some to 1993 and as a B-52 Navigator in the
materials companies could benefit from concern that these earnings might not be United States Air Force from 1987 to
the development of Third World sustainable. The fund no longer owned 1990. He holds a B.A. in biology and
countries. Energy companies benefited the stock at the end of the reporting economics from the University of
from rising oil prices, and, in our period. Virginia and an M.B.A. from The
opinion, this could encourage oil and University of Texas at Austin.
gas companies to increase production. IN CLOSING
ROBERT J. LLOYD
We decreased the fund's exposure to Throughout the reporting period, we Mr. Lloyd, Chartered
consumer discretionary stocks over the remained committed to the fund's [LLOYD Financial Analyst,
reporting period because we were investment objective of seeking growth PHOTO] joined AIM in 2000 as a
concerned that rising interest rates and of capital by investing in the stocks of senior analyst for the
personal debt could discourage consumer companies we believe are likely to technology funds. He
spending. benefit from new or innovative products was promoted to portfolio manager in
as well as those that have experienced 2001. He served eight years in the U.S.
Stocks that contributed to fund above-average, long-term growth in Navy as a Naval Flight Officer flying
performance included eBay, an online earnings. the S-3B Viking. He received a B.B.A.
auction company, and Biomet, a from the University of Notre Dame and an
manufacturer of surgical and The views and opinions expressed in M.B.A. from the University of Chicago.
non-surgical medical devices. In our Management's Discussion of Fund
opinion, eBay represented a strong Performance are those of A I M Advisors, BRYAN A. UNTERHALTER
franchise with a unique business model Inc. These views and opinions are Mr. Unterhalter began
and enjoyed a dominant position in its subject to change at any time based on [UNTERHALTER his investment career
industry. Biomet, whose products include factors such as market and economic PHOTO] in 1995 as an equity
hip and knee replacements, benefited conditions. These views and opinions may trader. In 1997, he
from pricing power and the aging of the not be relied upon as investment advice joined AIM as a
population. The company also reported or recommendations, or as an offer for a domestic equity trader and later became
solid earnings. particular security. The information is an analyst on AIM's International
not a complete analysis of every aspect (Europe/Canada) investment management
Detracting from fund performance were of any market, country, industry, team in 1998. He was promoted to his
Clear Channel Communications, the security or the fund. Statements of fact current position in 2003. A native of
leading radio station owner in the are from sources considered reliable, Johannesburg, South Africa, he received
United States, and Lam Research, a but A I M Advisors, Inc. makes no a B.A. from The University of Texas at
manufacturer of semiconductor processing representation or warranty as to their Austin and an M.B.A. from the University
equipment. Clear Channel Communication's completeness or accuracy. Although of St. Thomas.
stock declined amid concerns about historical performance is no guarantee
decreasing advertising revenue and an of future results, these insights may KENNETH A. ZSCHAPPEL
indecency claim filed against it by the help you understand our investment Mr. Zschappel is lead
Federal Communications Commission. The management philosophy. [ZSCHAPPEL portfolio manager of
claim was PHOTO] AIM Constellation Fund.
See important fund and index He joined AIM in 1990
disclosures inside front cover. and in 1992 became a
portfolio analyst for equity securities,
specializing in technology and health
care. He was selected investment officer
of AIM Capital Management in 1995. A
native of Austin, Texas, he received a
B.A. in political science from Baylor
University.
Assisted by the Multi-Cap Growth Team
====================================================================================== =========================================
FUND VS. INDEXES TOTAL NET ASSETS $6.6 billion
Total returns, 10/31/03-10/31/04, excluding applicable sales charges. If sales TOTAL NUMBER OF HOLDINGS* 138
charges were included, returns would be lower.
=========================================
Class A Shares 3.20%
Class B Shares 2.52
Class C Shares 2.47
Class R Shares 2.96
S&P 500 Index (Broad market index) 9.41
Russell 1000 Growth Index
(Style-specific index) 3.38
Lipper Multi-Cap Growth Funds Index
(Peer group index) 5.75
Source: Lipper, Inc.
====================================================================================== [RIGHT ARROW GRAPHIC]
For a presentation of your fund's
long-term performance record, please
turn to page 5.
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3
<Table>
INFORMATION ABOUT YOUR FUND'S EXPENSES to estimate the expenses that you paid To do so, compare this 5% hypothetical
over the period. Simply divide your example with the 5% hypothetical
CALCULATING YOUR ONGOING FUND EXPENSES account value by $1,000 (for example, an examples that appear in the shareholder
$8,600 account value divided by $1,000 = reports of the other funds.
8.6), then multiply the result by the
EXAMPLE number in the table under the heading Please note that the expenses shown
entitled "Actual Expenses Paid During in the table are meant to highlight your
As a shareholder of the fund, you incur Period" to estimate the expenses you ongoing costs only and do not reflect
two types of costs: (1) transaction paid on your account during this period. any transactional costs, such as sales
costs, which may include sales charges charges (loads) on purchase payments,
(loads) on purchase payments; contingent HYPOTHETICAL EXAMPLE FOR contingent deferred sales charges on
deferred sales charges on redemptions; COMPARISON PURPOSES redemptions, and redemption fees, if
and redemption fees, if any; and (2) any. Therefore, the hypothetical
ongoing costs, including management The table below also provides information is useful in comparing
fees; distribution and/or service fees information about hypothetical account ongoing costs only, and will not help
(12b-1); and other fund expenses. This values and hypothetical expenses based you determine the relative total costs
example is intended to help you on the fund's actual expense ratio and of owning different funds. In addition,
understand your ongoing costs (in an assumed rate of return of 5% per year if these transactional costs were
dollars) of investing in the fund and to before expenses, which is not the fund's included, your costs would have been
compare these costs with ongoing costs actual return. The hypothetical account higher.
of investing in other mutual funds. The values and expenses may not be used to
example is based on an investment of estimate the actual ending account
$1,000 invested at the beginning of the balance or expenses you paid for the
period and held for the entire period, period. You may use this information to
May 1, 2004-October 31, 2004. compare the ongoing costs of investing
in the fund and other funds.
ACTUAL EXPENSES
The table below provides information
about actual account values and actual
expenses. You may use the information in
this table, together with the amount you
invested,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,012.40 $ 6.73 $1,018.45 $ 6.75
Class B 1,000.00 1,009.10 10.25 1,014.93 10.28
Class C 1,000.00 1,009.10 10.25 1,014.93 10.28
Class R 1,000.00 1,011.40 7.74 1,017.44 7.76
1 The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 1.24%, 0.91%, 0.91% and 1.14% for Classes A, B, C and R shares, respectively.
2 Expenses are equal to the fund's annualized expense ratio (1.33%, 2.03%, 2.03%, and 1.53% for Classes A, B, C, and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 4/30/76-10/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results
include reinvested dividends. Date AIM Constellation Fund Lipper Multi-Cap S&P 500
Performance of an index of funds Class A Shares Growth Fund Index Index
reflects fund expenses and management
fees; performance of a market index does 4/30/1976 $ 9450 $ 10000 $ 10000
not. Performance shown in the chart does 10/76 9111 9768 10327
not reflect deduction of taxes a 10/77 8573 9922 9704
shareholder would pay on fund 10/78 10338 11365 10320
distributions or sale of fund shares. 10/79 15631 14727 11914
Performance of the indexes does not 10/80 31383 22269 15739
reflect the effects of taxes. 10/81 30655 23306 15829
10/82 29017 27285 18407
In evaluating this chart, please note 10/83 40590 34357 23551
that the chart uses a logarithmic scale 10/84 35906 33142 25051
along the vertical axis (the value 10/85 39690 38088 29893
scale). This means that each scale 10/86 58182 49671 39813
increment always represents the same 10/87 56766 50154 42361
percent change in price; in a linear 10/88 70001 57038 48612
chart each scale increment always 10/89 94855 75085 61424
represents the same absolute change in 10/90 79503 64784 56830
price. In this example, the scale 10/91 141394 95520 75820
increment between $5,000 and $10,000 is 10/92 162358 103338 83363
the same as that between $10,000 and 10/93 208766 127871 95791
$20,000. In a linear chart, the latter 10/94 224316 128527 99486
scale increment would be twice as large. 10/95 299333 161713 125759
The benefit of using a logarithmic scale 10/96 333002 189139 156043
is that it better illustrates 10/97 395670 237816 206131
performance during the fund's early 10/98 386648 253662 251505
years before reinvested distributions 10/99 521308 354555 316047
and compounding create the potential for 10/00 711888 449623 335256
the original investment to grow to very 10/01 405058 260593 251815
large numbers. Had the chart used a 10/02 353087 206899 213800
linear scale along its vertical axis, 10/03 423347 265113 258241
you would not be able to see as clearly 10/04 $436810 $280347 $282547
the movements in the value of the fund Source: Lipper, Inc.
and the indexes during the fund's early
years. We use a logarithmic scale in
financial reports of funds that have
more than five years of performance In addition to returns as of the close The performance data quoted represent
history. of the fiscal year, industry regulations past performance and cannot guarantee
require us to provide average annual comparable future results; current
AVERAGE ANNUAL TOTAL RETURNS total returns as of 9/30/04, the most performance may be lower or higher.
As of 10/31/04, including applicable recent calendar quarter-end. Please visit AIMinvestments.com for the
sales charges most recent month-end performance.
AVERAGE ANNUAL TOTAL RETURNS Performance figures reflect reinvested
CLASS A SHARES As of 9/30/04, most recent calendar distributions, changes in net asset
Inception (4/30/76) 14.17% quarter-end, including applicable sales value and the effect of the maximum
10 Years 6.29 charges sales charge unless otherwise stated.
5 Years -4.56 Investment return and principal value
1 Year -2.47 CLASS A SHARES will fluctuate so that you may have a
CLASS B SHARES Inception (4/30/76) 14.12% gain or loss when you sell shares.
Inception (11/3/97) 0.25% 10 Years 6.38
5 Years -4.44 5 Years -3.65 Class A share performance reflects
1 Year -2.48 1 Year 1.91 the maximum 5.50% sales charge, and
CLASS C SHARES Class B and Class C share performance
Inception (8/4/97) 0.11% CLASS B SHARES reflects the applicable contingent
5 Years -4.16 Inception (11/3/97) -0.10% deferred sales charge (CDSC) for the
1 Year 1.47 5 Years -3.54 period involved. The CDSC on Class B
CLASS R SHARES 1 Year 2.15 shares declines from 5% beginning at the
10 Years 6.72% time of purchase to 0% at the beginning
5 Years -3.60 CLASS C SHARES of the seventh year. The CDSC on Class C
1 Year 2.96 Inception (8/4/97) -0.22% shares is 1% for the first year after
5 Years -3.25 purchase. Class R shares do not have a
1 Year 6.15 front-end sales charge; returns shown
are at net asset value and do not
CLASS R SHARES reflect a 0.75% CDSC that may be imposed
10 Years 6.80% on a total redemption of retirement plan
5 Years -2.68 assets within the first year.
1 Year 7.63
The performance of the fund's share
Class R shares' inception date is classes will differ due to different
6/3/02. Returns since that date are sales charge structures and class
historical returns. All other returns expenses.
are blended returns of historical Class
R share performance and restated Class
A share performance (for periods prior
to the inception date of Class R
shares) at net asset value, adjusted
to reflect the higher Rule 12b-1 fees
applicable to Class R shares.
====================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM CONSTELLATION FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Please note that past performance is not
AVERAGE ANNUAL TOTAL RETURNS indicative of future results. More recent
The following information has been For periods ended 10/31/04 returns may be more or less than those
prepared to provide Institutional Class Inception (4/8/92) 9.36% shown. All returns assume reinvestment of
shareholders with a performance overview 10 Years 7.42 distributions at net asset value.
specific to their holdings. Institutional 5 Years -2.98 Investment return and principal value
Class shares are offered exclusively to 1 Year 3.79 will fluctuate so your shares, when
institutional investors, including redeemed, may be worth more or less than
defined contribution plans that meet ========================================= their original cost. See full report for
certain criteria. AVERAGE ANNUAL TOTAL RETURNS information on comparative benchmarks.
For periods ended 9/30/04 Please consult your fund prospectus for
Inception (4/8/92) 9.21% more information. For the most current
10 Years 7.51 month-end performance, please call
5 Years -2.07 800-451-4246 or visit AIMinvestments.com.
1 Year 8.51
=========================================
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Performance of Institutional
Class shares will differ from performance
of other share classes due to differing
sales charges and class expenses.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com CST-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account value You may use this information to compare
by $1,000 (for example, an $8,600 account the ongoing costs of investing in the
As a shareholder of the fund, you incur value divided by $1,000 = 8.6), then fund and other funds. To do so, compare
ongoing costs, including management fees; multiply the result by the number in the this 5% hypothetical example with the 5%
and other fund expenses. This example is table under the heading entitled "Actual hypothetical examples that appear in the
intended to help you understand your Expenses Paid During Period" to estimate shareholder reports of the other funds.
ongoing costs (in dollars) of investing the expenses you paid on your account
in the fund and to compare these costs during this period. Please note that the expenses shown in
with ongoing costs of investing in other the table are meant to highlight your
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR ongoing costs only. Therefore, the
investment of $1,000 invested at the COMPARISON PURPOSES hypothetical information is useful in
beginning of the period and held for the comparing ongoing costs only, and will
entire period, May 1, 2004, to October The table below also provides information not help you determine the relative total
31, 2004. about hypothetical account values and costs of owning different funds.
hypothetical expenses based on the fund's
ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
The table below provides information which is not the fund's actual return.
about actual account values and actual The hypothetical account values and
expenses. You may use the information in expenses may not be used to estimate the
this table, together with the amount you actual ending account balance or expenses
invested, to estimate the expenses that you paid for the period.
you paid over the
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,015.90 $3.75 $1,021.42 $3.76
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 1.59% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 0.74% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com CST-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.49%
ADVERTISING-1.02%
Lamar Advertising Co.-Class A(a)(b) 1,609,800 $ 66,677,916
===========================================================================
AEROSPACE & DEFENSE-0.64%
Honeywell International Inc. 1,250,000 42,100,000
===========================================================================
AIR FREIGHT & LOGISTICS-1.13%
Expeditors International of Washington,
Inc.(b) 500,000 28,550,000
- ---------------------------------------------------------------------------
FedEx Corp.(b) 500,000 45,560,000
===========================================================================
74,110,000
===========================================================================
AIRLINES-0.53%
Southwest Airlines Co.(b) 2,193,800 34,596,226
===========================================================================
APPAREL RETAIL-0.37%
TJX Cos., Inc. (The) 1,000,000 23,980,000
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.71%
Coach, Inc.(a) 1,000,000 46,630,000
===========================================================================
APPLICATION SOFTWARE-1.08%
Autodesk, Inc.(b) 1,350,000 71,212,500
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.22%
Investors Financial Services Corp.(b) 380,000 14,626,200
===========================================================================
BIOTECHNOLOGY-1.98%
Amgen Inc.(a) 744,700 42,298,960
- ---------------------------------------------------------------------------
Biogen Idec Inc.(a)(b) 600,000 34,896,000
- ---------------------------------------------------------------------------
Gilead Sciences, Inc.(a)(b) 1,527,600 52,900,788
===========================================================================
130,095,748
===========================================================================
BROADCASTING & CABLE TV-1.99%
Clear Channel Communications, Inc.(b) 2,112,800 70,567,520
- ---------------------------------------------------------------------------
Univision Communications Inc.-Class A(a)(b) 1,944,400 60,198,624
===========================================================================
130,766,144
===========================================================================
COMMUNICATIONS EQUIPMENT-6.27%
Avaya Inc.(a)(b) 1,500,000 21,600,000
- ---------------------------------------------------------------------------
Cisco Systems, Inc.(a) 7,500,000 144,075,000
- ---------------------------------------------------------------------------
Comverse Technology, Inc.(a)(b) 2,500,000 51,600,000
- ---------------------------------------------------------------------------
Corning Inc.(a)(b) 2,200,000 25,190,000
- ---------------------------------------------------------------------------
Juniper Networks, Inc.(a)(b) 2,000,000 53,220,000
- ---------------------------------------------------------------------------
Motorola, Inc.(b) 1,473,900 25,439,514
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Nokia Oyi-ADR (Finland)(b) 2,500,000 $ 38,550,000
- ---------------------------------------------------------------------------
QUALCOMM Inc. 1,250,000 52,262,500
===========================================================================
411,937,014
===========================================================================
COMPUTER & ELECTRONICS RETAIL-0.68%
Best Buy Co., Inc.(b) 750,000 44,415,000
===========================================================================
COMPUTER HARDWARE-2.80%
Apple Computer, Inc.(a)(b) 1,000,000 52,530,000
- ---------------------------------------------------------------------------
Dell Inc.(a)(b) 3,750,000 131,475,000
===========================================================================
184,005,000
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.19%
Caterpillar Inc.(b) 750,000 60,405,000
- ---------------------------------------------------------------------------
Deere & Co. 1,400,000 83,692,000
===========================================================================
144,097,000
===========================================================================
CONSUMER FINANCE-3.63%
American Express Co.(b) 1,250,000 66,337,500
- ---------------------------------------------------------------------------
Capital One Financial Corp.(b) 500,000 36,880,000
- ---------------------------------------------------------------------------
MBNA Corp.(b) 3,500,000 89,705,000
- ---------------------------------------------------------------------------
SLM Corp.(b) 1,000,000 45,260,000
===========================================================================
238,182,500
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.84%
Affiliated Computer Services, Inc.-Class
A(a)(b) 500,000 27,275,000
- ---------------------------------------------------------------------------
Automatic Data Processing, Inc. 1,000,000 43,390,000
- ---------------------------------------------------------------------------
Fiserv, Inc.(a)(b) 2,250,000 79,965,000
- ---------------------------------------------------------------------------
Paychex, Inc.(b) 1,100,000 36,073,400
===========================================================================
186,703,400
===========================================================================
DEPARTMENT STORES-0.26%
J.C. Penney Co., Inc.(b) 500,000 17,295,000
===========================================================================
DIVERSIFIED BANKS-0.68%
Bank of America Corp.(b) 1,000,000 44,790,000
===========================================================================
DIVERSIFIED CHEMICALS-1.37%
Dow Chemical Co. (The)(b) 650,000 29,211,000
- ---------------------------------------------------------------------------
E. I. du Pont de Nemours & Co. 750,000 32,152,500
- ---------------------------------------------------------------------------
Eastman Chemical Co.(b) 600,000 28,482,000
===========================================================================
89,845,500
===========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-1.00%
Apollo Group, Inc.-Class A(a)(b) 500,000 $ 33,000,000
- ---------------------------------------------------------------------------
Cintas Corp. 750,000 32,355,000
===========================================================================
65,355,000
===========================================================================
DIVERSIFIED METALS & MINING-0.53%
Phelps Dodge Corp.(b) 400,000 35,016,000
===========================================================================
DRUG RETAIL-0.55%
Walgreen Co.(b) 1,000,000 35,890,000
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.63%
Rockwell Automation, Inc.(b) 1,000,000 41,690,000
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.59%
Agilent Technologies, Inc.(a)(b) 1,550,000 38,843,000
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.36%
Molex Inc. 802,400 23,726,968
===========================================================================
EMPLOYMENT SERVICES-1.62%
Robert Half International Inc. 4,000,000 106,120,000
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.46%
Monsanto Co. 700,000 29,925,000
===========================================================================
FOOD RETAIL-0.43%
Whole Foods Market, Inc.(b) 350,000 28,500,500
===========================================================================
FOOTWEAR-0.43%
NIKE, Inc.-Class B 350,000 28,458,500
===========================================================================
GOLD-0.67%
Newmont Mining Corp. 471,600 22,410,432
- ---------------------------------------------------------------------------
Placer Dome Inc. (Canada) 1,003,900 21,332,875
===========================================================================
43,743,307
===========================================================================
HEALTH CARE EQUIPMENT-6.78%
Bard (C.R.), Inc. 652,100 37,039,280
- ---------------------------------------------------------------------------
Becton, Dickinson & Co. 1,034,200 54,295,500
- ---------------------------------------------------------------------------
Biomet, Inc.(b) 3,535,175 165,021,969
- ---------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 566,500 32,494,440
- ---------------------------------------------------------------------------
Medtronic, Inc.(b) 815,700 41,690,427
- ---------------------------------------------------------------------------
St. Jude Medical, Inc.(a)(b) 352,700 27,006,239
- ---------------------------------------------------------------------------
Varian Medical Systems, Inc.(a)(b) 834,400 33,501,160
- ---------------------------------------------------------------------------
Waters Corp.(a)(b) 410,200 16,937,158
- ---------------------------------------------------------------------------
Zimmer Holdings, Inc.(a)(b) 475,600 36,901,804
===========================================================================
444,887,977
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
HEALTH CARE SERVICES-1.11%
Caremark Rx, Inc.(a)(b) 2,427,881 $ 72,763,594
===========================================================================
HEALTH CARE SUPPLIES-0.73%
Alcon, Inc. (Switzerland)(b) 677,400 48,230,880
===========================================================================
HOTELS, RESORTS & CRUISE LINES-1.48%
Carnival Corp. (Panama)(b) 750,000 37,920,000
- ---------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia)(b) 500,000 23,300,000
- ---------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(b) 750,000 35,797,500
===========================================================================
97,017,500
===========================================================================
HOUSEHOLD PRODUCTS-0.72%
Procter & Gamble Co. (The)(b) 918,800 47,024,184
===========================================================================
HYPERMARKETS & SUPER CENTERS-1.03%
Wal-Mart Stores, Inc.(b) 1,250,000 67,400,000
===========================================================================
INDUSTRIAL CONGLOMERATES-1.72%
3M Co.(b) 290,000 22,495,300
- ---------------------------------------------------------------------------
General Electric Co. 1,500,000 51,180,000
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda)(b) 1,250,000 38,937,500
===========================================================================
112,612,800
===========================================================================
INDUSTRIAL GASES-0.87%
Air Products & Chemicals, Inc. 600,000 31,908,000
- ---------------------------------------------------------------------------
Praxair, Inc. 600,000 25,320,000
===========================================================================
57,228,000
===========================================================================
INDUSTRIAL MACHINERY-3.63%
Danaher Corp.(b) 1,000,000 55,130,000
- ---------------------------------------------------------------------------
Eaton Corp.(b) 500,000 31,975,000
- ---------------------------------------------------------------------------
Illinois Tool Works Inc.(b) 363,300 33,525,324
- ---------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 1,100,000 75,284,000
- ---------------------------------------------------------------------------
Parker Hannifin Corp.(b) 600,000 42,378,000
===========================================================================
238,292,324
===========================================================================
INTEGRATED OIL & GAS-1.37%
ChevronTexaco Corp. 307,000 16,289,420
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 1,500,000 73,830,000
===========================================================================
90,119,420
===========================================================================
INTERNET RETAIL-1.19%
eBay Inc.(a)(b) 800,000 78,088,000
===========================================================================
INTERNET SOFTWARE & SERVICES-2.52%
Google Inc.-Class A(a)(b) 250,413 47,755,011
- ---------------------------------------------------------------------------
Yahoo! Inc.(a)(b) 3,250,000 117,617,500
===========================================================================
165,372,511
===========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-0.37%
Goldman Sachs Group, Inc. (The)(b) 250,000 $ 24,595,000
===========================================================================
IT CONSULTING & OTHER SERVICES-0.37%
Accenture Ltd.-Class A (Bermuda)(a)(b) 1,000,000 24,210,000
===========================================================================
LIFE & HEALTH INSURANCE-0.40%
AFLAC Inc.(b) 725,450 26,029,146
===========================================================================
MANAGED HEALTH CARE-1.34%
Aetna Inc.(b) 346,500 32,917,500
- ---------------------------------------------------------------------------
UnitedHealth Group Inc.(b) 463,100 33,528,440
- ---------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 222,300 21,709,818
===========================================================================
88,155,758
===========================================================================
MOTORCYCLE MANUFACTURERS-0.31%
Harley-Davidson, Inc.(b) 350,000 20,149,500
===========================================================================
MOVIES & ENTERTAINMENT-1.08%
DreamWorks Animation SKG, Inc.-Class A(a) 117,200 4,576,660
- ---------------------------------------------------------------------------
Viacom Inc.-Class B(b) 1,811,464 66,100,321
===========================================================================
70,676,981
===========================================================================
MULTI-LINE INSURANCE-0.89%
American International Group, Inc.(b) 500,000 30,355,000
- ---------------------------------------------------------------------------
Genworth Financial Inc.-Class A(b) 1,180,000 28,154,800
===========================================================================
58,509,800
===========================================================================
OIL & GAS DRILLING-0.57%
ENSCO International Inc.(b) 1,219,000 37,240,450
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.45%
BJ Services Co.(b) 869,600 44,349,600
- ---------------------------------------------------------------------------
Halliburton Co.(b) 500,000 18,520,000
- ---------------------------------------------------------------------------
Weatherford International Ltd.
(Bermuda)(a)(b) 625,000 32,662,500
===========================================================================
95,532,100
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.58%
Apache Corp.(b) 500,000 25,350,000
- ---------------------------------------------------------------------------
Devon Energy Corp. 700,000 51,779,000
- ---------------------------------------------------------------------------
XTO Energy, Inc.(b) 800,000 26,704,000
===========================================================================
103,833,000
===========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.44%
Valero Energy Corp.(b) 670,000 28,789,900
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.17%
Citigroup Inc.(b) 1,906,900 84,609,153
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
JPMorgan Chase & Co.(b) 1,500,000 $ 57,900,000
===========================================================================
142,509,153
===========================================================================
PACKAGED FOODS & MEATS-0.89%
Hershey Foods Corp.(b) 500,000 25,345,000
- ---------------------------------------------------------------------------
Kellogg Co. 765,900 32,933,700
===========================================================================
58,278,700
===========================================================================
PERSONAL PRODUCTS-1.02%
Avon Products, Inc. 600,000 23,730,000
- ---------------------------------------------------------------------------
Gillette Co. (The)(b) 1,042,000 43,222,160
===========================================================================
66,952,160
===========================================================================
PHARMACEUTICALS-5.68%
Johnson & Johnson 1,696,100 99,018,318
- ---------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 1,333,500 54,233,445
- ---------------------------------------------------------------------------
Pfizer Inc. 4,250,000 123,037,500
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel)(b) 3,709,700 96,452,200
===========================================================================
372,741,463
===========================================================================
PUBLISHING-0.50%
Gannett Co., Inc.(b) 398,400 33,047,280
===========================================================================
REGIONAL BANKS-0.45%
Commerce Bancorp, Inc.(b) 500,000 29,620,000
===========================================================================
RESTAURANTS-0.44%
McDonald's Corp.(b) 1,000,000 29,150,000
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.74%
Applied Materials, Inc.(a)(b) 1,583,600 25,495,960
- ---------------------------------------------------------------------------
KLA-Tencor Corp.(a)(b) 500,000 22,765,000
===========================================================================
48,260,960
===========================================================================
SEMICONDUCTORS-6.21%
Analog Devices, Inc.(b) 2,250,000 90,585,000
- ---------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A(a)(b) 3,000,000 46,620,000
- ---------------------------------------------------------------------------
Linear Technology Corp. 1,600,000 60,608,000
- ---------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a)(b) 750,000 21,427,500
- ---------------------------------------------------------------------------
Maxim Integrated Products, Inc.(b) 806,985 35,499,270
- ---------------------------------------------------------------------------
Microchip Technology Inc. 5,068,952 153,335,798
===========================================================================
408,075,568
===========================================================================
SPECIALTY CHEMICALS-0.80%
Ecolab Inc.(b) 800,000 27,080,000
- ---------------------------------------------------------------------------
Rohm & Haas Co.(b) 600,000 25,434,000
===========================================================================
52,514,000
===========================================================================
SPECIALTY STORES-3.36%
Bed Bath & Beyond Inc.(a)(b) 2,000,000 81,580,000
- ---------------------------------------------------------------------------
Staples, Inc.(b) 3,500,000 104,090,000
- ---------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Williams-Sonoma, Inc.(a)(b) 917,800 $ 35,032,426
===========================================================================
220,702,426
===========================================================================
STEEL-0.75%
Nucor Corp.(b) 600,000 25,338,000
- ---------------------------------------------------------------------------
United States Steel Corp.(b) 651,000 23,904,720
===========================================================================
49,242,720
===========================================================================
SYSTEMS SOFTWARE-5.04%
Adobe Systems Inc.(b) 600,000 33,618,000
- ---------------------------------------------------------------------------
Microsoft Corp. 6,000,000 167,940,000
- ---------------------------------------------------------------------------
Oracle Corp.(a) 4,438,800 56,195,208
- ---------------------------------------------------------------------------
Symantec Corp.(a)(b) 800,000 45,552,000
- ---------------------------------------------------------------------------
VERITAS Software Corp.(a)(b) 1,263,800 27,651,944
===========================================================================
330,957,152
===========================================================================
TECHNOLOGY DISTRIBUTORS-1.31%
CDW Corp.(b) 1,391,300 86,302,339
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.52%
Nextel Communications, Inc.-Class A(a)(b) 1,297,900 34,381,371
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $5,083,616,766) 6,532,827,540
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MONEY MARKET FUNDS-0.64%
Liquid Assets Portfolio-Institutional
Class(c) 21,040,807 $ 21,040,807
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 21,040,807 21,040,807
===========================================================================
Total Money Market Funds (Cost
$42,081,614) 42,081,614
===========================================================================
TOTAL INVESTMENTS-100.13% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,125,698,380) 6,574,909,154
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-14.83%
Liquid Assets Portfolio-Institutional
Class(c)(d) 969,136,004 969,136,004
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(c)(d) 4,938,485 4,938,485
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $974,074,489) 974,074,489
===========================================================================
TOTAL INVESTMENTS-114.96% (Cost
$6,099,772,869) 7,548,983,643
===========================================================================
OTHER ASSETS LESS LIABILITIES-(14.96%) (982,334,057)
===========================================================================
NET ASSETS-100.00% $6,566,649,586
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$5,083,616,766)* $ 6,532,827,540
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $1,016,156,103) 1,016,156,103
============================================================
Total investments (cost $6,099,772,869) 7,548,983,643
============================================================
Foreign currencies, at value (cost $1,505) 1,543
- ------------------------------------------------------------
Receivables for:
Investments sold 36,103,535
- ------------------------------------------------------------
Fund shares sold 5,247,741
- ------------------------------------------------------------
Dividends 3,608,701
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 478,198
- ------------------------------------------------------------
Other assets 73,560
============================================================
Total assets 7,594,496,921
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 24,512,996
- ------------------------------------------------------------
Fund shares reacquired 22,456,741
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,036,780
- ------------------------------------------------------------
Collateral upon return of securities
loaned 974,074,489
- ------------------------------------------------------------
Accrued distribution fees 1,956,560
- ------------------------------------------------------------
Accrued trustees' fees 6,750
- ------------------------------------------------------------
Accrued transfer agent fees 2,947,479
- ------------------------------------------------------------
Accrued operating expenses 855,540
============================================================
Total liabilities 1,027,847,335
============================================================
Net assets applicable to shares outstanding $ 6,566,649,586
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 7,288,266,146
- ------------------------------------------------------------
Undistributed net investment income (loss) (907,378)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (2,169,919,994)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 1,449,210,812
============================================================
$ 6,566,649,586
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 5,616,072,058
____________________________________________________________
============================================================
Class B $ 617,004,804
____________________________________________________________
============================================================
Class C $ 162,706,560
____________________________________________________________
============================================================
Class R $ 6,202,267
____________________________________________________________
============================================================
Institutional Class $ 164,663,897
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 264,001,060
____________________________________________________________
============================================================
Class B 30,930,529
____________________________________________________________
============================================================
Class C 8,158,834
____________________________________________________________
============================================================
Class R 291,974
____________________________________________________________
============================================================
Institutional Class 7,157,074
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 21.27
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $21.27 divided by
94.50%) $ 22.51
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 19.95
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 19.94
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 21.24
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 23.01
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $954,954,771
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $414,846) $ 48,034,675
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $138,487)* 1,652,388
===========================================================================
Total investment income 49,687,063
===========================================================================
EXPENSES:
Advisory fees 46,243,987
- ---------------------------------------------------------------------------
Administrative services fees 710,711
- ---------------------------------------------------------------------------
Custodian fees 525,253
- ---------------------------------------------------------------------------
Distribution fees:
Class A 19,016,041
- ---------------------------------------------------------------------------
Class B 6,702,181
- ---------------------------------------------------------------------------
Class C 1,845,072
- ---------------------------------------------------------------------------
Class R 24,911
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 21,734,849
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 81,066
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 151,416
- ---------------------------------------------------------------------------
Other 2,985,841
===========================================================================
Total expenses 100,021,328
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,322,281)
===========================================================================
Net expenses 98,699,047
===========================================================================
Net investment income (loss) (49,011,984)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 750,565,101
- ---------------------------------------------------------------------------
Foreign currencies (1,170,065)
- ---------------------------------------------------------------------------
Option contracts written 804,191
===========================================================================
750,199,227
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (467,700,274)
- ---------------------------------------------------------------------------
Foreign currencies 38
===========================================================================
(467,700,236)
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 282,498,991
===========================================================================
Net increase in net assets resulting from operations $ 233,487,007
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (49,011,984) $ (54,584,186)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 750,199,227 (454,745,158)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, and foreign currencies and option
contracts (467,700,236) 1,834,190,965
================================================================================================
Net increase in net assets resulting from operations 233,487,007 1,324,861,621
================================================================================================
Share transactions-net:
Class A (1,414,942,300) (1,112,282,235)
- ------------------------------------------------------------------------------------------------
Class B (88,166,720) (46,666,906)
- ------------------------------------------------------------------------------------------------
Class C (35,344,446) (22,091,083)
- ------------------------------------------------------------------------------------------------
Class R 3,284,897 2,235,274
- ------------------------------------------------------------------------------------------------
Institutional Class 4,128,631 5,433,008
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,531,039,938) (1,173,371,942)
================================================================================================
Net increase (decrease) in net assets (1,297,552,931) 151,489,679
================================================================================================
NET ASSETS:
Beginning of year 7,864,202,517 7,712,712,838
================================================================================================
End of year (including undistributed net investment income
(loss) of $(907,378) and $(844,799), respectively) $ 6,566,649,586 $ 7,864,202,517
________________________________________________________________________________________________
================================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
F-7
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
F-8
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first
$30 million of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $30 million up to and including $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. AIM has voluntarily agreed to waive advisory fees payable by the Fund
to AIM at the annual rate of 0.025% for each $5 billion increment in net assets
over $5 billion, up to a maximum waiver of 0.175% on net assets in excess of $35
billion. Further, AIM has voluntarily agreed to waive advisory fees of the Fund
in the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $623,391. Under the terms of a master
sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM
Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $587,335 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $710,711 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $21,734,849 for Class A, Class B, Class C and Class R shares
and $81,066 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to selected dealers and financial
institutions who furnish continuing personal shareholder services to
F-9
customers who purchase and own shares of such classes. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended October 31, 2004, the Class A, Class B, Class C and
Class R shares paid $19,016,041, $6,702,181, $1,845,072 and $24,911,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
October 31, 2004, AIM Distributors advised the Fund that it retained $743,284 in
front-end sales commissions from the sale of Class A shares and $19,335,
$84,327, $11,693 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 95,933,174 $1,169,096,235 $(1,243,988,602) $ -- $21,040,807 $ 766,132 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 95,933,174 1,169,096,235 (1,243,988,602) -- 21,040,807 747,769 --
===================================================================================================================================
Subtotal $191,866,348 $2,338,192,470 $(2,487,977,204) $ -- $42,081,614 $1,513,901 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $155,180,095 $3,731,967,251 $(2,918,011,342) $ -- $ 969,136,004 $ 132,031 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 24,938,485 -- (20,000,000) -- 4,938,485 6,456 --
====================================================================================================================================
Subtotal $180,118,580 $3,731,967,251 $(2,938,011,342) $ -- $ 974,074,489 $ 138,487 $ --
====================================================================================================================================
Total $371,984,928 $6,070,159,721 $(5,425,988,546) $ -- $1,016,156,103 $1,652,388 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $114,504,134 and $56,171,339,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$109,966 and credits in custodian fees of $1,589 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$111,555.
F-10
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $31,034
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $954,954,771 were
on loan to brokers. The loans were secured by cash collateral of $974,074,489
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $138,487 for
securities lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Written 7,250 867,152
- ------------------------------------------------------------------------------------
Closed (3,925) (613,840)
- ------------------------------------------------------------------------------------
Expired (3,325) (253,312)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
F-11
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 1,443,574,764
- -----------------------------------------------------------------------------
Temporary book/tax differences (907,378)
- -----------------------------------------------------------------------------
Capital loss carryforward (2,164,283,946)
- -----------------------------------------------------------------------------
Shares of beneficial interest 7,288,266,146
=============================================================================
Total net assets $ 6,566,649,586
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation on foreign currencies of $38.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $745,543,129 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------------------------------------------------
October 31, 2009 $ 478,530,901
- ----------------------------------------------------------------------------
October 31, 2010 1,223,985,487
- ----------------------------------------------------------------------------
October 31, 2011 461,767,558
============================================================================
Total capital loss carryforward $2,164,283,946
____________________________________________________________________________
============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--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, 2004 was $3,585,815,574 and $5,051,191,698, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,643,458,910
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (199,884,184)
==============================================================================
Net unrealized appreciation of investment securities $1,443,574,726
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $6,105,408,917.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2004, undistributed net
investment income was increased by $48,949,405, undistributed net realized gain
(loss) was increased by $1,170,065 and shares of beneficial interest decreased
by $50,119,470. This reclassification had no effect on the net assets of the
Fund.
F-12
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2004 2003
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 21,730,966 $ 462,412,977 40,892,692 $ 728,901,495
- -------------------------------------------------------------------------------------------------------------------------------
Class B 2,742,938 54,987,929 4,399,643 74,587,779
- -------------------------------------------------------------------------------------------------------------------------------
Class C 1,295,928 26,018,679 1,764,643 29,858,199
- -------------------------------------------------------------------------------------------------------------------------------
Class R 215,406 4,599,852 163,302 2,916,332
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,641,747 36,786,966 1,117,656 21,391,286
===============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 403,007 8,647,784 325,830 5,894,532
- -------------------------------------------------------------------------------------------------------------------------------
Class B (428,243) (8,647,784) (344,006) (5,894,532)
===============================================================================================================================
Reacquired:
Class A (89,250,664) (1,886,003,061) (104,213,879) (1,847,078,262)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (6,761,489) (134,506,865) (6,899,964) (115,360,153)
- -------------------------------------------------------------------------------------------------------------------------------
Class C (3,085,701) (61,363,125) (3,090,330) (51,949,282)
- -------------------------------------------------------------------------------------------------------------------------------
Class R (61,955) (1,314,955) (37,857) (681,058)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class (1,437,940) (32,658,335) (833,861) (15,958,278)
===============================================================================================================================
(72,996,000) $(1,531,039,938) (66,756,131) $(1,173,371,942)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 14% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.61 $ 17.20 $ 19.72 $ 43.50 $ 34.65
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.12)(a) (0.15)(a) (0.12) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.79 3.53 (2.37) (16.24) 12.39
=================================================================================================================================
Total from investment operations 0.66 3.41 (2.52) (16.36) 12.13
=================================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=================================================================================================================================
Net asset value, end of period $ 21.27 $ 20.61 $ 17.20 $ 19.72 $ 43.50
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 3.20% 19.83% (12.78)% (43.10)% 36.56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,616,072 $6,825,023 $6,780,055 $9,703,277 $19,268,977
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.27%(c) 1.29% 1.26% 1.14% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.29%(c) 1.30% 1.27% 1.17% 1.11%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.59)(c) (0.67)% (0.74)% (0.46)% (0.61)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $6,338,680,161.
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.46 $ 16.36 $ 18.89 $ 42.28 $ 34.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.23)(a) (0.27)(a) (0.28) (0.58)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.75 3.33 (2.26) (15.69) 12.14
=============================================================================================================================
Total from investment operations 0.49 3.10 (2.53) (15.97) 11.56
=============================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=============================================================================================================================
Net asset value, end of period $ 19.95 $ 19.46 $ 16.36 $ 18.89 $ 42.28
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 2.52% 18.95% (13.39)% (43.49)% 35.51%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $617,005 $688,587 $625,294 $818,343 $1,315,524
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 1.99% 1.96% 1.86% 1.85%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.99%(c) 2.00% 1.97% 1.89% 1.88%
=============================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.29)(c) (1.37)% (1.44)% (1.17)% (1.38)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $670,218,131.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.46 $ 16.36 $ 18.88 $ 42.27 $ 33.99
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.23)(a) (0.27)(a) (0.29) (0.59)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.74 3.33 (2.25) (15.68) 12.15
==============================================================================================================================
Total from investment operations 0.48 3.10 (2.52) (15.97) 11.56
==============================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
==============================================================================================================================
Net asset value, end of period $ 19.94 $ 19.46 $ 16.36 $ 18.88 $ 42.27
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 2.47% 18.95% (13.35)% (43.51)% 35.52%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $162,707 $193,585 $184,393 $258,786 $434,544
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 1.99% 1.96% 1.86% 1.85%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.99%(c) 2.00% 1.97% 1.89% 1.88%
==============================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.29)(c) (1.37)% (1.44)% (1.17)% (1.38)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $184,507,218.
<Table>
<Caption>
CLASS R
-------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.63 $17.26 $19.82
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.16)(a) (0.07)(a)
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.78 3.53 (2.49)
=========================================================================================================
Total from investment operations 0.61 3.37 (2.56)
=========================================================================================================
Net asset value, end of period $21.24 $20.63 $17.26
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) 2.96% 19.52% (12.92)%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,202 $2,857 $ 226
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%(c) 1.49% 1.53%(d)
- ---------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.49%(c) 1.50% 1.54%(d)
=========================================================================================================
Ratio of net investment income (loss) to average net assets (0.79)(c) (0.87)% (1.01)(d)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate(e) 50% 47% 57%
_________________________________________________________________________________________________________
=========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $4,982,137.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.17 $ 18.40 $ 21.00 $ 45.55 $ 36.01
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.03)(a) (0.06) 0.01 (0.09)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.85 3.80 (2.54) (17.14) 12.91
=========================================================================================================================
Total from investment operations 0.84 3.77 (2.60) (17.13) 12.82
=========================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=========================================================================================================================
Net asset value, end of period $ 23.01 $ 22.17 $ 18.40 $ 21.00 $ 45.55
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 3.79% 20.49% (12.38)% (42.80)% 37.14%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $164,664 $154,150 $122,746 $150,609 $288,097
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.72%(c) 0.75% 0.80% 0.65% 0.65%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.74%(c) 0.76% 0.81% 0.68% 0.68%
=========================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.04)(c) (0.13)% (0.28)% 0.03% (0.18)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values and returns for shareholder transactions.
(c) Ratios are based on average daily net assets of $158,650,215.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
F-17
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
F-18
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Constellation Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Constellation Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Constellation Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP A I M Capital
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center Management, Inc.
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney 11 Greenway Plaza
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77010-4035 Suite 100
Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
<Table>
DOMESTIC EQUITY
AIM Aggressive Growth Fund INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Balanced Fund*
AIM Basic Balanced Fund* AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Value Fund AIM Developing Markets Fund
AIM Blue Chip Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Capital Development Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Charter Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Constellation Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Core Stock Fund(1) AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Dent Demographic Trends Fund AIM Global Value Fund AIM Money Market Fund
AIM Diversified Dividend Fund AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dynamics Fund(1) AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Large Cap Basic Value Fund AIM Trimark Fund
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(2) AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Stock Fund(1) AIM Financial Services Fund(1)
AIM Opportunities I Fund AIM Global Health Care Fund AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Gold & Precious Metals Fund(1)
AIM Opportunities III Fund AIM Health Sciences Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Leisure Fund(1) AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Multi-Sector Fund(1) AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Real Estate Fund
AIM Small Cap Equity Fund(3) AIM Technology Fund(1)
AIM Small Cap Growth Fund(4) AIM Utilities Fund(1)
AIM Small Company Growth Fund(1) =======================================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR
AIM Trimark Endeavor Fund THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL
AIM Trimark Small Companies Fund ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund =======================================================================================
</Table>
* Domestic equity and income fund
(1)The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. 2As of the close of business on February 27, 2004, AIM Mid
Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. 3Effective December 13, 2004, AIM Small
Cap Equity Fund is open to all investors. 4AIM 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. 5AIM
European Small Company Fund will close to new investors when net assets reach
$500 million. 6Effective March 31, 2004, AIM Global Trends Fund was renamed AIM
Global Equity Fund. 7AIM International Emerging Growth Fund will close to new
investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com CST-AR-1 AIM Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM CORE STRATEGIES FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM CORE STRATEGIES FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES o The fund is not managed to track the The fund files its complete schedule of
performance of any particular index, portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are including the indexes defined here, and and Exchange Commission ("SEC") for the
not available as an investment for consequently, the performance of the 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to fund may deviate significantly from the on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue performance of the indexes. are available on the SEC's Web site at
Code, including 401(k) plans, money http://www.sec.gov. Copies of the fund's
purchase pension plans and profit o A direct investment cannot be made in Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing an index. Unless otherwise indicated, the SEC's Public Reference Room at 450
accounts invested in Class B shares will index results include reinvested Fifth Street, N.W., Washington, D.C.
continue to be allowed to make dividends, and they do not reflect sales 20549-0102. You can obtain information
additional purchases. charges. Performance of an index of on the operation of the Public Reference
funds reflects fund expenses; Room, including information about
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of a market index does not. duplicating fee charges, by calling
1-202-942-8090 or by electronic request
o The fund may participate in the OTHER INFORMATION at the following e-mail address:
initial public offering (IPO) market in publicinfo@sec.gov. The SEC file numbers
some market cycles. Because of the o The Conference Board is a for the fund are 811-1424 and 2-25469.
fund's small asset base, any investment not-for-profit organization that The fund's most recent portfolio
the fund may make in IPOs may conducts research and publishes holdings, as filed on Form N-Q, are also
significantly affect the fund's total information and analysis to help available at AIMinvestments.com.
return. As the fund's assets grow, the businesses strengthen their performance.
impact of IPO investments will decline, A description of the policies and
which may reduce the effect of IPO o The returns shown in the Management's procedures that the fund uses to
investments on the fund's total return. Discussion of Fund Performance are based determine how to vote proxies relating
on net asset values calculated for to portfolio securities is available
ABOUT INDEXES USED IN THIS REPORT shareholder transactions. Generally without charge, upon request, from our
accepted accounting principles require Client Services department at
o The unmanaged Standard & Poor's adjustments to be made to the net assets 800-959-4246 or on the AIM Web site,
Composite Index of 500 Stocks (the S&P of the fund at period end for financial AIMinvestments.com. On the home page,
500--Registered Trademark-- Index) is reporting purposes, and as such, the net scroll down and click on AIM Funds Proxy
an index of common stocks frequently asset values for shareholder Policy. The information is also available
used as a general measure of U.S. stock transactions and the returns based on on the Securities and Exchange
market performance. those net asset values may differ from Commission's Web site, sec.gov.
the net asset values and returns
o The unmanaged MSCI World Index is a reported in the Financial Highlights. Information regarding how the fund voted
group of global securities tracked by proxies related to its portfolio
Morgan Stanley Capital International. o Industry classifications used in this securities during the 12 months ended
report are generally according to the 6/30/04 is available at our Web site. Go
o The unmanaged Lipper Large-Cap Core Global Industry Classification Standard, to AIMinvestments.com, access the About
Fund Index represents an average of the which was developed by and is the Us tab, click on Required Notices and
performance of the 30 largest large exclusive property and a service mark of then click on Proxy Voting Activity.
capitalization core equity funds tracked Morgan Stanley Capital International Next, select your fund from the drop-down
by Lipper, Inc., an independent mutual Inc. and Standard & Poor's. menu.
fund performance monitor.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
[PHOTO OF trustee who is not an officer of the fund's investment
MARK H. advisor, serve as chairman of the funds' Board. In addition,
WILLIAMSON] a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
MARK H. WILLIAMSON Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
[PHOTO OF effective on October 4, 2004. Mr. Graham will remain on the
BRUCE L. funds' Board, as will Mark Williamson, President and Chief
CROCKETT] Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
BRUCE L. CROCKETT
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever, we
encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of
how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
--------------------------------- ---------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND ADHERES TO INVESTMENT STRATEGY AND YOUR FUND
LONG-TERM FOCUS
We continued to focus on the stocks of
For the fiscal year ended October 31, Generally positive economic market-leading companies. We continued
2004, AIM Core Strategies Fund's Class A developments prompted the U.S. Federal our scrutiny of each stock, employing
shares returned 5.20% at net asset value Reserve (the Fed) to raise its federal careful analysis to determine financial
(NAV). PERFORMANCE SHOWN AT NAV DOES NOT funds target rate from a decades-low strength and the potential for
INCLUDE FRONT-END SALES CHARGES, WHICH 1.00%, where it stood at the beginning above-average earnings growth. An
WOULD HAVE REDUCED THE PERFORMANCE. The of the fiscal year, to 1.75% by the important part of the fund's strategy is
results for the other share classes of fiscal year's close. In its anecdotal to try to mitigate risk by selecting a
the fund and the fund's comparison report on the economy released in late diversified portfolio while avoiding
indexes are shown in the table on page October, the Fed said economic activity over-exposure to any sector.
3. continued to expand in September and
early October. The Fed said that higher As of October 31, 2004, 4% of the
The fund underperformed the S&P 500 energy costs were constraining consumer fund's holdings were invested in
Index, which returned 9.41%, and the and business spending; that capital small-cap stocks, 11% in mid-cap stocks
Lipper Large-Cap Core Fund Index, which spending and hiring were rising and 85% in large-cap stocks, as computed
returned 6.92% for the same period. The modestly; and that residential real by AIM according to capitalization sizes
fund underperformed the S&P 500 Index estate activity remained robust, but assigned by Lipper, Inc. The fund was
primarily because of stock selection in non-residential activity remained invested in all 10 sectors of the S&P
the information technology sector and relatively weak. 500 Index. The top-performing sectors
underweight positions in energy and for the fund--energy, telecommunication
utilities. The same underweight This generally positive economic news services and utilities--were the top
positions detracted from the fund's was offset somewhat by geopolitical three performers for the S&P 500 Index
performance relative to its peer group uncertainty and terrorism concerns, as as well. As a group, the fund's holdings
index. well as soaring oil prices. In outperformed the stocks in the index in
mid-October, Fed Chairman Alan Greenspan the telecommunication services and
MARKET CONDITIONS said that "so far this year, the rise in health care sectors. The fund's holdings
the value of imported oil--essentially a in materials, information technology and
The U.S. economy showed signs of tax on U.S. residents--has amounted to consumer staples underperformed those of
strength during the fiscal year ended about 3/4 [of one] percent of GDP." The the index.
October 31, 2004. Economic news was Conference Board reported that consumer
generally positive, and it included sentiment hit a two-year high in July, Our focus on market leaders gives the
expansion of gross domestic product before declining in August, September fund a long-term investment perspective,
(GDP), the broadest measure of overall and October. The Conference Board also which sometimes results in long holding
economic activity. While positive, GDP reported that its index of leading periods. All of the top 10 holdings that
growth tapered off somewhat from an economic indicators declined in were listed in the annual report for the
annualized rate of 7.4% in the third September, its fourth consecutive prior fiscal year remained in the
quarter of 2003 to a more modest 3.9% monthly decline. portfolio as of October 31, 2004.
in the third quarter of 2004.
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
By sector
1. Microsoft Corp. 3.8% 1. Diversified Banks 7.4%
[PIE CHART]
2. Citigroup Inc. 2.8 2. Systems Software 7.4
Industrials 12.0%
3. Oracle Corp. 2.7 3. Pharmaceuticals 5.2
Information Technology 18.4%
4. Home Depot, Inc. (The) 2.7 4. Consumer Finance 4.6
Materials 1.8%
5. Intel Corp. 2.6 5. Household Products 4.1
Telecommunication Services 1.7%
6. Bank of America Corp. 2.5 6. Diversified Commercial 3.7
Utilities 0.5% Services
7. MBNA Corp. 2.5
Other Assets Less Liabilities 3.3% 7. Managed Health Care 3.7
8. Dell Inc. 2.4
Consumer Discretionary 11.2% 8. Health Care Equipment 3.5
9. Exxon Mobil Corp. 2.4
Consumer Staples 9.2% 9. Computer Hardware 3.5
10. PepsiCo, Inc. 2.2
Energy 3.8% 10. Integrated Oil & Gas 2.9
Financials 22.9%
Health Care 15.2%
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>
Stocks that contributed to fund the end of the period, we had not been DUY NGUYEN
performance for the period included top dissuaded from our opinion of the value
performers Exxon Mobil and UnitedHealth of this holding by what we believed were Mr. Nguyen, Chartered
Group. In October 2004, Exxon Mobil temporary detractions, and the fund [NGUYEN Financial Analyst, is
announced higher third-quarter earnings continued to own shares in this market PHOTO] the portfolio manager of
than in any single quarter in its leader. AIM Core Strategies
history. The company benefited from Fund. Mr. Nguyen began
higher prices for oil and natural gas, IN CLOSING his investments career in 1993. He
as well as an increase in production. joined AIM in May 2000. Mr. Nguyen
Its chemicals division reported earnings Throughout the period, we continued to earned a B.B.A. at the University of
that were almost four times higher than maintain a portfolio that was Texas.
the third quarter of 2003. diversified across all sectors. Our
thorough stock selection process and our Assisted by the Mid/Large Cap Core Team.
Managed care provider UnitedHealth belief in the potential longterm benefit
Group also announced record of investing in market-leading companies
third-quarter earnings, which amounted did not change.
to a 35% increase over the third quarter
of 2003. The company reported an THE VIEWS AND OPINIONS EXPRESSED IN
expanded customer base, an increased MANAGEMENT'S DISCUSSION OF FUND
operating margin and a sizeable increase PERFORMANCE ARE THOSE OF A I M ADVISORS,
in cash flow from operations. INC. THESE VIEWS AND OPINIONS ARE
SUBJECT TO CHANGE AT ANY TIME BASED ON
Merck and Wal-Mart were among the FACTORS SUCH AS MARKET AND ECONOMIC
companies whose stocks detracted from CONDITIONS. THESE VIEWS AND OPINIONS MAY
fund performance. In late September NOT BE RELIED UPON AS INVESTMENT ADVICE
2004, one of Merck's most profitable OR RECOMMENDATIONS, OR AS AN OFFER FOR A
medications, Vioxx--Registered PARTICULAR SECURITY. THE INFORMATION IS
Trademark--, was removed from the NOT A COMPLETE ANALYSIS OF EVERY ASPECT
marketplace because of a reported OF ANY MARKET, COUNTRY, INDUSTRY,
linkage to heart attacks and strokes. SECURITY OR THE FUND. STATEMENTS OF FACT
While some correction in price was ARE FROM SOURCES CONSIDERED RELIABLE,
warranted, we believe the market has now BUT A I M ADVISORS, INC. MAKES NO
punished the stock too severely. We REPRESENTATION OR WARRANTY AS TO THEIR
continued to hold Merck at the close of COMPLETENESS OR ACCURACY. ALTHOUGH
the fiscal year because we believed the HISTORICAL PERFORMANCE IS NO GUARANTEE
company's strong free cash flow and OF FUTURE RESULTS, THESE INSIGHTS MAY
compelling yield implied the potential HELP YOU UNDERSTAND OUR INVESTMENT
for future gains with lower downside MANAGEMENT PHILOSOPHY.
risk.
See important fund and index
Wal-Mart experienced profit pressures disclosures inside front cover.
over the period from higher gas prices
that adversely affected low-income
consumers. At
</Table>
<Table>
======================================================================================
FUND VS. INDEXES TOTAL NET ASSETS $0.97 MILLION
TOTAL RETURNS, 10/31/03-10/31/04, TOTAL NUMBER OF HOLDINGS 110
EXCLUDING APPLICABLE SALES CHARGES. IF
SALES CHARGES WERE INCLUDED, RETURNS
WOULD BE LOWER.
Class A Shares 5.20%
Class B Shares 5.20
Class C Shares 5.20
S&P 500 Index (Broad Market and
Style-specific Index) 9.41
Lipper Large-Cap Core Fund Index
(Peer Group Index) 6.92
SOURCE: LIPPER, INC.
====================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, use this information to compare the
to estimate the expenses that you paid ongoing costs of investing in the fund
As a shareholder of the fund, you incur over the period. Simply divide your and other funds. To do so, compare this
two types of costs: (1) transaction account value by $1,000 (for example, an 5% hypothetical example with the 5%
costs, which may include sales charges $8,600 account value divided by $1,000 = hypothetical examples that appear in the
(loads) on purchase payments; contingent 8.6), then multiply the result by the shareholder reports of the other funds.
deferred sales charges on redemptions; number in the table under the heading
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During Please note that the expenses shown
ongoing costs, including management Period" to estimate the expenses you in the table are meant to highlight your
fees; distribution and/or service fees paid on your account during this period. ongoing costs only and do not reflect
(12b-1); and other fund expenses. This any transactional costs, such as sales
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
understand your ongoing costs (in PURPOSES contingent deferred sales charges on
dollars) of investing in the fund and to redemptions, and redemption fees, if
compare these costs with ongoing costs The table below also provides any. Therefore, the hypothetical
of investing in other mutual funds. The information about hypothetical account information is useful in comparing
example is based on an investment of values and hypothetical expenses based ongoing costs only, and will not help
$1,000 invested at the beginning of the on the fund's actual expense ratio and you determine the relative total costs
period and held for the entire period, an assumed rate of return of 5% per year of owning different funds. In addition,
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's if these transactional costs were
actual return. The hypothetical account included, your costs would have been
ACTUAL EXPENSES values and expenses may not be used to higher.
estimate the actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may
expenses. You may use the information in
this table,
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,000.00 $9.05 $1,000.00 $9.07
Class B 1,000.00 1,000.00 9.05 1,000.00 9.07
Class C 1,000.00 1,000.00 9.05 1,000.00 9.07
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 0.0%, 0.0%, and 0.0% for Classes A, B, and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.79%, 1.79%, and 1.79% for Classes A, B, and C shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 12/31/01-10/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results AIM Core AIM Core AIM Core
include reinvested dividends. Strategies Fund Strategies Fund Strategies Fund Lipper Large-Cap S&P 500
Performance of an index of funds Date Class A Shares Class B Shares Class C Shares Core Fund Index Index
reflects fund expenses and management
fees; performance of a market index does 12/01 $9450 $10000 $10000 $10000 $10000
not. Performance shown in the chart does 1/02 9299 9840 9840 9842 9854
not reflect deduction of taxes a 2/02 9091 9620 9620 9677 9664
shareholder would pay on fund 3/02 9411 9959 9959 10007 10028
distributions or sale of fund shares. 4/02 8948 9469 9469 9483 9420
Performance of the indexes does not 5/02 8882 9399 9399 9414 9351
reflect the effects of taxes. 6/02 8306 8789 8789 8764 8685
7/02 7767 8220 8220 8113 8008
8/02 7786 8239 8239 8180 8061
9/02 7059 7470 7470 7385 7185
10/02 7550 7990 7990 7959 7817
11/02 7787 8240 8240 8314 8277
12/02 7379 7808 7808 7877 7791
1/03 7215 7635 7635 7670 7587
2/03 7109 7522 7522 7568 7473
3/03 7185 7604 7604 7632 7545
4/03 7647 8093 8093 8194 8167
5/03 8032 8500 8500 8591 8597
6/03 8090 8561 8561 8676 8706
7/03 8196 8673 8673 8813 8860
8/03 8330 8815 8815 8983 9032
9/03 8282 8764 8764 8867 8937
10/03 8753 9263 9263 9301 9442
11/03 8830 9344 9344 9379 9525
12/03 9141 9673 9673 9830 10024
1/04 9276 9816 9816 9969 10208
2/04 9402 9949 9949 10087 10350
3/04 9344 9888 9888 9929 10194
4/04 9210 9746 9746 9775 10034
5/04 9316 9858 9858 9874 10171
6/04 9431 9980 9980 10051 10369
7/04 9104 9634 9634 9695 10026
8/04 9094 9623 9623 9701 10066
9/04 9161 9694 9694 9812 10175
10/04 $9212 $ 9459 $ 9746 $ 9945 $10331
Source: Lipper, Inc.
AVERAGE ANNUAL TOTAL RETURNS In addition to returns as of the close
As of 10/31/04, including sales charges of the fiscal year, industry regulations Class A share performance reflects the
require us to provide average annual maximum 5.50% sales charge, and Class B
CLASS A SHARES total returns as of 9/30/04, the most and Class C share performance reflects
Inception (12/31/01) -2.86% recent calendar quarter-end. the applicable contingent deferred sales
1 Year -0.59 charge (CDSC) for the period involved.
AVERAGE ANNUAL TOTAL RETURNS The CDSC on Class B shares declines from
CLASS B SHARES As of 9/30/04, including applicable 5% beginning at the time of purchase to
Inception (12/31/01) -1.94% sales charges 0% at the beginning of the seventh year.
1 Year 0.20 The CDSC on Class C shares is 1% for the
CLASS A SHARES first year after purchase.
CLASS C SHARES Inception (12/31/01) -3.13%
Inception (12/31/01) -0.90% 1 Year 4.54 The performance of the fund's share
1 Year 4.20 classes will differ due to different
CLASS B SHARES sales charge structures and class
Inception (12/31/01) -2.19% expenses.
1 Year 5.61
Had the advisor not waived fees and/or
CLASS C SHARES reimbursed expenses, performance would
Inception (12/31/01) -1.12% have been lower.
1 Year 9.61
The performance data quoted represent
past performance and cannot guarantee
comparable future results; current
performance may be lower or higher.
Please visit AIMinvestments.com for the
most recent month-end performance.
Performance figures reflect reinvested
distributions, changes in net asset
value and the effect of the maximum
sales charge unless otherwise stated.
Investment return and principal value
will fluctuate so that you may have a
gain or loss when you sell shares.
===================================================================================================================================
</Table>
5
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS--96.69%
AEROSPACE & DEFENSE--1.10%
General Dynamics Corp. 60 $ 6,127
- --------------------------------------------------------------------------------
L-3 Communications Holdings, Inc. 30 1,978
- --------------------------------------------------------------------------------
Northrop Grumman Corp. 50 2,587
================================================================================
10,692
================================================================================
APPAREL RETAIL--1.67%
Gap, Inc. (The) 560 11,189
- --------------------------------------------------------------------------------
Limited Brands 110 2,726
- --------------------------------------------------------------------------------
TJX Cos., Inc. (The) 100 2,398
================================================================================
16,313
================================================================================
APPAREL, ACCESSORIES & LUXURY GOODS--0.29%
Liz Claiborne, Inc. 70 2,862
================================================================================
APPLICATION SOFTWARE--0.65%
Intuit Inc.(a) 70 3,175
- --------------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 130 3,199
================================================================================
6,374
================================================================================
ASSET MANAGEMENT & CUSTODY BANKS--1.35%
Mellon Financial Corp. 380 10,982
- --------------------------------------------------------------------------------
SEI Investments Co. 60 2,159
================================================================================
13,141
================================================================================
BIOTECHNOLOGY--0.47%
Amgen Inc.(a) 80 4,544
================================================================================
BUILDING PRODUCTS--1.55%
Masco Corp. 440 15,074
================================================================================
COMMUNICATIONS EQUIPMENT--1.85%
Cisco Systems, Inc.(a) 940 18,057
================================================================================
COMPUTER & ELECTRONICS RETAIL--0.18%
RadioShack Corp. 60 1,796
================================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMPUTER HARDWARE--3.46%
Dell Inc.(a) 680 $ 23,841
- -------------------------------------------------------------------------------
International Business Machines Corp. 110 9,872
===============================================================================
33,713
===============================================================================
COMPUTER STORAGE & PERIPHERALS--0.17%
Lexmark International, Inc.-Class A(a) 20 1,662
===============================================================================
CONSUMER FINANCE--4.64%
American Express Co. 300 15,921
- -------------------------------------------------------------------------------
Capital One Financial Corp. 70 5,163
- -------------------------------------------------------------------------------
MBNA Corp. 940 24,092
===============================================================================
45,176
===============================================================================
DATA PROCESSING & OUTSOURCED SERVICES--1.89%
Affiliated Computer Services, Inc.-Class A(a) 100 5,455
- -------------------------------------------------------------------------------
Automatic Data Processing, Inc. 90 3,905
- -------------------------------------------------------------------------------
First Data Corp. 180 7,430
- -------------------------------------------------------------------------------
Paychex, Inc. 50 1,640
===============================================================================
18,430
===============================================================================
DEPARTMENT STORES--0.36%
Federated Department Stores, Inc. 70 3,531
===============================================================================
DIVERSIFIED BANKS--7.41%
Bank of America Corp. 540 24,187
- -------------------------------------------------------------------------------
U.S. Bancorp 710 20,313
- -------------------------------------------------------------------------------
Wachovia Corp. 320 15,747
- -------------------------------------------------------------------------------
Wells Fargo & Co. 200 11,944
===============================================================================
72,191
===============================================================================
DIVERSIFIED CHEMICALS--0.64%
Engelhard Corp. 220 6,226
===============================================================================
DIVERSIFIED COMMERCIAL SERVICES--3.65%
Cendant Corp. 470 9,677
- -------------------------------------------------------------------------------
Deluxe Corp. 220 8,380
- -------------------------------------------------------------------------------
Equifax Inc. 390 10,199
- -------------------------------------------------------------------------------
West Corp.(a) 260 7,311
===============================================================================
35,567
===============================================================================
ELECTRIC UTILITIES--0.51%
Entergy Corp. 50 3,268
- -------------------------------------------------------------------------------
Southern Co. (The) 55 1,737
===============================================================================
5,005
===============================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
FOOTWEAR--1.11%
NIKE, Inc.-Class B 110 $ 8,944
- -------------------------------------------------------------------------------
Timberland Co. (The)-Class A(a) 30 1,842
===============================================================================
10,786
===============================================================================
HEALTH CARE DISTRIBUTORS--1.15%
Cardinal Health, Inc. 240 11,220
===============================================================================
HEALTH CARE EQUIPMENT--3.52%
Bard (C.R.), Inc. 100 5,680
- -------------------------------------------------------------------------------
Becton, Dickinson & Co. 100 5,250
- -------------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 127 7,285
- -------------------------------------------------------------------------------
Guidant Corp. 30 1,999
- -------------------------------------------------------------------------------
Hospira, Inc.(a) 14 447
- -------------------------------------------------------------------------------
Stryker Corp. 260 11,203
- -------------------------------------------------------------------------------
Waters Corp.(a) 60 2,477
===============================================================================
34,341
===============================================================================
HEALTH CARE SERVICES--0.67%
IMS Health Inc. 310 6,566
===============================================================================
HEALTH CARE SUPPLIES--0.56%
Bausch & Lomb Inc. 90 5,486
===============================================================================
HOME ENTERTAINMENT SOFTWARE--0.18%
Electronic Arts Inc.(a) 40 1,797
===============================================================================
HOME IMPROVEMENT RETAIL--2.70%
Home Depot, Inc. (The) 640 26,291
===============================================================================
HOUSEHOLD PRODUCTS--4.06%
Colgate-Palmolive Co. 100 4,462
- -------------------------------------------------------------------------------
Kimberly-Clark Corp. 280 16,708
- -------------------------------------------------------------------------------
Procter & Gamble Co. (The) 360 18,425
===============================================================================
39,595
===============================================================================
HOUSEWARES & SPECIALTIES--0.37%
Fortune Brands, Inc. 50 3,641
===============================================================================
HYPERMARKETS & SUPER CENTERS--1.11%
Wal-Mart Stores, Inc. 200 10,784
===============================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--2.66%
3M Co. 150 $ 11,636
- -------------------------------------------------------------------------------
General Electric Co. 300 10,236
- -------------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 130 4,050
===============================================================================
25,922
===============================================================================
INDUSTRIAL MACHINERY--2.15%
Danaher Corp. 240 13,231
- -------------------------------------------------------------------------------
Graco Inc. 225 7,740
===============================================================================
20,971
===============================================================================
INTEGRATED OIL & GAS--2.92%
ChevronTexaco Corp. 100 5,306
- -------------------------------------------------------------------------------
Exxon Mobil Corp. 470 23,133
===============================================================================
28,439
===============================================================================
INTEGRATED TELECOMMUNICATION SERVICES--1.66%
SBC Communications Inc. 330 8,336
- -------------------------------------------------------------------------------
Verizon Communications Inc. 200 7,820
===============================================================================
16,156
===============================================================================
INTERNET SOFTWARE & SERVICES--0.22%
Yahoo! Inc.(a) 60 2,171
===============================================================================
LIFE & HEALTH INSURANCE--0.71%
MetLife, Inc. 60 2,301
- -------------------------------------------------------------------------------
Prudential Financial, Inc.(a) 100 4,647
===============================================================================
6,948
===============================================================================
MANAGED HEALTH CARE--3.65%
Anthem, Inc.(a) 140 11,256
- -------------------------------------------------------------------------------
UnitedHealth Group Inc. 220 15,928
- -------------------------------------------------------------------------------
WellChoice Inc.(a) 60 2,506
- -------------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 60 5,860
===============================================================================
35,550
===============================================================================
METAL & GLASS CONTAINERS--0.53%
Ball Corp. 130 5,181
===============================================================================
MOTORCYCLE MANUFACTURERS--0.77%
Harley-Davidson, Inc. 130 7,484
===============================================================================
MULTI-LINE INSURANCE--0.82%
American International Group, Inc. 100 6,071
- -------------------------------------------------------------------------------
Genworth Financial Inc.-Class A 80 1,909
===============================================================================
7,980
===============================================================================
</Table>
F-4
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION--0.90%
Anadarko Petroleum Corp. 50 $ 3,373
- ------------------------------------------------------------------------------
Burlington Resources Inc. 130 5,395
==============================================================================
8,768
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES--2.78%
Citigroup Inc. 610 27,066
==============================================================================
PERSONAL PRODUCTS--0.81%
Avon Products, Inc. 200 7,910
==============================================================================
PHARMACEUTICALS--5.16%
Bristol-Myers Squibb Co. 70 1,640
- ------------------------------------------------------------------------------
Johnson & Johnson 280 16,346
- ------------------------------------------------------------------------------
King Pharmaceuticals, Inc.(a) 120 1,309
- ------------------------------------------------------------------------------
Merck & Co. Inc. 420 13,150
- ------------------------------------------------------------------------------
Mylan Laboratories Inc. 80 1,378
- ------------------------------------------------------------------------------
Pfizer Inc. 570 16,502
==============================================================================
50,325
==============================================================================
PROPERTY & CASUALTY INSURANCE--0.79%
Allstate Corp. (The) 160 7,694
==============================================================================
PUBLISHING--0.62%
McGraw-Hill Cos., Inc. (The) 70 6,038
==============================================================================
RAILROADS--0.90%
Burlington Northern Santa Fe Corp. 210 8,780
==============================================================================
REGIONAL BANKS--1.58%
KeyCorp 70 2,351
- ------------------------------------------------------------------------------
National City Corp. 280 10,912
- ------------------------------------------------------------------------------
SunTrust Banks, Inc. 30 2,111
==============================================================================
15,374
==============================================================================
RESTAURANTS--2.47%
CBRL Group, Inc. 50 1,813
- ------------------------------------------------------------------------------
McDonald's Corp. 390 11,369
- ------------------------------------------------------------------------------
Yum! Brands, Inc. 250 10,875
==============================================================================
24,057
==============================================================================
SEMICONDUCTORS--2.65%
Intel Corp. 1,160 25,822
==============================================================================
SOFT DRINKS--2.19%
PepsiCo, Inc. 430 21,319
==============================================================================
</Table>
F-5
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS--0.66%
International Flavors & Fragrances Inc. 50 $ 1,953
- --------------------------------------------------------------------------------
Sigma-Aldrich Corp. 80 4,451
================================================================================
6,404
================================================================================
SPECIALTY STORES--0.63%
Claire's Stores, Inc. 100 2,602
- --------------------------------------------------------------------------------
Rent-A-Center, Inc.(a) 60 1,439
- --------------------------------------------------------------------------------
Staples, Inc. 70 2,082
================================================================================
6,123
================================================================================
SYSTEMS SOFTWARE--7.37%
Microsoft Corp. 1,310 36,667
- --------------------------------------------------------------------------------
Oracle Corp.(a) 2,100 26,586
- --------------------------------------------------------------------------------
Symantec Corp.(a) 150 8,541
================================================================================
71,794
================================================================================
THRIFTS & MORTGAGE FINANCE--2.83%
Countrywide Financial Corp. 198 6,322
- --------------------------------------------------------------------------------
Fannie Mae 95 6,664
- --------------------------------------------------------------------------------
IndyMac Bancorp, Inc. 80 2,581
- --------------------------------------------------------------------------------
Washington Mutual, Inc. 310 12,000
================================================================================
27,567
================================================================================
TOBACCO--0.99%
Altria Group, Inc. 200 9,692
================================================================================
Total Common Stocks (Cost $886,451) 942,396
================================================================================
TOTAL INVESTMENTS--96.69% (Cost $886,451) 942,396
================================================================================
OTHER ASSETS LESS LIABILITIES--3.31% 32,282
================================================================================
NET ASSETS--100.00% $ 974,678
================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $886,451) $ 942,396
- ----------------------------------------------------------------------------
Cash 30,516
- ----------------------------------------------------------------------------
Receivables for:
Dividends 1,135
- ----------------------------------------------------------------------------
Amount due from advisor 17,171
- ----------------------------------------------------------------------------
Other assets 177
============================================================================
Total assets 991,395
============================================================================
LIABILITIES:
Payables for:
Accrued transfer agent fees 8
- ----------------------------------------------------------------------------
Accrued operating expenses 16,709
============================================================================
Total liabilities 16,717
============================================================================
Net assets applicable to shares outstanding $ 974,678
============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 991,834
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (73,101)
- ----------------------------------------------------------------------------
Unrealized appreciation of investment securities 55,945
============================================================================
$ 974,678
____________________________________________________________________________
============================================================================
NET ASSETS:
Class A $ 389,870
____________________________________________________________________________
============================================================================
Class B $ 292,404
____________________________________________________________________________
============================================================================
Class C $ 292,404
____________________________________________________________________________
============================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 40,780
____________________________________________________________________________
============================================================================
Class B 30,585
____________________________________________________________________________
============================================================================
Class C 30,585
____________________________________________________________________________
============================================================================
Class A :
Net asset value per share $ 9.56
- ----------------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.56 / 94.50%) $ 10.12
____________________________________________________________________________
============================================================================
Class B :
Net asset value and offering price per share $ 9.56
____________________________________________________________________________
============================================================================
Class C :
Net asset value and offering price per share $ 9.56
____________________________________________________________________________
============================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends $ 14,550
- ------------------------------------------------------------------------
EXPENSES:
Advisory fees 7,282
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 3,444
- ------------------------------------------------------------------------
Distribution fees:
Class A 1,359
- ------------------------------------------------------------------------
Class B 2,913
- ------------------------------------------------------------------------
Class C 2,913
- ------------------------------------------------------------------------
Transfer agent fees 127
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 8,217
- ------------------------------------------------------------------------
Reports to shareholders 7,852
- ------------------------------------------------------------------------
Market timing expenses 17,370
- ------------------------------------------------------------------------
Professional fees 24,108
- ------------------------------------------------------------------------
Other 177
========================================================================
Total expenses 125,762
========================================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangements (108,773)
========================================================================
Net expenses 16,989
========================================================================
Net investment income (loss) (2,439)
========================================================================
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities 38,354
- ------------------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 12,400
- ------------------------------------------------------------------------
Net gain from investment securities 50,754
========================================================================
Net increase in net assets resulting from operations $ 48,315
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,439) $ (2,307)
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities
and option contracts 38,354 (11,051)
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and option contracts 12,400 140,495
========================================================================================================
Net increase in net assets resulting from operations 48,315 127,137
========================================================================================================
Distributions to shareholders from net investment income:
Class A (529) (5,600)
- --------------------------------------------------------------------------------------------------------
Class B (397) (4,200)
- --------------------------------------------------------------------------------------------------------
Class C (397) (4,200)
========================================================================================================
Decrease in net assets resulting from distributions (1,323) (14,000)
========================================================================================================
Share transactions-net:
Class A 529 5,600
- --------------------------------------------------------------------------------------------------------
Class B 397 4,200
- --------------------------------------------------------------------------------------------------------
Class C 397 4,200
========================================================================================================
Net increase in net assets resulting from share transactions 1,323 14,000
========================================================================================================
Net increase in net assets 48,315 127,137
========================================================================================================
NET ASSETS:
Beginning of year 926,363 799,226
========================================================================================================
End of year (including undistributed net investment income
(loss) of $0 and $(4,522), respectively) $ 974,678 $ 926,363
________________________________________________________________________________________________________
========================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-9
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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
not open to 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 of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
F-10
A. SECURITY VALUATIONS (CONTINUED)
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
F-11
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM 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 next $1
billion of the Fund's 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 advisory fees and/or reimburse expenses to the extent necessary to limit
Total Annual Operating Expenses (excluding certain items discussed below) of
Class A, Class B and Class C shares to 1.75% of average daily net assets. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
Total Annual Fund Operating Expenses to exceed the caps stated above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items (these are expenses that are not anticipated to arise from the Fund's
day-to-day operations), or items designated as such by the Fund's Board of
Trustees; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, the only
expense offset arrangements from which the Fund benefits are in the form of
credits that the Fund receives from banks where the Fund or its transfer agent
has deposit accounts in which it holds uninvested cash. Those credits are used
to pay certain expenses incurred by the Fund. Further, AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds on investments by the
Fund in such affiliated money market funds. Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $7,282 and reimbursed expenses of
$75,965.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $17,990 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, 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 and reimburse AISI for certain
expenses incurred by AISI in the course of providing such services. For the year
ended October 31, 2004, the Fund paid AISI $127. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
F-12
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES (CONTINUED)
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, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. 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. Waivers may be modified or
discontinued at any time. AIM Distributors waived all plan fees of $1,359,
$2,913 and $2,913 for the Class A, Class B and Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions and (ii) custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
October 31, 2004, the Fund received credits in transfer agency fees of $12 and
credits in custodian fees of $339 under expense offset arrangements, which
resulted in a reduction of the Fund's total expenses of $351.
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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $3,612
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
F-13
NOTE 5--BORROWINGS (CONTINUED)
The Fund is a participant in an uncommitted unsecured revolving credit facility
with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the
lesser of (i) $125,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at 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 years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------------------------
Distributions paid from ordinary income $ 1,323 $ 14,000
________________________________________________________________________________________________________
========================================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation - investments $ 55,329
Capital loss carryforward (72,485)
Shares of beneficial interest 991,834
- --------------------------------------------------------------------------------
Total net assets $ 974,678
================================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $39,040 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
F-14
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
(CONTINUED)
<Table>
<Caption>
CAPITAL
EXPIRATION LOSS CARRYFORWARD*
- --------------------------------------------------------------------------------
October 31, 2010 $61,434
October 31, 2011 11,051
- --------------------------------------------------------------------------------
Total capital loss carryforward $72,485
________________________________________________________________________________
================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
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, 2004 was $487,022 and $501,339, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ----------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 97,932
- ----------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (42,603)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 55,329
______________________________________________________________________________________________
==============================================================================================
Cost of investments for tax purposes is $887,067.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$8,284, undistributed net realized gain (loss) was increased by $70 and shares
of beneficial interest decreased by $8,354. This reclassification had no effect
on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently consists of three different classes of shares that are not
currently available for sale: Class A shares, Class B shares and Class C shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Under certain 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(a)
- -------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 57 $ 529 722 $ 5,600
- -------------------------------------------------------------------------------------------------
Class B 43 397 541 4,200
- -------------------------------------------------------------------------------------------------
Class C 43 397 541 4,200
- -------------------------------------------------------------------------------------------------
143 $ 1,323 1,804 $ 14,000
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Currently, the Fund is not open to investors. All shares are owned by AIM.
F-15
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------- OCTOBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.10 $ 7.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.02) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.49 1.27 (1.98)
===========================================================================================================================
Total from investment operations 0.47 1.25 (2.01)
===========================================================================================================================
Less dividends from net investment income (0.01) (0.14) --
===========================================================================================================================
Net asset value, end of period $ 9.56 $ 9.10 $ 7.99
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(a) 5.20% 15.95% (20.10)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 390 $ 371 $ 320
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.79%(b) 1.78% 1.82%(c)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 12.56%(b) 11.94% 13.71%(c)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.28)% (0.45)%(c)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(d) 52% 81% 42%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $388,357.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-16
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------- OCTOBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.10 $ 7.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.02) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.49 1.27 (1.98)
===========================================================================================================================
Total from investment operations 0.47 1.25 (2.01)
===========================================================================================================================
Less dividends from net investment income (0.01) (0.14) --
===========================================================================================================================
Net asset value, end of period $ 9.56 $ 9.10 $ 7.99
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(a) 5.20% 15.95% (20.10)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 292 $ 278 $ 240
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.79%(b) 1.78% 1.82% (c)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 13.21%(b) 12.59% 14.36% (c)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.28)% (0.45)%(c)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(d) 52% 81% 42%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $291,270.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-17
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------- OCTOBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.10 $ 7.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.02) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.49 1.27 (1.98)
===========================================================================================================================
Total from investment operations 0.47 1.25 (2.01)
===========================================================================================================================
Less dividends from net investment income (0.01) (0.14) --
===========================================================================================================================
Net asset value, end of period $ 9.56 $ 9.10 $ 7.99
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(a) 5.20% 15.95% (20.10)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 292 $ 278 $ 240
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.79%(b) 1.78% 1.82%(c)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 13.21%(b) 12.59% 14.36%(c)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.28)% (0.45)%(c)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(d) 52% 81% 42%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $291,270.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-18
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
F-19
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlement agreements. The settlement payments will be
distributed in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
F-20
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
F-21
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
F-22
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, 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, 2004, the results of its operations for
the year then ended, the statements of changes in its net assets for each of the
two years in the period then ended, and the financial highlights for each of the
three years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
2
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
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 State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA
Philadelphia, PA 19103-7599 02110-2801
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2004, 100% is eligible for the dividends received deduction for
corporation.
For its tax year ended October 31, 2004, the Fund designated 100%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported on Form 1099-DIV. You should contact your tax advisor regarding
treatment of these amounts.
<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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund SECTOR EQUITY AIM High Income Municipal Fund
AIM Libra Fund AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Advantage Health Sciences Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Energy Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Financial Services Fund(1)
AIM Mid Cap Stock Fund(1) AIM Global Health Care Fund
AIM Opportunities I Fund AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Health Sciences Fund(1)
AIM Opportunities III Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Real Estate Fund AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Technology Fund(1)
AIM Small Cap Equity Fund(3) AIM Utilities Fund(1)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) ==============================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Trimark Endeavor Fund FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Small Companies Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund ==============================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com CSTR-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash
Funds Products Savings Managed Products Investments Management [AIM INVESTMENTS LOGO APPEARS HERE]
Plans Accounts --Registered Trademark--
- -------------------------------------------------------------------------------------
</Table>
AIM DENT DEMOGRAPHIC TRENDS FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM DENT DEMOGRAPHIC TRENDS FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT principles require adjustments to be
made to the net assets of the fund at
o Effective 9/30/03, Class B shares are o The unmanaged Lipper Multi-Cap Growth period end for financial reporting
not available as an investment for Fund Index represents an average of the purposes, and as such, the net asset
retirement plans maintained pursuant to performance of the 30 largest multi- values for shareholder transactions and
Section 401 of the Internal Revenue capitalization growth funds tracked by the returns based on those net asset
Code, including 401(k) plans, money Lipper, Inc., an independent mutual fund values may differ from the net asset
purchase pension plans and profit performance monitor. values and returns reported in the
sharing plans. Plans that have existing Financial Highlights.
accounts invested in Class B shares will o The unmanaged MSCI World Index is a
continue to be allowed to make group of global of global securities o Industry classifications used in this
additional purchases. tracked by Morgan Stanley Capital report are generally according to the
International. Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND which was developed by and is the
o The unmanaged Russell 3000--Registered exclusive property and a service mark of
o Harry S. Dent's stock market scenario Trademark-- Growth Index is a subset of Morgan Stanley Capital International
for the coming decade, based on the Russell 3000--Registered Trademark-- Inc. and Standard & Poor's.
historical data, represents his opinion. Index, an index of common stocks that
Unforeseen events such as rising measures performance of the largest The fund files its complete schedule of
inflation, declining productivity, 3,000 U.S. companies based on market portfolio holdings with the Securities
irregular spending and savings patterns, capitalization; the Growth subset and Exchange Commission (SEC) for the
and other social, political and economic measures the performance of Russell 3000 1st and 3rd quarters of each fiscal year
uncertainties could affect corporate companies with higher price/book ratios on Form N-Q. The fund's Form N-Q filings
earnings and the stock market, and higher forecasted growth values. are available on the SEC's Web site at
negatively altering Mr. Dent's view. http://www.sec.gov. Copies of the fund's
o The unmanaged Standard & Poor's Forms N-Q may be reviewed and copied at
o International investing presents Composite Index of 500 Stocks (the S&P the SEC's Public Reference Room at 450
certain risks not associated with 500--Registered Trademark-- Index) is an Fifth Street, N.W., Washington, D.C.
investing solely in the United States. index of common stocks frequently used 20549-0102. You can obtain information
These include risks relating to as a general measure of U.S. stock on the operation of the Public Reference
fluctuations in the value of the U.S. market performance. Room, including information about
dollar relative to the values of other duplicating fee charges, by calling
currencies, the custody arrangements o The fund is not managed to track the 1-202-942-8090 or by electronic request
made for the fund's foreign holdings, performance of any particular index, at the following e-mail address:
differences in accounting, political including the indexes defined here, and publicinfo@sec.gov. The SEC file numbers
risks and the lesser degree of public consequently, the performance of the for the fund are 811-1424 and 2-25469.
information required to be provided by fund may deviate significantly from the The fund's most recent portfolio
non-U.S. companies. The fund may invest performance of the index. holdings, as filed on Form N-Q, are also
up to 25% of its assets in the available at AIMinvestments.com.
securities of non-U.S. issuers. o A direct investment cannot be made in
an index. Unless otherwise indicated, A description of the policies and
o Investing in small and mid-sized index results include reinvested procedures that the fund uses to
companies involves risks not associated dividends, and they do not reflect sales determine how to vote proxies relating
with investing in more established charges. Performance of an index of to portfolio securities is available
companies, including business risk, funds reflects fund expenses; without charge, upon request, from our
significant stock price fluctuations and performance of a market index does not. Client Services department at
illiquidity. 800-959-4246 or on the AIM Web site,
OTHER INFORMATION AIMinvestments.com. Scroll down on the
o The fund may participate in the home page and click on AIM Funds Proxy
initial public offering (IPO) market in o The Conference Board is a Voting Policies. The information is also
some market cycles. Because of the not-for-profit organization that available on the Securities and Exchange
fund's small asset base, any investment conducts research and publishes Commission's Web site, sec.gov.
the fund may make in IPOs may information and analysis to help
significantly affect the fund's total businesses strengthen their performance. Information about how the fund voted
return. As the fund's assets grow, the proxies related to its portfolio
impact of IPO investments will decline, o The returns shown in the Management's securities during the 12 months ended
which may reduce the effect of IPO Discussion of Fund Performance are based 6/30/04 is available at our Web site. Go
investments on the fund's total return. on net asset values calculated for to AIMinvestments.com, click on About
shareholder transactions. Generally Us, then on Required Notices and then
accepted accounting select your fund from the drop-down
menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
[PHOTO OF trustee who is not an officer of the fund's investment
MARK H. advisor, serve as chairman of the funds' Board. In
WILLIAMSON addition, a similar provision was included in the terms of
AIM Advisors' recent settlements with certain regulators.
MARK H. WILLIAMSON Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
[PHOTO OF effective on October 4, 2004. Mr. Graham will remain on the
BRUCE L. funds' Board, as will Mark Williamson, President and Chief
CROCKETT] Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark-- .
BRUCE L. CROCKETT
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been advised by CIGNA. He
had been a member of the board of those funds since 1978. Mr. Crockett has more
than 30 years of experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He is the first
independent chairman of the funds' board in AIM's history, as he is not
affiliated with AIM or AMVESCAP in any way. He is committed to ensuring that the
AIM Funds adhere to the highest standards of corporate governance for the
benefit of fund shareholders, and we at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------ --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND MANAGERS MAINTAINED LONG-TERM MARKET CONDITIONS Greenspan said that "so far this year,
INVESTMENT FOCUS the rise in the value of imported
The U.S. economy showed signs of oil--essentially a tax on U.S.
For the fiscal year ended October 31, strength during the fiscal year ended residents--has amounted to about 3/4 [of
2004, AIM Dent Demographic Trends Fund October 31, 2004. Economic news was one] percent of GDP." The Conference
Class A shares returned 0.77% at net generally positive, and it included Board reported that consumer sentiment
asset value (NAV). PERFORMANCE SHOWN AT expansion of gross domestic product hit a two-year high in July, before
NAV DOES NOT INCLUDE FRONT-END SALES (GDP), the broadest measure of overall declining in August, September, and
CHARGES, WHICH WOULD HAVE REDUCED THE economic activity. While remaining October. The organization also reported
PERFORMANCE. The fund underperformed its positive, GDP growth tapered off that its index of leading economic
broad market index, the S&P 500 Index, somewhat from an annualized rate of 4.2% indicators declined in October, its
which returned 9.41%; its style-specific in the fourth quarter of 2003 to a more fifth consecutive monthly decline.
index, the Russell 3000 Growth Index, modest 3.9% in the third quarter of
which returned 3.54%; and its peer group 2004. YOUR FUND
index, the Lipper Multi-Cap Growth Fund
Index, which returned 5.75%. (Fiscal Generally positive economic Throughout the fiscal year, we continued
year returns for all of the fund's share developments prompted the U.S. Federal to combine Mr. Dent's top-down analysis
classes appear in the table on page 3.) Reserve (the Fed) to raise its federal of long-term demographic trends with our
funds target rate from a decades-low own unique bottom-up stock selection
Those sectors of the economy 1.00%, where it stood at the beginning process. The bulk of fund assets
emphasized by Harry S. Dent--consumer of the fiscal year, to 1.75% by the continued to be invested in sectors that
discretionary, financials, health care fiscal year's close. In its anecdotal Mr. Dent believes may benefit from
and information technology--were report on the economy released in late long-term demographic, economic and
generally out of favor for much of the October, the Fed said economic activity lifestyle trends. Within those sectors,
fiscal year and returns for those continued to expand in September and we used a combination of quantitative
sectors were relatively weak. Other early October. The Fed said that higher and fundamental research to identify
sectors not emphasized by Mr. Dent, such energy costs were constraining consumer stocks of companies with improving
as energy, utilities, and and business spending; that capital fundamentals that appear sustainable.
telecommunication services, were among spending and hiring were rising
the strongest-performing sectors of the modestly; and that residential real Fund performance during the fiscal
market. Nonetheless, because we maintain estate activity remained robust, but year was helped by strong stock
a long-term investment perspective, we non-residential activity remained selection and an overweight position
remained invested in those sectors of relatively weak. relative to the Russell 3000 Growth
the economy emphasized by Mr. Dent, Index in consumer discretionary and
believing they have long-term promise. This generally positive economic news financials stocks. Consumer staples, in
was offset somewhat by geopolitical which the fund was underweight relative
uncertainty and terrorism concerns, as to the Russell 3000 Growth Index, was
well as soaring oil prices. In another sector in which strong stock
mid-October, Fed Chairman Alan selection helped fund performance. As a
group, the fund's
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. Yahoo! Inc. 2.4% 1. Communications Equipment 8.5%
2. Dell Inc. 2.3 2. Systems Software 5.7
[PIE CHART] 3. eBay Inc. 2.2 3. Pharmaceuticals 5.6
Consumer Discretionary 19.3% 4. Symantec Corp. 2.1 4. Computer Hardware 4.9
Financials 11.3% 5. Comverse Technology, Inc. 2.0 5. Health Care Equipment 4.3
Consumer Staples 5.5% 6. Kohl's Corp. 1.9 6. Biotechnology 4.3
Money Market Funds Plus Other
7. Target Corp. 1.9 7. Application Software 3.8
Assets Less Liabilities 5.1%
8. Goldman Sachs Group, Inc. (The) 1.9 8. Apparel Retail 3.3
Industrials 2.5%
9. Alliance Data Systems Corp. 1.8 9. Personal Products 3.2
Materials 0.6%
10. Cendant Corp. 1.8 10. Internet Software & Services 3.2
Information Technology 35.6%
Health Care 20.1%
*Excluding 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>
information technology stocks hindered earlier. After our position in the stock THE VIEWS AND OPINIONS EXPRESSED IN
fund performance--but outperformed those tripled in value, we took some profits. MANAGEMENT'S DISCUSSION OF FUND
in the benchmark index. While it was a PERFORMANCE ARE THOSE OF A I M ADVISORS,
difficult year for most information Novellus, which manufactures INC. THESE VIEWS AND OPINIONS ARE
technology stocks, we remained semiconductor production equipment, SUBJECT TO CHANGE AT ANY TIME BASED ON
overweight the sector because we performed poorly for the fund. During FACTORS SUCH AS MARKET AND ECONOMIC
continued to believe in their long-term the fiscal year, a number of chip makers CONDITIONS. THESE VIEWS AND OPINIONS MAY
appreciation potential. and electronics manufacturers that buy NOT BE RELIED UPON AS INVESTMENT ADVICE
capital equipment from Novellus reported OR RECOMMENDATIONS, OR AS AN OFFER FOR A
What hindered fund performance rising inventories, as sales failed to PARTICULAR SECURITY. THE INFORMATION IS
relative to our style-specific index? meet expectations. This, together with NOT A COMPLETE ANALYSIS OF EVERY ASPECT
First, our stock selection within the the September announcement by Intel (not OF ANY MARKET, COUNTRY, INDUSTRY,
health care sector was not as good as we a fund holding) that its third-quarter SECURITY OR THE FUND. STATEMENTS OF FACT
would have liked. And second, in keeping sales and earnings would fall short, ARE FROM SOURCES CONSIDERED RELIABLE,
with Mr. Dent's demographic analysis, hurt many semiconductor-related stocks. BUT A I M ADVISORS, INC. MAKES NO
the fund had virtually no exposure to We held the stock at the close of the REPRESENTATION OR WARRANTY AS TO THEIR
the energy, industrials, materials and fiscal year because we believed that it COMPLETENESS OR ACCURACY. ALTHOUGH
utilities sectors--easily the remained attractive on a long-term HISTORICAL PERFORMANCE IS NO GUARANTEE
strongest-performing sectors of the basis. OF FUTURE RESULTS, THESE INSIGHTS MAY
market during the fiscal year. HELP YOU UNDERSTAND OUR INVESTMENT
IN CLOSING MANAGEMENT PHILOSOPHY.
We sold some of our holdings in the
financials sector during the second and This fiscal year was difficult for the See important fund and index
third quarters of 2004. Rising interest fund and for many of the sectors in disclosures inside front cover.
rates, relatively low equity trading which it invested. Nonetheless, we
volumes and a somewhat sluggish initial remained focused on long-term KIRK L. ANDERSON
public offering market hurt earnings in demographic trends, and we maintained a Mr. Anderson is a
the sector. long-term investment view. We encourage [ANDERSON portfolio manager of
investors to do the same. Thank you for PHOTO] AIM Dent Demographic
Individual stocks that affected fund your continued participation in AIM Dent Trends Fund. He joined
performance during the fiscal year Demographic Trends Fund. AIM in 1994 and
included Research In Motion and Novellus assumed his current position in 2003.
Systems. Research In Motion performed Mr. Anderson earned a B.A. in political
well for the fund. The company designs, science from Texas A&M University and an
manufactures and markets wireless M.S. in finance from the University of
solutions for the worldwide mobile Houston.
communications industry. On September
30, the company announced that the JAMES G. BIRDSALL
number of its Blackberry--Registered Mr. Birdsall is a
Trademark-- subscribers had surpassed 1.6 [BIRDSALL portfolio manager of
million, and that its quarterly earnings PHOTO] AIM Dent Demographic
rose 147% from one year Trends Fund. He has
been associated with
AIM Investments since 1995, and assumed
his current position in 1999. Mr.
Birdsall received his B.B.A. with a
concentration in finance from Stephen F.
Austin State University before earning
his M.B.A. with a concentration in
finance and international business from
the University of St. Thomas.
LANNY H. SACHNOWITZ
Mr. Sachnowitz is the
[SACHNOWITZ lead portfolio
PHOTO] manager of AIM Dent
Demographic Trends
Fund. He joined AIM
in 1987 as a money market trader and
research analyst. In 1990, Mr.
Sachnowitz's trading responsibilities
were expanded to include head of equity
trading. He was named to his current
position in 1991. Mr. Sachnowitz
received a B.S. in finance from the
University of Southern California and an
M.B.A. from the University of Houston.
Assisted by the Large Cap Growth Team
======================================================================================
FUND VS. INDEXES
TOTAL RETURNS, 10/31/03-10/31/04, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 0.77%
Class B Shares 0.13
Class C Shares 0.00
S&P 500 Index (Broad Market Index) 9.41
Russell 3000 Growth Index
(Style-specific Index) 3.54
Lipper Multi-Cap Growth Fund Index
(Peer Group Index) 5.75
TOTAL NET ASSETS $458.7 MILLION
TOTAL NUMBER OF HOLDINGS* 84
Source: Lipper, Inc.
====================================================================================== [RIGHT ARROW GRAPHIC]
OR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, costs of investing in the fund and other
to estimate the expenses that you paid funds. To do so, compare this 5%
As a shareholder of the fund, you incur over the period. Simply divide your hypothetical example with the 5%
two types of costs: (1) transaction account value by $1,000 (for example, an hypothetical examples that appear in the
costs, which may include sales charges $8,600 account value divided by $1,000 = shareholder reports of the other funds.
(loads) on purchase payments; contingent 8.6), then multiply the result by the
deferred sales charges on redemptions; number in the table under the heading Please note that the expenses shown
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During in the table are meant to highlight your
ongoing costs, including management Period" to estimate the expenses you ongoing costs only and do not reflect
fees; distribution and/or service fees paid on your account during this period. any transactional costs, such as sales
(12b-1); and other fund expenses. This charges (loads) on purchase payments,
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
understand your ongoing costs (in PURPOSES redemptions, and redemption fees, if
dollars) of investing in the fund and to any. Therefore, the hypothetical
compare these costs with ongoing costs The table below also provides information is useful in comparing
of investing in other mutual funds. The information about hypothetical account ongoing costs only, and will not help
example is based on an investment of values and hypothetical expenses based you determine the relative total costs
$1,000 invested at the beginning of the on the fund's actual expense ratio and of owning different funds. In addition,
period and held for the entire period, an assumed rate of return of 5% per year if these transactional costs were
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's included, your costs would have been
actual return. The hypothetical account higher.
ACTUAL EXPENSES values and expenses may not be used to
estimate the actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may use this information to
expenses. You may use the information in compare the ongoing
this table,
</Table>
<Table>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $994.90 $ 9.28 $1,015.84 $ 9.37
Class B 1,000.00 992.10 12.52 1,012.57 12.65
Class C 1,000.00 990.80 12.51 1,012.57 12.65
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was -0.51%, -0.79% and -0.92% for Class A, B and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.85%, 2.50% and 2.50% for Class A, B and C shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 6/7/99-10/31/04; index results from 5/31/99
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM DENT AIM DENT AIM DENT LIPPER
management fees. Index results include DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC MULTI-CAP RUSSELL
reinvested dividends, but they do not TRENDS FUND TRENDS FUND TRENDS FUND GROWTH 3000 RUSSELL
reflect sales charges. Performance of an CLASS A CLASS B CLASS C FUND GROWTH 3000 S&P 500
index of funds reflects fund expenses DATE SHARES SHARES SHARES INDEX INDEX INDEX INDEX
AND MANAGEMENT fees; performance of a
market index does not. Performance shown 6/7/1999 $ 9450 $10000 $10000 $10000 $10000 $10000 $10000
in the chart does not reflect deduction 7/99 10424 11020 11020 10458 10348 10187 10225
of taxes a shareholder would pay on fund 10/99 11474 12111 12111 11020 11026 10429 10522
distributions or sale of fund shares. 1/00 14204 14971 14971 13562 12357 10958 10796
Performance of the indexes does not 4/00 14989 15772 15773 14355 13158 11506 11278
reflect the effects of taxes. 7/00 15253 16021 16022 14252 12849 11310 11142
10/00 14554 15262 15261 13974 12107 11434 11162
Since the last reporting period, the 1/01 12522 13110 13110 12294 10732 10915 10699
fund has elected to use the S&P 500 4/01 9498 9931 9930 10513 8980 10015 9816
Index as its broad-based market index 7/01 8902 9290 9290 9716 8448 9746 9546
since it is such a widely recognized 10/01 7202 7500 7500 8099 7344 8556 8384
gauge of domestic equities and U.S. 1/02 8044 8360 8360 8763 7910 9228 8973
stock market performance. The fund will 4/02 7448 7730 7730 8180 7248 8940 8577
no longer measure its performance 7/02 5888 6100 6100 6526 6010 7549 7292
against the Russell 3000 Index, the 10/02 5671 5871 5870 6430 5896 7328 7118
index published in previous reports to 1/03 5501 5680 5680 6224 5660 7153 6909
shareholders. Because this is the first 4/03 5993 6180 6180 6739 6160 7689 7436
reporting period since we have adopted 7/03 6825 7020 7020 7545 6771 8453 8068
the new index, SEC guidelines require 10/03 7355 7561 7561 8240 7273 9064 8598
that we compare the fund's performance 1/04 7827 8031 8030 8781 7772 9810 9295
to both the old and the new index. The 4/04 7449 7630 7630 8573 7573 9621 9137
fund has also included a style-specific 7/04 7166 7330 7329 8330 7360 9578 9129
index, the Russell 3000 Growth Index. 10/04 $ 7410 $ 7494 $ 7560 $ 8713 $ 7530 $ 9926 $ 9407
The fund believes this index more Source: Lipper, Inc.
closely reflects the performance of the original investment to grow to very CLASS B SHARES
securities in which the fund invests. In large numbers. Had the chart used a Inception (6/7/99) -5.76%
addition, the unmanaged Lipper Multi-Cap linear scale along its vertical axis, 5 Years -8.25
Growth Fund Index, which may or may not you would not be able to see as clearly 1 Year 0.29
include AIM Dent Demographic Trends the movements in the value of the fund
Fund, is included for comparison to a and the indexes during the fund's early CLASS C SHARES
peer group. years. We use a logarithmic scale in Inception (6/7/99) -5.58%
financial reports of funds that have 5 Years -7.88
In evaluating this chart, please note more than five years of performance 1 Year 4.29
that the chart uses a logarithmic scale history.
along the vertical axis (the value The performance data quoted represent
scale). This means that each scale past performance and cannot guarantee
increment always represents the same AVERAGE ANNUAL TOTAL RETURNS comparable future results; current
percent change in price; in a linear As of 10/31/04, the fiscal year end, performance may be lower or higher.
chart each scale increment always including applicable sales charges Please visit AIMinvestments.com for the
represents the same absolute change in most recent month-end performance.
price. In this example, the scale Performance figures reflect reinvested
increment between $5,000 and $10,000 is CLASS A SHARES distributions, changes in net asset
the same as that between $10,000 and Inception (6/7/99) -5.40% value and the effect of the maximum
$20,000. In a linear chart, the latter 5 Years -9.41 sales charge unless otherwise stated.
scale increment would be twice as large. 1 Year -4.74 Investment return and principal value
The benefit of using a logarithmic scale will fluctuate so that you may have a
is that it better illustrates CLASS B SHARES gain or loss when you sell shares.
performance during the early years Inception (6/7/99) -5.20%
before reinvested distributions and 5 Years -9.34 Class A share performance reflects
compounding create the potential for the 1 Year -4.87 the maximum 5.50% sales charge, and
Class B and Class C share performance
CLASS C SHARES reflects the applicable contingent
Inception (6/7/99) -5.05% deferred sales charge (CDSC) for the
5 Years -8.99 period involved. The CDSC on Class B
1 Year -1.00 shares declines from 5% beginning at the
time of purchase to 0% at the beginning
In addition to returns as of the close of the seventh year. The CDSC on Class C
of the fiscal year, industry regulations shares is 1% for the first year after
require us to provide average annual purchase.
total returns as of 9/30/04, the most
recent calendar quarter-end. The performance of the fund's share
classes will differ due to different
sales charge structures and class
AVERAGE ANNUAL TOTAL RETURNS expenses.
As of 9/30/04, including applicable
sales charges
CLASS A SHARES
Inception (6/7/99) -5.96%
5 Years -8.34
1 Year 0.13
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.87%
APPAREL RETAIL-3.28%
American Eagle Outfitters, Inc. 90,000 $ 3,679,200
- ------------------------------------------------------------------------
Chico's FAS, Inc.(a)(b) 77,000 3,082,310
- ------------------------------------------------------------------------
Foot Locker, Inc. 157,300 3,838,120
- ------------------------------------------------------------------------
Limited Brands 180,000 4,460,400
========================================================================
15,060,030
========================================================================
APPLICATION SOFTWARE-3.75%
Amdocs Ltd. (United Kingdom)(a) 260,000 6,539,000
- ------------------------------------------------------------------------
Autodesk, Inc. 70,000 3,692,500
- ------------------------------------------------------------------------
Intuit Inc.(a) 80,000 3,628,800
- ------------------------------------------------------------------------
NAVTEQ Corp.(a) 83,000 3,345,730
========================================================================
17,206,030
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.40%
Calamos Asset Management, Inc.-Class A(a)(c) 129,100 2,517,450
- ------------------------------------------------------------------------
Investors Financial Services Corp.(c) 75,000 2,886,750
- ------------------------------------------------------------------------
Legg Mason, Inc. 88,000 5,606,480
========================================================================
11,010,680
========================================================================
BIOTECHNOLOGY-4.27%
Biogen Idec Inc.(a) 77,400 4,501,584
- ------------------------------------------------------------------------
Gen-Probe Inc.(a) 101,500 3,556,560
- ------------------------------------------------------------------------
Genentech, Inc.(a) 120,000 5,463,600
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 175,000 6,060,250
========================================================================
19,581,994
========================================================================
BROADCASTING & CABLE TV-1.21%
Univision Communications Inc.-Class A(a) 180,000 5,572,800
========================================================================
COMMUNICATIONS EQUIPMENT-8.48%
Avaya Inc.(a) 95,000 1,368,000
- ------------------------------------------------------------------------
Cisco Systems, Inc.(a) 400,000 7,684,000
- ------------------------------------------------------------------------
Comverse Technology, Inc.(a) 450,000 9,288,000
- ------------------------------------------------------------------------
Motorola, Inc. 400,000 6,904,000
- ------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 335,000 5,165,700
- ------------------------------------------------------------------------
QUALCOMM Inc. 85,000 3,553,850
- ------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 56,000 4,939,200
========================================================================
38,902,750
========================================================================
COMPUTER & ELECTRONICS RETAIL-1.29%
Best Buy Co., Inc. 100,000 5,922,000
========================================================================
COMPUTER HARDWARE-4.93%
Apple Computer, Inc.(a) 133,500 7,012,755
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMPUTER HARDWARE-(CONTINUED)
Dell Inc.(a) 300,000 $ 10,518,000
- ------------------------------------------------------------------------
PalmOne, Inc.(a)(c) 175,000 5,069,750
========================================================================
22,600,505
========================================================================
COMPUTER STORAGE & PERIPHERALS-1.09%
Lexmark International, Inc.-Class A(a) 60,000 4,986,600
========================================================================
CONSUMER FINANCE-2.58%
American Express Co. 135,000 7,164,450
- ------------------------------------------------------------------------
Providian Financial Corp.(a) 300,000 4,665,000
========================================================================
11,829,450
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.77%
Alliance Data Systems Corp.(a) 191,800 8,109,304
========================================================================
DEPARTMENT STORES-1.94%
Kohl's Corp.(a) 175,000 8,883,000
========================================================================
DISTILLERS & VINTNERS-0.74%
Constellation Brands, Inc.-Class A(a) 87,000 3,413,010
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.75%
Cendant Corp. 390,000 8,030,100
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.71%
Agilent Technologies, Inc.(a) 313,500 7,856,310
========================================================================
ENVIRONMENTAL SERVICES-0.74%
Stericycle, Inc.(a) 75,000 3,399,750
========================================================================
GENERAL MERCHANDISE STORES-1.91%
Target Corp. 175,000 8,753,500
========================================================================
HEALTH CARE EQUIPMENT-4.34%
Bard (C.R.), Inc. 68,300 3,879,440
- ------------------------------------------------------------------------
DENTSPLY International Inc.(c) 75,000 3,900,750
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 81,000 4,646,160
- ------------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 66,000 3,288,780
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 104,000 4,175,600
========================================================================
19,890,730
========================================================================
HEALTH CARE SERVICES-2.92%
Caremark Rx, Inc.(a) 110,000 3,296,700
- ------------------------------------------------------------------------
DaVita, Inc.(a) 186,000 5,509,320
- ------------------------------------------------------------------------
IMS Health Inc. 100,000 2,118,000
- ------------------------------------------------------------------------
Quest Diagnostics Inc. 28,000 2,451,120
========================================================================
13,375,140
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE SUPPLIES-1.29%
Alcon, Inc. (Switzerland) 83,000 $ 5,909,600
========================================================================
HOTELS, RESORTS & CRUISE LINES-2.01%
Carnival Corp. (Panama) 103,000 5,207,680
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 84,000 4,009,320
========================================================================
9,217,000
========================================================================
HYPERMARKETS & SUPER CENTERS-1.46%
Costco Wholesale Corp. 140,000 6,711,600
========================================================================
INTERNET RETAIL-2.17%
eBay Inc.(a) 102,000 9,956,220
========================================================================
INTERNET SOFTWARE & SERVICES-3.20%
Google Inc.-Class A(a)(c) 20,000 3,814,100
- ------------------------------------------------------------------------
Yahoo! Inc.(a) 300,600 10,878,714
========================================================================
14,692,814
========================================================================
INVESTMENT BANKING & BROKERAGE-1.85%
Goldman Sachs Group, Inc. (The) 86,500 8,509,870
========================================================================
IT CONSULTING & OTHER SERVICES-0.69%
Accenture Ltd.-Class A (Bermuda)(a) 130,000 3,147,300
========================================================================
MANAGED HEALTH CARE-1.74%
Aetna Inc. 84,000 7,980,000
========================================================================
MOTORCYCLE MANUFACTURERS-0.97%
Harley-Davidson, Inc. 77,500 4,461,675
========================================================================
MOVIES & ENTERTAINMENT-1.49%
DreamWorks Animation SKG, Inc.-Class A(a) 13,600 531,080
- ------------------------------------------------------------------------
Walt Disney Co. (The) 250,000 6,305,000
========================================================================
6,836,080
========================================================================
PERSONAL PRODUCTS-3.24%
Avon Products, Inc. 85,000 3,361,750
- ------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 175,000 7,516,250
- ------------------------------------------------------------------------
Gillette Co. (The) 96,000 3,982,080
========================================================================
14,860,080
========================================================================
PHARMACEUTICALS-5.56%
Eon Labs, Inc.(a) 196,300 4,830,943
- ------------------------------------------------------------------------
IVAX Corp.(a) 193,750 3,506,875
- ------------------------------------------------------------------------
Johnson & Johnson 117,000 6,830,460
- ------------------------------------------------------------------------
Pfizer Inc. 85,000 2,460,750
- ------------------------------------------------------------------------
Sepracor Inc.(a) 91,500 4,202,595
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PHARMACEUTICALS-(CONTINUED)
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 130,000 $ 3,692,000
========================================================================
25,523,623
========================================================================
PROPERTY & CASUALTY INSURANCE-1.47%
Allstate Corp. (The) 140,000 6,732,600
========================================================================
PUBLISHING-0.75%
Getty Images, Inc.(a)(c) 58,000 3,429,540
========================================================================
REGIONAL BANKS-0.95%
Bank of Hawaii Corp. 91,500 4,369,125
========================================================================
RESTAURANTS-1.52%
Yum! Brands, Inc. 160,000 6,960,000
========================================================================
SEMICONDUCTOR EQUIPMENT-1.64%
Novellus Systems, Inc.(a) 290,000 7,513,900
========================================================================
SEMICONDUCTORS-2.59%
Analog Devices, Inc. 150,000 6,039,000
- ------------------------------------------------------------------------
Microchip Technology Inc. 193,500 5,853,375
========================================================================
11,892,375
========================================================================
SPECIALIZED FINANCE-1.23%
Chicago Mercantile Exchange (The)(c) 32,000 5,623,360
========================================================================
SPECIALTY CHEMICALS-0.63%
Ecolab Inc. 85,000 2,877,250
========================================================================
SPECIALTY STORES-0.79%
Williams-Sonoma, Inc.(a) 95,000 3,626,150
========================================================================
SYSTEMS SOFTWARE-5.73%
McAfee Inc.(a) 165,000 3,993,000
- ------------------------------------------------------------------------
Microsoft Corp. 160,000 4,478,400
- ------------------------------------------------------------------------
Oracle Corp.(a) 350,000 4,431,000
- ------------------------------------------------------------------------
Symantec Corp.(a) 170,000 9,679,800
- ------------------------------------------------------------------------
VERITAS Software Corp.(a) 170,000 3,719,600
========================================================================
26,301,800
========================================================================
THRIFTS & MORTGAGE FINANCE-0.80%
Doral Financial Corp. (Puerto Rico) 87,500 3,673,250
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $364,419,506) 435,188,895
========================================================================
MONEY MARKET FUNDS-5.49%
Liquid Assets Portfolio-Institutional
Class(d) 12,603,015 12,603,015
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 12,603,015 12,603,015
========================================================================
Total Money Market Funds (Cost
$25,206,030) 25,206,030
========================================================================
TOTAL INVESTMENTS-100.36% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $389,625,536) 460,394,925
========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.56%
STIC Prime Portfolio-Institutional
Class(d)(e) 16,327,750 $ 16,327,750
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $16,327,750) 16,327,750
========================================================================
TOTAL INVESTMENTS-103.92% (Cost $405,953,286) 476,722,675
========================================================================
OTHER ASSETS LESS LIABILITIES-(3.92%) (17,983,112)
========================================================================
NET ASSETS-100.00% $458,739,563
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1H
and Note 9.
(c) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$364,419,506)* $ 435,188,895
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $41,533,780) 41,533,780
============================================================
Total investments (cost $405,953,286) 476,722,675
============================================================
Receivables for:
Investments sold 8,592,226
- ------------------------------------------------------------
Fund shares sold 114,465
- ------------------------------------------------------------
Dividends 118,005
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 43,880
- ------------------------------------------------------------
Other assets 19,831
============================================================
Total assets 485,611,082
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 8,212,059
- ------------------------------------------------------------
Fund shares reacquired 1,436,843
- ------------------------------------------------------------
Options written, at market value (premiums
received $98,243) 92,750
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 64,172
- ------------------------------------------------------------
Collateral upon return of securities
loaned 16,327,750
- ------------------------------------------------------------
Accrued distribution fees 280,068
- ------------------------------------------------------------
Accrued trustees' fees 1,375
- ------------------------------------------------------------
Accrued transfer agent fees 358,897
- ------------------------------------------------------------
Accrued operating expenses 97,605
============================================================
Total liabilities 26,871,519
============================================================
Net assets applicable to shares outstanding $ 458,739,563
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,220,537,382
- ------------------------------------------------------------
Undistributed net investment income (loss) (56,054)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (832,516,647)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 70,774,882
============================================================
$ 458,739,563
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 174,741,093
____________________________________________________________
============================================================
Class B $ 209,239,739
____________________________________________________________
============================================================
Class C $ 74,758,731
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 22,298,689
____________________________________________________________
============================================================
Class B 27,662,169
____________________________________________________________
============================================================
Class C 9,884,767
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.84
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.84 divided by
94.50%) $ 8.30
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 7.56
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 7.56
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $15,703,411
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $26,967) $ 3,255,156
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $26,206)* 277,118
==========================================================================
Total investment income 3,532,274
==========================================================================
EXPENSES:
Advisory fees 4,330,717
- --------------------------------------------------------------------------
Administrative services fees 140,580
- --------------------------------------------------------------------------
Custodian fees 60,875
- --------------------------------------------------------------------------
Distribution fees:
Class A 696,911
- --------------------------------------------------------------------------
Class B 2,372,817
- --------------------------------------------------------------------------
Class C 878,618
- --------------------------------------------------------------------------
Transfer agent fees 3,028,247
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 21,956
- --------------------------------------------------------------------------
Other 420,541
==========================================================================
Total expenses 11,951,262
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (73,335)
==========================================================================
Net expenses 11,877,927
==========================================================================
Net investment income (loss) (8,345,653)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from investment securities 57,904,456
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (47,483,787)
- --------------------------------------------------------------------------
Option contracts written 5,493
==========================================================================
(47,478,294)
==========================================================================
Net gain from investment securities and option contracts 10,426,162
==========================================================================
Net increase in net assets resulting from operations $ 2,080,509
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (8,345,653) $ (8,459,316)
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 57,904,456 12,899,204
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (47,478,294) 124,414,828
===========================================================================================
Net increase in net assets resulting from operations 2,080,509 128,854,716
===========================================================================================
Share transactions-net:
Class A (39,681,686) (26,713,489)
- -------------------------------------------------------------------------------------------
Class B (42,809,697) (29,364,137)
- -------------------------------------------------------------------------------------------
Class C (21,482,204) (14,000,141)
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (103,973,587) (70,077,767)
===========================================================================================
Net increase (decrease) in net assets (101,893,078) 58,776,949
===========================================================================================
NET ASSETS:
Beginning of year 560,632,641 501,855,692
===========================================================================================
End of year (including undistributed net investment income
(loss) of $(56,054) and $(47,845), respectively). $ 458,739,563 $560,632,641
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Dent Demographic Trends Fund (the "Fund") is a series portfolio of AIM
Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of fifteen separate
portfolios, each authorized to issue an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-7
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
F-8
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). H.S. Dent Advisors, Inc. ("H.S. Dent") is the Fund's
sub-advisor. Under the terms of the investment advisory agreement, the Fund pays
an advisory fee to AIM at the annual rate of 0.77% of the first $2 billion of
the Fund's average daily net assets, plus 0.72% of the Fund's average daily net
assets exceeding $2 billion. Prior to July 1, 2004, the Fund paid an advisory
fee to AIM at the annual rate of 0.85% of the first $2 billion of the Fund's
average daily net assets, plus 0.80% of the Fund's average daily net assets
exceeding $2 billion. Under the terms of the sub-advisory agreement between AIM
and H.S. Dent, effective July 1, 2004, AIM pays H.S. Dent at the annual rate of
6.49% of the net management fee for the Fund; however, no sub-advisory fee shall
be due with respect to the Fund if the net assets of the Fund fall below $50
million. Prior to July 1, 2004, AIM paid H.S. Dent at the annual rate of 0.13%
of the first $1 billion of the Fund's average daily net assets, plus 0.10% of
the next $1 billion of the Fund's average daily net assets, plus 0.07% of the
Fund's average daily net assets in excess of $2 billion. AIM has voluntarily
agreed to waive advisory fees and/or reimburse expenses to the extent necessary
to limit Total Annual Operating Expenses (excluding certain items discussed
below) of Class A, Class B and Class C shares to 2.00%, 2.65% and 2.65% of
average daily net assets, respectively. In determining the advisor's obligation
to waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the Total Annual Fund Operating Expenses to
exceed the caps stated above: (i) interest; (ii) taxes; (iii) dividend expense
on short sales; (iv) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $4,738.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $59,047 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $140,580 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $3,028,247. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking 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, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $696,911,
$2,372,817 and $878,618, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$80,876 in front-end sales commissions from the sale of Class A shares and $846,
$20,415 and $6,858 from Class A, Class B and Class C shares, respectively, for
CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-9
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $14,188,517 $ 94,299,902 $ (95,885,404) $ -- $12,603,015 $124,253 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 14,188,517 94,299,902 (95,885,404) -- 12,603,015 126,659 --
==================================================================================================================================
Subtotal $28,377,034 $188,599,804 $(191,770,808) $ -- $25,206,030 $250,912 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $13,760,300 $144,303,405 $(158,063,705) $ -- $ -- $ 22,547 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 42,926,545 (26,598,795) -- 16,327,750 3,659 --
==================================================================================================================================
Subtotal $13,760,300 $187,229,950 $(184,662,500) $ -- $16,327,750 $ 26,206 $ --
==================================================================================================================================
Total $42,137,334 $375,829,754 $(376,433,308) $ -- $41,533,780 $277,118 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $10,582,774 and $6,501,468,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $9,550 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$9,550.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $6,145
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.
F-10
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $15,703,411 were
on loan to brokers. The loans were secured by cash collateral of $16,327,750
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $26,206 for securities
lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 700 98,243
===================================================================================
End of year 700 $98,243
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- --------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31,
NUMBER 2004
CONTRACT STRIKE OF PREMIUMS MARKET UNREALIZED
CALLS MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
- --------------------------------------------------------------------------------------------------------------------------------
Chicos FAS, Inc. Nov-04 $40 700 $98,243 $92,750 $5,493
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
F-11
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments $ 69,362,531
- ------------------------------------------------------------------------------
Temporary book/tax differences (56,054)
- ------------------------------------------------------------------------------
Capital loss carryforward (831,104,296)
- ------------------------------------------------------------------------------
Shares of beneficial interest 1,220,537,382
==============================================================================
Total net assets $ 458,739,563
______________________________________________________________________________
==============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable to losses on wash sales.
The tax-basis unrealized appreciation on investments amount includes
appreciation on option contracts written of $5,493.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $56,245,166 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
October 31, 2008 $ 91,720,843
- ---------------------------------------------------------------------------
October 31, 2009 541,794,870
- ---------------------------------------------------------------------------
October 31, 2010 195,681,695
- ---------------------------------------------------------------------------
October 31, 2011 1,906,888
===========================================================================
Total capital loss carryforward $831,104,296
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--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, 2004 was $643,066,737 and $748,716,714, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $74,758,933
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,401,895)
===============================================================================
Net unrealized appreciation of investment securities $69,357,038
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $407,365,637.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses on
October 31, 2004, undistributed net investment income (loss) was increased by
$8,337,444, and shares of beneficial interest decreased by $8,337,444. This
reclassification had no effect on the net assets of the Fund.
F-12
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain 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(a)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,484,342 $ 19,873,365 3,976,331 $ 26,689,358
- -------------------------------------------------------------------------------------------------------------------------
Class B 1,885,170 14,584,336 3,032,772 19,799,210
- -------------------------------------------------------------------------------------------------------------------------
Class C 886,884 6,891,627 1,236,736 8,126,066
=========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 308,040 2,475,023 268,267 1,801,536
- -------------------------------------------------------------------------------------------------------------------------
Class B (317,997) (2,475,023) (275,388) (1,801,536)
=========================================================================================================================
Reacquired:
Class A (7,838,825) (62,030,074) (8,611,375) (55,204,383)
- -------------------------------------------------------------------------------------------------------------------------
Class B (7,180,073) (54,919,010) (7,607,073) (47,361,811)
- -------------------------------------------------------------------------------------------------------------------------
Class C (3,713,554) (28,373,831) (3,515,974) (22,126,207)
=========================================================================================================================
(13,486,013) $(103,973,587) (11,495,704) $(70,077,767)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 13% of
the outstanding shares of the Fund. AIM Distributors has an agreement
with these entities to sell Fund shares. The Fund, AIM and/or AIM
affiliates may make payments to these entities, which are considered to
be related to the Fund, for providing services to the Fund, AIM and/or
AIM affiliates including but not limited to services such as, securities
brokerage, distribution, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion
of the shares owned of record by these shareholders are also owned
beneficially.
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.78 $ 6.00 $ 7.62 $ 15.40 $ 12.14
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.09) (0.12) (0.12) (0.11)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.17 1.87 (1.50) (7.66) 3.37
=========================================================================================================================
Total from investment operations 0.06 1.78 (1.62) (7.78) 3.26
=========================================================================================================================
Net asset value, end of period $ 7.84 $ 7.78 $ 6.00 $ 7.62 $ 15.40
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(a) 0.77% 29.67% (21.26)% (50.52)% 26.85%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $174,741 $212,863 $190,253 $312,377 $666,929
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.86%(b) 2.01% 1.87% 1.64% 1.50%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.88%(b) 2.02% 1.87% 1.64% 1.50%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.19)%(b) (1.29)% (1.31)% (1.04)% (0.93)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 128% 152% 189% 143% 90%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(b) Ratios are based on average daily net assets of $199,117,481.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.56 $ 5.87 $ 7.50 $ 15.26 $ 12.11
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16) (0.13) (0.17) (0.18) (0.18)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.16 1.82 (1.46) (7.58) 3.33
=========================================================================================================================
Total from investment operations 0.00 1.69 (1.63) (7.76) 3.15
=========================================================================================================================
Net asset value, end of period $ 7.56 $ 7.56 $ 5.87 $ 7.50 $ 15.26
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(a) 0.00% 28.79% (21.73)% (50.85)% 26.01%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $209,240 $251,650 $223,666 $367,494 $748,480
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.51%(b) 2.66% 2.53% 2.32% 2.17%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.53%(b) 2.67% 2.53% 2.32% 2.17%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.84)%(b) (1.94)% (1.97)% (1.72)% (1.60)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 128% 152% 189% 143% 90%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(b) Ratios are based on average daily net assets of $237,281,695.
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.56 $ 5.87 $ 7.50 $ 15.26 $ 12.11
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16) (0.13) (0.17) (0.19) (0.17)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.16 1.82 (1.46) (7.57) 3.32
======================================================================================================================
Total from investment operations 0.00 1.69 (1.63) (7.76) 3.15
======================================================================================================================
Net asset value, end of period $ 7.56 $ 7.56 $ 5.87 $ 7.50 $ 15.26
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(a) 0.00% 28.79% (21.73)% (50.85)% 26.01%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $74,759 $96,120 $87,938 $149,925 $309,821
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.51%(b) 2.66% 2.53% 2.32% 2.17%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.53%(b) 2.67% 2.53% 2.32% 2.17%
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.84)%(b) (1.94)% (1.97)% (1.72)% (1.60)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 128% 152% 189% 143% 90%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(b) Ratios are based on average daily net assets of $87,861,805.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
F-14
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
F-15
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Dent Demographic Trends Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Dent
Demographic Trends Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
period ended October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Dent Demographic Trends Fund as of October 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the four years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s)
Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1988 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP H.S. Dent Advisors, Inc.
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center 6515 Gwin Road
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney Oakland, CA 94611
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 1200
Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund SECTOR EQUITY AIM High Income Municipal Fund
AIM Libra Fund AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Advantage Health Sciences Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Energy Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Financial Services Fund(1)
AIM Mid Cap Stock Fund(1) AIM Global Health Care Fund AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Gold & Precious Metals Fund(1)
AIM Opportunities II Fund AIM Health Sciences Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Leisure Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Multi-Sector Fund(1) AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Real Estate Fund
AIM Select Equity Fund AIM Technology Fund(1)
AIM Small Cap Equity Fund(3) AIM Utilities Fund(1)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) =======================================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Trimark Endeavor Fund AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Trimark Small Companies Fund AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund =======================================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com DDT-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM DIVERSIFIED DIVIDEND FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
<Caption>
====================================================================================================================================
AIM DIVERSIFIED DIVIDEND FUND SEEKS TO PROVIDE GROWTH OF CAPITAL, AND SECONDARILY, CURRENT INCOME.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Russell 1000--Registered The fund files its complete schedule of
Trademark-- Index represents the portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are performance of the stocks of and Exchange Commission ("SEC") for the
not available as an investment for large-capitalization companies. 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue o The unmanaged Lipper Large-Cap Core are available on the SEC's Web site at
Code, including 401(k) plans, money Fund Index represents an average of the http://www.sec.gov. Copies of the fund's
purchase pension plans and profit performance of the 30 largest Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing large-capitalization core equity funds the SEC's Public Reference Room at 450
accounts invested in Class B shares will tracked by Lipper, Inc., an independent Fifth Street, N.W., Washington, D.C.
continue to be allowed to make mutual fund performance monitor. 20549-0102. You can obtain information
additional purchases. on the operation of the Public Reference
o The fund is not managed to track the Room, including information about
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of any particular index, duplicating fee charges, by calling
including the indexes defined here, and 1-202-942-8090 or by electronic request
o International investing presents consequently, the performance of the at the following e-mail address:
certain risks not associated with fund may deviate significantly from the publicinfo@sec.gov. The SEC file numbers
investing solely in the United States. performance of the indexes. for the fund are 811-1424 and 2-25469.
These include risks relating to The fund's most recent portfolio
fluctuations in the value of the U.S. o A direct investment cannot be made in holdings, as filed on Form N-Q, are also
dollar relative to the values of other an index. Unless otherwise indicated, available at AIMinvestments.com.
currencies, the custody arrangements index results include reinvested
made for the fund's foreign holdings, dividends, and they do not reflect sales A description of the policies and
differences in accounting, political charges. Performance of an index of procedures that the fund uses to
risks and the lesser degree of public funds reflects fund expenses; determine how to vote proxies relating
information required to be provided by performance of a market index does not. to portfolio securities is available
non-U.S. companies. The fund may invest without charge, upon request, from our
up to 25% of its assets in the OTHER INFORMATION Client Services department at
securities of non-U.S. issuers. 800-959-4246 or on the AIM Web site,
o The returns shown in the Management's AIMinvestments.com. On the home page,
o The fund may participate in the Discussion of Fund Performance are based scroll down and click on AIM Funds Proxy
initial public offering (IPO) market in on net asset values calculated for Policy. The information is also
some market cycles. Because of the shareholder transactions. Generally available on the Securities and Exchange
fund's small asset base, any investment accepted accounting principles require Commission's Web site, sec.gov.
the fund may make in IPOs may adjustments to be made to the net assets
significantly affect the fund's total of the fund at period end for financial Information regarding how the fund voted
return. As the fund's assets grow, the reporting purposes, and as such, the net proxies related to its portfolio
impact of IPO investments will decline, asset values for shareholder securities during the 12 months ended
which may reduce the effect of IPO transactions and the returns based on 6/30/04 is available at our Web site. Go
investments on the fund's total return. those net asset values may differ from to AIMinvestments.com, access the About
the net asset values and returns Us tab, click on Required Notices and
ABOUT INDEXES USED IN THIS REPORT reported in the Financial Highlights. then click on Proxy Voting Activity.
Next, select your fund from the
o The unmanaged Standard & Poor's o Industry classifications used in this drop-down menu.
Composite Index of 500 Stocks (the S&P report are generally according to the
500--Registered Trademark-- Index) is an Global Industry Classification Standard,
index of common stocks frequently used which was developed by and is the
as a general measure of U.S. stock exclusive property and a service mark of
market performance. Morgan Stanley Capital International
Inc. and Standard & Poor's.
o The unmanaged MSCI World Index is a
group of global securities tracked by
Morgan Stanley Capital International.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H.
GRAHAM] It is our pleasure to introduce you to Bruce Crockett,
the new Chairman of the Board of Trustees of the AIM
ROBERT H. GRAHAM Funds. Bob Graham has served as Chairman of the Board
of Trustees of the AIM Funds ever since Ted Bauer
PHOTO OF] retired from that position in 2000. However, as you may
MARK H. be aware, the U.S. Securities and Exchange Commission
WILLIAMSON] recently adopted a rule requiring that an independent
fund trustee, meaning a trustee who is not an officer
MARK H. WILLIAMSON of the fund's investment advisor, serve as chairman of
the funds' Board. In addition, a similar provision was
[PHOTO OF included in the terms of AIM Advisors' recent
BRUCE L. settlements with certain regulators. Accordingly, the
CROCKETT] AIM Funds' Board recently elected Mr. Crockett, one of
the fourteen independent trustees on the AIM Funds'
BRUCE L. CROCKETT Board, as Chairman. His appointment became effective on
October 4, 2004. Mr. Graham will remain on the funds'
Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds'
board since 1992, when AIM acquired certain funds that
had been advised by CIGNA. He had been a member of the
board of those funds since 1978. Mr. Crockett has more
than 30 years of experience in finance and general
management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first
independent chairman of the funds' board in AIM's
history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM
Funds adhere to the highest standards of corporate
governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign,
produced positive returns for the fiscal year ended
October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index
advanced more than 13%. However, a goodly portion of
this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up
just over 3%, the MSCI World Index just about 5%. In
the pages that follow, you will find a more detailed
discussion of the market conditions that affected your
fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as
ever, we encourage our shareholders to look past
short-term performance and focus on their long-term
investment goals. Over the short term, the one sure
thing about the investment markets is their
unpredictability. Over the long term, equities have
produced very attractive returns. For the 25-year
period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World
Index averaged 11.16%. While past performance cannot
guarantee future results, we believe staying invested
for the long term offers the best opportunity for
capital growth.
YOUR FUND
The following pages of this report provide an
explanation of how your fund was managed during the
fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term
performance. We hope you find this information helpful.
Current information about your fund and about the
markets in general is always available on our Web site,
AIMinvestments.com.
As always, AIM remains committed to building
solutions for your investment goals, and we thank you
for your continued participation in AIM Investments. If
you have any questions, please contact our Client
Service representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
------------------------------------- -------------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M
Capital Management, Inc. are the investment advisors,
and A I M Distributors, Inc. is the distributor for the
retail funds represented by AIM Investments.
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND FINDS COMPANIES WITH EARNINGS characteristics that, in our opinion,
SUSTAINABILITY AND VALUATION POTENTIAL could support consistent or increasing
dividends in the future.
For the fiscal year ended October 31, generally strong levels of consumer
2004, AIM Diversified Dividend Fund's confidence and manufacturing activity The fund's investment discipline
Class A shares returned 13.36% at net served to validate these concerns. Given consistently drove positive returns
asset value (NAV). our stock-by-stock, fundamental approach across all sectors during the reporting
to investing, the broad performance in period. The energy, consumer
Performance shown at NAV does not our holdings is consistent with a market discretionary, consumer staples,
include front-end sales charges, which environment that was significantly more industrials, information technology,
would have reduced the performance. The discriminating than the blanket rally health care and materials sectors
table on page 3 shows the results for that characterized the prior fiscal experienced positive absolute
the fund's other share classes and year. performance and outperformed relative to
comparison indexes. the Russell 1000 Index. The financials
Gross domestic product (GDP) expanded and telecommunication services sectors
The fund's outperformance can be during the period, and economic news was earned positive absolute performance,
attributed to its holdings having generally positive. These developments while relative performance was less
outperformed the stocks in seven of the prompted the U.S. Federal Reserve to substantial, as these sectors were
10 sectors in both the S&P 500 Index and raise its federal funds target rate from underweight relative to the benchmark.
the Russell 1000 Index, which returned a decades-low 1.00%, where it stood at
9.41% and 9.33%, respectively. The broad the beginning of the fiscal year, to Two stocks among the top contributors
performance of the fund's holdings also 1.75% by the fiscal year's close. The to performance for the period were
resulted in the fund outperforming the continued geopolitical uncertainties as Pentair and Masco. Pentair manufactures
Lipper Large-Cap Core Fund Index, which well as soaring oil prices tempered commercial and industrial water
returned 6.92%. market participants' confidence in the equipment related to pools and spas,
improving economy. pumps, filtration, and purification
MARKET CONDITIONS systems. It also produces protective
YOUR FUND enclosures for electronic components. In
The market environment during the fiscal July 2004, the company announced the
year was mixed yet positive overall. The AIM Diversified Dividend Fund sale of its tool division. The company's
first half of the period was outperformed all of its comparison increased earnings and management's
characterized by an extension of the indexes during the reporting period by strategic plans to concentrate on the
market rally that predominated during continuing to adhere to its investment water business were met with a positive
much of 2003, where investors embraced discipline. We believe that attractively response from investors.
evidence of stronger economic growth. As valued, financially strong companies
the year progressed, this buoyancy gave that pay dividends are likely to Masco is a manufacturer and
way to some trepidation, as investors outperform over the long term with less distributor of home improvement and
began to be concerned about the effect volatility. In line with this building products. During the year, the
rising commodity and energy prices might philosophy, we have constructed a company shifted from an acquisitive
have on a maturing economic recovery. A portfolio of stocks with growth phase to focus on organic growth
moderation of what had been and on raising its return on invested
capital. Financial strength and
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. Masco Corp. 2.3% 1. Pharmaceuticals 10.2%
[PIE CHART]
Health Care 12.4% 2. Wyeth 2.0 2. Integrated Oil & Gas 4.4
Industrials 14.4% 3. Johnson & Johnson 1.9 3. Packaged Foods & Meats 3.9
Information Technology 8.0% 4. Abbott Laboratories 1.9 4. Industrial Machinery 3.5
Materials 3.8% 5. Colgate-Palmolive Co. 1.8 5. Property & Casualty Insurance 3.4
Telecommunication Services 0.8% 6. Emerson Electric Co. 1.8 6. Electric Utilities 3.2
Utilities 6.1% 7. Exelon Corp. 1.8 7. Diversified Banks 3.1
Money Market Funds, U.S. 8. Morgan Stanley 1.7 8. Multi-Utilities & Unregulated
Treasuries Plus Other Power 2.9
Assets Less Liabilities 9.3% 9. Microsoft Corp. 1.7
9. Electrical Components &
Consumer Discretionary 11.2% 10. Bank of America Corp. 1.7 Equipment 2.8
Consumer Staples 10.9% 10. Diversified Chemicals 2.5
Energy 5.5%
Financials 17.6%
The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any
particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
earnings per share increased, resulting consumer discretionary and industrials, MEGGAN M. WALSH
in improved stock performance. as some stocks in those sectors had Ms. Walsh, Chartered
reached our valuation target. We [PHOTO OF Financial Analyst, is
Stocks that detracted from fund generally spread proceeds across the MEGGAN M. the portfolio manager
performance include Colgate-Palmolive fund to companies with more compelling WALSH] of AIM Diversified
and Marsh & McLennan. Colgate-Palmolive potential, particularly in the health Dividend Fund. She has
lowered its earnings guidance, citing care and consumer staples sectors. been in the investment industry since
increased raw materials costs as well as 1987, and she joined AIM in 1991. Ms.
an increase in marketing expenses to IN CLOSING Walsh received a B.S. in finance from
defend market share positions. Investors the University of Maryland and an M.B.A.
were troubled by these short-term At the close of the fiscal year, the from Loyola College.
concerns. fund was positioned in line with its
mandate. It had exposure to all broad Assisted by the Diversified Dividend
Marsh & McLennan is a global market sectors, and we emphasized Team.
insurance broker and provider of risk companies that pay dividends supported
management and asset management by relatively predictable cash flow and
services. In October 2004, the company improving capital allocation practices.
came under regulatory scrutiny for its We are pleased that our strategy
sales practices as part of a broader produced positive results during the
industry investigation. The market period, and we appreciate your continued
reacted negatively to this announcement. investment in AIM Diversified Dividend
As with any regulatory investigation, we Fund.
continued to be aware of the presence of
risks and to diligently evaluate the The views and opinions expressed in
data points affecting the company's Management's Discussion of Fund
business model and their impact on the Performance are those of A I M Advisors,
key fundamentals of fair value. Inc. These views and opinions are
subject to change at any time based on
Any changes to the portfolio during factors such as market and economic
the year were stock specific and based conditions. These views and opinions may
on valuation opportunities rather than not be relied upon as investment advice
an attempt to establish relative sector or recommendations, or as an offer for a
weights versus a benchmark. Over the particular security. The information is
course of the fiscal year, our process not a complete analysis of every aspect
continued to lead us to modestly of any market, country, industry,
increase the defensive nature of the security or the fund. Statements of fact
portfolio, because there were fewer are from sources considered reliable,
valuation opportunities in companies but A I M Advisors, Inc. makes no
highly sensitive to economic activity representation or warranty as to their
following the broad-based rally in those completeness or accuracy. Although
areas during the prior year. historical performance is no guarantee
Specifically, we modestly decreased the of future results, these insights may
fund's holdings in such sectors as help you understand our investment
energy, management philosophy.
======================================== See important fund and index
disclosures inside front cover.
FUND VS. INDEXES
========================================
TOTAL RETURNS, 10/31/03-10/31/04,
EXCLUDING APPLICABLE SALES CHARGES. IF TOTAL NET ASSETS $124.5 MILLION
SALES CHARGES WERE INCLUDED, RETURNS
WOULD BE LOWER. TOTAL NUMBER OF HOLDINGS* 91
CLASS A SHARES 13.36% ========================================
CLASS B SHARES 12.63
CLASS C SHARES 12.64
S&P 500 INDEX (BROAD MARKET
INDEX) 9.41
RUSSELL 1000 INDEX
(STYLE-SPECIFIC INDEX) 9.33
LIPPER LARGE-CAP CORE FUND
INDEX (PEER GROUP INDEX) 6.92
SOURCE: LIPPER, INC.
======================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over To do so, compare this 5% hypothetical
the period. Simply divide your account example with the 5% hypothetical
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 examples that appear in the shareholder
two types of costs: (1) transaction account value divided by $1,000 = 8.6), reports of the other funds.
costs, which may include sales charges then multiply the result by the number
(loads) on purchase payments; contingent in the table under the heading entitled Please note that the expenses shown
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to in the table are meant to highlight your
and redemption fees, if any; and (2) estimate the expenses you paid on your ongoing costs only and do not reflect
ongoing costs, including management account during this period. any transactional costs, such as sales
fees; distribution and/or service fees charges (loads) on purchase payments,
(12b-1); and other fund expenses. This HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
example is intended to help you PURPOSES redemptions, and redemption fees, if
understand your ongoing costs (in any. Therefore, the hypothetical
dollars) of investing in the fund and to The table below also provides information is useful in comparing
compare these costs with ongoing costs information about hypothetical account ongoing costs only, and will not help
of investing in other mutual funds. The values and hypothetical expenses based you determine the relative total costs
example is based on an investment of on the fund's actual expense ratio and of owning different funds. In addition,
$1,000 invested at the beginning of the an assumed rate of return of 5% per year if these transactional costs were
period and held for the entire period, before expenses, which is not the fund's included, your costs would have been
May 1, 2004 - October 31, 2004. actual return. The hypothetical account higher.
values and expenses may not be used to
ACTUAL EXPENSES estimate the actual ending account
balance or expenses you paid for the
The table below provides information period. You may use this information to
about actual account values and actual compare the ongoing costs of investing
expenses. You may use the information in in the fund and other funds.
this table, together with the amount you
invested, to
</Table>
<Table>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,025.00 $5.09 $1,020.11 $5.08
Class B 1,000.00 1,021.90 8.39 1,016.84 8.36
Class C 1,000.00 1,021.90 8.39 1,016.84 8.36
(1) The actual ending account value is based on the actual total return of the fund
for the period May 1, 2004, to October 31, 2004, after actual expenses and will
differ from the hypothetical ending account value which is based on the fund's
expense ratio and a hypothetical annual return of 5% before expenses. The actual
cumulative return at net asset value for the period May 1, 2004, to October 31,
2004, was 2.50%, 2.19%, and 2.19% for Class A, B and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.00%, 1.65%, and
1.65% for Class A, B, and C shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half
year period).
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 12/31/01-10/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and Date AIM AIM AIM
management fees. Results for Class B Diversified Diversified Diversified Lipper
shares are calculated as if a Dividend Dividend Dividend Large
hypothetical shareholder had liquidated Fund Fund Fund Russell S&P Cap Core
his entire investment in the fund at the Class A Class B Class C 1000 500 Fund
close of the reporting period and paid Shares Shares Shares Index Index Index
the applicable contingent deferred sales 12/31/2001 $9450 $10000 $10000 $10000 $10000 $10000
charges. Index results include 1/02 9545 10100 10100 9873 9854 9842
reinvested dividends, but they do not 2/02 9479 10020 10020 9676 9664 9677
reflect sales charges. Performance of an 3/02 9857 10420 10410 10074 10028 10007
index of funds reflects fund expenses 4/02 9583 10120 10120 9497 9420 9483
and management fees; performance of a 5/02 9573 10110 10109 9413 9351 9414
market index does not. Performance shown 6/02 9082 9580 9580 8718 8685 8764
in the chart does not reflect deduction 7/02 8355 8820 8809 8073 8008 8113
of taxes a shareholder would pay on fund 8/02 8440 8890 8890 8115 8061 8180
distributions or sale of fund shares. 9/02 7798 8220 8210 7244 7185 7385
Performance of the indexes does not 10/02 8223 8650 8650 7846 7817 7959
reflect the effects of taxes. 11/02 8601 9049 9040 8305 8277 8314
12/02 8232 8659 8650 7835 7791 7877
AVERAGE ANNUAL TOTAL RETURNS 1/03 7920 8319 8321 7645 7587 7670
As of 10/31/04, including applicable sales 2/03 7769 8159 8151 7527 7473 7568
charges 3/03 7854 8239 8240 7604 7545 7632
4/03 8393 8809 8801 8218 8167 8194
CLASS A SHARES 5/03 8903 9340 9331 8687 8597 8591
Inception (12/31/01) 3.54% 6/03 8968 9403 9395 8801 8706 8676
1 Year 7.10 7/03 9082 9513 9505 8977 8860 8813
8/03 9272 9703 9695 9159 9032 8983
CLASS B SHARES 9/03 9233 9658 9649 9065 8937 8867
Inception (12/31/01) 3.96% 10/03 9736 10178 10169 9597 9442 9301
1 Year 7.63 11/03 9878 10319 10309 9712 9525 9379
12/03 10447 10910 10901 10177 10024 9830
CLASS C SHARES 1/04 10552 11010 11001 10370 10208 9969
Inception (12/31/01) 4.91% 2/04 10781 11242 11232 10514 10350 10087
1 Year 11.64 3/04 10691 11148 11139 10370 10194 9929
4/04 10768 11219 11209 10183 10034 9775
In addition to fund returns as of the 5/04 10806 11249 11239 10330 10171 9874
close of the reporting period, industry 6/04 11012 11467 11457 10516 10369 10051
regulations require us to provide 7/04 10763 11195 11186 10147 10026 9695
returns for periods ended 9/30/04, the 8/04 10926 11367 11347 10197 10066 9701
most recent calendar quarter-end. 9/04 11018 11445 11435 10325 10175 9812
10/04 $11036 $11164 $11454 $10492 $10331 $ 9945
AVERAGE ANNUAL TOTAL RETURNS Source: Lipper, Inc.
As of 9/30/04, most recent calendar
quarter-end, including applicable sales sales charge unless otherwise stated.
charges Investment return and principal value
will fluctuate so that you may have a
CLASS A SHARES gain or loss when you sell shares.
Inception (12/31/01) 3.59%
1 Year 12.72 Class A share performance reflects
the maximum 5.50% sales charge, and
CLASS B SHARES Class B and Class C share performance
Inception (12/31/01) 4.02% reflects the applicable contingent
1 Year 13.49 deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
CLASS C SHARES shares declines from 5% beginning at the
Inception (12/31/01) 5.00% time of purchase to 0% at the beginning
1 Year 17.51 of the seventh year. The CDSC on Class C
shares is 1% for the first year after
The performance data quoted represent purchase.
past performance and cannot guarantee
comparable future results; current The performance of the fund's share
performance may be lower or higher. classes will differ due to different
Please visit AIMinvestments.com for the sales charge structures and class
most recent month-end performance. expenses.
Performance figures reflect reinvested
distributions, changes in net asset Had the advisor not waived fees
value and the effect of the maximum and/or reimbursed expenses, performance
would have been lower.
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-90.30%
ADVERTISING-0.97%
Omnicom Group Inc. 15,300 $ 1,207,170
=======================================================================
AEROSPACE & DEFENSE-2.06%
Raytheon Co. 50,800 1,853,184
- -----------------------------------------------------------------------
United Technologies Corp. 7,700 714,714
=======================================================================
2,567,898
=======================================================================
APPAREL RETAIL-1.90%
Limited Brands 39,600 981,288
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 57,800 1,386,044
=======================================================================
2,367,332
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.67%
V. F. Corp. 38,600 2,077,838
=======================================================================
APPLICATION SOFTWARE-0.53%
SAP A.G.-ADR (Germany) 15,500 661,075
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.19%
Federated Investors, Inc.-Class B 51,000 1,478,490
=======================================================================
AUTO PARTS & EQUIPMENT-0.35%
Johnson Controls, Inc. 7,600 435,860
=======================================================================
BREWERS-1.36%
Anheuser-Busch Cos., Inc. 33,900 1,693,305
=======================================================================
BUILDING PRODUCTS-2.34%
Masco Corp. 85,100 2,915,526
=======================================================================
COMPUTER HARDWARE-2.19%
Hewlett-Packard Co. 83,900 1,565,574
- -----------------------------------------------------------------------
International Business Machines Corp. 12,900 1,157,775
=======================================================================
2,723,349
=======================================================================
CONSTRUCTION & ENGINEERING-1.32%
Fluor Corp. 35,500 1,648,620
=======================================================================
CONSTRUCTION MATERIALS-0.48%
Lafarge North America Inc. 12,100 592,900
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.05%
Automatic Data Processing, Inc. 31,600 1,371,124
- -----------------------------------------------------------------------
First Data Corp. 28,500 1,176,480
=======================================================================
2,547,604
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
DISTRIBUTORS-0.86%
Genuine Parts Co. 26,900 $ 1,073,041
=======================================================================
DIVERSIFIED BANKS-3.11%
Bank of America Corp. 47,200 2,114,088
- -----------------------------------------------------------------------
U.S. Bancorp 28,900 826,829
- -----------------------------------------------------------------------
Wachovia Corp. 19,000 934,990
=======================================================================
3,875,907
=======================================================================
DIVERSIFIED CHEMICALS-2.48%
Dow Chemical Co. (The) 26,800 1,204,392
- -----------------------------------------------------------------------
PPG Industries, Inc. 29,500 1,880,625
=======================================================================
3,085,017
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.51%
H&R Block, Inc. 18,800 893,940
- -----------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 46,700 980,700
=======================================================================
1,874,640
=======================================================================
ELECTRIC UTILITIES-3.07%
Entergy Corp. 17,400 1,137,264
- -----------------------------------------------------------------------
Exelon Corp. 56,300 2,230,606
- -----------------------------------------------------------------------
Wisconsin Energy Corp. 14,000 456,960
=======================================================================
3,824,830
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.83%
Cooper Industries, Ltd.-Class A (Bermuda) 19,600 1,252,440
- -----------------------------------------------------------------------
Emerson Electric Co. 35,400 2,267,370
=======================================================================
3,519,810
=======================================================================
FOOTWEAR-0.72%
NIKE, Inc.-Class B 11,000 894,410
=======================================================================
HEALTH CARE EQUIPMENT-2.16%
Baxter International Inc. 62,600 1,925,576
- -----------------------------------------------------------------------
Becton, Dickinson & Co. 14,500 761,250
=======================================================================
2,686,826
=======================================================================
HOME IMPROVEMENT RETAIL-1.21%
Home Depot, Inc. (The) 36,800 1,511,744
=======================================================================
HOUSEHOLD APPLIANCES-0.94%
Snap-on Inc. 39,800 1,169,324
=======================================================================
HOUSEHOLD PRODUCTS-2.30%
Colgate-Palmolive Co. 50,900 2,271,158
- -----------------------------------------------------------------------
Kimberly-Clark Corp. 9,900 590,733
=======================================================================
2,861,891
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INDUSTRIAL MACHINERY-3.46%
Illinois Tool Works Inc. 9,100 $ 839,748
- -----------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 28,800 1,971,072
- -----------------------------------------------------------------------
Pentair, Inc. 40,200 1,502,676
=======================================================================
4,313,496
=======================================================================
INSURANCE BROKERS-1.14%
Marsh & McLennan Cos., Inc. 51,200 1,416,192
=======================================================================
INTEGRATED OIL & GAS-4.43%
ChevronTexaco Corp. 11,200 594,272
- -----------------------------------------------------------------------
ConocoPhillips 11,700 986,427
- -----------------------------------------------------------------------
Eni S.p.A. (Italy)(a) 30,100 690,704
- -----------------------------------------------------------------------
Exxon Mobil Corp. 16,000 787,520
- -----------------------------------------------------------------------
Occidental Petroleum Corp. 26,100 1,457,163
- -----------------------------------------------------------------------
Total S.A. (France)(a) 4,800 1,004,810
=======================================================================
5,520,896
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.83%
SBC Communications Inc. 40,900 1,033,134
=======================================================================
INVESTMENT BANKING & BROKERAGE-1.74%
Morgan Stanley 42,400 2,166,216
=======================================================================
LIFE & HEALTH INSURANCE-0.83%
Prudential Financial, Inc. 22,300 1,036,281
=======================================================================
MULTI-LINE INSURANCE-1.10%
Hartford Financial Services Group, Inc. (The) 23,500 1,374,280
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-2.93%
Dominion Resources, Inc. 28,700 1,845,984
- -----------------------------------------------------------------------
Public Service Enterprise Group Inc. 42,200 1,797,298
=======================================================================
3,643,282
=======================================================================
OFFICE SERVICES & SUPPLIES-0.81%
Pitney Bowes Inc. 23,000 1,006,250
=======================================================================
OIL & GAS DRILLING-1.04%
GlobalSantaFe Corp. (Cayman Islands) 44,000 1,298,000
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.64%
Citigroup Inc. 46,100 2,045,457
=======================================================================
PACKAGED FOODS & MEATS-3.94%
General Mills, Inc. 45,500 2,013,375
- -----------------------------------------------------------------------
Hershey Foods Corp. 14,400 729,936
- -----------------------------------------------------------------------
Kellogg Co. 20,000 860,000
- -----------------------------------------------------------------------
Sara Lee Corp. 55,900 1,301,352
=======================================================================
4,904,663
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
PAPER PACKAGING-0.84%
Bemis Co., Inc. 15,200 $ 402,344
- -----------------------------------------------------------------------
Sonoco Products Co. 24,300 647,595
=======================================================================
1,049,939
=======================================================================
PERSONAL PRODUCTS-0.69%
Avon Products, Inc. 21,600 854,280
=======================================================================
PHARMACEUTICALS-10.24%
Abbott Laboratories 55,100 2,348,913
- -----------------------------------------------------------------------
Bristol-Myers Squibb Co. 52,600 1,232,418
- -----------------------------------------------------------------------
Johnson & Johnson 41,400 2,416,932
- -----------------------------------------------------------------------
Lilly (Eli) & Co. 35,200 1,932,832
- -----------------------------------------------------------------------
Merck & Co. Inc. 13,800 432,078
- -----------------------------------------------------------------------
Pfizer Inc. 65,200 1,887,540
- -----------------------------------------------------------------------
Wyeth 63,200 2,505,880
=======================================================================
12,756,593
=======================================================================
PROPERTY & CASUALTY INSURANCE-3.43%
Chubb Corp. (The) 8,700 627,531
- -----------------------------------------------------------------------
MBIA Inc. 27,200 1,573,792
- -----------------------------------------------------------------------
SAFECO Corp. 9,300 430,032
- -----------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 48,400 1,643,664
=======================================================================
4,275,019
=======================================================================
PUBLISHING-0.99%
Gannett Co., Inc. 14,900 1,235,955
=======================================================================
REGIONAL BANKS-2.17%
Cullen/Frost Bankers, Inc. 10,800 529,200
- -----------------------------------------------------------------------
KeyCorp 17,000 571,030
- -----------------------------------------------------------------------
North Fork Bancorp., Inc. 36,400 1,605,240
=======================================================================
2,705,470
=======================================================================
RESTAURANTS-1.45%
Outback Steakhouse, Inc. 45,700 1,809,263
=======================================================================
SEMICONDUCTORS-1.49%
Linear Technology Corp. 25,000 947,000
- -----------------------------------------------------------------------
Texas Instruments Inc. 37,400 914,430
=======================================================================
1,861,430
=======================================================================
SOFT DRINKS-1.25%
PepsiCo, Inc. 31,300 1,551,854
=======================================================================
SYSTEMS SOFTWARE-1.71%
Microsoft Corp. 76,100 2,130,039
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.21%
Fannie Mae 13,600 954,040
- -----------------------------------------------------------------------
MGIC Investment Corp. 8,500 546,635
=======================================================================
1,500,675
=======================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
TOBACCO-1.34%
Altria Group, Inc. 34,400 $ 1,667,024
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $103,200,562) 112,450,095
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
NOTES-0.36%
AEROSPACE & DEFENSE-0.07%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06(b) $ 75,000 82,638
=======================================================================
BROADCASTING & CABLE TV-0.08%
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05(b) 100,000 101,597
=======================================================================
ELECTRIC UTILITIES-0.13%
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05(b) 160,000 167,573
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
OTHER DIVERSIFIED FINANCIAL SERVICES-0.08%
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%,
01/30/06(b) $ 100,000 $ 100,407
=======================================================================
Total Notes (Cost $451,848) 452,215
=======================================================================
U.S. TREASURY BILLS-0.40%
1.62%, 12/16/04 (Cost $498,986)(c) 500,000(d) 498,986
=======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-13.44%
Liquid Assets Portfolio-Institutional
Class(e) 8,365,886 8,365,886
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 8,365,886 8,365,886
=======================================================================
Total Money Market Funds (Cost
$16,731,772) 16,731,772
=======================================================================
TOTAL INVESTMENTS-104.50% (Cost $120,883,168) 130,133,068
=======================================================================
OTHER ASSETS LESS LIABILITIES-(4.50%) (5,603,883)
=======================================================================
NET ASSETS-100.00% $124,529,185
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Sr. - Senior
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at October 31, 2004 was
$1,695,514, which represented 1.30% of the Fund's Total Investments. See
Note 1A.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at October
31, 2004 was $452,215, which represented 0.35% of the Fund's Total
Investments. See Note 1A.
(c) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 9.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$104,151,396) $113,401,296
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $16,731,772) 16,731,772
===========================================================
Total investments (cost $120,883,168) 130,133,068
===========================================================
Receivables for:
Investments sold 303,590
- -----------------------------------------------------------
Variation margin 2,700
- -----------------------------------------------------------
Fund shares sold 1,185,428
- -----------------------------------------------------------
Dividends and interest 182,194
- -----------------------------------------------------------
Amount due from advisor 9,911
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 8,846
- -----------------------------------------------------------
Other assets 32,175
===========================================================
Total assets 131,857,912
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 7,008,815
- -----------------------------------------------------------
Fund shares reacquired 164,368
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 9,560
- -----------------------------------------------------------
Accrued distribution fees 64,638
- -----------------------------------------------------------
Accrued trustees' fees 864
- -----------------------------------------------------------
Accrued transfer agent fees 45,135
- -----------------------------------------------------------
Accrued operating expenses 35,347
===========================================================
Total liabilities 7,328,727
===========================================================
Net assets applicable to shares outstanding $124,529,185
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $112,989,604
- -----------------------------------------------------------
Undistributed net investment income (8,903)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies,
futures contracts and option contracts 2,289,194
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 9,259,290
===========================================================
$124,529,185
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 63,513,256
___________________________________________________________
===========================================================
Class B $ 45,699,620
___________________________________________________________
===========================================================
Class C $ 15,316,309
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 5,531,730
___________________________________________________________
===========================================================
Class B 4,014,872
___________________________________________________________
===========================================================
Class C 1,347,153
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.48
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.48 divided by
94.50%) $ 12.15
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.38
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.37
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $7,650) $1,718,885
- ------------------------------------------------------------------------
Dividends from affiliated money market funds 78,001
- ------------------------------------------------------------------------
Interest 18,670
========================================================================
Total investment income 1,815,556
========================================================================
EXPENSES:
Advisory fees 600,345
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 22,370
- ------------------------------------------------------------------------
Distribution fees:
Class A 134,282
- ------------------------------------------------------------------------
Class B 318,360
- ------------------------------------------------------------------------
Class C 98,436
- ------------------------------------------------------------------------
Transfer agent fees 248,184
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 13,241
- ------------------------------------------------------------------------
Other 148,681
========================================================================
Total expenses 1,633,899
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (561,093)
========================================================================
Net expenses 1,072,806
========================================================================
Net investment income 742,750
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 3,140,049
- ------------------------------------------------------------------------
Foreign currencies 2,121
- ------------------------------------------------------------------------
Futures contracts 46,724
- ------------------------------------------------------------------------
Option contracts written 21,415
========================================================================
3,210,309
========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 4,343,728
- ------------------------------------------------------------------------
Foreign currencies (14)
- ------------------------------------------------------------------------
Futures contracts 9,390
========================================================================
4,353,104
========================================================================
Net gain from investment securities, foreign currencies,
futures contracts and option contracts 7,563,413
========================================================================
Net increase in net assets resulting from operations $8,306,163
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 742,750 $ 85,307
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts 3,210,309 (463,512)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 4,353,104 6,127,078
========================================================================================
Net increase in net assets resulting from operations 8,306,163 5,748,873
========================================================================================
Distributions to shareholders from net investment income:
Class A (500,393) (67,755)
- ----------------------------------------------------------------------------------------
Class B (204,810) (14,134)
- ----------------------------------------------------------------------------------------
Class C (63,792) (3,436)
========================================================================================
Decrease in net assets resulting from distributions (768,995) (85,325)
========================================================================================
Share transactions-net:
Class A 37,536,817 11,899,583
- ----------------------------------------------------------------------------------------
Class B 21,106,883 12,028,596
- ----------------------------------------------------------------------------------------
Class C 8,543,492 4,163,744
========================================================================================
Net increase in net assets resulting from share
transactions 67,187,192 28,091,923
========================================================================================
Net increase in net assets 74,724,360 33,755,471
========================================================================================
NET ASSETS:
Beginning of year 49,804,825 16,049,354
========================================================================================
End of year (including undistributed net investment
income of $(8,903) and $(3,386), respectively) $124,529,185 $49,804,825
________________________________________________________________________________________
========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Diversified Dividend Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is growth of capital with a
secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
F-6
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
F-7
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM 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 next $1
billion of the Fund's 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 advisory fees and/or reimburse expenses to the extent necessary to limit
Total Annual Operating Expenses (excluding certain items discussed below) of
Class A, Class B and Class C shares to 1.00%, 1.65% and 1.65% of average daily
net assets, respectively. AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit Total Annual
Operating Expenses (excluding certain items discussed below) of Class A, Class B
and Class C shares to 1.50%, 2.15% and 2.15% of average daily net assets,
respectively, through October 31, 2005. In determining the advisor's obligation
to waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the Total Annual Fund Operating Expenses to
exceed the caps stated above: (i) interest; (ii) taxes; (iii) dividend expense
on short sales; (iv) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $531,230.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $28,553 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $248,184. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking 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, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $134,282,
$318,360 and $98,436, respectively.
F-8
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$64,410 in front-end sales commissions from the sale of Class A shares and $300,
$8,410 and $1,776 from Class A, Class B and Class C shares, respectively, for
CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,615,482 $24,141,052 $(17,390,648) $ -- $ 8,365,886 $39,277 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,615,482 24,141,052 (17,390,648) -- 8,365,886 38,724 --
==================================================================================================================================
Total $3,230,964 $48,282,104 $(34,781,296) $ -- $16,731,772 $78,001 $ --
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
procedures, during the year ended October 31, 2004, the Fund engaged in
purchases and sales of securities of $102,143 and $94,900, respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$1,198 and credits in custodian fees of $112 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $1,310.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $4,484
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are
F-9
parties to the credit facility can borrow on a first come, first served basis.
Principal on each loan outstanding shall bear interest at the bid rate quoted by
SSB at the time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------------------------------
Written 688 51,842
- -------------------------------------------------------------------------------------
Closed (473) (40,673)
- -------------------------------------------------------------------------------------
Exercised (215) (11,169)
=====================================================================================
End of year -- $ --
_____________________________________________________________________________________
=====================================================================================
</Table>
NOTE 9--FUTURES CONTRACTS
On October 31, 2004, $77,000 principal amount of U.S. Treasury obligations was
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- -----------------------------------------------------------------------------------------------------------------------
S&P 500 Futures 20 Dec-04/Long $1,130,300 $9,390
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------
Distributions paid from ordinary income $768,995 $85,325
_________________________________________________________________________________
=================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,363,869
- ----------------------------------------------------------------------------
Undistributed long-term gain 1,100,008
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 9,084,607
- ----------------------------------------------------------------------------
Temporary book/tax differences (8,903)
- ----------------------------------------------------------------------------
Shares of beneficial interest 112,989,604
============================================================================
Total net assets $124,529,185
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the realization of gains on certain futures contracts.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
F-10
The Fund utilized $411,417 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund did not have a capital loss carryforward as of October 31, 2004.
NOTE 11--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, 2004 was $80,661,385 and $22,212,633, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $11,614,974
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,530,367)
===============================================================================
Net unrealized appreciation of investment securities $ 9,084,607
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $121,048,461.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of distributions and
foreign currencies transactions, on October 31, 2004, undistributed net
investment income was increased by $20,728, undistributed net realized gain was
decreased by $250,728 and shares of beneficial interest increased by $230,000.
This reclassification had no effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain 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>
CHANGE IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2004 2003
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,322,865 $ 48,449,001 2,036,155 $18,695,942
- --------------------------------------------------------------------------------------------------------------------
Class B 2,496,183 27,796,432 1,811,612 16,607,284
- --------------------------------------------------------------------------------------------------------------------
Class C 891,143 9,870,802 599,285 5,518,092
====================================================================================================================
Issued as reinvestment of dividends:
Class A 41,472 465,571 6,293 61,880
- --------------------------------------------------------------------------------------------------------------------
Class B 16,701 185,244 1,275 12,449
- --------------------------------------------------------------------------------------------------------------------
Class C 5,270 58,491 324 3,166
====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 186,137 2,093,587 71,889 675,552
- --------------------------------------------------------------------------------------------------------------------
Class B (187,728) (2,093,587) (72,485) (675,552)
====================================================================================================================
Reacquired:
Class A (1,198,931) (13,471,342) (834,757) (7,533,791)
- --------------------------------------------------------------------------------------------------------------------
Class B (432,094) (4,781,206) (439,212) (3,915,585)
- --------------------------------------------------------------------------------------------------------------------
Class C (125,008) (1,385,801) (152,851) (1,357,514)
====================================================================================================================
6,016,010 $ 67,187,192 3,027,528 $28,091,923
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 8% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distributions, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by these shareholders are also
owned beneficially.
F-11
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------
DECEMBER 31, 2001
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.26 $ 8.70 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.14 0.06(a) (0.03)(a)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.23 1.54 (1.27)
========================================================================================================
Total from investment operations 1.37 1.60 (1.30)
========================================================================================================
Less dividends from net investment income (0.15) (0.04) --
========================================================================================================
Net asset value, end of period $ 11.48 $ 10.26 $ 8.70
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 13.36% 18.39% (13.00)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $63,513 $22,375 $ 7,834
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.00%(c) 1.51% 1.75%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.70%(c) 2.12% 4.26%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets 1.27%(c) 0.65% (0.34)%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 30% 72% 42%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $38,366,366.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------
DECEMBER 31, 2001
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.17 $ 8.65 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.00(a) (0.08)(a)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.21 1.53 (1.27)
========================================================================================================
Total from investment operations 1.28 1.53 (1.35)
========================================================================================================
Less dividends from net investment income (0.07) (0.01) --
========================================================================================================
Net asset value, end of period $ 11.38 $ 10.17 $ 8.65
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 12.63% 17.67% (13.50)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,700 $21,582 $ 7,100
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(c) 2.16% 2.40%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.35%(c) 2.77% 4.91%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets 0.62%(c) 0.00% (0.99)%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 30% 72% 42%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $31,836,043.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------
DECEMBER 31, 2001
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
-------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.16 $ 8.65 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.00(a) (0.08)(a)
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.21 1.52 (1.27)
==========================================================================================================
Total from investment operations 1.28 1.52 (1.35)
==========================================================================================================
Less dividends from net investment income (0.07) (0.01) --
==========================================================================================================
Net asset value, end of period $ 11.37 $10.16 $ 8.65
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 12.64% 17.55% (13.50)%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,316 $5,848 $ 1,116
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(c) 2.16% 2.40%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.35%(c) 2.77% 4.91%(d)
==========================================================================================================
Ratio of net investment income (loss) to average net assets 0.62%(c) 0.00% (0.99)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 30% 72% 42%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $9,843,547.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered
F-14
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG, AIM and ADI breached various Federal and state
securities, business and consumer protection laws. Under the terms of the
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office
F-15
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
for the Southern District of New York, some of which concern one or more of the
AIM Funds formerly advised by IFG. IFG is providing full cooperation with
respect to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Diversified Dividend Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Diversified Dividend Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Diversified Dividend Fund as of October 31, 2004, the results of its operations
for the year then ended, the statements of changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
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 and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), 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, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); 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), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (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.;
President and Chief Executive Officer, 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
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired 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 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California)
Trustee
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations, Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management Group Inc.
Senior Vice President and Chief (financial services holding company); Senior Vice President
Compliance Officer and Chief Compliance Officer, A I M Advisors, Inc.; Vice
President and Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors, Inc.; and Vice
President, AIM Investment Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and Compliance Director,
Delaware Investments Family of Funds
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Director and Vice
Officer President, INVESCO Distributors, Inc.; Vice President, A I M
Capital Management, Inc., and AIM Investment Services, Inc.;
Director, Vice President and General Counsel, Fund
Management Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; Senior Vice President and General
Counsel, Liberty Funds Group, LLC and Vice President, A I M
Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money Market Research and
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.
Vice President and Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing Director and Chief
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M Management Group, Inc.;
Vice President Senior Vice President, A I M Advisors, Inc., and President,
Director of Investments, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
Formerly: Director of A I M Advisors, Inc. and A I M
Management Group Inc., A I M Advisors, Inc.; and Director
and Chairman, A I M Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.
- -------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 N/A
Senior Vice President and Chief
Compliance Officer
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President,
Secretary and Chief Legal
Officer
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
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 State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Services, Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2004, 75.07% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $230,000 for the
Fund's tax year ended October 31, 2004.
For its tax year ended October 31, 2004, the Fund designated 77.48%, or the
maximum amount allowable of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported on Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 0.08% was derived from U.S. Treasury
Obligations.
<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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money
AIM Dynamics Fund(1) AIM Trimark Fund Portfolio(1)
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund SECTOR EQUITY TAX-FREE
AIM Large Cap Growth Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM High Income Municipal Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1)
AIM Opportunities I Fund AIM Health Sciences Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Leisure Fund(1)
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1) AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ================================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A
AIM Trimark Endeavor Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR AND READ IT
AIM Trimark Small Companies Fund THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund ================================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4)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.
(5) AIM European Small Company Fund will close to new investors when net assets
reach $500 million. (6) Effective March 31, 2004, AIM Global Trends Fund was
renamed AIM Global Equity Fund. (7) AIM International Emerging Growth Fund will
close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com DDI-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM EMERGING GROWTH FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM EMERGING GROWTH FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Russell 2500--Trademark-- o The returns shown in the Management's
Index measures the performance of the Discussion of Fund Performance are based
o Effective 9/30/03, Class B shares are 2,500 smallest companies in the Russell on net asset values calculated for
not available as an investment for 3000--Registered Trademark-- Index, shareholder transactions. Generally
retirement plans maintained pursuant to which measures the performance of the accepted accounting principles require
Section 401 of the Internal Revenue 3,000 largest U.S. companies based on adjustments to be made to the net assets
Code, including 401(k) plans, money total market capitalization. of the fund at period end for financial
purchase pension plans and profit reporting purposes, and as such, the net
sharing plans. Plans that have existing o The unmanaged Russell asset values for shareholder
accounts invested in Class B shares will Midcap--Registered Trademark-- Growth transactions and the returns based on
continue to be allowed to make Index is a subset of the Russell those net asset values may differ from
additional purchases. Midcap--Registered Trademark-- Index, the net asset values and returns
which represents the performance of the reported in the Financial Highlights.
PRINCIPAL RISKS OF INVESTING IN THE FUND stocks of domestic mid-capitalization
companies; the Growth subset measures the The fund files its complete schedule of
o Investing in small and mid-size performance of Russell Mid-cap companies portfolio holdings with the Securities
companies involves risks not associated with higher price/book ratios and higher and Exchange Commission ("SEC") for the
with investing in more established forecasted growth values. 1st and 3rd quarters of each fiscal year
companies. Also, small companies have on Form N-Q. The fund's Form N-Q filings
business risk, significant stock price o The unmanaged Lipper Mid-Cap Growth are available on the SEC's Web site at
fluctuations and illiquidity. Fund Index represents an average of the http://www.sec.gov. Copies of the fund's
performance of the 30 largest Forms N-Q may be reviewed and copied at
o International investing presents mid-capitalization growth funds tracked the SEC's Public Reference Room at 450
certain risks not associated with by Lipper, Inc., an independent mutual Fifth Street, N.W., Washington, D.C.
investing solely in the United States. fund performance monitor. 20549-0102. You can obtain information
These include risks relating to on the operation of the Public Reference
fluctuations in the value of the U.S. o The unmanaged MSCI World Index is a Room, including information about
dollar relative to the values of other group of global securities tracked by duplicating fee charges, by calling
currencies, the custody arrangements Morgan Stanley Capital International. 1-202-942-8090 or by electronic request
made for the fund's foreign holdings, at the following e-mail address:
differences in accounting, political o The fund is not managed to track the publicinfo@sec.gov. The SEC file numbers
risks and the lesser degree of public performance of any particular index, for the fund are 811-1424 and 2-25469.
information required to be provided by including the indexes defined here, and The fund's most recent portfolio
non-U.S. companies. The fund may invest consequently, the performance of the holdings, as filed on Form N-Q, are also
up to 25% of its assets in the fund may deviate significantly from the available at AIMinvestments.com.
securities of non-U.S. issuers. performance of the indexes. Performance
of an index of funds reflects fund A description of the policies and
o The fund may participate in the expenses; performance of a market index procedures that the fund uses to
initial public offering (IPO) market in does not. determine how to vote proxies relating
some market cycles. Because of the to portfolio securities is available
fund's small asset base, any investment o A direct investment cannot be made in without charge, upon request, from our
the fund may make in IPOs may an index. Unless otherwise indicated, Client Services department at
significantly affect the fund's total index results include reinvested 800-959-4246 or on the AIM Web site,
return. As the fund's assets grow, the dividends, and they do not reflect sales AIMinvestments.com. On the home page,
impact of IPO investments will decline, charges. scroll down and click on AIM Funds Proxy
which may reduce the effect of IPO Policy. The information is also
investments on the fund's total return. OTHER INFORMATION available on the Securities and Exchange
Commission's Web site, sec.gov.
ABOUT INDEXES USED IN THIS REPORT o Industry classifications used in this
report are generally according to the Information regarding how the fund voted
o The unmanaged Standard & Poor's Global Industry Classification Standard, proxies related to its portfolio
Composite Index of 500 Stocks (the S&P which was developed by and is the securities during the 12 months ended
500--Registered Trademark-- Index) is exclusive property and a service mark of 6/30/04 is available at our Web site. Go
an index of common stocks frequently Morgan Stanley Capital International to AIMinvestments.com, access the About
used as a general measure of U.S. stock Inc. and Standard & Poor's. Us tab, click on Required Notices and
market performance. then click on Proxy Voting Activity.
Next, select your fund from the
drop-down menu.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the new Chairman of the
[PHOTO OF Board of Trustees of the AIM Funds. Bob Graham has served as Chairman of the
ROBERT H. Board of Trustees of the AIM Funds ever since Ted Bauer retired from that
GRAHAM] position in 2000. However, as you may be aware, the U.S. Securities and Exchange
Commission recently adopted a rule requiring that an independent fund trustee,
ROBERT H. GRAHAM meaning a trustee who is not an officer of the fund's investment advisor, serve
as chairman of the funds' Board. In addition, a similar provision was included
in the terms of AIM Advisors' recent settlements with certain regulators.
[PHOTO OF Accordingly, the AIM Funds' Board recently elected Mr. Crockett, one of the
MARK H. fourteen independent trustees on the AIM Funds' Board, as Chairman. His
WILLIAMSON] appointment became effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief Executive Officer of
MARK H. WILLIAMSON AIM. Mr. Graham will also remain Chairman of AIM Investments--Registered
Trademark--.
[PHOTO OF Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
BRUCE L. acquired certain funds that had been advised by CIGNA. He had been a member of
CROCKETT] the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
BRUCE L. CROCKETT Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representative at
800-959-4246.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
--------------------- -----------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors,
and A I M Distributors, Inc. is the distributor for the retail funds represented
by AIM Investments.
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND MAINTAINED BALANCED PORTFOLIO MARKET CONDITIONS fund's weighting as of May 31, 2004).
Unfortunately, our repositioning
For the fiscal year ended October 31, The U.S. economy showed signs of occurred at an inopportune time, which
2004, AIM Emerging Growth Fund, Class A strength during the fiscal year ended negatively affected the fund's
shares, returned 6.38% at net asset October 31, 2004. Gross domestic product performance, as large-cap stocks
value. PERFORMANCE SHOWN AT NAV DOES NOT (GDP), the broadest measure of overall outperformed both small- and mid-cap
INCLUDE FRONT-END SALES CHARGES, WHICH economic activity, expanded at an stocks in the second quarter of 2004.
WOULD HAVE REDUCED THE PERFORMANCE. For annualized rate of 4.2% in the fourth Although past performance cannot
the performance of other share classes, quarter of 2003 before tapering off to a guarantee future results, we believe
please see page 3. The fund more modest 3.9% in the third quarter of that the fund's repositioning has the
underperformed the S&P 500 Index and the 2004. potential to be beneficial over the long
Russell Midcap Growth Index, which term. Small- and mid-cap stocks have
returned 9.41% and 8.77%, respectively, Generally positive economic generally had better growth rates than
but performed in line with the Lipper developments prompted the U.S. Federal large-cap stocks over the last 30 years.
Mid Cap Growth Fund Index, which Reserve (the Fed) to raise its federal
returned 6.18% over the same period. funds target rate from a decades-low During the reporting period, we were
1.00%, where it stood at the beginning generally optimistic about the economy.
Since the beginning of 2004, we have of the fiscal year, to 1.75% at the However, we were concerned that
continued to see stocks of more close of the reporting period. increasing personal debt and rising
economically sensitive or more cyclical interest rates could lead to reduced
companies in energy, materials and Energy, utilities and consumer spending, which potentially
telecommunication services--typically telecommunication services were the could adversely affect stock prices in
not considered growth strongest-performing sectors of the S&P the short run. As such, we continued to
sectors--outperform. On the other hand, 500 Index; information technology, position the fund with a "barbell
information technology and health health care and consumer staples were approach"--a balanced exposure to more
care--our classic growth sectors--were the weakest-performing sectors. Mid-cap aggressive, cyclically-sensitive stocks
among the worst-performing sectors. The stocks generally were the and high quality, less aggressive
fund lagged the S&P 500 Index and the best-performing equity segment, followed stocks. This positioning is designed to
Russell Midcap Growth Index because its by small-cap stocks and large-cap stocks potentially benefit investors in the
consumer discretionary holdings while value stocks generally event of a market rally while providing
generally underperformed those of the outperformed growth stocks. some downside protection if markets
indexes. Its relative lack of exposure weaken.
to the materials and telecommunication YOUR FUND
services sectors also hurt the fund's Although it was a difficult
performance relative to the S&P 500 During the reporting period, the fund's environment for the growth sectors over
Index and the Russell Midcap Growth prospectus was amended to reflect the the fiscal year, we continued to adhere
Index. The fund's industrials holdings portfolio's focus on mid- and small-cap to our disciplined investment strategy
helped it to track the Lipper Mid-Cap stocks, with the emphasis on small-cap of focusing our investments in companies
Growth Fund Index. stocks. As a result of the fund's with high growth potential, as
repositioning, we sold our positions in demonstrated by consistent and
large cap stocks (approximately 30% of accelerating earnings growth. The fund's
the stock selection process is based on a
rigorous three-step process that
includes quantitative, fundamental and
valuation analysis to identify stocks of
companies
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
[PIE CHART] 1. Robert Half International Inc. 2.2% 1. Semiconductors 7.5%
Information Technology 33.3% 2. Investors Financial Services 2. Data Processing & Outsourced
Corp. 2.1 Services 6.2
Consumer Discretionary 20.6%
3. Textron Inc. 2.0 3. Application Software 5.5
Health Care 19.2%
4. Fiserv, Inc. 1.9 4. Pharmaceuticals 5.0
Industrials 14.8%
5. SunGard Data Systems Inc. 1.9 5. Biotechnology 4.9
Financials 8.7%
6. Sirva Inc. 1.9 6. Health Care Services 4.6
Money Market Funds Plus Other
Assets Less Liabilities 2.3% 7. Express Scripts, Inc. 1.9 7. Communications Equipment 4.5
Energy 0.6% 8. Cintas Corp. 1.7 8. Asset Management & Custody
Banks 4.2
Materials 0.5% 9. Univision Communications
Inc.-Class A 1.7 9. Apparel Retail 4.1
10. Microchip Technology Inc. 1.5 10. Restaurants 3.8
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
that exhibit consistent, sustainable, market trends. While energy was the companies that show sustainable,
above average earnings growth potential. best-performing sector of the S&P 500 above-average earnings growth while
We believe it is only through in-depth Index for the fiscal year, we believed avoiding high-risk stocks has the
fundamental research that includes that high oil prices were unsustainable potential to provide shareholders with
careful financial statement analysis and and there was more downside than upside consistent risk-adjusted return over a
meetings with company management teams potential in this sector. long-term investment horizon.
that these opportunities can be found.
Stocks that enhanced fund performance THE VIEWS AND OPINIONS EXPRESSED IN
Consequently, our strong stock included Lamar Advertising, a leading MANAGEMENT'S DISCUSSION OF FUND
selections in industrials, energy and billboard advertising company, and PERFORMANCE ARE THOSE OF A I M ADVISORS,
financials helped the fund's performance DigitalNet Holdings, a provider of INC. THESE VIEWS AND OPINIONS ARE
relative to the Russell Midcap Growth strategic consulting and information SUBJECT TO CHANGE AT ANY TIME BASED ON
Index and its Lipper peer group. security services for several U.S. FACTORS SUCH AS MARKET AND ECONOMIC
Industrials is a broad sector that government agencies. Lamar Advertising CONDITIONS. THESE VIEWS AND OPINIONS MAY
includes such industries as aerospace benefited from an increase in NOT BE RELIED UPON AS INVESTMENT ADVICE
and defense, industrial conglomerates advertising and marketing spending. We OR RECOMMENDATIONS, OR AS AN OFFER FOR A
and commercial services and supplies. sold the stock after it reached our PARTICULAR SECURITY. THE INFORMATION IS
Over the reporting period, we increased valuation target. DigitalNet Holdings NOT A COMPLETE ANALYSIS OF EVERY ASPECT
the fund's weighting in this sector. We benefited from its acquisition by BAE OF ANY MARKET, COUNTRY, INDUSTRY,
particularly liked employment-related Systems. We also sold this stock and SECURITY OR THE FUND. STATEMENTS OF FACT
companies, such as Robert Half, which took profits. ARE FROM SOURCES CONSIDERED RELIABLE,
could potentially benefit from an BUT A I M ADVISORS, INC. MAKES NO
improving job market. Detracting from performance were REPRESENTATION OR WARRANTY AS TO THEIR
Corinthian Colleges, a post secondary COMPLETENESS OR ACCURACY. ALTHOUGH
We also increased the fund's holdings education company, and ASE Test, a HISTORICAL PERFORMANCE IS NO GUARANTEE
most significantly in the information semiconductor testing company. OF FUTURE RESULTS, THESE INSIGHTS MAY
technology sector. However, at the close Corinthian Colleges' stock declined HELP YOU UNDERSTAND OUR INVESTMENT
of the reporting period, approximately after the Securities and Exchange MANAGEMENT PHILOSOPHY.
6% was in the data processing and Commission began an informal
outsourced services--a relatively more investigation of the company concerning See important fund and index
defensive industry in this sector. its earnings projections and its disclosures inside front cover.
Stocks that we owned within this communications with securities analysts
industry included Alliance Data Systems, and investors. ASE's stock depreciated JAY K. RUSHIN
SunGard Data Systems and Fiserv. We after the company lowered its revenue Mr. Rushin, Chartered
believe that these companies are estimates. The fund no longer owned [RUSHIN Financial Analyst,
high-quality, well-established and either stock at the close of the PHOTO] began his investment
well-managed firms with strong business reporting period. career in 1994 when
models and high recurring revenue. he joined AIM as a
IN CLOSING portfolio administrator. In 1996, he
During the period, we decreased the left AIM to work as an associate equity
fund's holdings most substantially in We remained committed to our stock analyst. He returned to AIM as an equity
the energy sector. As part of our selection process, which focuses on analyst on AIM's small-cap funds in 1998
strategy, we pay great attention to individual companies, and we constantly and was promoted to senior analyst in
risk, making every effort to protect reviewed each security's fundamentals 2000. He assumed his current duties as
investors' money by sidestepping and price target to ensure a continued portfolio manager in 2001. A native of
short-term fit. We believe that our strategy of Gaithersburg, MD, Mr. Rushin holds a
focusing our investments in B.A. in English from Florida State
University.
Assisted by the Aggressive Growth Team.
=====================================================================================
FUND VS. INDEXES TOTAL NET ASSETS $137.6 MILLION
TOTAL NUMBER OF HOLDINGS* 119
TOTAL RETURNS, 10/31/03-10/31/04,
EXCLUDING APPLICABLE SALES CHARGES. IF
SALES CHARGES WERE INCLUDED, RETURNS
WOULD BE LOWER.
CLASS A SHARES 6.38%
CLASS B SHARES 5.70
CLASS C SHARES 5.70
S&P 500 INDEX (BROAD-BASED
INDEX) 9.41
RUSSELL MIDCAP GROWTH INDEX
(STYLE-SPECIFIC INDEX) 8.77
LIPPER MID-CAP GROWTH FUND INDEX
(PEER GROUP INDEX) 6.18
SOURCE: LIPPER, INC.
===================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE
As a shareholder of the fund, you incur estimate the expenses that you paid over To do so, compare this 5% hypothetical
two types of costs: (1) transaction the period. Simply divide your account example with the 5% hypothetical
costs, which may include sales charges value by $1,000 (for example, an $8,600 examples that appear in the shareholder
(loads) on purchase payments; contingent account value divided by $1,000 = 8.6), reports of the other funds.
deferred sales charges on redemptions; then multiply the result by the number
and redemption fees, if any; and (2) in the table under the heading entitled Please note that the expenses shown
ongoing costs, including management "Actual Expenses Paid During Period" to in the table are meant to highlight your
fees; distribution and/or service fees estimate the expenses you paid on your ongoing costs only and do not reflect
(12b-1); and other fund expenses. This account during this period. any transactional costs, such as sales
example is intended to help you charges (loads) on purchase payments,
understand your ongoing costs (in HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
dollars) of investing in the fund and to PURPOSES redemptions, and redemption fees, if
compare these costs with ongoing costs any. Therefore, the hypothetical
of investing in other mutual funds. The The table below also provides information is useful in comparing
example is based on an investment of information about hypothetical account ongoing costs only, and will not help
$1,000 invested at the beginning of the values and hypothetical expenses based you determine the relative total costs
period and held for the entire period, on the fund's actual expense ratio and of owning different funds. In addition,
May 1, 2004-October 31, 2004. an assumed rate of return of 5% per year if these transactional costs were
before expenses, which is not the fund's included, your costs would have been
ACTUAL EXPENSES actual return. The hypothetical account higher.
values and expenses may not be used to
The table below provides information estimate the actual ending account
about actual account values and actual balance or expenses you paid for the
expenses. You may use the information in period. You may use this information to
this table, together with the amount you compare the ongoing costs of investing
invested, to in the Fund and other funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,020.40 $ 9.60 $1,015.63 $ 9.58
Class B 1,000.00 1,016.10 12.87 1,012.37 12.85
Class C 1,000.00 1,016.10 12.87 1,012.37 12.85
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004 to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004 to
October 31, 2004, was 2.04%, 1.61% and 1.61% for Class A, B and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.89%, 2.54% and 2.54% for Class A, B and C shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 3/31/00-10/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results AIM AIM AIM LIPPER
include reinvested dividends. EMERGING EMERGING EMERGING MID-CAP RUSSELL
Performance of an index of funds GROWTH FUND GROWTH FUND GROWTH FUND GROWTH RUSSELL MIDCAP
reflects fund expenses and management CLASS A CLASS B CLASS C FUND 2500 GROWTH S&P 50
fees; performance of a market index does DATE SHARES SHARES SHARES INDEX INDEX INDEX INDEX
not. Performance shown in the chart does
not reflect deduction of taxes a 3/31/2000 $ 9450 $10000 $10000 $10000 $10000 $ 10000 $10000
shareholder would pay on fund 4/00 9119 9650 9640 8681 9462 9029 9699
distributions or sale of fund shares. 5/00 8089 8550 8550 7900 9008 8371 9500
Performance of the indexes does not 6/00 10413 10999 10990 9128 9600 9259 9734
reflect the effects of taxes 7/00 10168 10730 10729 8749 9356 8673 9582
8/00 12265 12950 12940 9894 10161 9981 10177
Since the last reporting period, the 9/00 11293 11910 11899 9418 9831 9493 9640
fund has elected to use the S&P 500 10/00 9932 10470 10459 8657 9561 8843 9599
Index as its broad-based market index 11/00 7636 8051 8050 6846 8719 6922 8843
since the S&P 500 Index is such a widely 12/00 8121 8554 8553 7340 9470 7286 8886
recognized gauge of the stock market. 1/01 8537 8985 8984 7440 9782 7702 9201
The fund will no longer measure its 2/01 6790 7146 7145 6324 9152 6370 8363
performance against the Russell 2500 3/01 6145 6462 6462 5653 8650 5458 7833
Index, the index published in previous 4/01 7058 7419 7407 6398 9414 6368 8442
reports to shareholders. Because this is 5/01 6998 7345 7344 6451 9697 6338 8498
the first reporting period since we have 6/01 7435 7808 7796 6426 9834 6342 8292
adopted the new index, SEC guidelines 7/01 7077 7430 7418 6088 9483 5914 8210
require that we compare the fund's 8/01 6264 6568 6567 5680 9172 5485 7696
performance to both the old and the new 9/01 4675 4908 4896 4861 7985 4579 7075
index. The fund has also included a 10/01 5419 5675 5674 5131 8398 5060 7210
styles-pecific index, the Russell Midcap 11/01 6045 6337 6325 5553 9077 5605 7763
Growth Index. The fund believes this 12/01 6472 6778 6767 5793 9586 5818 7831
index more closely reflects the 1/02 6184 6473 6462 5572 9467 5629 7717
performance of the securities in which 2/02 5419 5675 5674 5295 9301 5310 7568
the fund invests. In addition, the 3/02 6015 6284 6284 5629 9944 5715 7853
unmanaged Lipper Mid-Cap Growth Fund 4/02 5757 6011 6010 5441 9919 5413 7377
Index, which may or may not include AIM 5/02 5677 5937 5926 5260 9628 5251 7323
Emerging Growth Fund, is included for 6/02 5102 5328 5317 4787 9086 4672 6801
comparison to a peer group. 7/02 4397 4582 4582 4271 8001 4218 6271
8/02 4238 4424 4424 4220 8026 4203 6312
AVERAGE ANNUAL TOTAL RETURNS 9/02 3851 4014 4014 3958 7390 3869 5627
10/02 4090 4256 4256 4157 7631 4169 6122
As of 10/31/04, including applicable 11/02 4507 4687 4687 4404 8254 4495 6482
sales charges 12/02 4278 4445 4445 4144 7880 4223 6101
1/03 4318 4487 4487 4083 7671 4182 5941
CLASS A SHARES 2/03 4199 4361 4351 4020 7486 4146 5852
Inception (3/31/00) -9.11% 3/03 4288 4456 4445 4077 7558 4223 5909
1 Year 0.46 4/03 4596 4771 4760 4363 8231 4510 6395
5/03 5013 5202 5202 4724 9041 4944 6732
CLASS B SHARES 6/03 5211 5402 5401 4798 9214 5015 6818
Inception (3/31/00) -8.95% 7/03 5519 5728 5717 4987 9709 5194 6938
1 Year 0.70 8/03 5837 6043 6043 5232 10158 5480 7073
9/03 5738 5937 5938 5057 10020 5374 6998
CLASS C SHARES 10/03 6065 6273 6274 5453 10812 5807 7394
Inception (3/31/00) -8.57% 11/03 6194 6410 6400 5583 11219 5962 7459
1 Year 4.70 12/03 6492 6715 6715 5612 11466 6027 7850
1/04 6731 6946 6946 5753 11885 6226 7994
2/04 6770 6988 6989 5833 12068 6331 8105
3/04 6621 6830 6831 5831 12141 6319 7983
4/04 6323 6525 6526 5646 11558 6140 7858
5/04 6452 6651 6652 5769 11794 6285 7965
6/04 6482 6683 6673 5908 12182 6385 8120
7/04 6015 6189 6190 5488 11473 5962 7851
8/04 5867 6042 6043 5393 11444 5889 7883
9/04 6135 6304 6306 5624 11875 6109 7968
10/04 $ 6454 $ 6504 $ 6630 $ 5790 $12146 $ 6316 $ 8090
Source: Lipper, Inc.
In addition to returns as of the close The performance data quoted represent
of the fiscal year, industry regulations past performance and cannot guarantee
require us to provide average annual comparable future results; current
total returns as of 9/30/04, the most performance may be lower or higher.
recent calendar quarter-end. Please visit AIMinvestments.com for the
most recent month-end performance.
AVERAGE ANNUAL TOTAL RETURNS Performance figures reflect reinvested
As of 9/30/04, most recent calendar distributions, changes in net asset
quarter-end, including applicable sales value and the effect of the maximum
charges sales charge unless otherwise stated.
Investment return and principal value
CLASS A SHARES will fluctuate so that you may have a
Inception (3/31/00) -10.28% gain or loss when you sell shares.
1 Year 0.98
Class A share performance reflects
CLASS B SHARES the maximum 5.50% sales charge, and
Inception (3/31/00) -10.13% Class B and Class C share performance
1 Year 1.19 reflects the applicable contingent
deferred sales charge (CDSC) for the
CLASS C SHARES period involved. The CDSC on Class B
Inception (3/31/00) -9.74% shares declines from 5% beginning at the
1 Year 5.19 time of purchase to 0% at the beginning
of the seventh year. The CDSC on Class C
shares is 1% for the first year after
purchase.
The performance of the fund's share
classes will differ due to different
sales charge structures and class
expenses.
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS-97.70%
AIRLINES-0.48%
JetBlue Airways Corp.(a) 30,000 $ 661,500
========================================================================
APPAREL RETAIL-4.11%
Aeropostale, Inc.(a)(b) 35,000 1,104,250
- ------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 37,500 842,250
- ------------------------------------------------------------------------
Foot Locker, Inc. 35,000 854,000
- ------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a)(c) 38,900 1,209,012
- ------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a)(b)(c) 70,000 1,640,800
========================================================================
5,650,312
========================================================================
APPLICATION SOFTWARE-5.53%
Altiris, Inc.(a) 25,000 679,875
- ------------------------------------------------------------------------
Amdocs Ltd. (United Kingdom)(a) 45,000 1,131,750
- ------------------------------------------------------------------------
Catapult Communications Corp.(a) 26,300 645,928
- ------------------------------------------------------------------------
Citrix Systems, Inc.(a) 75,000 1,809,750
- ------------------------------------------------------------------------
JAMDAT Mobile Inc.(a)(c) 15,000 439,500
- ------------------------------------------------------------------------
Mercury Interactive Corp.(a) 29,000 1,259,470
- ------------------------------------------------------------------------
Sonic Solutions(a)(c) 42,900 851,565
- ------------------------------------------------------------------------
Synopsys, Inc.(a) 49,000 795,760
========================================================================
7,613,598
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-4.15%
Investors Financial Services Corp.(c) 75,000 2,886,750
- ------------------------------------------------------------------------
Legg Mason, Inc. 22,500 1,433,475
- ------------------------------------------------------------------------
T. Rowe Price Group Inc. 25,000 1,394,250
========================================================================
5,714,475
========================================================================
BIOTECHNOLOGY-4.90%
Amylin Pharmaceuticals, Inc.(a)(c) 65,000 1,384,500
- ------------------------------------------------------------------------
Corgentech Inc.(a)(c) 30,000 572,100
- ------------------------------------------------------------------------
Digene Corp.(a)(c) 46,500 1,169,475
- ------------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a) 17,500 742,700
- ------------------------------------------------------------------------
Invitrogen Corp.(a) 21,000 1,215,900
- ------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a) 14,000 909,720
- ------------------------------------------------------------------------
QLT Inc. (Canada)(a)(c) 45,000 749,250
========================================================================
6,743,645
========================================================================
BROADCASTING & CABLE TV-2.43%
Radio One, Inc.-Class D(a)(c) 70,000 1,028,300
- ------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 75,000 2,322,000
========================================================================
3,350,300
========================================================================
BUILDING PRODUCTS-0.93%
American Standard Cos. Inc.(a) 35,000 1,279,950
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-4.45%
ADTRAN, Inc. 16,800 $ 362,880
- ------------------------------------------------------------------------
Andrew Corp.(a) 65,000 908,700
- ------------------------------------------------------------------------
Avaya Inc.(a) 90,000 1,296,000
- ------------------------------------------------------------------------
Comverse Technology, Inc.(a) 85,000 1,754,400
- ------------------------------------------------------------------------
Polycom, Inc.(a) 35,000 722,750
- ------------------------------------------------------------------------
Tekelec(a)(c) 48,300 1,078,056
========================================================================
6,122,786
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.84%
Applied Films Corp.(a) 50,000 1,159,500
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.67%
Bucyrus International, Inc.-Class A(c) 30,700 921,000
========================================================================
CONSUMER FINANCE-0.42%
Nelnet, Inc.-Class A(a)(c) 30,000 582,300
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-6.22%
Alliance Data Systems Corp.(a) 40,000 1,691,200
- ------------------------------------------------------------------------
Ceridian Corp.(a) 90,000 1,552,500
- ------------------------------------------------------------------------
Fiserv, Inc.(a) 75,000 2,665,500
- ------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 100,000 2,649,000
========================================================================
8,558,200
========================================================================
DISTRIBUTORS-0.50%
Source Interlink Cos., Inc.(a)(c) 68,000 685,440
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.91%
Cintas Corp. 55,000 2,372,700
- ------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 42,000 882,000
- ------------------------------------------------------------------------
Navigant Consulting, Inc.(a)(c) 30,000 746,100
========================================================================
4,000,800
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.24%
Cooper Industries, Ltd.-Class A (Bermuda) 16,000 1,022,400
- ------------------------------------------------------------------------
EnerSys(a)(c) 100,000 1,320,000
- ------------------------------------------------------------------------
Ultralife Batteries, Inc.(a)(c) 67,000 739,680
========================================================================
3,082,080
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.17%
Cogent Inc.(a) 25,000 478,350
- ------------------------------------------------------------------------
Littelfuse, Inc.(a) 15,000 489,300
- ------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-(CONTINUED)
Photon Dynamics, Inc.(a) 35,000 $ 640,500
========================================================================
1,608,150
========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.45%
Staktek Holdings Inc.(a) 175,000 621,250
========================================================================
EMPLOYMENT SERVICES-2.76%
Gevity HR, Inc. 45,000 801,450
- ------------------------------------------------------------------------
Robert Half International Inc. 113,000 2,997,890
========================================================================
3,799,340
========================================================================
GENERAL MERCHANDISE STORES-1.79%
Family Dollar Stores, Inc. 45,000 1,329,750
- ------------------------------------------------------------------------
Fred's, Inc.(c) 65,000 1,139,450
========================================================================
2,469,200
========================================================================
HEALTH CARE EQUIPMENT-3.12%
Analogic Corp.(c) 12,603 536,195
- ------------------------------------------------------------------------
Conceptus Inc.(a)(c) 70,000 599,550
- ------------------------------------------------------------------------
Cytyc Corp.(a) 30,000 782,700
- ------------------------------------------------------------------------
IntraLase Corp.(a)(c) 35,300 678,819
- ------------------------------------------------------------------------
PerkinElmer, Inc. 51,000 1,047,540
- ------------------------------------------------------------------------
Wright Medical Group, Inc.(a) 25,000 645,750
========================================================================
4,290,554
========================================================================
HEALTH CARE FACILITIES-1.67%
LifePoint Hospitals, Inc.(a)(c) 25,000 810,500
- ------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 45,000 1,486,350
========================================================================
2,296,850
========================================================================
HEALTH CARE SERVICES-4.55%
DaVita, Inc.(a) 45,000 1,332,900
- ------------------------------------------------------------------------
Express Scripts, Inc.(a) 40,000 2,560,000
- ------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 40,000 1,356,400
- ------------------------------------------------------------------------
Psychiatric Solutions, Inc.(a)(c) 40,000 1,018,000
========================================================================
6,267,300
========================================================================
HOTELS, RESORTS & CRUISE LINES-2.26%
Kerzner International Ltd. (Bahamas)(a)(c) 12,000 608,640
- ------------------------------------------------------------------------
Orient-Express Hotels Ltd.-Class A
(Bermuda)(a) 75,000 1,331,250
- ------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia)(c) 25,000 1,165,000
========================================================================
3,104,890
========================================================================
HOUSEHOLD APPLIANCES-1.05%
Blount International, Inc.(a) 100,000 1,446,000
========================================================================
INDUSTRIAL CONGLOMERATES-1.98%
Textron Inc.(b) 40,000 2,726,000
========================================================================
INDUSTRIAL MACHINERY-0.16%
Nordson Corp. 6,100 213,622
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.53%
CyberSource Corp.(a)(c) 150,000 $ 981,000
- ------------------------------------------------------------------------
Digitas Inc.(a)(c) 125,000 1,125,000
========================================================================
2,106,000
========================================================================
INVESTMENT BANKING & BROKERAGE-1.50%
Ameritrade Holding Corp.(a) 75,000 976,500
- ------------------------------------------------------------------------
Edwards (A.G.), Inc. 30,000 1,087,800
========================================================================
2,064,300
========================================================================
IT CONSULTING & OTHER SERVICES-1.18%
CACI International Inc.-Class A(a) 12,300 749,931
- ------------------------------------------------------------------------
TNS Inc.(a)(c) 45,000 880,200
========================================================================
1,630,131
========================================================================
LEISURE FACILITIES-0.84%
Speedway Motorsports, Inc.(c) 35,000 1,158,500
========================================================================
MOVIES & ENTERTAINMENT-0.72%
Regal Entertainment Group-Class A(c) 50,000 995,500
========================================================================
OIL & GAS DRILLING-0.60%
Patterson-UTI Energy, Inc.(b) 43,000 826,890
========================================================================
PAPER PRODUCTS-0.48%
Bowater Inc. 18,000 663,120
========================================================================
PHARMACEUTICALS-4.96%
Barr Pharmaceuticals Inc.(a) 37,000 1,393,050
- ------------------------------------------------------------------------
Eon Labs, Inc.(a) 25,300 622,633
- ------------------------------------------------------------------------
Impax Laboratories, Inc.(a)(c) 72,200 1,065,672
- ------------------------------------------------------------------------
InKine Pharmaceutical Co., Inc.(a)(c) 200,000 1,090,000
- ------------------------------------------------------------------------
IVAX Corp.(a) 62,500 1,131,250
- ------------------------------------------------------------------------
MGI Pharma, Inc.(a) 30,000 800,100
- ------------------------------------------------------------------------
Valeant Pharmaceuticals International 30,000 720,000
========================================================================
6,822,705
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.94%
CB Richard Ellis Group, Inc.-Class A(a) 50,000 1,295,000
========================================================================
RESTAURANTS-3.79%
Brinker International, Inc.(a) 52,000 1,679,600
- ------------------------------------------------------------------------
CBRL Group, Inc. 40,000 1,450,400
- ------------------------------------------------------------------------
Ruby Tuesday, Inc.(c) 48,000 1,185,600
- ------------------------------------------------------------------------
Wendy's International, Inc. 27,000 900,990
========================================================================
5,216,590
========================================================================
SEMICONDUCTOR EQUIPMENT-3.53%
FormFactor Inc.(a) 40,000 938,000
- ------------------------------------------------------------------------
KLA-Tencor Corp.(a) 28,000 1,274,840
- ------------------------------------------------------------------------
Novellus Systems, Inc.(a) 70,000 1,813,700
- ------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-(CONTINUED)
Varian Semiconductor Equipment Associates,
Inc.(a) 24,000 $ 830,640
========================================================================
4,857,180
========================================================================
SEMICONDUCTORS-7.49%
AMIS Holdings, Inc.(a) 90,000 1,368,000
- ------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 45,000 1,217,250
- ------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 102,000 1,205,640
- ------------------------------------------------------------------------
Integrated Silicon Solution, Inc.(a)(c) 75,000 563,250
- ------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a)(b) 27,000 771,390
- ------------------------------------------------------------------------
Microchip Technology Inc. 70,000 2,117,500
- ------------------------------------------------------------------------
Micron Technology, Inc.(a) 69,000 840,420
- ------------------------------------------------------------------------
RF Micro Devices, Inc.(a)(c) 105,000 683,550
- ------------------------------------------------------------------------
Semtech Corp.(a)(c) 52,000 1,085,760
- ------------------------------------------------------------------------
Zoran Corp.(a) 45,000 454,050
========================================================================
10,306,810
========================================================================
SPECIALIZED FINANCE-1.03%
Primus Guaranty, Ltd. (Bermuda)(a)(c) 108,000 1,420,200
========================================================================
SPECIALTY STORES-3.16%
Advance Auto Parts, Inc.(a) 4,400 172,128
- ------------------------------------------------------------------------
Gander Mountain Co.(a)(c) 42,000 817,110
- ------------------------------------------------------------------------
Linens 'n Things, Inc.(a) 53,000 1,276,240
- ------------------------------------------------------------------------
Tiffany & Co. 40,000 1,173,200
- ------------------------------------------------------------------------
Tractor Supply Co.(a) 25,000 907,000
========================================================================
4,345,678
========================================================================
TECHNOLOGY DISTRIBUTORS-0.90%
CDW Corp. 20,000 1,240,600
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-0.67%
New York Community Bancorp, Inc.(c) 50,000 $ 918,000
========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.72%
Beacon Roofing Supply, Inc.(a)(c) 53,000 993,750
========================================================================
TRUCKING-1.92%
Sirva Inc.(a) 110,000 2,640,000
========================================================================
Total Common Stocks (Cost $126,845,220) 134,469,996
========================================================================
MONEY MARKET FUNDS-2.28%
Liquid Assets Portfolio-Institutional
Class(d) 1,571,116 1,571,116
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 1,571,116 1,571,116
========================================================================
Total Money Market Funds (Cost
$3,142,232) 3,142,232
========================================================================
TOTAL INVESTMENTS-99.98% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $129,987,452) 137,612,228
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-14.49%
Liquid Assets Portfolio-Institutional
Class(d)(e) 19,937,670 19,937,670
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $19,937,670) 19,937,670
========================================================================
TOTAL INVESTMENTS-114.47% (Cost $149,925,122) 157,549,898
========================================================================
OTHER ASSETS LESS LIABILITIES-(14.47%) (19,912,087)
========================================================================
NET ASSETS-100.00% $137,637,811
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1F
and Note 9.
(c) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$126,845,220)* $134,469,996
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $23,079,902) 23,079,902
===========================================================
Total investments (cost $149,925,122) 157,549,898
___________________________________________________________
===========================================================
Receivables for:
Investments sold 4,960,928
- -----------------------------------------------------------
Fund shares sold 49,647
- -----------------------------------------------------------
Dividends 43,358
- -----------------------------------------------------------
Amount due from advisor 169,395
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 22,644
- -----------------------------------------------------------
Other assets 36,780
===========================================================
Total assets 162,832,650
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 4,302,061
- -----------------------------------------------------------
Fund shares reacquired 648,781
- -----------------------------------------------------------
Options written, at market value (premiums
received $53,810) 65,908
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 26,313
- -----------------------------------------------------------
Collateral upon return of securities loaned 19,937,670
- -----------------------------------------------------------
Accrued distribution fees 72,239
- -----------------------------------------------------------
Accrued trustees' fees 1,187
- -----------------------------------------------------------
Accrued transfer agent fees 88,320
- -----------------------------------------------------------
Accrued operating expenses 52,360
===========================================================
Total liabilities 25,194,839
===========================================================
Net assets applicable to shares outstanding $137,637,811
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $266,169,220
- -----------------------------------------------------------
Undistributed net investment income (loss) (25,489)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (136,118,598)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 7,612,678
===========================================================
$137,637,811
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 75,978,038
___________________________________________________________
===========================================================
Class B $ 45,027,059
___________________________________________________________
===========================================================
Class C $ 16,632,714
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 11,696,056
___________________________________________________________
===========================================================
Class B 7,138,018
___________________________________________________________
===========================================================
Class C 2,637,830
___________________________________________________________
===========================================================
Class A :
Net asset value per share $ 6.50
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $6.50 divided by
94.50%) $ 6.88
___________________________________________________________
===========================================================
Class B :
Net asset value and offering price per
share $ 6.31
___________________________________________________________
===========================================================
Class C :
Net asset value and offering price per
share $ 6.31
___________________________________________________________
===========================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $19,436,807
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$3,603) $ 712,656
- -----------------------------------------------------------
Dividends from affiliated money market funds
(including security lending income of
$23,628)* 102,691
===========================================================
Total investment income 815,347
===========================================================
EXPENSES:
Advisory fees 1,288,859
- -----------------------------------------------------------
Administrative services fees 50,000
- -----------------------------------------------------------
Custodian fees 37,417
- -----------------------------------------------------------
Distribution fees:
Class A 292,015
- -----------------------------------------------------------
Class B 492,630
- -----------------------------------------------------------
Class C 189,346
- -----------------------------------------------------------
Transfer agent fees -- Class A, B and C 701,605
- -----------------------------------------------------------
Trustees' fees and retirement benefits 14,911
- -----------------------------------------------------------
Other 203,849
===========================================================
Total expenses 3,270,632
===========================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangements (43,404)
- -----------------------------------------------------------
Net expenses 3,227,228
===========================================================
Net investment income (loss) (2,411,881)
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain from investment securities 11,194,293
===========================================================
Net increase from payments by affiliates --See
Note 2 169,395
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (312,837)
- -----------------------------------------------------------
Option contracts written (12,098)
===========================================================
(324,935)
===========================================================
Net gain from investment securities and option
contracts 11,038,753
===========================================================
Net increase in net assets resulting from
operations $ 8,626,872
___________________________________________________________
===========================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,411,881) $ (2,233,801)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 11,194,293 28,824,924
- ------------------------------------------------------------------------------------------
Net increase from payments by affiliates 169,395 --
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (324,935) 21,408,256
==========================================================================================
Net increase in net assets resulting from operations 8,626,872 47,999,379
==========================================================================================
Share transactions-net:
Class A (10,324,662) 4,435,295
- ------------------------------------------------------------------------------------------
Class B (6,486,902) (3,079,891)
- ------------------------------------------------------------------------------------------
Class C (4,428,000) (4,179,924)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (21,239,564) (2,824,520)
==========================================================================================
Net increase (decrease) in net assets (12,612,692) 45,174,859
==========================================================================================
NET ASSETS:
Beginning of year 150,250,503 105,075,644
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(25,489) and $(20,376), respectively) $137,637,811 $150,250,503
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Emerging Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
F-6
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $1
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees and/or reimburse expenses to the extent
F-7
necessary to limit Total Annual Operating Expenses (excluding certain items
discussed below) of Class A, Class B and Class C shares to 2.00%, 2.65% and
2.65% of average daily net assets, respectively. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the Total Annual Fund
Operating Expenses to exceed the caps stated above: (i) interest; (ii) taxes;
(iii) dividend expense on short sales; (iv) extraordinary items (these are
expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $1,983.
For the year ended October 31, 2004, the advisor has agreed to reimburse the
Fund $169,395 for an economic loss due to a trading error.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has agreed to $36,974 expenses incurred by the
Fund in connection with matters related to recently settled regulatory actions
and investigations concerning market timing activity in the AIM Funds, including
legal, audit, shareholder servicing, communication and trustee expenses. These
expenses along with the related expense reimbursement, are included in the
Statement of Operations.
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, 2004, 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $701,605. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking 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, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $292,015,
$492,630 and $189,346, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$34,680 in front-end sales commissions from the sale of Class A shares and $124,
$6,545 and $3,769 from Class A, Class B and Class C shares, respectively, for
CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-8
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 5,063,454 $ 65,387,145 $ (68,879,483) $ -- $1,571,116 $39,997 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 5,063,454 65,387,145 (68,879,483) -- 1,571,116 39,066 --
==================================================================================================================================
Subtotal $10,126,908 $130,774,290 $(137,758,966) $ -- $3,142,232 $79,063 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 7,368,309 $109,603,329 $ (97,033,968) $ -- $19,937,670 $ 23,628 $ --
==================================================================================================================================
Total $17,495,217 $240,377,619 $(234,792,934) $ -- $23,079,902 $102,691 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $3,264,458 and $6,588,283,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$2,649 and credits in custodian fees of $1,798 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$4,447.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $4,798
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
F-9
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $19,436,807 were
on loan to brokers. The loans were secured by cash collateral of $19,937,670
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $23,628 for securities
lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 1,120 53,810
===================================================================================
End of year 1,120 $53,810
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31,
2004 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
CALLS
Marvell Technology Group Ltd. (Bermuda) 04-Nov $30.0 270 $18,359 $26,325 $ (7,966)
- ------------------------------------------------------------------------------------------------------------------------------
Patterson-UTI-Energy, Inc. 04-Nov 20.0 430 12,409 11,825 584
- ------------------------------------------------------------------------------------------------------------------------------
Aeropostale, Inc. 04-Dec 35.0 69 5,051 5,520 (469)
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc. 04-Dec 25.0 300 12,534 16,500 (3,966)
- ------------------------------------------------------------------------------------------------------------------------------
Textron Inc. 04-Dec 70.0 51 5,457 5,738 (281)
==============================================================================================================================
Total outstanding options written 1,120 $53,810 $65,908 $(12,098)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
F-10
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments $ 7,299,747
- ---------------------------------------------------------------------------
Temporary book/tax differences (24,275)
- ---------------------------------------------------------------------------
Capital loss carryforward (135,806,881)
- ---------------------------------------------------------------------------
Shares of beneficial interest 266,169,220
===========================================================================
Total net assets $ 137,637,811
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and recognition of income for tax purposes on certain passive foreign
investment companies. The tax-basis unrealized appreciation (depreciation) on
investments amount includes appreciation (depreciation) on option contracts
written of $(12,098).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $11,166,079 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $ 90,508,026
- -----------------------------------------------------------------------------
October 31, 2010 45,298,855
=============================================================================
Total capital loss carryforward $135,806,881
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--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, 2004 was $380,223,214 and $393,537,419, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $10,974,626
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,662,781)
===============================================================================
Net unrealized appreciation of investment securities $ 7,311,845
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $150,238,053.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of net operating losses, on October
31, 2004, undistributed net investment income was increased by $2,406,768 and
shares of beneficial interest decreased by $2,406,768. This reclassification had
no effect on the net assets of the Fund.
F-11
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain 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(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,854,496 $ 24,594,620 14,150,001 $71,539,332
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,227,703 7,585,746 2,662,059 13,233,376
- ----------------------------------------------------------------------------------------------------------------------
Class C 736,110 4,643,791 1,160,403 5,839,097
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 148,160 960,281 165,304 856,537
- ----------------------------------------------------------------------------------------------------------------------
Class B (152,130) (960,281) (168,817) (856,537)
======================================================================================================================
Reacquired:
Class A (5,641,488) (35,879,563) (13,569,593) (67,960,574)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,119,216) (13,112,367) (3,214,850) (15,456,730)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,449,746) (9,071,791) (2,057,518) (10,019,021)
======================================================================================================================
(3,396,111) $(21,239,564) (873,011) $(2,824,520)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 8% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which are considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder is also
owned beneficially.
F-12
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
MARCH 31, 2000
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.11 $ 4.12 $ 5.46 $ 10.50 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.07)(a) (0.08)(a) (0.10) (0.04)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.46 2.06 (1.26) (4.51) 0.54
- -------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01 -- -- -- --
=========================================================================================================================
Total from investment operations 0.39 1.99 (1.34) (4.61) 0.50
=========================================================================================================================
Less distributions from net realized gains -- -- -- (0.43) --
=========================================================================================================================
Net asset value, end of period $ 6.50 $ 6.11 $ 4.12 $ 5.46 $ 10.50
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b)(c) 6.38% 48.30% (24.54)% (45.37)% 5.00%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $75,978 $81,428 $51,822 $81,114 $147,101
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.84%(d)(e) 2.07% 1.89% 1.71%(e) 1.68%(f)
=========================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.30)%(d) (1.48)% (1.54)% (1.32)% (1.04)%(f)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(g) 264% 414% 407% 242% 111%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor has agreed to pay
for an economic loss due to a trading error. Total return before
reimbursement by the advisor was 6.22%.
(d) Ratios are based on average daily net assets of $83,432,923.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 1.86% and 1.83% for the years ended October 31, 2004 and 2001,
respectively.
(f) Annualized.
(g) Not annualized for periods less than one year.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------
MARCH 31, 2000
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2001
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.97 $ 4.05 $ 5.40 $ 10.47 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.10)(a) (0.12)(a) (0.14) (0.07)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.45 2.02 (1.23) (4.50) 0.54
- -------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01 -- -- -- --
=========================================================================================================================
Total from investment operations 0.34 1.92 (1.35) (4.64) 0.47
=========================================================================================================================
Less distributions from net realized gains -- -- -- (0.43) --
=========================================================================================================================
Net asset value, end of period $ 6.31 $ 5.97 $ 4.05 $ 5.40 $ 10.47
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b)(c) 5.70% 47.41% (25.00)% (45.81)% 4.70%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,027 $48,830 $36,060 $58,019 $94,740
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 2.49%(d)(e) 2.72% 2.55% 2.36%(e) 2.37%(f)
=========================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.95)%(d) (2.13)% (2.19)% (1.98)% (1.73)%(f)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(g) 264% 414% 407% 242% 111%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor has agreed to pay
for an economic loss due to a trading error. Total return before
reimbursement by the advisor was 5.53%.
(d) Ratios are based on average daily net assets of $49,263,006.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 2.51% and 2.48% for the years ended October 31, 2004 and 2001,
respectively.
(f) Annualized.
(g) Not annualized for periods less than one year.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------
MARCH 31, 2000
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.97 $ 4.05 $ 5.40 $ 10.46 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.10)(a) (0.12)(a) (0.14) (0.07)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.45 2.02 (1.23) (4.49) 0.53
- -------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01 -- -- -- --
=========================================================================================================================
Total from investment operations 0.34 1.92 (1.35) (4.63) 0.46
=========================================================================================================================
Less distributions from net realized gains -- -- -- (0.43) --
=========================================================================================================================
Net asset value, end of period $ 6.31 $ 5.97 $ 4.05 $ 5.40 $ 10.46
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b)(c) 5.70% 47.41% (25.00)% (45.76)% 4.60%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,633 $19,992 $17,194 $26,483 $41,361
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 2.49%(d)(e) 2.72% 2.55% 2.36%(e) 2.37%(f)
=========================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.95)%(d) (2.13)% (2.19)% (1.98)% (1.73)%(f)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(g) 264% 414% 407% 242% 111%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor has agreed to pay
for an economic loss due to a trading error. Total return before
reimbursement by the advisor was 5.53%.
(d) Ratios are based on average daily net assets of $18,934,599.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 2.51% and 2.48% for the years ended October 31, 2004 and 2001,
respectively.
(f) Annualized.
(g) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered
F-15
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG, AIM and ADI breached various Federal and state
securities, business and consumer protection laws. Under the terms of the
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Emerging Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Emerging Growth Fund (a portfolio of AIM Equity Funds), including the schedule
of investments, as of October 31, 2004, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Emerging Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc. and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 1200
Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
TAXABLE
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund
AIM Balanced Fund* AIM Developing Markets Fund AIM Floating Rate Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM High Yield Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM Income Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Intermediate Government Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Limited Maturity Treasury Fund
AIM Charter Fund AIM Global Growth Fund AIM Money Market Fund
AIM Constellation Fund AIM Global Value Fund AIM Short Term Bond Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Total Return Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) Premier U.S. Government Money Portfolio(1)
AIM Diversified Dividend Fund AIM International Growth Fund
AIM Dynamics Fund(1) AIM Trimark Fund TAX-FREE
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund AIM High Income Municipal Fund
AIM Large Cap Growth Fund AIM Municipal Bond Fund
AIM Libra Fund SECTOR EQUITY AIM Tax-Exempt Cash Fund
AIM Mid Cap Basic Value Fund AIM Tax-Free Intermediate Fund
AIM Mid Cap Core Equity Fund(2) AIM Advantage Health Sciences Fund(1)
AIM Mid Cap Growth Fund AIM Energy Fund(1) AIM ALLOCATION SOLUTIONS
AIM Mid Cap Stock Fund(1) AIM Financial Services Fund(1)
AIM Opportunities I Fund AIM Global Health Care Fund AIM Aggressive Allocation Fund
AIM Opportunities II Fund AIM Gold & Precious Metals Fund(1) AIM Conservative Allocation Fund
AIM Opportunities III Fund AIM Health Sciences Fund(1) AIM Moderate Allocation Fund
AIM Premier Equity Fund AIM Leisure Fund(1)
AIM S&P 500 Index Fund(1) AIM Multi-Sector Fund(1)
AIM Select Equity Fund AIM Real Estate Fund
AIM Small Cap Equity Fund(3) AIM Technology Fund(1)
AIM Small Cap Growth Fund(4) AIM Utilities Fund(1)
AIM Small Company Growth Fund(1)
AIM Total Return Fund*(1) ========================================================================================
AIM Trimark Endeavor Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Trimark Small Companies Fund AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Weingarten Fund AND READ IT THOROUGHLY BEFORE INVESTING.
========================================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com EMG-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
=====================================================================================
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
=====================================================================================
</Table>
AIM LARGE CAP BASIC VALUE FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM LARGE CAP BASIC VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL WITH A SECONDARY OBJECTIVE OF CURRENT INCOME.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT financial reporting purposes, and as
such, the net asset values for
o Effective 9/30/03, Class B shares are o The unmanaged Standard & Poor's shareholder transactions and the returns
not available as an investment for Composite Index of 500 Stocks (the S&P based on those net asset values may
retirement plans maintained pursuant to 500--Registered Trademark-- Index) is an differ from the net asset values and
Section 401 of the Internal Revenue Code, index of common stocks frequently used as returns reported in the Financial
including 401(k) plans, money purchase a general measure of U.S. stock market Highlights.
pension plans and profit sharing plans. performance.
Plans that have existing accounts o Industry classifications used in this
invested in Class B shares will continue o The unmanaged Lipper Large-Cap Value report are generally according to the
to be allowed to make additional Funds Index represents an average of the Global Industry Classification Standard,
purchases. performance of the 30 largest which was developed by and is the
large-capitalization value funds tracked exclusive property and a service mark of
o Class R shares are available only to by Lipper, Inc., an independent mutual Morgan Stanley Capital International Inc
certain retirement plans. Please see the fund performance monitor. and Standard & Poor's.
prospectus for more information.
o The unmanaged Russell 1000--Registered The fund files its complete schedule of
o Investor Class shares are closed to Trademark-- Value Index is a subset of portfolio holdings with the Securities
most investors. For more information on the unmanaged Russell 1000--Registered and Exchange Commission ("SEC") for the
who may continue to invest in the Trademark-- Index, which represents the 1st and 3rd quarters of each fiscal year
Investor Class shares, please see the performance of the stocks of on Form N-Q. The Fund's Form N-Q filings
prospectus. large-capitalization companies; the Value are available on the SEC's Web site at
subset measures the performance of http://www.sec.gov. Copies of the fund's
PRINCIPAL RISKS OF INVESTING IN THE FUND Russell 1000 companies with lower Forms N-Q may be reviewed and copied at
price/book ratios and lower forecasted the SEC's Public Reference Room at 450
o International investing presents growth values. Fifth Street, N.W., Washington, D.C.
certain risks not associated with 20549-0102. You can obtain information on
investing solely in the United States. o The unmanaged MSCI World Index is a the operation of the Public Reference
These include risks relating to group of global securities tracked by Room, including information about
fluctuations in the value of the U.S. Morgan Stanley Capital International. duplicating fee charges, by calling
dollar relative to the values of other 1-202-942-8090 or by electronic request
currencies, the custody arrangements made o The fund is not managed to track the at the following e-mail address:
for the fund's foreign holdings, performance of any particular index, publicinfo@sec.gov. The SEC file numbers
differences in accounting, political including the indexes defined here, and for the fund are 811-1424 and 2-25469.
risks and the lesser degree of public consequently, the performance of the fund The fund's most recent portfolio
information required to be provided by may deviate significantly from the holdings, as filed on Form N-Q, are also
non-U.S. companies. The fund may invest performance of the indexes. available at AIMinvestments.com.
up to 25% of its assets in the securities
of non-U.S. issuers. o A direct investment cannot be made in A description of the policies and
an index. Unless otherwise indicated, procedures that the fund uses to
o The fund may participate in the initial index results include reinvested determine how to vote proxies relating to
public offering (IPO) market in some dividends, and they do not reflect sales portfolio securities is available without
cycles. A significant portion of the charges. Performance of an index of funds charge, upon request, by calling
fund's returns during certain periods was reflects fund expenses; performance of a 800-959-4246, or on the AIM Web site,
attributable to its investments in IPOs. market index does not. AIMinvestments.com. Scroll down on the
These investments have a magnified impact home page and click on AIM Funds Proxy
when the fund's asset base is relatively OTHER INFORMATION Voting Policies.
small. As the fund's assets grow, the
impact of IPO investments will decline, o The returns shown in the Management's Information regarding how the fund voted
which may reduce the effect of IPO Discussion of Fund Performance are based proxies related to its portfolio
investments on the fund's total return. on net asset values calculated for securities during the 12 months ended
For additional information regarding the shareholder transactions. Generally 6/30/04 is available at our Web site. Go
impact of IPO investments on the fund's accepted accounting principles require to AIMinvestments.com, click on About Us,
performance, please see the fund's adjustments to be made to the net assets then on Required Notices and then select
prospectus. of the fund at period end for your fund from the drop-down menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--REGISTERED TRADEMARK--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H.
GRAHAM] It is our pleasure to introduce you to Bruce Crockett, the
new Chairman of the Board of Trustees of the AIM Funds. Bob
ROBERT H. GRAHAM Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
PHOTO OF] position in 2000. However, as you may be aware, the U.S.
MARK H. Securities and Exchange Commission recently adopted a rule
WILLIAMSON] requiring that an independent fund trustee, meaning a
trustee who is not an officer of the fund's investment
MARK H. WILLIAMSON advisor, serve as chairman of the funds' Board. In
addition, a similar provision was included in the terms of
[PHOTO OF AIM Advisors' recent settlements with certain regulators.
BRUCE L. Accordingly, the AIM Funds' Board recently elected Mr.
CROCKETT] Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
BRUCE L. CROCKETT effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of
those funds since 1978. Mr. Crockett has more than 30 years
of experience in finance and general management and has
been Chairman of Crockett Technologies Associates since
1996. He is the first independent chairman of the funds'
board in AIM's history, as he is not affiliated with AIM or
AMVESCAP in any way. He is committed to ensuring that the
AIM Funds adhere to the highest standards of corporate
governance for the benefit of fund shareholders, and we at
AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign,
produced positive returns for the fiscal year ended October
31, 2004. Domestically, the S&P 500 Index was up 9.41% for
the year. Globally, the MSCI World Index advanced more than
13%. However, a goodly portion of this positive performance
was achieved during 2003. Year to date as of October 31,
the S&P 500 Index was up just over 3%, the MSCI World Index
just about 5%. In the pages that follow, you will find a
more detailed discussion of the market conditions that
affected your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever,
we encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation
of how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available
on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
------------------------------------- -------------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND PRODUCED ATTRACTIVE RETURNS continued to own the company, given what
BUT UNDERPERFORMED BENCHMARKS we believed to be a significant valuation
opportunity.
For the fiscal year ended October 31, issues, and a moderation of what had been
2004, Class A shares of AIM Large Cap generally strong levels of consumer Tyco was one of the fund's top
Basic Value Fund returned 8.52% at net confidence and manufacturing activity performing stocks for the second year in
asset value. PERFORMANCE SHOWN AT NAV served to validate these concerns. a row, validating the magnitude of the
DOES NOT INCLUDE FRONT-END SALES CHARGES, investment opportunity created during the
WHICH WOULD HAVE REDUCED THE PERFORMANCE. With the price of oil rising sharply 2002 scandal. As we believed at the time,
Results for other share classes are shown during the period, it came as no surprise the market position and intrinsic value
in the table on page 3. The fund that energy was the market's of Tyco proved far more durable than
underperformed its benchmarks, the S&P best-performing sector for the year. The investors believed in the midst of the
500 Index, the Russell 1000 Value Index fund's holdings in oil-service and Kozlowski malfeasance charges. We
and the Lipper Large-Cap Value Fund equipment providers were among the continued to believe Tyco was one of the
Index, which returned 9.41%, 15.45% and largest contributors to fund performance better investment opportunities within
11.58%, respectively. during the period. The fund also the industrial sector of the economy,
experienced solid gains from its although the valuation was not as
The fund underperformed its benchmarks industrial holdings, led by Tyco, and compelling after rising more than 200%
partly because of its relatively low also strongly benefited from European since the 2002 lows. Consequently we
weight in energy, the best performing pharmaceutical manufacturer reduced our position in the company from
sector of the market, along with a Sanofi-Aventis. Consumer staples was the peak levels during the period.
significant investment in poor-performing fund's worst-performing sector, with
Cardinal Health. Our underweight position particular weakness in food retailers YOUR FUND
in energy reflects an effort to achieve Kroger Co. and Safeway Inc.
superior diversification and a lower risk Our investment objective is to create
profile than that of the Russell 1000 The largest detractor to fund wealth by maintaining a long-term
Value Index. performance was Cardinal Health, which investment horizon and investing in
has been faced with a number of companies that are undervalued by the
MARKET CONDITIONS AND CURRENT PERIOD challenges including accounting market. The fund's investment philosophy
PERFORMANCE restatements, decelerating drug price is based on two key principles:
inflation and slower prescription growth.
The domestic economy continued to Drug distributors are in the midst of a o Companies have a measurable intrinsic
recover throughout the fiscal year, with fundamental change in their business value that is based on projected cash
broader markets responding favorably over models that we believe will benefit flows generated by the business;
the first nine months of the period. In Cardinal Health's long-term results. importantly, this value is independent of
the final fiscal quarter, however, However, the near-term uncertainty has the stock market.
investors grew concerned about the made drug distributors very unpopular on
sustainability of economic growth. Higher Wall Street and resulted in weak o Market prices are more volatile than
commodity prices and a more restrictive current-period performance. At the end of business values, and investors regularly
monetary policy were key the fiscal year, we overreact to negative news.
Our goal is to create a portfolio that
has a
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Tyco International Ltd. (Bermuda) 4.0% 1. Pharmaceuticals 7.6%
[PIE CHART]
2. JPMorgan Chase & Co. 3.5 2. Other Diversified Financial Services 6.5
Health Care 18.0%
3. Fannie Mae 3.4 3. Industrial Conglomerates 6.3
Information Technology 9.0%
4. Sanofi-Aventis S.A. (France) 3.4 4. Advertising 5.1
Energy 6.8%
5. Computer Associates 5. Health Care Distributors 4.9
Materials 2.3% International, Inc. 3.3
6. Oil & Gas Equipment & Services 4.7
Money Market Funds Plus Other 6. First Data Corp. 3.2
Assets Less Liabilities 1.8% 7. Data Processing & Outsourced
7. Cardinal Health, Inc. 3.1 Services 4.7
Financials 21.5%
8. Omnicom Group Inc. 3.1 8. Investment Banking & Brokerage 4.3
Consumer Staples 4.7%
9. Waste Management, Inc. 3.1 9. Thrifts & Mortgage Finance 3.4
Industrials 19.4%
10. Citigroup Inc. 3.0 10. Systems Software 3.3
Consumer Discretionary 16.5%
The fund's holdings are subject to change, and there is no assurance that
the fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
lower risk profile versus the market, yet best indicator of achieving the fund's R. CANON COLEMAN II
also has the potential to outperform the objective. Mr. Coleman, Chartered
market in the long run. [COLEMAN Financial Analyst,
IN CLOSING PHOTO] joined AMVESCAP in 1999
Since our application of this strategy in its corporate
is highly disciplined and unique, we We believe the absence of a long-term associate rotation
believe it is important to understand the investment horizon is clearly a major program, working with fund managers
benefits and limitations of our process. obstacle many face in building throughout AMVESCAP before joining AIM in
First, our investment strategy is significant wealth. Market-relative 2000. He previously worked as a CPA. Mr.
intended to preserve your capital while results during this period were weak, but Coleman earned a B.S. and an M.S. in
growing it over the long term. Second, we normal market volatility predominates in accounting from the University of
have little portfolio overlap with the short run and limits our ability to Florida. He also has an M.B.A. from The
popular benchmarks and most of our peers. measure success. As managers and Wharton School at the University of
We do not believe that such benchmarks shareholders, we believe a long-term Pennsylvania.
are optimally constructed--indeed, they investment horizon and attractive value
can be quite risky as witnessed in the content are critical to creating wealth. MATTHEW W. SEINSHEIMER
recent bear market. While this does Thank you for your investment and for Mr. Seinsheimer,
create a diversification benefit, it also sharing our longer-term view. [SEINSHEIMER Chartered Financial
suggests there will be more variability PHOTO] Analyst, began his
in short-term results versus the market THE VIEWS AND OPINIONS EXPRESSED IN investment career in
averages for the simple reason that your MANAGEMENT'S DISCUSSION OF FUND 1992 as a fixed-income
fund does not own the exact same stocks PERFORMANCE ARE THOSE OF A I M ADVISORS, trader. He later served as a portfolio
as its benchmarks. INC. THESE VIEWS AND OPINIONS ARE SUBJECT manager on both fixed income and equity
TO CHANGE AT ANY TIME BASED ON FACTORS portfolios. Mr. Seinsheimer joined AIM
Lastly, it is our opinion that the SUCH AS MARKET AND ECONOMIC CONDITIONS. a senior analyst in 1998 and assumed his
single most important measure of AIM THESE VIEWS AND OPINIONS MAY NOT BE as current responsibilities in 2000. He
Large Cap Basic Value Fund is not our RELIED UPON AS INVESTMENT ADVICE OR received a B.B.A. from Southern
historical investment results or popular RECOMMENDATIONS, OR AS AN OFFER FOR A Methodist University and an M.B.A. from
statistical measures, but rather the PARTICULAR SECURITY. THE INFORMATION IS The University of Texas at Austin.
portfolio's intrinsic value. Since we can NOT A COMPLETE ANALYSIS OF EVERY ASPECT
estimate the intrinsic value of each OF ANY MARKET, COUNTRY, INDUSTRY, MICHAEL J. SIMON
holding in the portfolio, we can also SECURITY OR THE FUND. STATEMENTS OF FACT Mr. Simon, Chartered
estimate the intrinsic value of the ARE FROM SOURCES CONSIDERED RELIABLE, BUT [SIMON Financial Analyst,
entire fund. At the end of the fiscal A I M ADVISORS, INC. MAKES NO PHOTO] joined AIM in 2001.
year, we believed this value remained REPRESENTATION OR WARRANTY AS TO THEIR Prior to joining AIM,
well above market value. While there is COMPLETENESS OR ACCURACY. ALTHOUGH Mr. Simon worked as a
no assurance that market value will ever HISTORICAL PERFORMANCE IS NO GUARANTEE OF vice president, equity analyst and
reflect our estimate of portfolio FUTURE RESULTS, THESE INSIGHTS MAY HELP portfolio manager. Mr. Simon, who began
intrinsic value, as managers we believe YOU UNDERSTAND OUR INVESTMENT MANAGEMENT his investment career in 1989, received
this provides the PHILOSOPHY. a B.B.A. in finance from Texas Christian
University and an M.B.A. from the
See important fund and index University of Chicago. Mr. Simon has
disclosures inside front cover. served as Occasional Faculty in the
Finance and Decision Sciences Department
of Texas Christian University's M.J.
Neeley School of Business.
BRET W. STANLEY
Mr. Stanley, Chartered
[STANLEY Financial Analyst, is
PHOTO] lead portfolio manager
of AIM Large Cap Basic
Value Fund and the head
of AIM's Value Investment Management
Unit. Prior to joining AIM in 1998, Mr.
Stanley served as a vice president and
portfolio manager and managed growth and
income, equity income and value
portfolios. He began his investment
career in 1988. Mr. Stanley received a
B.B.A. in finance from The University of
Texas at Austin and an M.S. in finance
from the University of Houston.
Assisted by the Basic Value Team
========================================================================================
FUND VS. INDEXES TOTAL NET ASSETS $356.2 MILLION
TOTAL RETURNS, 10/31/03-10/31/04, TOTAL NUMBER OF HOLDINGS* 45
EXCLUDING APPLICABLE SALES CHARGES.
IF SALES CHARGES WERE INCLUDED,
RETURNS WOULD BE LOWER.
Class A Shares 8.52%
Class B Shares 7.80
Class C Shares 7.80
Class R Shares 8.36
Investor Class 8.60
S&P 500 Index (Broad Market Index) 9.41
Russell 1000 Value Index
(Style-specific Index) 15.45
Lipper Large-Cap Value Fund Index
(Peer Group Index) 11.58
SOURCE: LIPPER, INC.
======================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE estimate the expenses that you paid over To do so, compare this 5% hypothetical
the period. Simply divide your account example with the 5% hypothetical
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 examples that appear in the shareholder
two types of costs: (1) transaction account value divided by $1,000 = 8.6), reports of the other funds.
costs, which may include sales charges then multiply the result by the number
(loads) on purchase payments; contingent in the table under the heading entitled Please note that the expenses shown
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to in the table are meant to highlight your
and redemption fees, if any; and (2) estimate the expenses you paid on your ongoing costs only and do not reflect
ongoing costs, including management account during this period. any transactional costs, such as sales
fees; distribution and/or service fees charges (loads) on purchase payments,
(12b-1); and other fund expenses. This HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
example is intended to help you PURPOSES redemptions, and redemption fees, if
understand your ongoing costs (in any. Therefore, the hypothetical
dollars) of investing in the fund and to The table below also provides information is useful in comparing
compare these costs with ongoing costs information about hypothetical account ongoing costs only, and will not help
of investing in other mutual funds. The values and hypothetical expenses based you determine the relative total costs
example is based on an investment of on the Fund's actual expense ratio and of owning different funds. In addition,
$1,000 invested at the beginning of the an assumed rate of return of 5% per year if these transactional costs were
period and held for the entire period, before expenses, which is not the fund's included, your costs would have been
May 1, 2004 - October 31, 2004. actual return. The hypothetical account higher.
values and expenses may not be used to
ACTUAL EXPENSES estimate the actual ending account
balance or expenses you paid for the
The table below provides information period. You may use this information to
about actual account values and actual compare the ongoing costs of investing
expenses. You may use the information in in the Fund and other funds.
this table, together with the amount you
invested, to
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $979.40 $6.57 $1,018.50 $6.70
Class B 1,000.00 975.70 9.78 1,015.23 9.98
Class C 1,000.00 976.40 9.79 1,015.23 9.98
Class R 1,000.00 978.50 7.31 1,017.75 7.46
Investor Class 1,000.00 979.40 6.07 1,019.00 6.19
(1)The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was -2.06%, -2.43%, -2.36%, -2.15% and -2.06% for Class A, B, C, R and Investor Class shares, respectively.
(2)Expenses are equal to the fund's annualized expense ratio (1.32%, 1.97%, 1.97%, 1.47% and 1.22% for Class A, B, C, R and
Investor Class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 6/30/99-10/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM Large Cap Lipper Large-Cap Russell 1000
management fees. Index results include Basic Value Fund Value Fund Value S&P 500
reinvested dividends, but they do not Date Class A Shares Index Index Index
reflect sales charges. Performance of an
index of funds reflects fund expenses 6/30/1999 $ 9450 $10000 $10000 $10000
and management fees; performance of a 7/99 9100 9716 9707 9689
market index does not. Performance shown 10/99 8883 9629 9540 9970
in the chart does not reflect deduction 1/00 9424 9539 9200 10230
of taxes a shareholder would pay on fund 4/00 10292 9863 9445 10687
distributions or sale of fund shares. 7/00 10457 9718 9222 10558
Performance of the indexes does not 10/00 11744 10199 10066 10576
reflect the effects of taxes. 1/01 12138 10239 10217 10138
4/01 12178 9897 10052 9301
In evaluating this chart, please note 7/01 12492 9717 10028 9046
that the chart uses a logarithmic scale 10/01 10728 8594 8872 7944
along the vertical axis (the value 1/02 11717 9112 9535 8502
scale). This means that each scale 4/02 11786 9059 9659 8128
increment always represents the same 7/02 9699 7709 8299 6909
percent change in price; in a linear 10/02 9013 7368 7983 6745
chart each scale increment always 1/03 8905 7279 7921 6546
represents the same absolute change in 4/03 9385 7692 8402 7046
price. In this example, the scale 7/03 10552 8373 9191 7644
increment between $5,000 and $10,000 is 10/03 11159 8884 9809 8147
the same as that between $10,000 and 1/04 12364 9689 10741 8808
$20,000. In a linear chart, the latter 4/04 12363 9595 10609 8658
scale increment would be twice as large. 7/04 11941 9640 10816 8651
The benefit of using a logarithmic scale 10/04 $12111 $ 9929 $11325 $ 8913
is that it better illustrates Source: Lipper, Inc.
performance during the fund's early
years before reinvested distributions In addition to returns as of the close restated Class A share performance (for
and compounding create the potential for of the fiscal year, industry regulations periods prior to the inception date of
the original investment to grow to very require us to provide average annual Class R shares) at net asset value,
large numbers. Had the chart used a total returns as of 9/30/04, the most adjusted to reflect the higher Rule
linear scale along its vertical axis, recent calendar quarter-end. 12b-1 fees applicable to Class R shares.
you would not be able to see as clearly Class A shares' inception date is
the movements in the value of the fund AVERAGE ANNUAL TOTAL RETURNS 6/30/99.
and the indexes during the fund's early As of 9/30/04, most recent calendar
years. We use a logarithmic scale in quarter-end, including applicable sales The performance data quoted represent
financial reports of funds that have charges past performance and cannot guarantee
more than five years of performance comparable future results; current
history. CLASS A SHARES performance may be lower or higher.
Inception (6/30/99) 3.51% Please visit AIMinvestments.com for the
AVERAGE ANNUAL TOTAL RETURNS 5 Years 6.01 most recent month-end performance.
As of 10/31/04, including applicable 1 Year 5.25 Performance figures reflect reinvested
sales charges distributions, changes in net asset
CLASS B SHARES value and the effect of the maximum
CLASS A SHARES Inception (8/1/00) 1.92% sales charge unless otherwise stated.
Inception (6/30/99) 3.65% 1 Year 5.69 Investment return and principal value
5 Years 5.19 will fluctuate so that you may have a
1 Year 2.57 CLASS C SHARES gain or loss when you sell shares.
Inception (8/1/00) 2.35%
CLASS B SHARES 1 Year 9.60 Class A share performance reflects
Inception (8/1/00) 2.11% the maximum 5.50% sales charge, and
1 Year 2.80 CLASS R SHARES Class B and Class C share performance
Inception 4.47% reflects the applicable contingent
CLASS C SHARES 5 Years 7.06 deferred sales charge (CDSC) for the
Inception (8/1/00) 2.55% 1 Year 11.22 period involved. The CDSC on Class B
1 Year 6.80 shares declines from 5% beginning at the
INVESTOR CLASS SHARES time of purchase to 0% at the beginning
CLASS R SHARES Inception 4.66% of the seventh year. The CDSC on Class C
Inception 4.59% 5 Years 7.25 shares is 1% for the first year after
5 Years 6.22 1 Year 11.57 purchase. Class R shares do not have a
1 Year 8.36 front-end sales charge; returns shown
Investor Class shares' inception date is are at net asset value and do not
INVESTOR CLASS SHARES 9/30/03. Returns since that date are reflect a 0.75% CDSC that may be imposed
Inception 4.77% historical returns. All other returns on a total redemption of retirement plan
5 Years 6.41 are blended returns of historical assets within the first year. Investor
1 Year 8.60 Investor Class share performance and Class shares do not have a front-end
restated Class A share performance (for sales charge or a CDSC; therefore,
periods prior to the inception date of performance is at net asset value.
Investor Class shares) at net asset
value and reflect the higher Rule 12b-1 The performance of the fund's share
fees applicable to Class A shares. Class classes will differ due to different
A shares' inception date is 6/30/99. sales charge structures and class
Class R shares' inception date is expenses.
6/3/02. Returns since that date are
historical returns. All other returns
are blended returns of historical Class
R share performance and
===================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM LARGE CAP BASIC VALUE FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Institutional Class shares have no sales
AVERAGE ANNUAL TOTAL RETURNS charge; therefore, performance is at net
The following information has been For periods ended 10/31/04 asset value. Performance of Institutional
prepared to provide Institutional Class Inception 4.79% Class shares will differ from performance
shareholders with a performance overview 5 Years 6.43 of other share classes due to differing
specific to their holdings. Institutional 1 Year 8.69 sales charges and class expenses.
Class shares are offered exclusively to
institutional investors, including ========================================= Please note that past performance is
defined contribution plans that meet AVERAGE ANNUAL TOTAL RETURNS not indicative of future results. More
certain criteria. For periods ended 9/30/04 recent returns may be more or less than
Inception 4.67% those shown. All returns assume
5 Years 7.27 reinvestment of distributions at net
1 Year 11.66 asset value. Investment return and
principal value will fluctuate so your
========================================= shares, when redeemed, may be worth more
or less than their original cost. See
Institutional Class shares' inception full report for information on
date is 4/30/04. Returns since that date comparative benchmarks. Please consult
are historical returns. All other returns your fund prospectus for more
are blended returns of historical information. For the most current
Institutional Class share performance and month-end performance, please call
restated Class A share performance (for 800-451-4246 or visit AIMinvestments.com.
periods prior to the inception date of
Institutional Class shares) at net asset
value and reflect the higher Rule 12b-1
fees applicable to Class A shares. Class
A shares' inception date is 6/30/99.
Institutional Class shares would have had
different returns due to differences in
the expense structure of the
Institutional Class.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com LCBV-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account value use this information to compare the
by $1,000 (for example, an $8,600 account ongoing costs of investing in the fund
As a shareholder of the fund, you incur value divided by $1,000 = 8.6), then and other funds. To do so, compare this
ongoing costs, including management fees; multiply the result by the number in the 5% hypothetical example with the 5%
and other fund expenses. This example is table under the heading entitled "Actual hypothetical examples that appear in the
intended to help you understand your Expenses Paid During Period" to estimate shareholder reports of the other funds.
ongoing costs (in dollars) of investing the expenses you paid on your account
in the fund and to compare these costs during this period. Please note that the expenses shown in
with ongoing costs of investing in other the table are meant to highlight your
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR ongoing costs only. Therefore, the
investment of $1,000 invested at the COMPARISON PURPOSES hypothetical information is useful in
beginning of the period and held for the comparing ongoing costs only, and will
entire period, May 1, 2004, to October The table below also provides information not help you determine the relative total
31, 2004. about hypothetical account values and costs of owning different funds.
hypothetical expenses based on the fund's
ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
The table below provides information which is not the fund's actual return.
about actual account values and actual The hypothetical account values and
expenses. You may use the information in expenses may not be used to estimate the
this table, together with the amount you actual ending account balance or expenses
invested, to estimate the expenses that you paid for the period. You may
you paid over the
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $981.00 $3.98 $1,021.11 $4.06
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was -1.90% for the Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio, 0.80% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com LCBV-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.23%
ADVERTISING-5.13%
Interpublic Group of Cos., Inc. (The)(a) 580,200 $ 7,113,252
- -----------------------------------------------------------------------
Omnicom Group Inc. 141,600 11,172,240
=======================================================================
18,285,492
=======================================================================
AEROSPACE & DEFENSE-1.80%
Honeywell International Inc. 190,300 6,409,304
=======================================================================
ALUMINUM-1.62%
Alcoa Inc. 177,500 5,768,750
=======================================================================
APPAREL RETAIL-1.71%
Gap, Inc. (The) 304,700 6,087,906
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.47%
Bank of New York Co., Inc. (The) 270,600 8,783,676
=======================================================================
BUILDING PRODUCTS-2.33%
Masco Corp. 242,200 8,297,772
=======================================================================
COMMUNICATIONS EQUIPMENT-1.06%
Motorola, Inc. 219,200 3,783,392
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.85%
Deere & Co. 50,800 3,036,824
=======================================================================
CONSUMER ELECTRONICS-3.19%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 197,970 4,715,645
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 190,700 6,645,895
=======================================================================
11,361,540
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.69%
Ceridian Corp.(a) 300,700 5,187,075
- -----------------------------------------------------------------------
First Data Corp. 278,700 11,504,736
=======================================================================
16,691,811
=======================================================================
DEPARTMENT STORES-1.25%
May Department Stores Co. (The) 170,800 4,451,048
=======================================================================
DIVERSIFIED CHEMICALS-0.71%
Dow Chemical Co. (The) 56,600 2,543,604
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.60%
Cendant Corp. 449,600 9,257,264
=======================================================================
ENVIRONMENTAL SERVICES-3.11%
Waste Management, Inc. 388,550 11,065,904
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
FOOD RETAIL-3.04%
Kroger Co. (The)(a) 416,600 $ 6,294,826
- -----------------------------------------------------------------------
Safeway Inc.(a) 248,800 4,538,112
=======================================================================
10,832,938
=======================================================================
GENERAL MERCHANDISE STORES-2.57%
Target Corp. 183,100 9,158,662
=======================================================================
HEALTH CARE DISTRIBUTORS-4.92%
Cardinal Health, Inc. 239,600 11,201,300
- -----------------------------------------------------------------------
McKesson Corp. 237,100 6,321,086
=======================================================================
17,522,386
=======================================================================
HEALTH CARE EQUIPMENT-1.47%
Baxter International Inc. 170,800 5,253,808
=======================================================================
HEALTH CARE FACILITIES-1.80%
HCA, Inc. 174,400 6,405,712
=======================================================================
INDUSTRIAL CONGLOMERATES-6.25%
General Electric Co. 232,500 7,932,900
- -----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 459,800 14,322,770
=======================================================================
22,255,670
=======================================================================
INDUSTRIAL MACHINERY-2.47%
Illinois Tool Works Inc. 95,515 8,814,124
=======================================================================
INSURANCE BROKERS-1.18%
Aon Corp. 206,600 4,216,706
=======================================================================
INVESTMENT BANKING & BROKERAGE-4.26%
Merrill Lynch & Co., Inc. 127,800 6,893,532
- -----------------------------------------------------------------------
Morgan Stanley 162,000 8,276,580
=======================================================================
15,170,112
=======================================================================
MANAGED HEALTH CARE-2.21%
Anthem, Inc.(a)(b) 98,000 7,879,200
=======================================================================
MOVIES & ENTERTAINMENT-2.60%
Walt Disney Co. (The) 367,100 9,258,262
=======================================================================
MULTI-LINE INSURANCE-1.41%
Hartford Financial Services Group, Inc. (The) 85,600 5,005,888
=======================================================================
OIL & GAS DRILLING-2.09%
Transocean Inc. (Cayman Islands)(a) 211,377 7,451,039
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-4.74%
Halliburton Co. 265,100 9,819,304
- -----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 112,100 7,055,574
=======================================================================
16,874,878
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-6.51%
Citigroup Inc. 241,619 $ 10,720,635
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 323,356 12,481,542
=======================================================================
23,202,177
=======================================================================
PACKAGED FOODS & MEATS-1.65%
Kraft Foods Inc.-Class A 176,300 5,872,553
=======================================================================
PHARMACEUTICALS-7.62%
Pfizer Inc. 276,900 8,016,255
- -----------------------------------------------------------------------
Sanofi-Aventis S.A. (France)(b)(c) 164,452 12,065,161
- -----------------------------------------------------------------------
Wyeth 178,300 7,069,595
=======================================================================
27,151,011
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.22%
ACE Ltd. (Cayman Islands) 207,800 7,908,868
=======================================================================
SYSTEMS SOFTWARE-3.27%
Computer Associates International, Inc. 419,900 11,635,429
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.43%
Fannie Mae 174,300 12,227,145
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $308,322,173) 349,920,855
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-2.13%
Liquid Assets Portfolio-Institutional
Class(d) 3,790,466 $ 3,790,466
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 3,790,466 3,790,466
=======================================================================
Total Money Market Funds (Cost
$7,580,932) 7,580,932
=======================================================================
TOTAL INVESTMENTS-100.36% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $315,903,105) 357,501,787
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED MONEY MARKET
FUNDS-2.02%
STIC Prime Portfolio-Institutional
Class(d)(e) 7,196,450 7,196,450
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $7,196,450) 7,196,450
=======================================================================
TOTAL INVESTMENTS-102.38% (Cost $323,099,555) 364,698,237
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.38%) (8,492,777)
=======================================================================
NET ASSETS-100.00% $356,205,460
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at October 31, 2004 represented 3.31% of the
Fund's Total Investments. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$308,322,173)* $349,920,855
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $14,777,382) 14,777,382
===========================================================
Total investments (cost $323,099,555) 364,698,237
___________________________________________________________
===========================================================
Receivables for:
Fund shares sold 581,284
- -----------------------------------------------------------
Dividends 503,581
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 55,403
- -----------------------------------------------------------
Other assets 58,511
===========================================================
Total assets 365,897,016
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,403,301
- -----------------------------------------------------------
Fund shares reacquired 758,866
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 68,796
- -----------------------------------------------------------
Collateral upon return of securities loaned 7,196,450
- -----------------------------------------------------------
Accrued distribution fees 164,794
- -----------------------------------------------------------
Accrued trustees' fees 1,433
- -----------------------------------------------------------
Accrued transfer agent fees 58,660
- -----------------------------------------------------------
Accrued operating expenses 39,256
===========================================================
Total liabilities 9,691,556
===========================================================
Net assets applicable to shares outstanding $356,205,460
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $335,213,046
- -----------------------------------------------------------
Undistributed net investment income (loss) (57,053)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (20,549,215)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 41,598,682
===========================================================
$356,205,460
___________________________________________________________
===========================================================
NET ASSETS:
Class A $150,190,493
___________________________________________________________
===========================================================
Class B $ 84,895,719
___________________________________________________________
===========================================================
Class C $ 30,835,140
___________________________________________________________
===========================================================
Class R $ 990,992
___________________________________________________________
===========================================================
Investor Class $ 70,548,023
___________________________________________________________
===========================================================
Institutional Class $ 18,745,093
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 12,155,745
___________________________________________________________
===========================================================
Class B 7,064,497
___________________________________________________________
===========================================================
Class C 2,566,055
___________________________________________________________
===========================================================
Class R 80,535
___________________________________________________________
===========================================================
Investor Class 5,704,142
___________________________________________________________
===========================================================
Institutional Class 1,513,815
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.36
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.36 divided by
94.50%) $ 13.08
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.02
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.02
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 12.31
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 12.37
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 12.38
___________________________________________________________
===========================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $6,877,673
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $71,703) $ 4,901,739
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $17,393)* 154,542
=========================================================================
Total investment income 5,056,281
=========================================================================
EXPENSES:
Advisory fees 2,109,274
- -------------------------------------------------------------------------
Administrative services fees 125,883
- -------------------------------------------------------------------------
Custodian fees 43,391
- -------------------------------------------------------------------------
Distribution fees:
Class A 525,588
- -------------------------------------------------------------------------
Class B 893,755
- -------------------------------------------------------------------------
Class C 314,386
- -------------------------------------------------------------------------
Class R 3,976
- -------------------------------------------------------------------------
Investor Class 188,897
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R and Investor 868,093
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 3,536
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 18,698
- -------------------------------------------------------------------------
Other 327,822
=========================================================================
Total expenses 5,423,299
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (48,743)
=========================================================================
Net expenses 5,374,556
=========================================================================
Net investment income (loss) (318,275)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 12,491,108
- -------------------------------------------------------------------------
Foreign currencies 9,419
=========================================================================
12,500,527
=========================================================================
Change in net unrealized appreciation of investment
securities 13,417,119
=========================================================================
Net gain from investment securities and foreign currencies 25,917,646
=========================================================================
Net increase in net assets resulting from operations $25,599,371
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (318,275) $ (639,955)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 12,500,527 (9,793,824)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 13,417,119 51,420,584
==========================================================================================
Net increase in net assets resulting from operations 25,599,371 40,986,805
==========================================================================================
Share transactions-net:
Class A 18,535,871 5,382,960
- ------------------------------------------------------------------------------------------
Class B (1,304,921) 2,113,303
- ------------------------------------------------------------------------------------------
Class C 2,160,392 (14,173)
- ------------------------------------------------------------------------------------------
Class R 365,393 537,385
- ------------------------------------------------------------------------------------------
Investor Class 62,887,146 177,572
- ------------------------------------------------------------------------------------------
Institutional Class 18,632,135 --
==========================================================================================
Net increase in net assets resulting from share
transactions 101,276,016 8,197,047
==========================================================================================
Net increase in net assets 126,875,387 49,183,852
==========================================================================================
NET ASSETS:
Beginning of year 229,330,073 180,146,221
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(57,053) and $(25,218), respectively) $356,205,460 $229,330,073
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is long-term growth of capital with
a secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-6
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.60% of the first $1
billion of the Fund's average daily net assets, plus 0.575% over $1 billion up
to and including $2 billion of the Fund's average daily net assets and 0.55% of
the Fund's average daily net assets in excess of $2 billion. AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds on investments by the
Fund in such affiliated money market funds (excluding investments made in
affiliated money market funds with cash collateral from securities loaned by the
fund). Voluntary fee waivers or reimbursements may be modified or discontinued
at any time upon consultation with the Board of Trustees without further notice
to investors. For the year ended October 31, 2004, AIM waived fees of $2,312.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $41,164 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $125,883 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the
F-7
Institutional Class, the transfer agent has contractually agreed to reimburse
class specific transfer agent fees and expenses to the extent necessary to limit
transfer agent fees to 0.10% of the average net assets. For the year ended
October 31, 2004, the Fund paid AISI $868,093 for Class A, Class B, Class C,
Class R and Investor Class shares and $3,536 for Institutional Class. AISI may
make payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R, Investor Class and Institutional Class
shares of the Fund. Institutional Class shares commenced sales on April 30,
2004. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C, Class R and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.35% of the Fund's average
daily net assets of Class A shares, 1.00% of the average daily net assets of
Class B and Class C shares, 0.50% of the average daily net assets of Class R
shares and 0.25% of the average daily net assets of the Investor Class shares.
Of these amounts, up to 0.25% of the average daily net assets of the Class A,
Class B, Class C or Class R shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended October 31, 2004,
the Class A, Class B, Class C, Class R and Investor Class shares paid $525,588,
$893,755, $314,386, $3,976, $188,897, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$78,339 in front-end sales commissions from the sale of Class A shares and
$1,584, $11,543, $4,072 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,921,637 $ 39,445,160 $ (37,576,331) $ -- $ 3,790,466 $ 69,486 $ --
- ------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,921,637 39,445,160 (37,576,331) -- 3,790,466 67,663 --
==============================================================================================================================
Subtotal $3,843,274 $ 78,890,320 $ (75,152,662) $ -- $ 7,580,932 $137,149 $ --
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $3,248,000 $ 74,751,501 $ (77,999,501) $ -- $ -- $ 13,457 $ --
- ------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 26,802,341 (19,605,891) -- 7,196,450 3,936 --
==============================================================================================================================
Subtotal $3,248,000 $101,553,842 $ (97,605,392) $ -- $ 7,196,450 $ 17,393 $ --
==============================================================================================================================
Total $7,091,274 $180,444,162 $(172,758,054) $ -- $14,777,382 $154,542 $ --
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
F-8
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $2,159,448 and $4,625,830,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$5,264 and credits in custodian fees of $3 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $5,267.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $5,344
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
F-9
At October 31, 2004, securities with an aggregate value of $6,877,673 were
on loan to brokers. The loans were secured by cash collateral of $7,196,450,
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $17,393 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and October 31, 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 39,701,181
- --------------------------------------------------------------------------
Temporary book/tax differences (57,053)
- --------------------------------------------------------------------------
Capital loss carryforward (18,651,714)
- --------------------------------------------------------------------------
Shares of beneficial interest 335,213,046
==========================================================================
Total net assets $356,205,460
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $18,651,714 of capital loss carryforward in the fiscal
year ended October 31, 2005.
The Fund utilized $12,094,867 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2010 $ 9,120,472
- -----------------------------------------------------------------------------
October 31, 2011 9,531,242
=============================================================================
Total capital loss carryforward $18,651,714
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Value Equity Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--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, 2004 was $108,851,727 and $96,576,124, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 55,037,043
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (15,335,862)
==============================================================================
Net unrealized appreciation of investment securities $ 39,701,181
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $324,997,056.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on October 31, 2004, undistributed net
investment income (loss) was increased by $318,190, undistributed net realized
gain (loss) was decreased by $9,419 and shares of beneficial interest decreased
by $308,771. Further, as a result of tax deferrals acquired in the
reorganization of INVESCO Value Equity Fund into the Fund, undistributed net
F-10
investment income (loss) was decreased by $31,750, undistributed net realized
gain (loss) was decreased by $6,270,695, and shares of beneficial interest
increased by $6,302,445. This reclassification had no effect on the net assets
of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,797,896 $ 59,721,792 5,695,229 $ 56,588,456
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,918,978 23,316,127 2,611,379 25,467,901
- ----------------------------------------------------------------------------------------------------------------------
Class C 753,705 9,128,932 936,198 9,069,047
- ----------------------------------------------------------------------------------------------------------------------
Class R 54,757 677,970 59,714 632,113
- ----------------------------------------------------------------------------------------------------------------------
Investor Class(b) 1,838,069 22,849,380 30,507 346,714
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(c) 1,526,455 18,788,116 -- --
======================================================================================================================
Issued in connection with acquisitions:(d)
Class A 23,582 268,604 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B 31,404 350,200 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class C 100,704 1,122,781 -- --
- ----------------------------------------------------------------------------------------------------------------------
Investor Class(b) 7,662,600 87,273,020 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 467,293 5,834,860 315,247 3,158,288
- ----------------------------------------------------------------------------------------------------------------------
Class B (478,951) (5,834,860) (321,047) (3,158,288)
======================================================================================================================
Reacquired:
Class A (3,841,386) (47,289,385) (5,558,986) (54,363,784)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,581,802) (19,136,388) (2,170,734) (20,196,310)
- ----------------------------------------------------------------------------------------------------------------------
Class C (671,051) (8,091,321) (955,066) (9,083,220)
- ----------------------------------------------------------------------------------------------------------------------
Class R (25,935) (312,577) (8,863) (94,728)
- ----------------------------------------------------------------------------------------------------------------------
Investor Class(b) (3,812,184) (47,235,254) (14,850) (169,142)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(c) (12,640) (155,981) -- --
======================================================================================================================
8,751,494 $101,276,016 618,728 $ 8,197,047
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 13% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder are also
owned beneficially. 5% of the outstanding shares of the Fund are owned by
affiliated mutual funds. Affiliated mutual funds are mutual funds that are
advised by AIM.
(b) Investor Class shares commenced sales on September 30, 2003.
(c) Institutional Class shares commenced sales on April 30, 2004.
(d) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Value Equity Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Value Equity Fund shareholders on October 21, 2003. The acquisition
was accomplished by a tax-free exchange of 7,818,290 shares of the Fund for
4,958,149 shares of INVESCO Value Equity Fund outstanding as of the close of
business on October 31, 2003. INVESCO Value Equity Fund's net assets at that
date of $89,014,605 including $14,973,392 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $229,149,218.
F-11
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.39 $ 9.20 $ 10.94 $ 12.05 $ 9.40
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.00)(a) 0.01(a) 0.02(a) 0.07(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 2.19 (1.75) (1.07) 2.88
============================================================================================================================
Total from investment operations 0.97 2.19 (1.74) (1.05) 2.95
============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.04) (0.18)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) (0.12)
============================================================================================================================
Total distributions -- -- -- (0.06) (0.30)
============================================================================================================================
Net asset value, end of period $ 12.36 $ 11.39 $ 9.20 $ 10.94 $12.05
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 8.52% 23.80% (15.90)% (8.74)% 32.21%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $150,190 $121,980 $94,387 $68,676 $5,888
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.33%(c) 1.42% 1.38% 1.27% 1.25%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.35%(c) 1.42% 1.38% 1.36% 8.21%
============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.11%(c) (0.01)% 0.11% 0.17% 0.62%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 32% 41% 37% 18% 57%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $150,168,025.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------
AUGUST 1, 2000
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.15 $ 9.07 $ 10.86 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.94 2.15 (1.73) (1.05) 1.17
=================================================================================================================================
Total from investment operations 0.87 2.08 (1.79) (1.11) 1.17
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- -- (0.05) --
=================================================================================================================================
Net asset value, end of period $ 12.02 $ 11.15 $ 9.07 $ 10.86 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.80% 22.93% (16.48)% (9.25)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $84,896 $80,018 $63,977 $58,681 $2,815
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.98%(c) 2.07% 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.00%(c) 2.07% 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.54)%(c) (0.66)% (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 32% 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $89,375,514.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------
AUGUST 1, 2000
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.15 $ 9.07 $ 10.85 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.94 2.15 (1.72) (1.06) 1.17
=================================================================================================================================
Total from investment operations 0.87 2.08 (1.78) (1.12) 1.17
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- -- (0.05) --
=================================================================================================================================
Net asset value, end of period $ 12.02 $ 11.15 $ 9.07 $ 10.85 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.80% 22.93% (16.41)% (9.33)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,835 $26,566 $21,775 $20,680 $1,248
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.98%(c) 2.07% 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.00%(c) 2.07% 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.54)%(c) (0.66)% (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 32% 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $31,438,601.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.36 $9.20 $ 11.60
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.02)(a) (0.00)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 2.18 (2.40)
==============================================================================================================
Total from investment operations 0.95 2.16 (2.40)
==============================================================================================================
Net asset value, end of period $12.31 $11.36 $ 9.20
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 8.36% 23.48% (20.69)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 991 $ 588 $ 8
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets: 1.48%(c)(d) 1.57% 1.54%(e)
==============================================================================================================
Ratio of net investment income (loss) to average net assets (0.04)%(c) (0.16)% (0.05)%(e)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate(f) 32% 41% 37%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $795,090.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.50% for the year ended October 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INVESTOR CLASS
-----------------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2004 2003
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.39 $10.98
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.00)(a)
- -------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.95 0.41
=======================================================================================================
Total from investment operations 0.98 0.41
=======================================================================================================
Net asset value, end of period $ 12.37 $11.39
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 8.60% 3.73%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,548 $ 178
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets: 1.24%(c)(d) 1.25%(e)
=======================================================================================================
Ratio of net investment income to average net assets 0.20%(c) 0.16%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 32% 41%
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $75,558,943.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.25% for the year ended October 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.62
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a)
- -----------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.28)
===================================================================================
Total from investment operations (0.24)
===================================================================================
Net asset value, end of period $ 12.38
___________________________________________________________________________________
===================================================================================
Total return(b) (1.90)%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,745
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets: 0.80%(c)(d)
===================================================================================
Ratio of net investment income to average net assets 0.64%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(e) 32%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$8,327,922.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.81% for the year ended October 31, 2004.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
F-17
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
LARGE CAP BASIC VALUE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Large Cap Basic Value Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Basic Value Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
period ended October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Basic Value Fund as of October 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
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 and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), 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, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); 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), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (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.;
President and Chief Executive Officer, 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
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired 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 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California)
Trustee
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations, Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management Group Inc.
Senior Vice President and Chief (financial services holding company); Senior Vice President
Compliance Officer and Chief Compliance Officer, A I M Advisors, Inc.; Vice
President and Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors, Inc.; and Vice
President, AIM Investment Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and Compliance Director,
Delaware Investments Family of Funds
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Director and Vice
Officer President, INVESCO Distributors, Inc.; Vice President, A I M
Capital Management, Inc., and AIM Investment Services, Inc.;
Director, Vice President and General Counsel, Fund
Management Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; Senior Vice President and General
Counsel, Liberty Funds Group, LLC and Vice President, A I M
Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money Market Research and
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.
Vice President and Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing Director and Chief
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M Management Group, Inc.;
Vice President Senior Vice President, A I M Advisors, Inc., and President,
Director of Investments, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
Formerly: Director of A I M Advisors, Inc. and A I M
Management Group Inc., A I M Advisors, Inc.; and Director
and Chairman, A I M Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.
- -------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 N/A
Senior Vice President and Chief
Compliance Officer
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President,
Secretary and Chief Legal
Officer
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
Houston, TX Houston, TX
77046-1173 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1)
AIM Opportunities I Fund AIM Health Sciences Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Leisure Fund(1)
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1) AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) ===============================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Trimark Endeavor Fund FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Small Companies Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund ===============================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com LCBV-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM LARGE CAP GROWTH FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM LARGE CAP GROWTH FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The fund may invest a portion of its OTHER INFORMATION
assets in synthetic instruments, such as
o Effective 9/30/03, Class B shares are warrants, futures, options, exchange o The Conference Board is a
not available as an investment for traded funds and American Depositary not-for-profit organization that
retirement plans maintained pursuant to Receipts, the value of which may not conducts research and publishes
Section 401 of the Internal Revenue correlate perfectly with the overall information and analysis to help
Code, including 401(k) plans, money securities market. Risks associated with businesses strengthen their performance.
purchase pension plans and profit synthetic instruments may include
sharing plans. Plans that have existing counter party risk and sensitivity to o The returns shown in the Management's
accounts invested in Class B shares will interest rate changes and market price Discussion of Fund Performance are based
continue to be allowed to make fluctuations. See the prospectus for on net asset values calculated for
additional purchases. more details. shareholder transactions. Generally
accepted accounting principles require
o Investor Class shares are closed to ABOUT INDEXES USED IN THIS REPORT adjustments to be made to the net assets
most investors. For more information on of the fund at period end for financial
who may continue to invest in the o The unmanaged Standard & Poor's reporting purposes, and as such, the net
Investor Class shares, please see the Composite Index of 500 Stocks (the S&P asset values for shareholder
prospectus. 500--Registered Trademark-- Index) is transactions and the returns based on
an index of common stocks frequently those net asset values may differ from
o Class R shares are available only to used as a general measure of U.S. stock the net asset values and returns
certain retirement plans. Please see the market performance. reported in the Financial Highlights.
prospectus for more information.
o The unmanaged MSCI World Index is a o Industry classifications used in this
PRINCIPAL RISKS OF INVESTING IN THE FUND group of global securities tracked by report are generally according to the
Morgan Stanley Capital International. Global Industry Classification Standard,
o International investing presents which was developed by and is the
certain risks not associated with o The unmanaged Russell 1000 exclusive property and a service mark of
investing solely in the United States. --Registered Trademark-- Growth Index is Morgan Stanley Capital International
These include risks relating to a subset of the unmanaged Russell 1000 Inc. and Standard & Poor's.
fluctuations in the value of the U.S. --Registered Trademark-- Index, which
dollar relative to the values of other represents the performance of the stocks The fund files its complete schedule of
currencies, the custody arrangements of large-capitalization companies; the portfolio holdings with the Securities
made for the fund's foreign holdings, Growth subset measures the performance and Exchange Commission ("SEC") for the
differences in accounting, political of Russell 1000 companies with higher 1st and 3rd quarters of each fiscal year
risks and the lesser degree of public price/book ratios and higher forecasted on Form N-Q. The fund's Form N-Q filings
information required to be provided by growth values. are available on the SEC's Web site at
non-U.S. companies. The fund may invest http://www.sec.gov. Copies of the fund's
up to 25% of its assets in the o The unmanaged Lipper Large-Cap Growth Forms N-Q may be reviewed and copied at
securities of non-U.S. issuers. Fund Index represents an average of the the SEC's Public Reference Room at 450
performance of the 30 largest Fifth Street, N.W., Washington, D.C.
o A significant portion of the fund's large-capitalization growth funds tracked 20549-0102. You can obtain information
returns during certain periods was by Lipper, Inc, an independent mutual on the operation of the Public Reference
attributable to its investments in fund performance monitor. Room, including information about
initial public offerings (IPOs). These duplicating fee charges, by calling
investments had a magnified impact when o The fund is not managed to track the 1-202-942-8090 or by electronic request
the fund's asset base was relatively performance of any particular index, at the following e-mail address:
small. As the fund's assets grow, the including the indexes defined here, and publicinfo@sec.gov. The SEC file numbers
impact of IPO investments will decline, consequently, the performance of the for the fund are 811-1424 and 2-25469.
which may reduce the effect of IPO fund may deviate significantly from the The fund's most recent portfolio
investments on the fund's total return. performance of the indexes. holdings, as filed on Form N-Q, are also
For additional information regarding the available at AIMinvestments.com.
impact of IPO investments on the fund's o A direct investment cannot be made in
performance, please see the fund's an index. Unless otherwise indicated, A description of the policies and
prospectus. index results include reinvested procedures that the fund uses to
dividends, and they do not reflect sales determine how to vote proxies relating
charges. Performance of an index of to portfolio securities is available
funds reflects fund expenses; without charge, upon request, from our
performance of a market index does not. Client Services department at
800-959-4246 or on the AIM Web site,
AIMinvestments.com. On the home page,
scroll down and click on AIM Funds Proxy
Policy. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
Information regarding how the fund voted
proxies related to its portfolio
securities during the 12 months ended
6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About
Us tab, click on Required Notices and
then click on Proxy Voting Activity.
Next, select your fund from the drop-down
menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=======================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=======================================================
AIMinvestments.com
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the new Chairman of the
[PHOTO OF Board of Trustees of the AIM Funds. Bob Graham has served as Chairman of the
ROBERT H. Board of Trustees of the AIM Funds ever since Ted Bauer retired from that
GRAHAM] position in 2000. However, as you may be aware, the U.S. Securities and Exchange
Commission recently adopted a rule requiring that an independent fund trustee,
ROBERT H. GRAHAM meaning a trustee who is not an officer of the fund's investment advisor, serve
as chairman of the funds' Board. In addition, a similar provision was included
in the terms of AIM Advisors' recent settlements with certain regulators.
[PHOTO OF Accordingly, the AIM Funds' Board recently elected Mr. Crockett, one of the
MARK H. fourteen independent trustees on the AIM Funds' Board, as Chairman. His
WILLIAMSON] appointment became effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief Executive Officer of
MARK H. WILLIAMSON AIM. Mr. Graham will also remain Chairman of AIM Investments--Registered
Trademark--.
[PHOTO OF Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
BRUCE L. acquired certain funds that had been advised by CIGNA. He had been a member of
CROCKETT] the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
BRUCE L. CROCKETT Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc. A I M
Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors,
and A I M Distributors, Inc. is the distributor for the retail funds represented
by AIM Investments.
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND SEEKS TO CAPTURE GROWTH AND AVOID returned 2.63%. We believe that the fund robust, but non-residential activity
HIGH-RISK STOCKS outperformed its peer group index remained relatively weak.
because of our strong stock selection in
For the fiscal year ended October 31, the health care, consumer discretionary This generally positive economic news
2004, AIM Large Cap Growth Fund's Class and information technology sectors. was offset somewhat by geopolitical
A shares returned 3.15% at net asset uncertainty and terrorism concerns, as
value (NAV). PERFORMANCE SHOWN AT NAV MARKET CONDITIONS well as soaring oil prices. In
DOES NOT INCLUDE FRONT-END SALES mid-October, Fed Chairman Alan Greenspan
CHARGES, WHICH WOULD HAVE REDUCED THE The U.S. economy showed signs of said that "so far this year, the rise in
PERFORMANCE. The results for the other strength during the fiscal year ended the value of imported oil--essentially a
share classes of the fund and its October 31, 2004. Economic news was tax on U.S. residents--has amounted to
comparison indexes are shown in the generally positive, and it included about 3/4 [of one] percent of GDP." The
table on page 3. expansion of gross domestic product Conference Board reported that consumer
(GDP), the broadest measure of overall sentiment hit a two-year high in July
We believe that the fund economic activity. While positive, GDP before declining in August, September
underperformed the S&P 500 Index, which growth tapered off somewhat from an and October. The Conference Board also
returned 9.41%, because of the presence annualized rate of 7.4% in the third reported that its index of leading
in that index of both growth and value quarter of 2003 to a more modest 3.9% in economic indicators declined in
stocks. Value stocks outperformed growth the third quarter of 2004. September, its fourth consecutive
stocks for the fiscal year. Beginning in monthly decline.
2004, stocks in the energy, materials Generally positive economic
and telecommunications services sectors, developments prompted the U.S. Federal YOUR FUND
which typically are not considered Reserve (the Fed) to raise its federal
growth sectors, performed the best. funds target rate from a decades-low Our fund's strategy is to employ
Given the fund's long-term growth 1.00%, where it stood at the beginning rigorous quantitative and fundamental
strategy, a rather small percentage of of the fiscal year, to 1.75% by the analysis to identify companies with
the portfolio was invested in stocks in fiscal year's close. In its anecdotal above-average, accelerating growth
those sectors. On the other hand, report on the economy released in late potential. The fund is constructed based
technology and health care--our classic October, the Fed said economic activity on a stock-by-stock selection process.
growth sectors--were the continued to expand in September and We believe it is only through in-depth
worst-performing sectors in the S&P 500 early October. The Fed said that higher fundamental research, which includes
Index. energy costs were constraining consumer intensively analyzing financial
and business spending; that capital statements and meeting with company
Nonetheless, despite the difficult spending and hiring were rising management teams, that these
environment for growth funds, the fund's modestly; and that residential real opportunities can be found. Our
performance was in line with that of its estate activity remained objective is to generate attractive
style-specific benchmark index, the equity returns over a long-term
Russell 1000 Growth Index, which investment horizon by focusing on
returned 3.38%. The fund outperformed market-leading companies that show
the Lipper Large-Cap Growth Fund Index, sustainable, above-average earnings
which growth and by avoiding high-risk stocks.
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. Johnson & Johnson 3.9% 1. Systems Software 6.8%
[PIE CHART]
2. Symantec Corp. 3.0 2. Personal Products 6.2
Industrials 16.1%
3. Gillette Co. (The) 3.0 3. Communications Equipment 5.0
Information Technology 21.4%
4. Procter & Gamble Co. (The) 2.6 4. Restaurants 5.0
Materials 0.6%
5. Staples, Inc. 2.5 5. Health Care Equipment 3.9
Money Market Funds Plus Other
Assets Less Liabilities 4.1% 6. Costco Wholesale Corp. 2.3 6. Aerospace & Defense 3.9
Consumer Discretionary 22.0% 7. Harman International 7. Pharmaceuticals 3.9
Industries, Inc. 2.3
Consumer Staples 12.9% 8. Industrial Conglomerates 3.4
8. Dell Inc. 2.3
Energy 3.3% 9. Integrated Oil & Gas 3.3
9. QUALCOMM Inc. 2.2
Financials 5.4% 10. Industrial Machinery 2.8
10. Yahoo! Inc. 2.2
Health Care 14.2%
*Excluding 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>
====================================================================================================================================
The fund's holdings in the health period. Despite the slowdown for other The views and opinions expressed in
care and consumer discretionary sectors information technology products, Management's Discussion of Fund
were the largest contributors to fund corporate expenditures on system Performance are those of A I M Advisors,
performance for the period. Our stock security software have increased. At the Inc. These views and opinions are
selection enabled the fund's holdings in close of the fiscal year, we remained subject to change at any time based on
the health care sector to capture a confident in the prospects for growth factors such as market and economic
higher overall return than the health for both Symantec and Harman. conditions. These views and opinions may
care stocks in both the Russell 1000 not be relied upon as investment advice
Growth and the S&P 500 indexes. One of Nextel and Coca-Cola Enterprises were or recommendations, or as an offer for a
the long-time top holdings in the fund, among stocks that detracted from fund particular security. The information is
UnitedHealth Group, was a strong performance. The fund's only holding in not a complete analysis of every aspect
contributor. We originally had chosen telecommunication services was Nextel, of any market, country, industry,
this stock as a result of our in-depth which is no longer in the portfolio. security or the fund. Statements of fact
research, which convinced us of the When companies released second-quarter are from sources considered reliable,
company's strong business model, earning reports in July 2004, technology but A I M Advisors, Inc. makes no
effective management team and stocks, in both the information representation or warranty as to their
above-average long-term growth technology and the telecommunication completeness or accuracy. Although
prospects. services sectors, led a market decline. historical performance is no guarantee
This decline was spurred by, at least in of future results, these insights may
Our strategy also includes a rigorous some analysts' estimations, excessively help you understand our investment
sell discipline to avoid high-risk high expectations. management philosophy.
stocks. Early in the calendar year, as a
result of our stock selection and Coca-Cola Enterprises is the bottler See important fund and index
disciplined sell strategies, we trimmed for Coke. In September 2004, it was disclosures inside front cover.
the fund's weighting in technology among a host of companies that warned
stocks. During the period, our analysis that they might not meet their earnings GEOFFREY V. KEELING
led us to position the fund for what we expectations for the quarter. In its Mr. Keeling,
believe is the middle stage of an warning, Coca-Cola Enterprises cited a [KEELING Chartered Financial
economic expansion. We added holdings in difficult pricing environment and weak PHOTO] Analyst, is
consumer staples, health care and volumes. The fund no longer owns shares co-manager of AIM
industrials, as several stocks met our in this company. Large Cap Growth
selection criteria in those sectors. Fund. He joined AIM in 1995 and assumed
IN CLOSING his present responsibilities in 1999.
Two stocks that benefited fund Mr. Keeling received a B.B.A in finance
performance were Harman International Throughout the fiscal year, we upheld from the University of Texas at Austin.
and Symantec. Harman makes high-end the strategy of the fund by investing in
audio systems for cars, and it has a companies we believed most likely to
strong market presence in Europe. The meet or exceed earnings expectations and ROBERT L. SHOSS
company recently made headway in the by structuring our research efforts to [SHOSS Mr. Shoss is co-manager
U.S. market and moved into the lucrative avoid high-risk companies. PHOTO] of AIM Large Cap
in-car entertainment system market. Growth Fund. He
joined AIM in 1995
Symantec, an Internet security firm, and assumed his
has exceeded earnings estimates present responsibilities in 1999. Mr.
throughout the Shoss received a B.A. from the
University of Texas at Austin and an
M.B.A. and a J.D. from the University of
Houston.
Assisted by the Large Cap Growth Team.
====================================================================================================================================
FUND VS. INDEXES TOTAL NET ASSETS $740.7 MILLION
TOTAL RETURNS 10/31/03-10/31/04, EXCLUDING APPLICABLE SALES CHARGES. IF SALES TOTAL NUMBER OF HOLDINGS* 73
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 3.15%
Class B Shares 2.56
Class C Shares 2.44
Class R Shares 2.93
Investor Class Shares 3.60
S&P 500 Index (Broad Market Index) 9.41
Russell 1000 Growth Index (Style-specific Index) 3.38
Lipper Large-Cap Growth Fund Index (Peer Group Index) 2.63
Source: Lipper, Inc.
================================================================================ [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG
TERM PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
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3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, use this information to compare the
to estimate the expenses that you paid ongoing costs of investing in the fund
As a shareholder of the fund, you incur over the period. Simply divide your and other funds. To do so, compare this
two types of costs: (1) transaction account value by $1,000 (for example, an 5% hypothetical example with the 5%
costs, which may include sales charges $8,600 account value divided by $1,000 = hypothetical examples that appear in the
(loads) on purchase payments; contingent 8.6), then multiply the result by the shareholder reports of the other funds.
deferred sales charges on redemptions; number in the table under the heading
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During Please note that the expenses shown in
ongoing costs, including management Period" to estimate the expenses you the table are meant to highlight your
fees; distribution and/or service fees paid on your account during this period. ongoing costs only and do not reflect
(12b-1); and other fund expenses. This any transactional costs, such as sales
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES charges (loads) on purchase payments,
understand your ongoing costs (in contingent deferred sales charges on
dollars) of investing in the fund and to The table below also provides redemptions, and redemption fees, if
compare these costs with ongoing costs information about hypothetical account any. Therefore, the hypothetical
of investing in other mutual funds. The values and hypothetical expenses based information is useful in comparing
example is based on an investment of on the fund's actual expense ratio and ongoing costs only, and will not help
$1,000 invested at the beginning of the an assumed rate of return of 5% per year you determine the relative total costs
period and held for the entire period, before expenses, which is not the fund's of owning different funds. In addition,
May 1, 2004 - October 31, 2004. actual return. The hypothetical account if these transactional costs were
values and expenses may not be used to included, your costs would have been
ACTUAL EXPENSES estimate the actual ending account higher.
balance or expenses you paid for the
The table below provides information period. You may
about actual account values and actual
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,003.30 $ 7.55 $1,017.60 $ 7.61
Class B 1,000.00 1,000.00 10.81 1,014.33 10.89
Class C 1,000.00 998.90 10.80 1,014.33 10.89
Class R 1,000.00 1,002.20 8.30 1,016.84 8.36
Investor Class 1,000.00 1,004.40 6.70 1,018.45 6.75
(1)The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 0.33%, 0.00%, -0.11%, 0.22% and 0.44% for Class A, B, C, R and Investor Class shares, respectively.
(2)Expenses are equal to the fund's annualized expense ratio (1.50%, 2.15%, 2.15%, 1.65% and 1.33% for Class A, B, C, R and Investor
Class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half
year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 3/1/99 (inception of Class A shares)-10/31/04 (Index results from 2/28/99.)
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results AIM Large Cap Lipper Large-Cap
include reinvested dividends. Growth Fund Growth Fund Russell 1000 S&P 500
Performance of an index of funds Date Class A Shares Index Growth Index Index
reflects fund expenses and management 3/1/1999 $ 9450 $10000 $10000 $10000
fees; performance of a market index does 4/99 9935 10605 10540 10803
not. Performance shown in the chart does 7/99 10098 10622 10584 10786
not reflect deduction of taxes a 10/99 10745 11323 11327 11099
shareholder would pay on fund 1/00 13313 12672 12561 11388
distributions or sale of fund shares. 4/00 15808 13170 13447 11896
Performance of the indexes does not 7/00 16911 12965 13165 11753
reflect the effects of taxes. 10/00 16883 12324 12384 11773
1/01 13770 10912 10930 11285
In evaluating this chart, please note 4/01 10497 9152 9110 10354
that the chart uses a logarithmic scale 7/01 9582 8505 8549 10069
along the vertical axis (the value 10/01 8393 7361 7437 8843
scale). This means that each scale 1/02 9021 7890 7992 9465
increment always represents the same 4/02 8365 7344 7279 9047
percent change in price; in a linear 7/02 7147 6125 6091 7691
chart each scale increment always 10/02 7014 5990 5978 7508
represents the same absolute change in 1/03 6586 5670 5725 7287
price. In this example, the scale 4/03 7129 6132 6234 7844
increment between $5,000 and $10,000 is 7/03 7748 6674 6800 8510
the same as that between $10,000 and 10/03 8452 7099 7282 9069
$20,000. In a linear chart, the latter 1/04 8852 7509 7768 9804
scale increment would be twice as large. 4/04 8690 7290 7583 9637
The benefit of using a logarithmic scale 7/04 8577 7083 7379 9630
is that it better illustrates 10/04 $ 8715 $ 7285 $ 7528 $ 9922
performance during the fund's early Source: Lipper, Inc.
years before reinvested distributions
and compounding create the potential for Inception -1.34% Investor Class shares' inception date
the original investment to grow to very 5 Years -4.01 is 9/30/03. Returns since that date are
large numbers. Had the chart used a 1 Year 3.60 historical returns. All other returns
linear scale along its vertical axis, are blended returns of historical
you would not be able to see as clearly In addition to returns as of the close Investor Class share performance and
the movements in the value of the fund of the fiscal year, industry regulations restated Class A share performance (for
and the indexes during the fund's early require us to provide average annual periods prior to the inception date of
years. We use a logarithmic scale in total returns as of 9/30/04, the most Investor Class shares) at net asset
financial reports of funds that have recent calendar quarter-end. value and reflect the higher Rule 12b-1
more than five years of performance fees applicable to Class A shares. Class
history. AVERAGE ANNUAL TOTAL RETURNS A shares' inception date is 3/1/99.
As of 9/30/04, including applicable
AVERAGE ANNUAL TOTAL RETURNS sales charges The performance data quoted represent
As of 10/31/04, including applicable past performance and cannot guarantee
sales charges CLASS A SHARES comparable future results; current
Inception (3/1/99) -2.39% performance may be lower or higher.
CLASS A SHARES 5 Years -3.95 Please visit AIMinvestments.com for the
Inception (3/1/99) -2.40% 1 Year 5.28 most recent month-end performance.
5 Years -5.18 Performance figures reflect reinvested
1 Year -2.55 CLASS B SHARES distributions, changes in net asset
Inception (4/5/99) -4.09% value and the effect of the maximum
CLASS B SHARES 5 Years -3.88 sales charge unless otherwise stated.
Inception (4/5/99) -4.07% 1 Year 5.76 Investment return and principal value
5 Years -5.11 will fluctuate so that you may have a
1 Year -2.44 CLASS C SHARES gain or loss when you sell shares.
Inception (4/5/99) -3.90%
CLASS C SHARES 5 Years -3.49 Class A share performance reflects the
Inception (4/5/99) -3.90% 1 Year 9.75 maximum 5.50% sales charge, and Class B
5 Years -4.75 and Class C share performance reflects
1 Year 1.44 CLASS R SHARES the applicable contingent deferred sales
Inception -1.52% charge (CDSC) for the period involved.
Class R Shares 5 Years -2.97 The CDSC on Class B shares declines from
Inception -1.56% 1 Year 11.30 5% beginning at the time of purchase to
5 Years -4.23 0% at the beginning of the seventh year.
1 Year 2.93 INVESTOR CLASS SHARES The CDSC on Class C shares is 1% for the
Inception -1.32% first year after purchase. Class R
INVESTOR CLASS SHARES 5 Years -2.77 shares do not have a front-end sales
1 Year 11.89 charge; returns shown are at net asset
value and do not reflect a 0.75% CDSC
Class R shares' inception date is that may be imposed on a total
6/3/02. Returns since that date are redemption of retirement plan assets
historical returns. All other returns within the first year. Investor Class
are blended returns of historical Class shares do not have a front-end sales
R share performance and restated Class A charge or a CDSC; therefore, performance
share performance (for periods prior to is at net asset value.
the inception date of Class R shares) at
net asset value, adjusted to reflect the The performance of the fund's share
higher Rule 12b-1 fees applicable to classes will differ due to different
Class R shares. Class A shares' sales charge structures and class
inception date is 3/1/99. expenses.
====================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM LARGE CAP GROWTH FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Institutional Class shares have no sales
AVERAGE ANNUAL TOTAL RETURNS charge; therefore, performance is at net
The following information has been For periods ended 10/31/04 asset value. Performance of Institutional
prepared to provide Institutional Class Inception -1.38% Class shares will differ from performance
shareholders with a performance overview 5 Years -4.05 of other share classes due to differing
specific to their holdings. Institutional 1 Year 3.38 sales charges and class expenses.
Class shares are offered exclusively to
institutional investors, including ========================================= Please note that past performance is
defined contribution plans that meet AVERAGE ANNUAL TOTAL RETURNS not indicative of future results. More
certain criteria. For periods ended 9/30/04 recent returns may be more or less than
Inception -1.36% those shown. All returns assume
5 Years -2.81 reinvestment of distributions at net
1 Year 11.65 asset value. Investment return and
principal value will fluctuate so your
========================================= shares, when redeemed, may be worth more
or less than their original cost. See
Institutional Class shares' inception full report for information on
date is 4/30/04. Returns since that date comparative benchmarks. Please consult
are historical returns. All other returns your fund prospectus for more
are blended returns of historical information. For the most current
Institutional Class share performance and month-end performance, please call
restated Class A share performance (for 800-451-4246 or visit AIMinvestments.com.
periods prior to the inception date of
Institutional Class shares) at net asset
value and reflect the higher Rule 12b-1
fees applicable to Class A shares. Class
A shares' inception date is 3/1/99.
Institutional Class shares would have had
different returns due to differences in
the expense structure of the
Institutional Class.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com LCG-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account value use this information to compare the
by $1,000 (for example, an $8,600 account ongoing costs of investing in the fund
As a shareholder of the fund, you incur value divided by $1,000 = 8.6), then and other funds. To do so, compare this
ongoing costs, including management fees; multiply the result by the number in the 5% hypothetical example with the 5%
and other fund expenses. This example is table under the heading entitled "Actual hypothetical examples that appear in the
intended to help you understand your Expenses Paid During Period" to estimate shareholder reports of the other funds.
ongoing costs (in dollars) of investing the expenses you paid on your account
in the fund and to compare these costs during this period. Please note that the expenses shown in
with ongoing costs of investing in other the table are meant to highlight your
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR ongoing costs only. Therefore, the
investment of $1,000 invested at the COMPARISON PURPOSES hypothetical information is useful in
beginning of the period and held for the comparing ongoing costs only, and will
entire period, May 1, 2004, to October The table below also provides information not help you determine the relative total
31, 2004. about hypothetical account values and costs of owning different funds.
hypothetical expenses based on the fund's
ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
The table below provides information which is not the fund's actual return.
about actual account values and actual The hypothetical account values and
expenses. You may use the information in expenses may not be used to estimate the
this table, together with the amount you actual ending account balance or expenses
invested, to estimate the expenses that you paid for the period. You may
you paid over the
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,005.50 $4.64 $1,020.51 $4.67
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 0.55% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 0.92% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com LCG-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.91%
AEROSPACE & DEFENSE-3.89%
Boeing Co. (The) 127,000 $ 6,337,300
- ------------------------------------------------------------------------
General Dynamics Corp. 75,000 7,659,000
- ------------------------------------------------------------------------
Northrop Grumman Corp. 90,000 4,657,500
- ------------------------------------------------------------------------
Rockwell Collins, Inc. 140,000 4,965,800
- ------------------------------------------------------------------------
United Technologies Corp. 56,200 5,216,484
========================================================================
28,836,084
========================================================================
AIR FREIGHT & LOGISTICS-0.68%
FedEx Corp. 55,000 5,011,600
========================================================================
APPAREL RETAIL-1.13%
Limited Brands 337,000 8,350,860
========================================================================
APPLICATION SOFTWARE-0.94%
Autodesk, Inc. 132,000 6,963,000
========================================================================
BIOTECHNOLOGY-0.61%
Genentech, Inc.(a) 99,000 4,507,470
========================================================================
BUILDING PRODUCTS-2.14%
American Standard Cos. Inc.(a) 175,000 6,399,750
- ------------------------------------------------------------------------
Masco Corp. 275,000 9,421,500
========================================================================
15,821,250
========================================================================
COMMUNICATIONS EQUIPMENT-4.98%
Cisco Systems, Inc.(a) 696,440 13,378,612
- ------------------------------------------------------------------------
Motorola, Inc. 417,000 7,197,420
- ------------------------------------------------------------------------
QUALCOMM Inc. 390,000 16,305,900
========================================================================
36,881,932
========================================================================
COMPUTER HARDWARE-2.26%
Dell Inc.(a) 476,600 16,709,596
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.61%
Lexmark International, Inc.-Class A(a) 54,000 4,487,940
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.65%
PACCAR Inc. 70,000 4,851,700
========================================================================
CONSUMER ELECTRONICS-2.29%
Harman International Industries, Inc. 141,000 16,945,380
========================================================================
CONSUMER FINANCE-2.21%
American Express Co. 89,300 4,739,151
- ------------------------------------------------------------------------
MBNA Corp. 190,000 4,869,700
- ------------------------------------------------------------------------
SLM Corp. 150,000 6,789,000
========================================================================
16,397,851
========================================================================
DEPARTMENT STORES-1.82%
J.C. Penney Co., Inc. 158,000 5,465,220
- ------------------------------------------------------------------------
Nordstrom, Inc. 186,000 8,031,480
========================================================================
13,496,700
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
DIVERSIFIED COMMERCIAL SERVICES-0.60%
Cendant Corp. 217,000 $ 4,468,030
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.07%
Rockwell Automation, Inc. 191,000 7,962,790
========================================================================
FOOTWEAR-1.99%
NIKE, Inc.-Class B 181,000 14,717,110
========================================================================
HEALTH CARE EQUIPMENT-3.93%
Bard (C.R.), Inc. 100,000 5,680,000
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 259,000 13,597,500
- ------------------------------------------------------------------------
Medtronic, Inc. 95,000 4,855,450
- ------------------------------------------------------------------------
Waters Corp.(a) 120,000 4,954,800
========================================================================
29,087,750
========================================================================
HEALTH CARE SERVICES-1.71%
IMS Health Inc. 206,600 4,375,788
- ------------------------------------------------------------------------
Quest Diagnostics Inc. 95,000 8,316,300
========================================================================
12,692,088
========================================================================
HEALTH CARE SUPPLIES-1.88%
Alcon, Inc. (Switzerland) 195,700 13,933,840
========================================================================
HOME IMPROVEMENT RETAIL-1.25%
Home Depot, Inc. (The) 225,000 9,243,000
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.60%
Marriott International, Inc.-Class A 81,000 4,413,690
========================================================================
HOUSEHOLD APPLIANCES-0.91%
Black & Decker Corp. (The) 84,000 6,743,520
========================================================================
HOUSEHOLD PRODUCTS-2.60%
Procter & Gamble Co. (The) 377,000 19,294,860
========================================================================
HOUSEWARES & SPECIALTIES-1.01%
Fortune Brands, Inc. 103,000 7,500,460
========================================================================
HYPERMARKETS & SUPER CENTERS-2.34%
Costco Wholesale Corp. 361,000 17,306,340
========================================================================
INDUSTRIAL CONGLOMERATES-3.43%
3M Co. 202,000 15,669,140
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 313,000 9,749,950
========================================================================
25,419,090
========================================================================
INDUSTRIAL MACHINERY-2.81%
Danaher Corp.(b) 104,000 5,733,520
- ------------------------------------------------------------------------
Eaton Corp. 116,000 7,418,200
- ------------------------------------------------------------------------
Illinois Tool Works Inc. 83,000 7,659,240
========================================================================
20,810,960
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INTEGRATED OIL & GAS-3.34%
BP PLC-ADR (United Kingdom) 143,000 $ 8,329,750
- ------------------------------------------------------------------------
ChevronTexaco Corp. 155,000 8,224,300
- ------------------------------------------------------------------------
ConocoPhillips 97,000 8,178,070
========================================================================
24,732,120
========================================================================
INTERNET RETAIL-1.57%
eBay Inc.(a) 119,000 11,615,590
========================================================================
INTERNET SOFTWARE & SERVICES-2.19%
Yahoo! Inc.(a) 448,200 16,220,358
========================================================================
IT CONSULTING & OTHER SERVICES-1.77%
Accenture Ltd.-Class A (Bermuda)(a) 541,000 13,097,610
========================================================================
MANAGED HEALTH CARE-2.18%
UnitedHealth Group Inc. 223,000 16,145,200
========================================================================
MOTORCYCLE MANUFACTURERS-1.97%
Harley-Davidson, Inc. 254,000 14,622,780
========================================================================
OFFICE ELECTRONICS-0.91%
Xerox Corp.(a)(b) 455,000 6,720,350
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.71%
Citigroup Inc. 119,221 5,289,836
========================================================================
PERSONAL PRODUCTS-6.21%
Avon Products, Inc. 349,800 13,834,590
- ------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 230,000 9,878,500
- ------------------------------------------------------------------------
Gillette Co. (The) 537,000 22,274,760
========================================================================
45,987,850
========================================================================
PHARMACEUTICALS-3.87%
Johnson & Johnson 491,000 28,664,580
========================================================================
PROPERTY & CASUALTY INSURANCE-0.82%
Allstate Corp. (The) 126,000 6,059,340
========================================================================
RESTAURANTS-4.96%
McDonald's Corp. 487,000 14,196,050
- ------------------------------------------------------------------------
Starbucks Corp.(a) 149,000 7,879,120
- ------------------------------------------------------------------------
Yum! Brands, Inc. 337,000 14,659,500
========================================================================
36,734,670
========================================================================
SEMICONDUCTORS-0.96%
Analog Devices, Inc. 95,300 3,836,778
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SEMICONDUCTORS-(CONTINUED)
Intel Corp. 149,000 $ 3,316,740
========================================================================
7,153,518
========================================================================
SOFT DRINKS-1.71%
PepsiCo, Inc. 256,000 12,692,480
========================================================================
SPECIALTY STORES-2.49%
Staples, Inc. 620,000 18,438,800
========================================================================
STEEL-0.60%
Nucor Corp. 105,000 4,434,150
========================================================================
SYSTEMS SOFTWARE-6.80%
Adobe Systems Inc. 194,000 10,869,820
- ------------------------------------------------------------------------
Microsoft Corp. 429,280 12,015,547
- ------------------------------------------------------------------------
Oracle Corp.(a) 389,000 4,924,740
- ------------------------------------------------------------------------
Symantec Corp.(a) 396,000 22,548,240
========================================================================
50,358,347
========================================================================
THRIFTS & MORTGAGE FINANCE-1.68%
Countrywide Financial Corp. 389,000 12,420,770
========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.83%
W.W. Grainger, Inc. 105,000 6,151,950
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $621,566,204) 710,395,190
========================================================================
MONEY MARKET FUNDS-3.85%
Liquid Assets Portfolio-Institutional
Class(c) 14,259,968 14,259,968
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 14,259,968 14,259,968
========================================================================
Total Money Market Funds (Cost
$28,519,936) 28,519,936
========================================================================
TOTAL INVESTMENTS-99.76% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $650,086,140) 738,915,126
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.66%
Liquid Assets Portfolio-Institutional
Class(c)(d) 4,905,700 4,905,700
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,905,700) 4,905,700
========================================================================
TOTAL INVESTMENTS-100.42% (Cost $654,991,840) 743,820,826
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.42%) (3,115,847)
========================================================================
NET ASSETS-100.00% $740,704,979
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$621,566,204)* $ 710,395,190
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $33,425,636) 33,425,636
============================================================
Total investments (cost $654,991,840) 743,820,826
============================================================
Receivables for:
Investments sold 2,182,403
- ------------------------------------------------------------
Fund shares sold 1,017,641
- ------------------------------------------------------------
Dividends 483,016
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 154,151
- ------------------------------------------------------------
Other assets 69,573
============================================================
Total assets 747,727,610
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,389,536
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 191,745
- ------------------------------------------------------------
Collateral upon return of securities
loaned 4,905,700
- ------------------------------------------------------------
Accrued distribution fees 262,952
- ------------------------------------------------------------
Accrued trustees' fees 1,728
- ------------------------------------------------------------
Accrued transfer agent fees 270,970
============================================================
Total liabilities 7,022,631
============================================================
Net assets applicable to shares outstanding $ 740,704,979
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,293,726,418
- ------------------------------------------------------------
Undistributed net investment income (loss) (131,109)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (1,641,719,316)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 88,828,986
============================================================
$ 740,704,979
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 177,497,860
____________________________________________________________
============================================================
Class B $ 112,930,837
____________________________________________________________
============================================================
Class C $ 48,420,471
____________________________________________________________
============================================================
Class R $ 2,761,191
____________________________________________________________
============================================================
Investor Class $ 376,904,848
____________________________________________________________
============================================================
Institutional Class $ 22,189,772
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 19,384,974
____________________________________________________________
============================================================
Class B 12,797,591
____________________________________________________________
============================================================
Class C 5,484,462
____________________________________________________________
============================================================
Class R 302,503
____________________________________________________________
============================================================
Investor Class 40,986,060
____________________________________________________________
============================================================
Institutional Class 2,417,583
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.16
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.16 divided by
94.50%) $ 9.69
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.82
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.83
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.13
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 9.20
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.18
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $4,820,915
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $49,547) $ 4,445,838
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $24,288)* 225,252
==========================================================================
Total investment income 4,671,090
==========================================================================
EXPENSES:
Advisory fees 5,663,512
- --------------------------------------------------------------------------
Administrative services fees 218,708
- --------------------------------------------------------------------------
Custodian fees 53,205
- --------------------------------------------------------------------------
Distribution fees:
Class A 606,542
- --------------------------------------------------------------------------
Class B 1,205,821
- --------------------------------------------------------------------------
Class C 499,243
- --------------------------------------------------------------------------
Class R 12,219
- --------------------------------------------------------------------------
Investor Class 888,532
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R & Investor 2,635,697
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 3,478
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 25,808
- --------------------------------------------------------------------------
Other 442,622
==========================================================================
Total expenses 12,255,387
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (978,085)
==========================================================================
Net expenses 11,277,302
==========================================================================
Net investment income (loss) (6,606,212)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 98,241,139
- --------------------------------------------------------------------------
Foreign currencies (27,375)
==========================================================================
98,213,764
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (67,692,327)
- --------------------------------------------------------------------------
Foreign currencies (11)
==========================================================================
(67,692,338)
==========================================================================
Net gain from investment securities and foreign currencies 30,521,426
==========================================================================
Net increase in net assets resulting from operations $ 23,915,214
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (6,606,212) $ (3,634,169)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
futures contracts and foreign currencies 98,213,764 (11,557,152)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (67,692,338) 66,632,928
==========================================================================================
Net increase in net assets resulting from operations 23,915,214 51,441,607
==========================================================================================
Share transactions-net:
Class A 18,678,547 24,813,254
- ------------------------------------------------------------------------------------------
Class B (12,082,083) (2,160,788)
- ------------------------------------------------------------------------------------------
Class C 3,097,603 594,530
- ------------------------------------------------------------------------------------------
Class R 574,491 1,830,726
- ------------------------------------------------------------------------------------------
Investor Class 361,821,129 173,236
- ------------------------------------------------------------------------------------------
Institutional Class 22,063,157 --
==========================================================================================
Net increase in net assets resulting from share
transactions 394,152,844 25,250,958
==========================================================================================
Net increase in net assets 418,068,058 76,692,565
==========================================================================================
NET ASSETS:
Beginning of year 322,636,921 245,944,356
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(131,109) and $(32,869), respectively). $740,704,979 $322,636,921
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-6
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities.' Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% over $1 billion up to
and including $2 billion of the Fund's average daily net assets and 0.625% of
the Fund's average daily net assets in excess of $2 billion. AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds on investments by the
Fund in such affiliated money market funds (excluding investments made in
affiliated money market funds with cash
F-7
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $3,368.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $59,549 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $218,708 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $2,635,697 for Class A, Class B, Class C, Class R and
Investor Class shares and $3,478 for Institutional Class shares. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R, Investor Class and Institutional Class
shares of the Fund. Institutional Class shares commenced sales on April 30,
2004. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C, Class R and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B,
Class C and Class R Plans, pays AIM Distributors compensation at the annual rate
of 0.35% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. The Fund, pursuant to the Investor Class
Plan, pays AIM Distributors for its allocated share of expenses incurred
pursuant to the Investor Class Plan for the period, up to a maximum annual rate
of 0.25% of the average daily net assets of the Investor Class shares. Pursuant
to the Plans, for the year ended October 31, 2004, the Class A, Class B, Class
C, Class R and Investor Class shares paid $606,542, $1,205,821, $499,243,
$12,219 and $888,532. AIM reimbursed $902,390 of Investor Class expenses related
to an overpayment of Rule 12b-1 fees of the INVESCO Growth Fund (a fund acquired
by the Fund in a merger on November 3, 2003) paid to INVESCO Distributors, Inc.,
the prior distributor of INVESCO Growth Fund and an AIM affiliate.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$83,801 in front-end sales commissions from the sale of Class A shares and $890,
$12,380, $4,895 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 5,325,601 $147,601,547 $(138,667,180) $ -- $14,259,968 $100,940 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 5,325,601 147,601,547 (138,667,180) -- 14,259,968 100,024 --
==================================================================================================================================
Subtotal $10,651,202 $295,203,094 $(277,334,360) $ -- $28,519,936 $200,964 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 5,969,563 $311,892,022 $(312,955,885) $ -- $ 4,905,700 $ 24,288 $ --
==================================================================================================================================
Total $16,620,765 $607,095,116 $(590,290,245) $ -- $33,425,636 $225,252 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
F-8
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $10,034,447 and $17,960,639,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$12,205 and credits in custodian fees of $573 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $12,778.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $6,385
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $4,820,915 were
on loan to brokers. The loans were secured by cash collateral of $4,905,700
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $24,288 for securities
lending transactions.
F-9
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 81,823,318
- -----------------------------------------------------------------------------
Temporary book/tax differences (131,109)
- -----------------------------------------------------------------------------
Capital loss carryforward (1,634,713,648)
- -----------------------------------------------------------------------------
Shares of Beneficial Interest 2,293,726,418
=============================================================================
Total net assets $ 740,704,979
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $1,546,950,857 of capital loss carryforward in the fiscal
year ended October 31, 2005.
The Fund utilized $83,728,510 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------
October 31, 2009 $1,067,082,723
- -----------------------------------------------------------------------------------------
October 31, 2010 532,535,321
- -----------------------------------------------------------------------------------------
October 31, 2011 35,095,604
=========================================================================================
Total capital loss carryforward $1,634,713,648
_________________________________________________________________________________________
=========================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Growth Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--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, 2004 was $904,935,222 and $600,186,187, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $90,270,070
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,446,752)
===============================================================================
Net unrealized appreciation of investment securities $81,823,318
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $661,997,508.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions on October 31, 2004, undistributed net
investment income (loss) was increased by $6,616,586, undistributed net realized
gain (loss) was increased by $27,375 and shares of beneficial interest decreased
by $6,643,961. This reclassification had no effect on the net assets of the
Fund. Further, as a result of tax deferrals acquired in the reorganization of
INVESCO Growth Fund into the Fund, undistributed net investment income (loss)
was decreased by $108,614, undistributed net realized gain (loss) was decreased
by $1,337,791,398 and shares of beneficial interest increased by $1,337,900,012.
These reclassifications had no effect on the net assets of the Fund.
F-10
NOTE 12--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2004 2003
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,225,450 $ 57,170,463 9,469,394 $ 73,883,856
- ------------------------------------------------------------------------------------------------------------------------
Class B 2,516,228 22,341,073 4,041,264 29,817,268
- ------------------------------------------------------------------------------------------------------------------------
Class C 2,041,593 18,173,950 2,208,427 16,412,874
- ------------------------------------------------------------------------------------------------------------------------
Class R 111,709 1,022,930 278,067 2,156,076
- ------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 4,268,368 39,323,955 20,194 178,134
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(c) 2,436,212 22,232,973 -- --
========================================================================================================================
Issued in connection with acquisitions:(d)
Class A 445,760 3,960,921 -- --
- ------------------------------------------------------------------------------------------------------------------------
Class B 24,464 210,855 -- --
- ------------------------------------------------------------------------------------------------------------------------
Class C 426,258 3,668,554 -- --
- ------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 50,546,207 449,143,077 -- --
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 472,810 4,373,299 325,063 2,536,902
- ------------------------------------------------------------------------------------------------------------------------
Class B (489,052) (4,373,299) (334,300) (2,536,902)
========================================================================================================================
Reacquired:
Class A (5,108,536) (46,826,136) (6,726,902) (51,607,504)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,420,244) (30,260,712) (3,989,440) (29,441,154)
- ------------------------------------------------------------------------------------------------------------------------
Class C (2,120,502) (18,744,901) (2,147,493) (15,818,344)
- ------------------------------------------------------------------------------------------------------------------------
Class R (48,964) (448,439) (39,568) (325,350)
- ------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (13,848,145) (126,645,903) (564) (4,898)
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(c) (18,629) (169,816) -- --
========================================================================================================================
44,460,987 $ 394,152,844 3,104,142 $ 25,250,958
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 10% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder is also
owned beneficially.
(b) Investor Class shares commenced sales on September 30, 2003.
(c) Institutional Class shares commenced sales on April 30, 2004.
(d) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Growth Fund pursuant to a plan of reorganization
approved by the Trustees of the Fund on June 11, 2003 and INVESCO Growth
Fund shareholders on October 21, 2003. The acquisition was accomplished by a
tax-free exchange of 51,442,689 shares of the Fund for 234,385,533 shares of
INVESCO Growth Fund outstanding as of the close of business on October 31,
2003. INVESCO Growth Fund's net assets at that date of $456,983,407,
including $93,333,500 of unrealized appreciation, were combined with those
of the Fund. The aggregate net assets of the Fund immediately before the
acquisition were $322,706,968.
F-11
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 7.37 $ 8.82 $ 17.74 $ 11.29
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.08)(a) (0.09)(a) (0.08)(a) (0.15)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.36 1.59 (1.36) (8.84) 6.60
===========================================================================================================================
Total from investment operations 0.28 1.51 (1.45) (8.92) 6.45
===========================================================================================================================
Net asset value, end of period $ 9.16 $ 8.88 $ 7.37 $ 8.82 $ 17.74
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 3.15% 20.49% (16.44)% (50.28)% 57.13%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,498 $154,052 $105,320 $138,269 $225,255
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 1.54%(c)(d) 1.82% 1.70% 1.57% 1.58%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.92)%(c) (1.01)% (1.01)% (0.72)% (0.82)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $173,297,774.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.55%.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.61 $ 7.20 $ 8.67 $ 17.54 $ 11.25
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.35 1.53 (1.33) (8.71) 6.56
===========================================================================================================================
Total from investment operations 0.21 1.41 (1.47) (8.87) 6.29
===========================================================================================================================
Net asset value, end of period $ 8.82 $ 8.61 $ 7.20 $ 8.67 $ 17.54
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 2.44% 19.58% (16.96)% (50.57)% 55.91%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $112,931 $122,011 $104,040 $144,747 $210,224
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.19%(c)(d) 2.47% 2.35% 2.23% 2.24%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.66)% (1.66)% (1.39)% (1.48)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $120,582,108.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.20%.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.62 $ 7.21 $ 8.67 $ 17.55 $ 11.25
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.35 1.53 (1.32) (8.72) 6.57
======================================================================================================================
Total from investment operations 0.21 1.41 (1.46) (8.88) 6.30
======================================================================================================================
Net asset value, end of period $ 8.83 $ 8.62 $ 7.21 $ 8.67 $ 17.55
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 2.44% 19.56% (16.84)% (50.60)% 56.00%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,420 $44,272 $36,575 $57,865 $79,392
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 2.19%(c)(d) 2.47% 2.35% 2.23% 2.24%
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.66)% (1.66)% (1.39)% (1.48)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $49,924,256.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.20%.
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.87 $ 7.37 $ 8.40
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.09)(a) (0.04)(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.36 1.59 (0.99)
====================================================================================================
Total from investment operations 0.26 1.50 (1.03)
====================================================================================================
Net asset value, end of period $ 9.13 $ 8.87 $ 7.37
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 2.93% 20.35% (12.26)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,761 $2,127 $ 9
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.69%(c)(d) 1.97% 1.85%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (1.07)%(c) (1.16)% (1.16)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 111% 123% 111%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,443,827.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.70%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
---------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2004 2003
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 8.24
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a)(b) (0.01)(a)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.37 0.65
=================================================================================================
Total from investment operations 0.32 0.64
=================================================================================================
Net asset value, end of period $ 9.20 $ 8.88
_________________________________________________________________________________________________
=================================================================================================
Total return(c) 3.60%(b) 7.77%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $376,905 $ 174
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets 1.19%(b)(d)(e) 1.56%(f)
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.57)%(d) (0.75)%(f)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(g) 111% 123%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) The advisor reimbursed Investor Class expenses related to an overpayment
of Rule 12b-1 fees of the INVESCO Growth fund paid to INVESCO
Distributors, Inc., the prior distributor of INVESCO Growth Fund. Had
the advisor not reimbursed these expenses the net investment income per
share, the ratio of expenses to average net assets, the ratio of net
investment income to average net assets and the total return would have
been (0.07), 1.41%, (0.79) and 3.27%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $403,878,080.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.42%.
(f) Annualized.
(g) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.13
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.06
===================================================================================
Total from investment operations 0.05
===================================================================================
Net asset value, end of period $ 9.18
___________________________________________________________________________________
===================================================================================
Total return(b) 0.55%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,190
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.92%(c)
- -----------------------------------------------------------------------------------
With fee waivers and/or expense reimbursements 0.93%(c)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.30)%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 111%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$9,909,449.
(d) Not annualized for periods less than one year.
F-14
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
F-15
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Large Cap Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Growth Fund (a portfolio of AIM Equity Funds), including the schedule
of investments, as of October 31, 2004, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
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 and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), 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, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); 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), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (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.;
President and Chief Executive Officer, 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
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired 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 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California)
Trustee
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations, Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management Group Inc.
Senior Vice President and Chief (financial services holding company); Senior Vice President
Compliance Officer and Chief Compliance Officer, A I M Advisors, Inc.; Vice
President and Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors, Inc.; and Vice
President, AIM Investment Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and Compliance Director,
Delaware Investments Family of Funds
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Director and Vice
Officer President, INVESCO Distributors, Inc.; Vice President, A I M
Capital Management, Inc., and AIM Investment Services, Inc.;
Director, Vice President and General Counsel, Fund
Management Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; Senior Vice President and General
Counsel, Liberty Funds Group, LLC and Vice President, A I M
Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money Market Research and
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.
Vice President and Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing Director and Chief
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M Management Group, Inc.;
Vice President Senior Vice President, A I M Advisors, Inc., and President,
Director of Investments, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
Formerly: Director of A I M Advisors, Inc. and A I M
Management Group Inc., A I M Advisors, Inc.; and Director
and Chairman, A I M Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.
- -------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 N/A
Senior Vice President and Chief
Compliance Officer
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President,
Secretary and Chief Legal
Officer
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
Houston, TX Houston, TX
77046-1173 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE AIM
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund SECTOR EQUITY High Income Municipal Fund
AIM Libra Fund AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Advantage Health Sciences Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Energy Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Financial Services Fund(1)
AIM Mid Cap Stock Fund(1) AIM Global Health Care Fund AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Gold & Precious Metals Fund(1)
AIM Opportunities II Fund AIM Health Sciences Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Leisure Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Multi-Sector Fund(1) AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Real Estate Fund
AIM Select Equity Fund AIM Technology Fund(1)
AIM Small Cap Equity Fund(3) AIM Utilities Fund(1)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) =======================================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Trimark Endeavor Fund AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Trimark Small Companies Fund AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund =======================================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com LCG-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
====================================================================================
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
====================================================================================
</Table>
AIM MID CAP GROWTH FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM MID CAP GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT o The returns shown in the Management's
Discussion of Fund Performance are based
o Effective 9/30/03, Class B shares are o The unmanaged Standard & Poor's on net asset values calculated for
not available as an investment for Composite Index of 500 Stocks (the S&P shareholder transactions. Generally
retirement plans maintained pursuant to 500--Registered Trademark-- Index) is an accepted accounting principles require
Section 401 of the Internal Revenue Code, index of common stocks frequently used as adjustments to be made to the net assets
including 401(k) plans, money purchase a general measure of U.S. stock market of the fund at period end for financial
pension plans and profit sharing plans. performance. reporting purposes, and as such, the net
Plans that have existing accounts invested asset values for shareholder transactions
in Class B shares will continue to be o The unmanaged Standard & Poor's Midcap and the returns based on those net asset
allowed to make additional purchases. 400 Index (the S&P 400 Index) represents values may differ from the net asset
the performance of mid-capitalization values and returns reported in the
o Class R shares are available only to stocks. Financial Highlights.
certain retirement plans. Please see the
prospectus for more information. o The unmanaged Russell Midcap--Registered o Bloomberg, Inc. is an independent
Trademark-- Growth Index is a subset of research and reporting firm.
PRINCIPAL RISKS OF INVESTING IN THE FUND the Russell Midcap--Registered Trademark--
Index, which represents the performance of The fund files its complete schedule of
o Investing in small and mid-size the stocks of domestic mid-capitalization portfolio holdings with the Securities and
companies involves risks not associated companies; the Growth subset measures the Exchange Commission ("SEC") for the 1st
with investing in more established performance of Russell Midcap companies and 3rd quarters of each fiscal year on
companies. Also, small companies have with higher price/book ratios and higher Form N-Q. The fund's Form N-Q filings are
business risk, significant stock price forecasted growth values. available on the SEC's Web site at
fluctuations and illiquidity. http://www.sec.gov. Copies of the fund's
o The unmanaged MSCI World Index is a Forms N-Q may be reviewed and copied at
o International investing presents certain group of global securities tracked by the SEC's Public Reference Room at 450
risks not associated with investing solely Morgan Stanley Capital International. Fifth Street, N.W., Washington, D.C.
in the United States. These include risks 20549-0102. You can obtain information on
relating to fluctuations in the value of o The unmanaged Lipper Mid-Cap Growth Fund the operation of the Public Reference
the U.S. dollar relative to the values of Index represents an average of the Room, including information about
other currencies, the custody arrangements performance of the 30 largest duplicating fee charges, by calling
made for the fund's foreign holdings, mid-capitalization growth funds tracked by 1-202-942-8090 or by electronic request at
differences in accounting, political risks Lipper, Inc., an independent mutual fund the following e-mail address:
and the lesser degree of public performance monitor. publicinfo@sec.gov. The SEC file numbers
information required to be provided by for the fund are 811-1424 and 2-25469. The
non-U.S. companies. The fund may invest up o The fund is not managed to track the fund's most recent portfolio holdings, as
to 25% of its assets in the securities of performance of any particular index, filed on Form N-Q, are also available at
non-U.S. issuers. including the indexes defined here, and AIMinvestments.com.
consequently, the performance of the fund
o The fund may participate in the initial may deviate significantly from the A description of the policies and
public offering (IPO) market in some performance of the indexes. Performance of procedures that the fund uses to determine
market cycles. Because of the fund's small an index of funds reflects fund expenses; how to vote proxies relating to portfolio
asset base, any investment the fund may performance of a market index does not. securities is available without charge,
make in IPOs may significantly affect the upon request, from our Client Services
fund's total return. As the fund's assets o A direct investment cannot be made in an department at 800-959-4246 or on the AIM
grow, the impact of IPO investments will index. Unless otherwise indicated, index Web site, AIMinvestments.com. On the home
decline, which may reduce the effect of results include reinvested dividends, and page, scroll down and click on AIM Funds
IPO investments on the fund's total they do not reflect sales charges. Proxy Policy. The information is also
return. available on the Securities and Exchange
OTHER INFORMATION Commission's Web site, sec.gov.
o Industry classifications used in this Information regarding how the fund voted
report are generally according to the proxies related to its portfolio
Global Industry Classification Standard, securities during the 12 months ended
which was developed by and is the 6/30/04 is available at our Web site. Go
exclusive property and a service mark of to AIMinvestments.com, access the About Us
Morgan Stanley Capital International Inc. tab, click on Required Notices and then
and Standard & Poor's. click on Proxy Voting Activity. Next,
select your fund from the drop-down menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--REGISTERED TRADEMARK--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H.
GRAHAM] It is our pleasure to introduce you to Bruce Crockett,
the new Chairman of the Board of Trustees of the AIM
ROBERT H. GRAHAM Funds. Bob Graham has served as Chairman of the Board
of Trustees of the AIM Funds ever since Ted Bauer
PHOTO OF] retired from that position in 2000. However, as you may
MARK H. be aware, the U.S. Securities and Exchange Commission
WILLIAMSON] recently adopted a rule requiring that an independent
fund trustee, meaning a trustee who is not an officer
MARK H. WILLIAMSON of the fund's investment advisor, serve as chairman of
the funds' Board. In addition, a similar provision was
[PHOTO OF included in the terms of AIM Advisors' recent
BRUCE L. settlements with certain regulators. Accordingly, the
CROCKETT] AIM Funds' Board recently elected Mr. Crockett, one of
the fourteen independent trustees on the AIM Funds'
BRUCE L. CROCKETT Board, as Chairman. His appointment became effective on
October 4, 2004. Mr. Graham will remain on the funds'
Board, as will Mark Williamson, President and Chief Executive Officer of AIM.
Mr. Graham will also remain Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
acquired certain funds that had been advised by CIGNA. He had been a member of
the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------ --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc. A I
M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors,
and A I M Distributors, Inc. is the distributor for the retail funds represented
by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND FOCUSED ON ECONOMICALLY reported third-quarter earnings by the
SENSITIVE STOCKS close of the fiscal year had either met or
exceeded expectations; just 20% missed
For the fiscal year ended October 31, October 31, 2004. Gross domestic product expectations. Energy, utilities, and
2004, AIM Mid Cap Growth Fund, Class A (GDP), the broadest measure of overall telecommunication services were the
shares, returned 1.79% at net asset value. economic activity, expanded at an strongest-performing sectors of the S&P
PERFORMANCE SHOWN AT NAV DOES NOT INCLUDE annualized rate of 4.2% in the fourth 500 Index; information technology, health
FRONT-END SALES CHARGES, WHICH WOULD HAVE quarter of 2003 before tapering off to a care, and consumer staples were the
REDUCED THE PERFORMANCE. For the more modest 3.9% in the third quarter of weakest-performing sectors. Mid-cap stocks
performance of other share classes, please 2004. generally were best-performing equity
see page 3. The fund underperformed the segment, followed by small-cap stocks and
S&P 500 Index, the Russell Midcap Growth Generally positive economic developments large-cap stocks.
Index and the Lipper Mid-Cap Growth Fund prompted the U.S. Federal Reserve (the
Index, which returned 9.41%, 8.77% and Fed) to raise its federal funds target YOUR FUND
6.18%, respectively, over the same period. rate from a decades-low 1.00%, where it
stood at the beginning of the fiscal year, While we remain committed to our strategy
The fund lagged its indexes primarily to 1.75% at the close of the reporting of investing in the stocks of medium-sized
because of the underperformance of period. In its report on the economy companies with the above-average earnings
relatively large holdings in companies released in late October, the Fed said growth potential, we fine-tuned our
with controversial business models such as economic activity continued to expand in strategy in the light of our experiences
UTStarcom and United Online. As of June September and early October. The Fed said over the past year. In an effort to better
30, 2004, UTStarcom and United Online that higher energy costs were constraining control risk, we reduced or eliminated our
comprised almost 6% of the portfolio. Fund consumer and business spending; but that positions in the stocks of companies with
performance was adversely affected when capital spending and hiring were rising more controversial business models. We
these two stocks declined sharply as the modestly. maintained some relatively large stock
reporting period progressed. The positions in the portfolio, but believe
portfolio's overweight position in Geopolitical uncertainty and terrorism they represented fundamentally sound
information technology relative to the concerns, as well as soaring oil prices, companies with excellent business models
Lipper Mid-Cap Growth Fund Index also had a detrimental effect on economic and solid long-term growth records. We may
detracted from the fund's performance growth and consumer sentiment. In not shy away from controversial stocks,
relative to its peers. mid-October, Fed Chairman Alan Greenspan but we intend to keep the position sizes
said that "so far this year, the rise in in check.
MARKET CONDITIONS the value of imported oil--essentially a
tax on U.S. residents--has amounted to Sectors that contributed most to fund
The U.S. economy generally showed signs of about 3/4 [of 1] percent of GDP." performance were energy, health care and
strength during the fiscal year ended industrials. Rising oil prices had a
Bloomberg reported that 80% of the positive impact on energy stocks. Demand
companies in the S&P 500 Index that had for medical products and services tends to
remain constant regardless of economic
conditions.
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
[PIE CHART] 1. Anthem, Inc. 1.4% 1. Communication Equipment 4.9%
Information Technology 25.5% 2. Agilent Technologies, Inc. 1.2 2. Health Care Equipment 4.8
Consumer Discretionary 20.7% 3. Community Health Systems Inc. 1.2 3. Diversified Commercial Services 4.4
Health Care 19.7% 4. Univision Communications-Class A 1.2 4. Pharmaceuticals 4.1
Industrials 12.9% 5. Legg Mason, Inc. 1.2 5. Biotechnology 3.9
Financials 9.9% 6. Fiserv, Inc. 1.2 6. Specialty Stores 3.6
Energy 4.8% 7. Cognizant Technology 7. Data Processing
Solutions Corp.-Class A 1.1 & Outsourced Services 3.5
Telecommunications Services 3.4%
8. Sirva Inc. 1.1 8. Asset Management &
Money Market Funds Plus Other Custody Banks 3.5
Assets Less Liabilities 1.9% 9. Amdocs Ltd. (United Kingdom) 1.1
9. Wireless Telecommunications
Consumer Staples 0.6% 10. Marvel Technology Services 3.4
Group Ltd. (Bermuda) 1.1
Materials 0.6% 10. Systems Software 3.1
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
Consequently, health care stocks have expansion of its product line. Ultra THE VIEWS AND OPINIONS EXPRESSED IN
historically tended to be more stable in Petroleum is involved in the acquisition, MANAGEMENT'S DISCUSSION OF FUND
price. Industrial and service companies exploration and operation of oil and gas PERFORMANCE ARE THOSE OF A I M ADVISORS,
also tend to perform well in the beginning properties. The company benefited INC. THESE VIEWS AND OPINIONS ARE SUBJECT
of an economic recovery, such as we increased production, rising oil prices TO CHANGE AT ANY TIME BASED ON FACTORS
experienced this past year. and a reserve base that was larger and SUCH AS MARKET AND ECONOMIC CONDITIONS.
more productive than previous estimates THESE VIEWS AND OPINIONS MAY NOT BE RELIED
Over the reporting period, we increased indicated. UPON AS INVESTMENT ADVICE OR
the fund's weighting in industrials, a RECOMMENDATIONS, OR AS AN OFFER FOR A
broad sector that encompasses a relatively The most significant detractors from PARTICULAR SECURITY. THE INFORMATION IS
wide range of industries. We particularly performance were UTStarcom and United NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
liked employment-related companies, which Online. Prior to 2004, both companies had ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
should benefit from an improving job experienced consistent revenue and THE FUND. STATEMENTS OF FACT ARE FROM
market. earnings growth, and the stocks had SOURCES CONSIDERED RELIABLE, BUT A I M
performed well for the fund. UTStarcom was ADVISORS, INC. MAKES NO REPRESENTATION OR
Information technology, the fund's adversely affected by a decline WARRANTY AS TO THEIR COMPLETENESS OR
largest sector weighting, was also the in equipment orders and increased pricing ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
most significant detractor from competition in the handset market. United IS NO GUARANTEE OF FUTURE RESULTS, THESE
performance. While information technology Online's stock declined on concerns that INSIGHTS MAY HELP YOU UNDERSTAND OUR
was one of the best-performing sectors in declining subscription rates, combined INVESTMENT MANAGEMENT PHILOSOPHY.
the S&P 500 Index in 2003, it struggled in with increases in new subscriber
2004. As the annualized rate of economic acquisition costs, might undermine the See important fund and index
growth was sluggish over the fund's fiscal company's profitability. We sold our disclosures inside front cover.
year, the information technology sector holdings in United Online and reduced our
confronted the prospect of slowing capital position in UTStarcom. KARL F. FARMER
spending, and many stocks in that sector Prior to joining AIM in
declined. In response, we sold positions IN CLOSING [FARMER July of 1998, Mr. Farmer,
in any companies we considered marginal PHOTO] Chartered Financial
and focused on the companies in which we Throughout the reporting period, we Analyst, spent six years
had the most confidence. We continued to remained committed to our mid-cap growth as a pension actuary,
monitor this sector closely. investment directive as defined in the focusing on retirement plans and other
fund's prospectus. We constantly reviewed benefit programs. He earned a B.S. in
Stocks that contributed to fund each security's fundamentals to ensure a economics from Texas A&M University,
performance included Research In Motion, a continued fit and to limit exposure to graduating magna cum laude. He
mobile communications company, and Ultra high-risk stocks. We believe our enhanced subsequently earned his M.B.A. in finance
Petroleum, an independent oil and gas investment strategy coupled with our from The Wharton School at the University
company. Research In Motion benefited from in-depth bottom-up fundamental stock of Pennsylvania.
increased sales of hand-held communication selection process has the potential to
devices such as its BlackBerry--Registered provide shareholders with consistent JAY K. RUSHIN
Trademark-- wireless platform, further risk-adjusted return over a long-term Mr. Rushin, Chartered
penetration of wireless carriers and an investment horizon. [RUSHIN Financial Analyst, began
PHOTO] his investment career in
=========================================== ========================================== 1994 when he joined AIM
as a portfolio
FUND VS. INDEXES TOTAL NET ASSETS $195 MILLION administrator. In 1996, he left AIM to
work as an associate equity analyst. He
TOTAL RETURNS, 10/31/03-10/31/04, TOTAL NUMBER OF HOLDINGS* 128 returned to AIM as an equity analyst on
EXCLUDING APPLICABLE SALES CHARGES. IF AIM's small-cap funds in 1998 and was
SALES CHARGES WERE INCLUDED, RETURNS ========================================== promoted to senior analyst in 2000. He
WOULD BE LOWER. assumed his current duties as portfolio
manager in 2001. A native of Gaithersburg,
Class A Shares 1.79% MD, Mr. Rushin holds a B.A. in English
from Florida State University.
Class B Shares 1.04
Assisted by Mid-Cap Growth Team and GARP
Class C Shares 1.04 Team
Class R Shares 1.57 [RIGHT ARROW GRAPHIC]
S&P 400 Index 11.04 FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
S&P 500 Index (Broad-based Index) 9.41 TURN TO PAGE 5.
Russell Midcap Growth Index
(Style-specific Index) 8.77
Lipper Mid-Cap Growth Fund Index
(Peer-group Index) 6.18
Source: Lipper, Inc.
==========================================
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE to estimate the expenses that you paid To do so, compare this 5% hypothetical
over the period. Simply divide your example with the 5% hypothetical examples
As a shareholder of the fund, you incur account value by $1,000 (for example, an that appear in the shareholder reports of
two types of costs: (1) transaction costs, $8,600 account value divided by $1,000 = the other funds.
which may include sales charges (loads) on 8.6), then multiply the result by the
purchase payments; contingent deferred number in the table under the heading Please note that the expenses shown in
sales charges on redemptions; and entitled "Actual Expenses Paid During the table are meant to highlight your
redemption fees, if any; and (2) ongoing Period" to estimate the expenses you paid ongoing costs only and do not reflect any
costs, including management fees; on your account during this period. transactional costs, such as sales charges
distribution and/or service fees (12b-1); (loads) on purchase payments, contingent
and other fund expenses. This example is HYPOTHETICAL EXAMPLE FOR deferred sales charges on redemptions, and
intended to help you understand your COMPARISON PURPOSES redemption fees, if any. Therefore, the
ongoing costs (in dollars) of investing in hypothetical information is useful in
the fund and to compare these costs with The table below also provides information comparing ongoing costs only, and will not
ongoing costs of investing in other mutual about hypothetical account values and help you determine the relative total
funds. The example is based on an hypothetical expenses based on the fund's costs of owning different funds. In
investment of $1,000 invested at the actual expense ratio and an assumed rate addition, if these transactional costs
beginning of the period and held for the of return of 5% per year before expenses, were included, your costs would have been
entire period, May 1, 2004-October 31, which is not the fund's actual return. The higher.
2004. hypothetical account values and expenses
may not be used to estimate the actual
ACTUAL EXPENSES ending account balance or expenses you
paid for the period. You may use this
The table below provides information about information to compare the ongoing costs
actual account values and actual expenses. of investing in the fund and other funds.
You may use the information in this table,
together with the amount you invested,
</Table>
<Table>
<Caption>
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $984.80 $ 8.93 $1,016.14 $ 9.07
Class B 1,000.00 982.10 12.16 1,012.87 12.35
Class C 1,000.00 982.10 12.16 1,012.87 12.35
Class R 1,000.00 983.70 9.67 1,015.38 9.83
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was -1.52%, -1.79%, -1.79% and -1.63% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.79%, 2.44%, 2.44% and 1.94% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee comparable RESULTS OF A $10,000 INVESTMENT
future results. 11/1/99-10/31/04 (Index results from 10/31/99)
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results include AIM MID LIPPER
reinvested dividends. Performance of an AIM MID CAP AIM MID CAP CAP GROWTH MID-CAP RUSSELL
index of funds reflects fund expenses and GROWTH FUND GROWTH FUND FUND GROWTH MIDCAP
management fees; performance of a market CLASS A CLASS B CLASS C FUND GROWTH S&P 500 S&P 400
index does not. Performance shown in the DATE SHARES SHARES SHARES INDEX INDEX INDEX INDEX
CHART does not reflect deduction of taxes
a shareholder would pay on fund 11/1/1999 $ 9450 $10000 $10000 $10000 $10000 $10000 $10000
distributions or sale of fund shares. 11/99 10660 11270 11270 11254 11036 10203 10525
Performance of the indexes does not 12/99 12984 13700 13700 13602 12946 10803 11150
reflect the effects of taxes. 1/00 12805 13509 13509 13368 12944 10261 10836
2/00 15895 16760 16760 16719 15665 10067 11595
Since the last reporting period, the fund 3/00 16623 17519 17519 15542 15681 11051 12565
has elected to use the S&P 500 Index as 4/00 14515 15289 15299 13492 14159 10718 12126
its broadbased market index since the S&P 5/00 13382 14079 14089 12279 13127 10499 11975
500 Index is such a widely recognized 6/00 14724 15479 15490 14187 14520 10757 12151
gauge of the stock market. The fund will 7/00 14176 14898 14899 13598 13600 10589 12343
no longer measure its performance against 8/00 15821 16609 16619 15377 15651 11247 13721
the S&P 400 Index, the index published in 9/00 14922 15669 15668 14638 14886 10653 13627
previous reports to shareholders. Because 10/00 13589 14249 14258 13454 13867 10608 13165
this is the first reporting period since 11/00 10953 11479 11488 10641 10854 9772 12171
we have adopted the new index, SEC 12/00 11672 12239 12238 11408 11425 9820 13102
guidelines require that we compare the 1/01 12116 12689 12688 11563 12078 10168 13394
fund's performance to both the old and the 2/01 10141 10620 10619 9828 9989 9242 12630
new index. The fund has also included a 3/01 9225 9650 9649 8785 8559 8657 11691
style-specific index, the Russell Midcap 4/01 10500 10980 10990 9944 9986 9329 12980
Growth Index. The fund believes this index 5/01 10236 10700 10699 10026 9939 9391 13283
more closely reflects the performance of 6/01 10604 11080 11079 9987 9944 9163 13229
the securities in which the fund invests. 7/01 10094 10540 10540 9461 9274 9073 13032
In addition, the unmanaged Lipper Mid-Cap 8/01 9026 9420 9419 8827 8602 8505 12606
Growth Fund Index, which may or may not 9/01 7325 7640 7639 7554 7180 7818 11038
include AIM Mid Cap Growth Fund, is 10/01 8109 8449 8449 7975 7935 7968 11526
included for comparison to a peer group. 11/01 8903 9269 9268 8630 8789 8579 12384
12/01 9196 9569 9569 9004 9123 8654 13023
In evaluating this chart, please note that 1/02 8865 9219 9218 8660 8827 8528 12956
the chart uses a logarithmic scale along 2/02 8175 8499 8499 8229 8326 8363 12972
the vertical axis (the value scale). This 3/02 8828 9169 9168 8748 8962 8678 13899
means that each scale increment always 4/02 8619 8949 8948 8457 8487 8152 13834
represents the same percent change in 5/02 8478 8798 8798 8175 8234 8092 13600
price; in a linear chart each scale 6/02 7608 7898 7898 7440 7325 7516 12605
increment always represents the same 7/02 6729 6978 6978 6638 6614 6930 11383
absolute change in price. In this example, 8/02 6531 6768 6768 6559 6591 6975 11441
the scale increment between $5,000 and 9/02 5878 6089 6088 6151 6067 6218 10520
$10,000 is the same as that between 10/02 6191 6408 6408 6462 6537 6765 10975
$10,000 and $20,000. In a linear chart, 11/02 6625 6858 6858 6845 7049 7163 11610
the latter scale increment would be twice 12/02 6266 6478 6478 6441 6623 6742 11133
as large. The benefit of using a 1/03 6247 6458 6458 6345 6558 6566 10808
logarithmic scale is that it better 2/03 6124 6318 6318 6247 6501 6467 10551
illustrates performance during the fund's 3/03 6209 6408 6417 6337 6622 6530 10639
early years before reinvested 4/03 6606 6807 6817 6781 7073 7067 11412
distributions and compounding create the 5/03 7126 7347 7357 7342 7753 7439 12358
potential for the original investment to 6/03 7296 7517 7527 7457 7864 7534 12515
grow to very large numbers. Had the chart 7/03 7693 7917 7927 7751 8145 7667 12959
used a linear scale along its vertical 8/03 8109 8347 8347 8132 8593 7816 13547
axis, you would not be able to see as 9/03 7826 8057 8057 7859 8427 7734 13340
clearly the movements in the value of the 10/03 8431 8677 8677 8476 9106 8171 14348
fund and the indexes during the fund's 11/03 8677 8907 8916 8677 9350 8243 14848
early years. We used a logarithmic scale 12/03 8903 9146 9146 8722 9452 8675 15099
because the fund is almost five years old. 1/04 9196 9436 9436 8942 9764 8834 15426
2/04 9309 9556 9556 9065 9927 8957 15796
AVERAGE ANNUAL TOTAL RETURNS 3/04 9243 9476 9476 9063 9908 8822 15863
As of 10/31/04, including applicable sales 4/04 8713 8926 8926 8776 9629 8683 15343
charges 5/04 9006 9226 9226 8967 9856 8802 15661
6/04 9016 9226 9226 9182 10013 8973 16017
CLASS A SHARES 7/04 8166 8347 8347 8530 9350 8676 15270
Inception (11/1/99) -3.01% 8/04 7930 8107 8107 8382 9234 8711 15230
1 Year -3.81 9/04 8308 8497 8497 8741 9579 8805 15681
10/04 $ 8582 $ 8595 $ 8770 $ 8999 $ 9904 $ 8940 $15932
CLASS B SHARES Source: Lipper, Inc.
Inception (11/1/99) -2.98% In addition to returns as of the close of
1 Year -3.96 the fiscal year, industry regulations Class R shares' inception date is
require us to provide average annual total 6/3/02. Returns since that date are
CLASS C SHARES returns as of 9/30/04, the most recent historical returns. All other returns are
Inception (11/1/99) -2.59% calendar quarter-end. blended returns of historical Class R
1 Year 0.04 share performance and restated Class A
AVERAGE ANNUAL TOTAL RETURNS share performance (for periods prior to
CLASS R SHARES As of 9/30/04, most recent calendar the inception date of Class R shares) at
Inception -2.10% quarter-end, including applicable sales net asset value, adjusted to reflect the
1 Year 1.57 charges higher Rule 12b-1 fees applicable to
Class R shares.
CLASS A SHARES
Inception (11/1/99) -3.70% The performance data quoted represent
1 Year 0.34 past performance and cannot guarantee
comparable future results; current
CLASS B SHARES performance may be lower or higher.
Inception (11/1/99) -3.65% Please visit AIMinvestments.com for the
1 Year 0.46 most recent month-end performance.
Performance figures reflect reinvested
CLASS C SHARES distributions, changes in net asset value
Inception (11/1/99) -3.25% and the effect of the maximum sales
1 Year 4.46 charge unless otherwise stated.
Investment return and principal value
CLASS R SHARES will fluctuate so that you may have a
Inception -2.76% gain or loss when you sell shares.
1 Year 5.93
Class A share performance reflects the
maximum 5.50% sales charge, and Class B
and Class C share performance reflects
the applicable contingent deferred sales
charge (CDSC) for the period involved.
The CDSC on Class B shares declines from
5% beginning at the time of purchase to
0% at the beginning of the seventh year.
The CDSC on Class C shares is 1% for the
first year after purchase. Class R shares
do not have a front-end sales charge;
returns shown are at net asset value and
do not reflect a 0.75% CDSC that may be
imposed on a total redemption of
retirement plan assets within the first
year.
The performance of the fund's share
classes will differ due to different
sales charge structures and class
expenses.
====================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM MID CAP GROWTH FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Institutional Class shares have no sales
AVERAGE ANNUAL TOTAL RETURNS charge; therefore, performance is at net
The following information has been For periods ended 10/31/04 asset value. Performance of Institutional
prepared to provide Institutional Class Inception -1.85% Class shares will differ from performance
shareholders with a performance overview 1 Year 2.13 of other share classes due to differing
specific to their holdings. Institutional sales charges and class expenses.
Class shares are offered exclusively to =========================================
institutional investors, including AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is
defined contribution plans that meet For periods ended 9/30/04 not indicative of future results. More
certain criteria. Inception -2.52% recent returns may be more or less than
1 Year 6.52 those shown. All returns assume
reinvestment of distributions at net
========================================= asset value. Investment return and
principal value will fluctuate so your
Institutional Class shares' inception shares, when redeemed, may be worth more
date is 4/30/04. Returns since that date or less than their original cost. See
are historical returns. All other returns full report for information on
are blended returns of historical comparative benchmarks. Please consult
Institutional Class share performance and your fund prospectus for more
restated Class A share performance (for information. For the most current
periods prior to the inception date of month-end performance, please call
Institutional Class shares) at net asset 800-451-4246 or visit AIMinvestments.com.
value and reflect the higher Rule 12b-1
fees applicable to Class A shares. Class
A shares' inception date is 11/1/99.
Institutional Class shares would have had
different returns due to differences in
the expense structure of the
Institutional Class.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com MCG-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE $1,000 (for example, an $8,600 account other funds. To do so, compare this 5%
value divided by $1,000 = 8.6), then hypothetical example with the 5%
As a shareholder of the fund, you incur multiply the result by the number in the hypothetical examples that appear in the
ongoing costs, including management fees; table under the heading entitled "Actual shareholder reports of the other funds.
and other fund expenses. This example is Expenses Paid During Period" to estimate
intended to help you understand your the expenses you paid on your account Please note that the expenses shown in
ongoing costs (in dollars) of investing during this period. the table are meant to highlight your
in the fund and to compare these costs ongoing costs only. Therefore, the
with ongoing costs of investing in other HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
mutual funds. The example is based on an COMPARISON PURPOSES comparing ongoing costs only, and will
investment of $1,000 invested at the not help you determine the relative total
beginning of the period and held for the The table below also provides information costs of owning different funds.
entire period, May 1, 2004, to October about hypothetical account values and
31, 2004. hypothetical expenses based on the fund's
actual expense ratio and an assumed rate
ACTUAL EXPENSES of return of 5% per year before expenses,
which is not the fund's actual return.
The table below provides information The hypothetical account values and
about actual account values and actual expenses may not be used to estimate the
expenses. You may use the information in actual ending account balance or expenses
this table, together with the amount you you paid for the period. You may use this
invested, to estimate the expenses that information to compare the ongoing costs
you paid over the period. Simply divide of investing in the fund and
your account value by
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $988.10 $5.55 $1,019.56 $5.63
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was -1.19% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 1.11% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com MCG-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.10%
ADVERTISING-0.73%
Omnicom Group Inc. 18,000 $ 1,420,200
=====================================================================
AEROSPACE & DEFENSE-0.68%
L-3 Communications Holdings, Inc. 20,000 1,318,600
=====================================================================
AIR FREIGHT & LOGISTICS-0.64%
Robinson (C.H.) Worldwide, Inc. 23,000 1,240,620
=====================================================================
APPAREL RETAIL-2.24%
Chico's FAS, Inc.(a) 44,000 1,761,320
- ---------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 55,000 1,289,200
- ---------------------------------------------------------------------
Urban Outfitters, Inc.(a) 32,000 1,312,000
=====================================================================
4,362,520
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.96%
Coach, Inc.(a) 40,000 1,865,200
=====================================================================
APPLICATION SOFTWARE-2.70%
Amdocs Ltd. (United Kingdom)(a) 85,200 2,142,780
- ---------------------------------------------------------------------
Intuit Inc.(a) 40,000 1,814,400
- ---------------------------------------------------------------------
Mercury Interactive Corp.(a) 30,000 1,302,900
=====================================================================
5,260,080
=====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-3.46%
Calamos Asset Management, Inc.-Class A(a) 60,700 1,183,650
- ---------------------------------------------------------------------
Franklin Resources, Inc. 18,000 1,091,160
- ---------------------------------------------------------------------
Investors Financial Services Corp.(b) 55,000 2,116,950
- ---------------------------------------------------------------------
Legg Mason, Inc. 37,000 2,357,270
=====================================================================
6,749,030
=====================================================================
AUTO PARTS & EQUIPMENT-0.55%
Autoliv, Inc. 25,000 1,068,750
=====================================================================
BIOTECHNOLOGY-3.87%
Cephalon, Inc.(a) 21,000 1,001,070
- ---------------------------------------------------------------------
Charles River Laboratories International,
Inc.(a) 22,000 1,029,380
- ---------------------------------------------------------------------
Gen-Probe Inc.(a) 32,000 1,121,280
- ---------------------------------------------------------------------
Gilead Sciences, Inc.(a) 35,000 1,212,050
- ---------------------------------------------------------------------
Invitrogen Corp.(a) 17,200 995,880
- ---------------------------------------------------------------------
Martek Biosciences Corp.(a) 26,000 1,223,456
- ---------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a) 15,000 974,700
=====================================================================
7,557,816
=====================================================================
BROADCASTING & CABLE TV-1.22%
Univision Communications Inc.-Class A(a) 77,000 2,383,920
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
BUILDING PRODUCTS-1.02%
Masco Corp. 58,000 $ 1,987,080
=====================================================================
CASINOS & GAMING-0.52%
Station Casinos, Inc. 20,000 1,019,000
=====================================================================
COMMUNICATIONS EQUIPMENT-4.94%
Avaya Inc.(a) 140,000 2,016,000
- ---------------------------------------------------------------------
Comverse Technology, Inc.(a) 100,000 2,064,000
- ---------------------------------------------------------------------
Juniper Networks, Inc.(a) 40,300 1,072,383
- ---------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 21,000 1,852,200
- ---------------------------------------------------------------------
Scientific-Atlanta, Inc. 52,400 1,435,236
- ---------------------------------------------------------------------
UTStarcom, Inc.(a)(b) 70,000 1,198,400
=====================================================================
9,638,219
=====================================================================
COMPUTER & ELECTRONICS RETAIL-0.76%
Best Buy Co., Inc. 25,000 1,480,500
=====================================================================
COMPUTER HARDWARE-0.82%
PalmOne, Inc.(a)(b) 55,000 1,593,350
=====================================================================
COMPUTER STORAGE & PERIPHERALS-1.16%
Emulex Corp.(a) 92,000 966,920
- ---------------------------------------------------------------------
QLogic Corp.(a) 40,000 1,300,000
=====================================================================
2,266,920
=====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.65%
Cummins Inc.(b) 18,000 1,261,440
=====================================================================
CONSUMER FINANCE-0.82%
First Marblehead Corp. (The)(a) 30,000 1,608,000
=====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.52%
Affiliated Computer Services, Inc.-Class A(a) 20,000 1,091,000
- ---------------------------------------------------------------------
Alliance Data Systems Corp.(a) 50,000 2,114,000
- ---------------------------------------------------------------------
DST Systems, Inc.(a) 30,000 1,345,500
- ---------------------------------------------------------------------
Fiserv, Inc.(a) 65,000 2,310,100
=====================================================================
6,860,600
=====================================================================
DEPARTMENT STORES-1.70%
Kohl's Corp.(a) 39,900 2,025,324
- ---------------------------------------------------------------------
Nordstrom, Inc. 30,000 1,295,400
=====================================================================
3,320,724
=====================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.35%
Apollo Group, Inc.-Class A(a) 18,000 1,188,000
- ---------------------------------------------------------------------
Career Education Corp.(a) 35,000 1,097,950
- ---------------------------------------------------------------------
Cintas Corp. 30,000 1,294,200
- ---------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-(CONTINUED)
Corporate Executive Board Co. (The) 32,000 $ 2,036,800
- ---------------------------------------------------------------------
Corrections Corp. of America(a) 48,800 1,695,800
- ---------------------------------------------------------------------
ITT Educational Services, Inc.(a) 31,000 1,178,310
=====================================================================
8,491,060
=====================================================================
DRUG RETAIL-0.60%
Shoppers Drug Mart Corp. (Canada)(a) 38,300 1,165,133
=====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.25%
Agilent Technologies, Inc.(a) 97,000 2,430,820
=====================================================================
ELECTRONIC MANUFACTURING SERVICES-0.54%
Benchmark Electronics, Inc.(a) 31,000 1,053,070
=====================================================================
EMPLOYMENT SERVICES-1.69%
Manpower Inc. 42,000 1,900,500
- ---------------------------------------------------------------------
Monster Worldwide Inc.(a) 50,000 1,402,500
=====================================================================
3,303,000
=====================================================================
ENVIRONMENTAL SERVICES-0.65%
Stericycle, Inc.(a) 28,000 1,269,240
=====================================================================
GENERAL MERCHANDISE STORES-1.79%
Dollar Tree Stores, Inc.(a) 70,000 2,023,000
- ---------------------------------------------------------------------
Family Dollar Stores, Inc. 50,000 1,477,500
=====================================================================
3,500,500
=====================================================================
HEALTH CARE DISTRIBUTORS-0.80%
Schein (Henry), Inc.(a) 24,800 1,568,104
=====================================================================
HEALTH CARE EQUIPMENT-4.81%
Biomet, Inc. 22,000 1,026,960
- ---------------------------------------------------------------------
Fisher Scientific International Inc.(a) 25,000 1,434,000
- ---------------------------------------------------------------------
INAMED Corp.(a) 26,000 1,381,900
- ---------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 27,000 1,345,410
- ---------------------------------------------------------------------
PerkinElmer, Inc. 80,000 1,643,200
- ---------------------------------------------------------------------
Waters Corp.(a) 24,000 990,960
- ---------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 20,000 1,551,800
=====================================================================
9,374,230
=====================================================================
HEALTH CARE FACILITIES-1.24%
Community Health Systems Inc.(a) 90,000 2,413,800
=====================================================================
HEALTH CARE SERVICES-2.08%
Caremark Rx, Inc.(a) 65,000 1,948,050
- ---------------------------------------------------------------------
Express Scripts, Inc.(a) 33,000 2,112,000
=====================================================================
4,060,050
=====================================================================
HEALTH CARE SUPPLIES-0.50%
Cooper Cos., Inc. (The) 14,000 984,900
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
HOME FURNISHINGS-0.52%
Mohawk Industries, Inc.(a) 12,000 $ 1,020,960
=====================================================================
HOMEBUILDING-0.93%
Pulte Homes, Inc. 33,000 1,811,040
=====================================================================
HOTELS, RESORTS & CRUISE LINES-1.33%
Kerzner International Ltd. (Bahamas)(a) 19,000 963,680
- ---------------------------------------------------------------------
Marriott International, Inc.-Class A 30,000 1,634,700
=====================================================================
2,598,380
=====================================================================
HOUSEWARES & SPECIALTIES-0.96%
Jarden Corp.(a) 53,500 1,878,920
=====================================================================
INDUSTRIAL MACHINERY-0.75%
Eaton Corp. 23,000 1,470,850
=====================================================================
INSURANCE BROKERS-1.08%
Willis Group Holdings Ltd. (Bermuda) 58,700 2,110,265
=====================================================================
INTEGRATED OIL & GAS-0.86%
Murphy Oil Corp. 21,000 1,680,420
=====================================================================
INTERNET SOFTWARE & SERVICES-1.28%
Ask Jeeves, Inc.(a) 45,000 1,160,100
- ---------------------------------------------------------------------
SINA Corp. (Cayman Islands)(a) 40,000 1,340,000
=====================================================================
2,500,100
=====================================================================
IT CONSULTING & OTHER SERVICES-1.13%
Cognizant Technology Solutions Corp.-Class
A(a) 65,000 2,210,000
=====================================================================
LEISURE PRODUCTS-1.51%
Brunswick Corp. 35,000 1,642,200
- ---------------------------------------------------------------------
Marvel Enterprises, Inc.(a) 85,000 1,309,000
=====================================================================
2,951,200
=====================================================================
MANAGED HEALTH CARE-2.29%
Aetna Inc. 19,000 1,805,000
- ---------------------------------------------------------------------
Anthem, Inc.(a) 33,000 2,653,200
=====================================================================
4,458,200
=====================================================================
MULTI-LINE INSURANCE-0.66%
Quanta Capital Holdings Ltd. (Bermuda)(a) 144,200 1,297,800
=====================================================================
OIL & GAS DRILLING-1.73%
Noble Corp. (Cayman Islands)(a) 25,000 1,142,000
- ---------------------------------------------------------------------
Patterson-UTI Energy, Inc. 63,000 1,211,490
- ---------------------------------------------------------------------
Pride International, Inc.(a) 55,000 1,016,400
=====================================================================
3,369,890
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-0.50%
Varco International, Inc.(a) 35,000 968,800
=====================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.73%
Ultra Petroleum Corp. (Canada)(a) 35,000 $ 1,701,000
- ---------------------------------------------------------------------
XTO Energy Inc. 50,000 1,669,000
=====================================================================
3,370,000
=====================================================================
PHARMACEUTICALS-4.14%
Barr Pharmaceuticals Inc.(a) 35,000 1,317,750
- ---------------------------------------------------------------------
Kos Pharmaceuticals, Inc.(a) 36,000 1,285,200
- ---------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 40,000 1,626,800
- ---------------------------------------------------------------------
MGI Pharma, Inc.(a) 50,000 1,333,500
- ---------------------------------------------------------------------
Sepracor Inc.(a) 24,000 1,102,320
- ---------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 50,000 1,420,000
=====================================================================
8,085,570
=====================================================================
PUBLISHING-0.70%
Getty Images, Inc.(a)(b) 23,000 1,359,990
=====================================================================
REAL ESTATE-0.92%
New Century Financial Corp. 32,500 1,792,375
=====================================================================
REGIONAL BANKS-0.61%
Commerce Bancorp, Inc. 20,000 1,184,800
=====================================================================
REINSURANCE-0.77%
Everest Re Group, Ltd. (Bermuda) 19,000 1,508,030
=====================================================================
RESTAURANTS-0.65%
Brinker International, Inc.(a) 39,000 1,259,700
=====================================================================
SEMICONDUCTOR EQUIPMENT-0.99%
Novellus Systems, Inc.(a) 74,800 1,938,068
=====================================================================
SEMICONDUCTORS-3.07%
ATI Technologies Inc. (Canada)(a) 70,000 1,263,500
- ---------------------------------------------------------------------
Broadcom Corp.-Class A(a) 45,000 1,217,250
- ---------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 75,000 2,142,750
- ---------------------------------------------------------------------
Microchip Technology Inc. 45,000 1,361,250
=====================================================================
5,984,750
=====================================================================
SPECIALTY CHEMICALS-0.57%
Ecolab Inc. 33,000 1,117,050
=====================================================================
SPECIALTY STORES-3.64%
Advance Auto Parts, Inc.(a) 45,000 1,760,400
- ---------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 50,000 2,039,500
- ---------------------------------------------------------------------
Staples, Inc. 60,000 1,784,400
- ---------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 40,000 1,526,800
=====================================================================
7,111,100
=====================================================================
SYSTEMS SOFTWARE-3.10%
Computer Associates International, Inc. 50,000 1,385,500
- ---------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
SYSTEMS SOFTWARE-(CONTINUED)
Novell, Inc.(a) 175,000 $ 1,258,250
- ---------------------------------------------------------------------
Red Hat, Inc.(a)(b) 80,000 1,027,200
- ---------------------------------------------------------------------
Symantec Corp.(a) 16,600 945,204
- ---------------------------------------------------------------------
VERITAS Software Corp.(a) 65,000 1,422,200
=====================================================================
6,038,354
=====================================================================
TECHNOLOGY DISTRIBUTORS-1.02%
CDW Corp. 32,000 1,984,960
=====================================================================
THRIFTS & MORTGAGE FINANCE-1.53%
Doral Financial Corp. (Puerto Rico) 40,000 1,679,200
- ---------------------------------------------------------------------
W Holding Co., Inc. (Puerto Rico) 65,000 1,299,350
=====================================================================
2,978,550
=====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.38%
Fastenal Co. 21,000 1,159,830
- ---------------------------------------------------------------------
MSC Industrial Direct Co., Inc.-Class A 45,000 1,536,300
=====================================================================
2,696,130
=====================================================================
TRUCKING-1.11%
Sirva Inc.(a) 90,000 2,160,000
=====================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.38%
AO VimpelCom-ADR (Russia)(a) 11,000 1,254,000
- ---------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 100,000 1,684,000
- ---------------------------------------------------------------------
NII Holdings Inc.(a)(b) 38,000 1,682,260
- ---------------------------------------------------------------------
SpectraSite, Inc.(a) 38,500 1,975,050
=====================================================================
6,595,310
=====================================================================
Total Common Stocks & Other Equity
Interests (Cost $164,645,208) 191,368,038
=====================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
OPTIONS PURCHASED-0.01%
PUTS-0.01%
XTO Energy Inc. (Oil & Gas Exploration &
Production) (Cost $70,660) 500 $30 Nov-04 8,750
===============================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-1.86%
Liquid Assets Portfolio-Institutional
Class(c) 1,818,420 1,818,420
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 1,818,420 1,818,420
=======================================================================
Total Money Market Funds (Cost
$3,636,840) 3,636,840
=======================================================================
TOTAL INVESTMENTS-99.97% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $168,352,708) 195,013,628
=======================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.48%
STIC Prime Portfolio-Institutional
Class(c)(d) 6,790,375 $ 6,790,375
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $6,790,375) 6,790,375
=======================================================================
TOTAL INVESTMENTS-103.45% (Cost $175,143,083) 201,804,003
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.45%) (6,732,117)
=======================================================================
NET ASSETS-100.00% $195,071,886
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$164,715,868)* $ 191,376,788
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $10,427,215) 10,427,215
============================================================
Total investments (cost $175,143,083) 201,804,003
============================================================
Receivables for:
Investments sold 5,998,273
- ------------------------------------------------------------
Fund shares sold 140,843
- ------------------------------------------------------------
Dividends 23,987
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 27,100
- ------------------------------------------------------------
Other assets 33,155
============================================================
Total assets 208,027,361
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 5,257,491
- ------------------------------------------------------------
Fund shares reacquired 663,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 32,411
- ------------------------------------------------------------
Collateral upon return of securities loaned 6,790,375
- ------------------------------------------------------------
Accrued distribution fees 104,705
- ------------------------------------------------------------
Accrued trustees' fees 941
- ------------------------------------------------------------
Accrued transfer agent fees 26,248
- ------------------------------------------------------------
Accrued operating expenses 79,804
============================================================
Total liabilities 12,955,475
============================================================
Net assets applicable to shares outstanding $ 195,071,886
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 307,591,806
- ------------------------------------------------------------
Undistributed net investment income (loss) (29,371)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (139,144,919)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 26,654,370
============================================================
$ 195,071,886
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 99,261,624
____________________________________________________________
============================================================
Class B $ 70,420,726
____________________________________________________________
============================================================
Class C $ 24,503,049
____________________________________________________________
============================================================
Class R $ 876,607
____________________________________________________________
============================================================
Institutional Class $ 9,880
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 10,934,912
____________________________________________________________
============================================================
Class B 8,033,455
____________________________________________________________
============================================================
Class C 2,794,530
============================================================
Class R 97,064
____________________________________________________________
============================================================
Institutional Class 1,085
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.08
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.08 divided by
94.50%) $ 9.61
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.77
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.77
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.03
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.11
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $6,544,219
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,918) $ 683,992
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $63,247)* 153,142
=========================================================================
Total investment income 837,134
=========================================================================
EXPENSES:
Advisory fees 1,780,749
- -------------------------------------------------------------------------
Administrative services fees 86,224
- -------------------------------------------------------------------------
Custodian fees 61,905
- -------------------------------------------------------------------------
Distribution fees:
Class A 394,349
- -------------------------------------------------------------------------
Class B 802,204
- -------------------------------------------------------------------------
Class C 291,132
- -------------------------------------------------------------------------
Class R 2,920
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 912,181
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 9
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 16,001
- -------------------------------------------------------------------------
Other 281,545
=========================================================================
Total expenses 4,629,219
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (42,438)
=========================================================================
Net expenses 4,586,781
=========================================================================
Net investment income (loss) (3,749,647)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from investment securities 9,151,671
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,975,847)
- -------------------------------------------------------------------------
Foreign currencies (6,549)
=========================================================================
(2,982,396)
=========================================================================
Net gain from investment securities 6,169,275
=========================================================================
Net increase in net assets resulting from operations $ 2,419,628
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,749,647) $ (2,955,493)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 9,151,671 14,307,340
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (2,982,396) 42,907,455
==========================================================================================
Net increase in net assets resulting from operations 2,419,628 54,259,302
==========================================================================================
Share transactions-net:
Class A (10,422,993) 18,339,848
- ------------------------------------------------------------------------------------------
Class B (11,811,705) 1,788,121
- ------------------------------------------------------------------------------------------
Class C (4,684,464) 5,771,210
- ------------------------------------------------------------------------------------------
Class R 676,095 197,900
- ------------------------------------------------------------------------------------------
Institutional Class 10,000 --
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (26,233,067) 26,097,079
==========================================================================================
Net increase (decrease) in net assets (23,813,439) 80,356,381
==========================================================================================
NET ASSETS:
Beginning of year 218,885,325 138,528,944
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(29,371) and $(24,611), respectively) $195,071,886 $218,885,325
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-8
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities.' Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
F-9
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $1
billion of the Fund's average daily net assets plus 0.75% of the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 2.00%, 2.65%, 2.65%,
2.15% and 1.65% of average daily net assets, respectively. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to exceed the caps stated above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $2,147.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $36,467 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $86,224 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $912,181 for Class A, Class B, Class C and Class R shares and
$9 for Institutional Class shares and reimbursed fees for the Institutional
Class shares of $4. AISI may make payments to intermediaries that provide
omnibus account services, sub-accounting services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended October 31, 2004, the Class A, Class
B, Class C and Class R shares paid $394,349 $802,204, $291,132 and $2,920,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$77,275 in front-end sales commissions from the sale of Class A shares and $120,
$12,045, $4,411 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-10
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,039,656 $ 60,161,675 $(64,382,911) $ -- $1,818,420 $45,344 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,039,656 60,161,675 (64,382,911) -- 1,818,420 44,551 --
===========================================================================================================================
Subtotal $12,079,312 $120,323,350 $(128,765,822) $ -- $3,636,840 $89,895 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 1,593,500 $ 86,506,068 $ (88,099,568) $ -- $ -- $58,446 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 19,094,475 (12,304,100) -- 6,790,375 4,801 --
===========================================================================================================================
Subtotal $ 1,593,500 $105,600,543 $(100,403,668) $ -- $ 6,790,375 $63,247 $ --
===========================================================================================================================
Total $13,672,812 $225,923,893 $(229,169,490) $ -- $10,427,215 $153,142 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $2,622,166 and $702,736,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $3,820 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$3,820.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $5,035
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.
F-11
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $6,544,219 were
on loan to brokers. The loans were secured by cash collateral of $6,790,375
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $63,247 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments $ 25,453,299
- ---------------------------------------------------------------------------
Temporary book/tax differences (29,371)
- ---------------------------------------------------------------------------
Capital loss carryforward (137,943,848)
- ---------------------------------------------------------------------------
Shares of beneficial interest 307,591,806
===========================================================================
Total net assets $ 195,071,886
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(6,550).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
F-12
The Fund utilized $8,876,974 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2008 $ 407,338
- -----------------------------------------------------------------------------
October 31, 2009 86,724,292
- -----------------------------------------------------------------------------
October 31, 2010 50,812,218
=============================================================================
Total capital loss carryforward $137,943,848
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--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, 2004 was $358,096,030 and $382,393,967, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $29,338,178
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,878,329)
===============================================================================
Net unrealized appreciation of investment securities $25,459,849
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $176,344,154.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$3,744,887 and shares of beneficial interest decreased by $3,744,887. This
reclassification had no effect on the net assets of the Fund.
F-13
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,366,280 $ 31,467,821 7,664,279 $ 58,252,871
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,689,471 15,326,444 3,281,689 24,068,217
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,055,967 9,613,286 1,644,878 12,124,964
- ----------------------------------------------------------------------------------------------------------------------
Class R 79,652 742,690 25,518 209,495
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 1,085 10,000 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 287,382 2,711,609 189,563 1,431,485
- ----------------------------------------------------------------------------------------------------------------------
Class B (296,604) (2,711,609) (194,530) (1,431,485)
======================================================================================================================
Reacquired:
Class A (4,869,016) (44,602,423) (5,404,259) (41,344,508)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,730,826) (24,426,540) (2,879,424) (20,848,611)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,595,627) (14,297,750) (872,689) (6,353,754)
- ----------------------------------------------------------------------------------------------------------------------
Class R (7,765) (66,595) (1,487) (11,595)
======================================================================================================================
(3,020,001) $(26,233,067) 3,453,538 $ 26,097,079
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 10% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM/or AIM affiliates including but not
limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge
as to whether all or any portion of the shares owned of record by this
shareholder is also owned beneficially.
(b) Institutional Class shares commenced sales on April 30, 2004.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.92 $ 6.54 $ 8.58 $ 14.38 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.11)(a) (0.13)(a) (0.11)(a) (0.12)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.29 2.49 (1.91) (5.69) 4.50
=================================================================================================================================
Total from investment operations 0.16 2.38 (2.04) (5.80) 4.38
=================================================================================================================================
Net asset value, end of period $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.79% 36.39% (23.78)% (40.33)% 43.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,262 $108,436 $63,463 $94,457 $114,913
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.74%(c)(d) 1.90% 1.83% 1.65% 1.63%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.36)%(c) (1.42)% (1.49)% (1.06)% (0.76)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $112,671,098.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.76%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 6.40 $ 8.45 $ 14.25 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 2.43 (1.87) (5.62) 4.47
=================================================================================================================================
Total from investment operations 0.09 2.28 (2.05) (5.80) 4.25
=================================================================================================================================
Net asset value, end of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.04% 35.63% (24.26)% (40.70)% 42.50%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,421 $81,298 $58,654 $81,905 $103,893
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.55% 2.48% 2.32% 2.32%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (2.01)%(c) (2.07)% (2.14)% (1.73)% (1.45)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $80,220,450.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 6.40 $ 8.45 $ 14.26 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 2.43 (1.87) (5.63) 4.48
=================================================================================================================================
Total from investment operations 0.09 2.28 (2.05) (5.81) 4.26
=================================================================================================================================
Net asset value, end of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.04% 35.63% (24.26)% (40.74)% 42.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,503 $28,928 $16,404 $23,971 $29,969
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.55% 2.48% 2.32% 2.32%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (2.01)%(c) (2.07)% (2.14)% (1.73)% (1.45)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $29,113,161.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-----------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.89 $ 6.54 $ 8.73
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.13)(a) (0.05)(a)
- -------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.28 2.48 (2.14)
=======================================================================================================
Total from investment operations 0.14 2.35 (2.19)
=======================================================================================================
Net asset value, end of period $9.03 $ 8.89 $ 6.54
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 1.57% 35.93% (25.09)%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 877 $ 224 $ 7
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets 1.89%(c)(d) 2.05% 1.98%(e)
=======================================================================================================
Ratio of net investment income (loss) to average net assets (1.51)%(c) (1.57)% (1.64)%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 167% 211% 185%
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Not annualized for periods less than one
year.
(c) Ratios are based on average daily net assets of $584,032.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.91%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a)
- -----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.07)
===================================================================================
Total from investment operations (0.11)
===================================================================================
Net asset value, end of period $ 9.11
___________________________________________________________________________________
===================================================================================
Total return(b) (1.19)%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets 1.20%(c)(d)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.82)%
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(e) 167%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of $9,671.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% (annualized).
(e) Not annualized for periods less than one year.
F-17
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
F-19
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Mid Cap Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Mid
Cap Growth Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Mid Cap Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-21
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
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 and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), 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, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); 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), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (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.;
President and Chief Executive Officer, 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
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired 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 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California)
Trustee
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations, Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management Group Inc.
Senior Vice President and Chief (financial services holding company); Senior Vice President
Compliance Officer and Chief Compliance Officer, A I M Advisors, Inc.; Vice
President and Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors, Inc.; and Vice
President, AIM Investment Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and Compliance Director,
Delaware Investments Family of Funds
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Director and Vice
Officer President, INVESCO Distributors, Inc.; Vice President, A I M
Capital Management, Inc., and AIM Investment Services, Inc.;
Director, Vice President and General Counsel, Fund
Management Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; Senior Vice President and General
Counsel, Liberty Funds Group, LLC and Vice President, A I M
Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money Market Research and
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.
Vice President and Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing Director and Chief
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M Management Group, Inc.;
Vice President Senior Vice President, A I M Advisors, Inc., and President,
Director of Investments, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
Formerly: Director of A I M Advisors, Inc. and A I M
Management Group Inc., A I M Advisors, Inc.; and Director
and Chairman, A I M Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.
- -------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 N/A
Senior Vice President and Chief
Compliance Officer
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President,
Secretary and Chief Legal
Officer
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
Houston, TX Houston, TX
77046-1173 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ===============================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ===============================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com MCG-AR-1 A I M Distributors. Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM SELECT BASIC VALUE FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM SELECT BASIC VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT net asset values calculated for
shareholder transactions. Generally
o Class B shares are not available as an o The unmanaged Russell 1000--Registered accepted accounting principles require
investment for retirement plans Trademark-- Index represents the adjustments to be made to the net assets
maintained pursuant to Section 401 of performance of the stocks of of the fund at period end for financial
the Internal Revenue Code, including large-capitalization companies. reporting purposes, and as such, the net
401(k) plans, money purchase pension asset values for shareholder
plans and profit sharing plans. o The unmanaged Standard & Poor's transactions and the returns based on
Composite Index of 500 Stocks (the S&P those net asset values may differ from
PRINCIPAL RISKS OF INVESTING IN THE FUND 500--Registered Trademark-- Index) is an the net asset values and returns
index of common stocks frequently used reported in the Financial Highlights.
o International investing presents as a general measure of U.S. stock
certain risks not associated with market performance. o Industry classifications used in this
investing solely in the United States. report are generally according to the
These include risks relating to o The unmanaged Lipper Multi-Cap Value Global Industry Classification Standard,
fluctuations in the value of the U.S. Fund Index represents an average of the which was developed by and is the
dollar relative to the values of other performance of the 30 largest exclusive property and a service mark of
currencies, the custody arrangements multi-capitalization value funds tracked Morgan Stanley Capital International
made for the fund's foreign holdings, by Lipper, Inc., an independent mutual Inc. and Standard & Poor's.
differences in accounting, political fund performance monitor.
risks and the lesser degree of public The fund files its complete schedule of
information required to be provided by o The unmanaged Russell 1000--Registered portfolio holdings with the Securities
non-U.S. companies. The fund may invest Trademark-- Value Index is a subset of and Exchange Commission ("SEC") for the
up to 25% of its assets in the the unmanaged Russell 1000 Index, which 1st and 3rd quarters of each fiscal year
securities of non-U.S. issuers. represents the performance of the stocks on Form N-Q. The Fund's Form N-Q filings
of large-capitalization companies; the are available on the SEC's Web site at
o By concentrating on a small number of Value subset measures the performance of http://www.sec.gov. Copies of the fund's
holdings, the fund carries greater risk Russell 1000 companies with lower Forms N-Q may be reviewed and copied at
because each investment has a greater price/book ratios and lower forecasted the SEC's Public Reference Room at 450
effect on the fund's overall growth values. Fifth Street, N.W., Washington, D.C.
performance. 20549-0102. You can obtain information
o The unmanaged MSCI World Index is a on the operation of the Public Reference
o The fund may participate in the group of global securities tracked by Room, including information about
initial public offering (IPO) market in Morgan Stanley Capital International. duplicating fee charges, by calling
some market cycles. A significant 1-202-942-8090 or by electronic request
portion of the fund's returns during o The fund is not managed to track the at the following e-mail address: The SEC
certain periods was attributable to its performance of any particular index, file numbers for the fund are 811-1424
investments in IPOs. These investments including the indexes defined here, and and 2-25469. The fund's most recent
have a magnified impact when the fund's consequently, the performance of the portfolio holdings, as filed on Form
asset base is relatively small. As the fund may deviate significantly from the N-Q, are also available at
fund's assets grow, the impact of IPO performance of the indexes. AIMinvestments.com.
investments will decline, which may
reduce the effect of IPO investments on o A direct investment cannot be made in Information regarding how the fund voted
the fund's total return. For additional an index. Unless otherwise indicated, proxies related to its portfolio
information regarding the impact of IPO index results include reinvested securities during the 12 months ended
investments on the fund's performance, dividends, and they do not reflect sales 6/30/04 is available at our Web site. Go
please see the fund's prospectus. charges. Performance of an index of to AIMinvestments.com, click on About
funds reflects fund expenses; Us, then on Required Notices and then
o Investing in small and mid-size performance of a market index does not. select your fund from the drop-down
companies involves risks not associated menu.
with investing in more established OTHER INFORMATION
companies, including business risk, A description of the policies and
significant stock price fluctuations and o The returns shown in the Management's procedures that the Fund uses to
illiquidity. Discussion of Fund Performance are based determine how to vote proxies relating
on to portfolio securities is available
without charge, upon request, by calling
800-959-4246, or on the AIM Web site,
AIMinvestments.com. Scroll down on the
home page and click on AIM Funds or
INVESCO Funds Proxy Voting Policies.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
[PHOTO OF requiring that an independent fund trustee, meaning a
MARK H. trustee who is not an officer of the fund's investment
WILLIAMSON] advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
MARK H. WILLIAMSON Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
[PHOTO OF Crockett, one of the fourteen independent trustees on the
BRUCE L. AIM Funds' Board, as Chairman. His appointment became
CROCKETT] effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
BRUCE L. CROCKETT Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever, we
encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of
how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
------------------------- --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, Trustee, AIM Funds
AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND PRODUCED ATTRACTIVE RETURNS believed to be a significant valuation
BUT UNDERPERFORMED BENCHMARKS opportunity.
For the fiscal year ended October 31, of economic growth. Higher commodity Tyco was one of the fund's top
2004, Class A shares of AIM Select Basic prices and a more restrictive monetary performing stocks for the second year in
Value Fund returned 8.33% at net asset policy were key issues, and a moderation a row, validating the magnitude of the
value. PERFORMANCE SHOWN AT NAV DOES NOT of what had been generally strong levels investment opportunity created during
INCLUDE FRONT-END SALES CHARGES, WHICH of consumer confidence and manufacturing the 2002 scandal. As we believed at the
WOULD HAVE REDUCED THE PERFORMANCE. activity served to validate concerns. time, the market position and intrinsic
Results for other share classes are value of Tyco proved far more durable
shown in the table on page 3. The fund During the fiscal year, the fund than investors believed in the midst of
underperformed its benchmarks, the S&P experienced solid gains from its the Kozlowski malfeasance charges. We
500 Index, the Russell 1000 Value Index industrial holdings, led by Tyco. Both continued to believe Tyco was one of the
and the Lipper Multi-Cap Value Fund the consumer discretionary and energy better investment opportunities within
Index, which returned 9.41%, 15.45% and sectors were also key contributors given the industrial sector of the economy,
12.93%, respectively. the strong performance of both Brunswick although the valuation was not as
and Transocean. Consumer staples was the compelling after rising more than 200%
The fund underperformed its fund's worst-performing sector, with since the 2002 lows. Consequently we
benchmarks partly because of its particular weakness in food retailers reduced our position in the company from
relatively low weight in energy, the Kroger Co. and Safeway Inc. peak levels during the period.
best performing sector of the market,
along with poor performance from its The largest detractor to fund YOUR FUND
investments in both Novellus Systems and performance was Cardinal Health, which
Cardinal Health. Our underweight has been faced with a number of Our investment objective is to create
position in energy reflected an effort challenges including accounting wealth by maintaining a long-term
to achieve superior diversification and restatements, decelerating drug price investment horizon and investing in
a lower risk profile than that of the inflation and slower prescription companies we believe are undervalued by
Russell 1000 Value Index. growth. Drug distributors are in the the market. The fund's investment
midst of a fundamental change in their philosophy is based on two key
MARKET CONDITIONS AND CURRENT PERIOD business models that we believed would principles:
PERFORMANCE benefit Cardinal Health's long-term
results. However, the near-term o Companies have a measurable intrinsic
The domestic economy continued to uncertainty made drug distributors very value that is based on projected cash
recover throughout the fiscal year, with unpopular on Wall Street and resulted in flows generated by the business;
broader markets responding favorably weak current-period performance. At the importantly, this value is independent
over the first nine months of the end of the fiscal year, we continued to of the stock market.
period. In the final fiscal quarter, own the company, given what we
however, investors grew concerned about o Market prices are more volatile than
the sustainability business values, and investors regularly
overreact to negative news.
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. Computer Associates 1. Pharmaceuticals 8.4%
International, Inc. 4.8%
[PIE CHART] 2. Diversified Commercial Services 7.7
2. Tyco International Ltd.
Consumer Discretionary 16.7% (Bermuda) 4.6 3. Other Diversified Financial
Services 7.4
Information Technology 12.1% 3. Fannie Mae 4.3
4. Thrifts & Mortgage Finance 6.1
Energy 6.7% 4. Sanofi-Aventis (France) 3.9
5. Data Processing & Outsourced
Consumer Staples 3.1% 5. Citigroup Inc. 3.8 Services 5.7
Money Market Funds Plus Other 6. First Data Corp. 3.6 6. Advertising 5.5
Assets Less Liabilities 1.3%
7. JPMorgan Chase & Co. 3.6 7. Health Care Distributors 5.0
Health Care 21.3%
8. Merrill Lynch & Co., Inc. 3.4 8. Oil & Gas Drilling 4.9
Financials 19.4%
9. Brunswick Corp. 3.3 9. Systems Software 4.8
Industrials 19.4%
10. Cendant Corp. 3.2 10. Industrial Conglomerates 4.6
The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any
particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
Our goal is to create a portfolio managers we believe this provides the R. CANON COLEMAN II
that has a lower risk profile versus the best indicator of achieving the fund's Mr. Coleman, Chartered
market, yet also has the potential to objective. [COLEMAN Financial Analyst, joined
outperform the market in the long run. PHOTO] AMVESCAP in 1999 in its
IN CLOSING corporate associate
Since our application of this rotation program, working
strategy is highly disciplined and We believe the absence of a long-term with fund managers throughout AMVESCAP
unique, we believe it is important to investment horizon is clearly a major before joining AIM in 2000. He previously
understand the benefits and limitations obstacle many face in building worked as a CPA. Mr. Coleman earned a
of our process. First, our investment significant wealth. Market-relative B.S. and an M.S. in accounting from the
strategy is intended to preserve your results during this period were weak, University of Florida. He also has an
capital while growing it over the long but normal market volatility M.B.A. from The Wharton School at the
term. Second, we have little portfolio predominates in the short run and limits University of Pennsylvania.
overlap with popular benchmarks and most our ability to measure success. As
of our peers. We do not believe that managers and shareholders, we believe a MATTHEW W. SEINSHEIMER
such benchmarks are optimally long-term investment horizon and Mr. Seinsheimer, Chartered
constructed--indeed, they can be quite attractive value content are critical to [SEINSHEIMER Financial Analyst, began
risky as witnessed in the recent bear creating wealth. Thank you for your PHOTO] his investment career in
market. While this does create a investment and for sharing our 1992 as a fixed-income
diversification benefit, it also longer-term view. trader. He later served as
suggests there will be more variability a portfolio manager on both fixed income and
in short-term results versus the market The views and opinions expressed in equity portfolios. Mr. Seinsheimer joined
averages for the simple reason that your Management's Discussion of Fund AIM as a senior analyst in 1998 and assumed
fund does not own the exact same stocks Performance are those of A I M Advisors, his current responsibilities in 2000. He
as its benchmarks. Inc. These views and opinions are received a B.B.A. from Southern
subject to change at any time based on Methodist University and an M.B.A. from
Lastly, it is our opinion that the factors such as market and economic The University of Texas at Austin.
single most important measure of AIM conditions. These views and opinions may
Select Basic Value Fund is not our not be relied upon as investment advice MICHAEL J. SIMON
historical investment results or popular or recommendations, or as an offer for a Mr. Simon, Chartered
statistical measures, but rather the particular security. The information is [SIMON Financial Analyst, joined
portfolio's intrinsic value. Since we not a complete analysis of every aspect PHOTO] AIM in 2001. Prior to
can estimate the intrinsic value of each of any market, country, industry, joining AIM, Mr. Simon
holding in the portfolio, we can also security or the Fund. Statements of fact worked as a vice
estimate the intrinsic value of the are from sources considered reliable, president, equity analyst and portfolio
entire fund. At the end of the fiscal but A I M Advisors, Inc. makes no manager. Mr. Simon, who began his investment
year, we believed this value remained representation or warranty as to their career in 1989, received a B.B.A. in
well above market value. While there is completeness or accuracy. Although finance from Texas Christian University
no assurance that market value will ever historical performance is no guarantee and an M.B.A. from the University of
reflect our estimate of portfolio of future results, these insights may Chicago. Mr. Simon has served as
intrinsic value, as help you understand our investment Occasional Faculty in the Finance and
management philosophy. Decision Sciences Department of Texas
Christian University's M.J. Neeley
See important fund and index School of Business.
disclosures inside front cover.
BRET W. STANLEY
Mr. Stanley, Chartered
==================================================================================== [STANLEY Financial Analyst, is lead
PHOTO] portfolio manager of AIM
FUND VS. INDEXES TOTAL NET ASSETS $1.3 MILLION Select Basic Value Fund
TOTAL NUMBER OF HOLDINGS* 37 and the head of AIM's
TOTAL RETURNS 10/31/03-10/31/04, Value Investment Management Unit. Prior to
EXCLUDING APPLICABLE SALES CHARGES. IF joining AIM in 1998, Mr. Stanley served
SALES CHARGES WERE INCLUDED, RETURNS as a vice president and portfolio
WOULD BE LOWER. manager and managed growth and income,
equity income and value portfolios. He
CLASS A SHARES 8.33% began his investment career in 1988. Mr.
Stanley received a B.B.A. in finance
CLASS B SHARES 8.33 from The University of Texas at Austin
and an M.S. in finance from the
CLASS C SHARES 8.33 University of Houston.
S&P 500 INDEX (BROAD MARKET Assisted by the Basic Value Team
INDEX) 9.41
RUSSELL 1000 VALUE INDEX
(STYLE-SPECIFIC INDEX) 15.45
LIPPER MULTI-CAP VALUE FUND
INDEX (PEER GROUP INDEX) 12.93
SOURCE: LIPPER, INC.
==================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE estimate the expenses that you paid over To do so, compare this 5% hypothetical
the period. Simply divide your account example with the 5% hypothetical
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 examples that appear in the shareholder
two types of costs: (1) transaction account value divided by $1,000 = 8.6), reports of the other funds.
costs, which may include sales charges then multiply the result by the number
(loads) on purchase payments; contingent in the table under the heading entitled Please note that the expenses shown
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to in the table are meant to highlight your
and redemption fees, if any; and (2) estimate the expenses you paid on your ongoing costs only and do not reflect
ongoing costs, including management account during this period. any transactional costs, such as sales
fees; distribution and/or service fees charges (loads) on purchase payments,
(12b-1); and other fund expenses. This HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
example is intended to help you PURPOSES redemptions, and redemption fees, if
understand your ongoing costs (in any. Therefore, the hypothetical
dollars) of investing in the fund and to The table below also provides information is useful in comparing
compare these costs with ongoing costs information about hypothetical account ongoing costs only, and will not help
of investing in other mutual funds. The values and hypothetical expenses based you determine the relative total costs
example is based on an investment of on the fund's actual expense ratio and of owning different funds. In addition,
$1,000 invested at the beginning of the an assumed rate of return of 5% per year if these transactional costs were
period and held for the entire period, before expenses, which is not the fund's included, your costs would have been
May 1, 2004 - October 31, 2004. actual return. The hypothetical account higher.
values and expenses may not be used to
ACTUAL EXPENSES estimate the actual ending account
balance or expenses you paid for the
The table below provides information period. You may use this information to
about actual account values and actual compare the ongoing costs of investing
expenses. You may use the information in in the fund and other funds.
this table, together with the amount you
invested, to
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $975.30 $8.84 $1,016.19 $9.02
Class B 1,000.00 975.30 8.84 1,016.19 9.02
Class C 1,000.00 975.30 8.84 1,016.19 9.02
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1,
2004, to October 31, 2004, was -2.47%, -2.47% and -2.47% for Class A, B and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.78%, 1.78% and 1.78% for Class A, B and C shares, respectively)
multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 8/30/02-10/31/04 (Index data from 8/31/02-10/31/04)
Your fund's total return includes
reinvested distributions, applicable [MOUNTAIN CHART]
sales charges, fund expenses and
management fees. Results for Class B
shares are calculated as if a AIM SELECT AIM SELECT AIM SELECT
hypothetical shareholder had liquidated BASIC BASIC BASIC LIPPER RUSSELL
his entire investment in the fund at the VALUE FUND VALUE FUND VALUE FUND MULTI-CAP RUSSELL 1000
close of the reporting period and paid CLASS A CLASS B CLASS C VALUE FUND 1000 VALUE S&P 500
the applicable contingent deferred sales DATE SHARES SHARES SHARES INDEX INDEX INDEX INDEX
charges. Index results include
reinvested dividends, but they do not 8/30/2002 $ 9450 $10000 $10000
reflect sales charges. Performance of an 8/02 9450 10000 10000 $10000 $10000 $10000 $10000
index of funds reflects fund expenses 9/02 7995 8460 8460 8916 8926 8888 8914
and management fees; performance of a 10/02 8628 9130 9130 9393 9668 9547 9698
market index does not. Performance shown 11/02 9393 9940 9940 10093 10233 10148 10268
in the chart does not reflect deduction 12/02 8807 9320 9320 9647 9654 9707 9665
of taxes a shareholder would pay on fund 1/03 8597 9097 9097 9449 9420 9472 9413
distributions or sale of fund shares. 2/03 8233 8712 8712 9206 9275 9220 9271
Performance of the indexes does not 3/03 8252 8732 8732 9241 9371 9235 9361
reflect the effects of taxes. 4/03 9036 9562 9562 10044 10127 10048 10132
5/03 10078 10664 10664 10883 10704 10697 10665
6/03 10259 10856 10856 10963 10845 10830 10801
AVERAGE ANNUAL TOTAL RETURNS 7/03 10584 11200 11200 11114 11061 10992 10992
As of 10/31/04, including applicable 8/03 10871 11504 11504 11462 11286 11163 11206
sales charges 9/03 10680 11301 11301 11330 11170 11054 11087
10/03 11139 11787 11787 11954 11825 11730 11714
CLASS A SHARES 11/03 11378 12041 12041 12209 11967 11890 11817
Inception (8/30/02) 9.06% 12/03 12058 12759 12759 12810 12540 12622 12436
1 Year 2.35 1/04 12182 12891 12891 13081 12778 12844 12664
2/04 12421 13144 13144 13330 12955 13120 12840
CLASS B SHARES 3/04 12449 13174 13174 13213 12779 13005 12647
Inception (8/30/02) 10.71% 4/04 12373 13093 13093 12970 12548 12687 12448
1 Year 3.33 5/04 12412 13134 13134 13031 12729 12816 12619
6/04 12698 13437 13437 13399 12958 13119 12864
CLASS C SHARES 7/04 11953 12649 12649 13016 12503 12934 12438
Inception (8/30/02) 11.93% 8/04 11867 12558 12558 13061 12565 13118 12488
1 Year 7.33 9/04 11982 12679 12679 13325 12723 13322 12624
10/04 $12070 $12470 $12770 $13500 $12928 $13543 $12816
Source: Lipper, Inc.
In addition to returns as of the close
of the fiscal year, industry regulations The performance data quoted represent measure its performance against the
require us to provide cumulative total past performance and cannot guarantee Russell 1000 Index, the index published
returns as of 9/30/04, the most recent comparable future results; current in previous reports to shareholders.
calendar quarter-end. performance may be lower or higher. Because this is the first reporting
Please visit AIMinvestments.com for the period since we have adopted the new
most recent month-end performance. index, SEC guidelines require that we
AVERAGE ANNUAL TOTAL RETURNS Performance figures reflect reinvested compare the fund's performance to both
As of 9/30/04, most recent calendar distributions, changes in net asset the old and the new index. In addition,
quarter-end, including applicable sales value and the effect of the maximum the unmanaged Lipper Multi-Cap Value
charges sales charge unless otherwise stated. Index, which may or may not include AIM
Investment return and principal value Select Basic Value Fund, is included for
CLASS A SHARES will fluctuate so that you may have a comparison to a peer group.
Inception (8/30/02) 9.07% gain or loss when you sell shares.
1 Year 6.01 Had the advisor and distributor not
Class A share performance reflects waived fees and/or reimbursed expenses,
CLASS B SHARES the maximum 5.50% sales charge, and performance would have been lower.
Inception (8/30/02) 10.78% Class B and Class C share performance
1 Year 7.18 reflects the applicable contingent
deferred sales charge (CDSC) for the
CLASS C SHARES period involved. The CDSC on Class B
Inception (8/30/02) 12.06% shares declines from 5% beginning at the
1 Year 11.18 time of purchase to 0% at the beginning
of the seventh year. The CDSC on Class C
shares is 1% for the first year after
purchase.
The performance of the fund's share
classes will differ due to different
sales charge structures and class
expenses.
Since the last reporting period, the
fund has elected to use the S&P 500
Index as its broad-based market index
since the S&P 500 Index is such a widely
recognized gauge of performance. The
fund will no longer
====================================================================================================================================
</Table>
5
AIM SELECT BASIC VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS--98.73%
ADVERTISING--5.49%
Interpublic Group of Cos., Inc. (The)(a) 2,500 $30,650
- ---------------------------------------------------------------------------------------------------
Omnicom Group Inc. 500 39,450
===================================================================================================
70,100
===================================================================================================
AEROSPACE & DEFENSE--1.85%
Honeywell International Inc. 700 23,576
===================================================================================================
APPAREL RETAIL--2.50%
Gap, Inc. (The) 1,600 31,968
===================================================================================================
BUILDING PRODUCTS--2.15%
American Standard Cos. Inc.(a) 750 27,427
===================================================================================================
DATA PROCESSING & OUTSOURCED SERVICES--5.72%
Ceridian Corp.(a) 1,600 27,600
- ---------------------------------------------------------------------------------------------------
First Data Corp. 1,100 45,408
===================================================================================================
73,008
===================================================================================================
DIVERSIFIED COMMERCIAL SERVICES--7.65%
Cendant Corp. 2,000 41,180
- ---------------------------------------------------------------------------------------------------
H&R Block, Inc. 350 16,643
- ---------------------------------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 1,900 39,900
===================================================================================================
97,723
===================================================================================================
ENVIRONMENTAL SERVICES--3.12%
Waste Management, Inc. 1,400 39,872
===================================================================================================
FOOD RETAIL--3.10%
Kroger Co. (The)(a) 1,650 24,932
- ---------------------------------------------------------------------------------------------------
Safeway Inc.(a) 800 14,592
===================================================================================================
39,524
===================================================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES--2.35%
Target Corp. 600 $30,012
===================================================================================================
HEALTH CARE DISTRIBUTORS--4.99%
Cardinal Health, Inc. 850 39,738
- ---------------------------------------------------------------------------------------------------
McKesson Corp. 900 23,994
===================================================================================================
63,732
===================================================================================================
HEALTH CARE EQUIPMENT--2.59%
Waters Corp.(a) 800 33,032
===================================================================================================
HEALTH CARE FACILITIES--1.15%
HCA, Inc. 400 14,692
===================================================================================================
HEALTH CARE SERVICES--1.08%
IMS Health Inc. 650 13,767
===================================================================================================
HOTELS, RESORTS & CRUISE LINES--2.99%
Starwood Hotels & Resorts Worldwide, Inc. 800 38,184
===================================================================================================
INDUSTRIAL CONGLOMERATES--4.64%
Tyco International Ltd. (Bermuda) 1,900 59,185
===================================================================================================
INVESTMENT BANKING & BROKERAGE--3.38%
Merrill Lynch & Co., Inc. 800 43,152
===================================================================================================
LEISURE PRODUCTS--3.31%
Brunswick Corp. 900 42,228
===================================================================================================
MANAGED HEALTH CARE--3.15%
Anthem, Inc.(a) 500 40,200
===================================================================================================
OIL & GAS DRILLING--4.86%
Pride International, Inc.(a) 1,450 26,796
- ---------------------------------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 1,000 35,250
===================================================================================================
62,046
===================================================================================================
OIL & GAS EQUIPMENT & SERVICES--1.84%
Weatherford International Ltd. (Bermuda)(a) 450 23,517
===================================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES--7.38%
Citigroup Inc. 1,100 48,807
- ---------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 1,175 45,355
===================================================================================================
94,162
===================================================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS--8.37%
Pfizer Inc. 1,100 $ 31,845
- ---------------------------------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 687 50,402
- ---------------------------------------------------------------------------------------------------
Wyeth 620 24,583
===================================================================================================
106,830
===================================================================================================
PROPERTY & CASUALTY INSURANCE--2.53%
ACE Ltd. (Cayman Islands) 850 32,351
===================================================================================================
SEMICONDUCTOR EQUIPMENT--1.62%
Novellus Systems, Inc.(a) 800 20,728
===================================================================================================
SYSTEMS SOFTWARE--4.78%
Computer Associates International, Inc. 2,200 60,962
===================================================================================================
THRIFTS & MORTGAGE FINANCE--6.14%
Fannie Mae 775 54,366
- ---------------------------------------------------------------------------------------------------
Radian Group Inc. 500 23,965
===================================================================================================
78,331
===================================================================================================
Total Common Stocks (Cost $1,028,314) 1,260,309
===================================================================================================
TOTAL INVESTMENTS--98.73%(Cost $1,028,314) 1,260,309
===================================================================================================
OTHER ASSETS LESS LIABILITIES--1.27% 16,213
===================================================================================================
NET ASSETS--100.00% $1,276,522
___________________________________________________________________________________________________
===================================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at October 31, 2004 represented 4.00% of the
Fund's Total Investments. See Note 1A.
See accompanying notes which are an integral part of the financial statements.
F-3
AIM SELECT BASIC VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $1,028,314) $1,260,309
- --------------------------------------------------------------------------------------------------------
Cash 18,783
- --------------------------------------------------------------------------------------------------------
Receivables for:
Dividends 1,331
- --------------------------------------------------------------------------------------------------------
Amount due from advisor 16,241
- --------------------------------------------------------------------------------------------------------
Other assets 236
========================================================================================================
Total assets 1,296,900
________________________________________________________________________________________________________
========================================================================================================
LIABILITIES:
Payables for investments purchased 4,678
- --------------------------------------------------------------------------------------------------------
Accrued trustees' fees 2,467
- --------------------------------------------------------------------------------------------------------
Accrued transfer agent fees 7
- --------------------------------------------------------------------------------------------------------
Accrued operating expenses 13,226
========================================================================================================
Total liabilities 20,378
========================================================================================================
Net assets applicable to shares outstanding $1,276,522
========================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $982,776
- --------------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities and foreign currencies 61,745
- --------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign currencies 232,001
========================================================================================================
$1,276,522
________________________________________________________________________________________________________
========================================================================================================
NET ASSETS:
Class A $510,606
________________________________________________________________________________________________________
========================================================================================================
Class B $382,958
________________________________________________________________________________________________________
========================================================================================================
Class C $382,958
________________________________________________________________________________________________________
========================================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 40,477
________________________________________________________________________________________________________
========================================================================================================
Class B 30,357
________________________________________________________________________________________________________
========================================================================================================
Class C 30,357
________________________________________________________________________________________________________
========================================================================================================
Class A :
Net asset value per share $12.61
- --------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $12.61 (divided by) 94.50%) $13.34
________________________________________________________________________________________________________
========================================================================================================
Class B :
Net asset value and offering price per share $12.62
________________________________________________________________________________________________________
========================================================================================================
Class C :
Net asset value and offering price per share $12.62
________________________________________________________________________________________________________
========================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $156) $ 13,424
=======================================================================================================
EXPENSES:
Advisory fees 9,586
- -------------------------------------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------------------------------------
Custodian fees 1,835
- -------------------------------------------------------------------------------------------------------
Distribution fees:
- -------------------------------------------------------------------------------------------------------
Class A 1,790
- -------------------------------------------------------------------------------------------------------
Class B 3,834
- -------------------------------------------------------------------------------------------------------
Class C 3,834
- -------------------------------------------------------------------------------------------------------
Transfer agent fees 211
- -------------------------------------------------------------------------------------------------------
Trustees' fees 10,687
- -------------------------------------------------------------------------------------------------------
Professional fees 25,771
- -------------------------------------------------------------------------------------------------------
Market timing and litigation fees 17,399
- -------------------------------------------------------------------------------------------------------
Other 7,345
=======================================================================================================
Total expenses 132,292
=======================================================================================================
Less: Fees waived, expenses reimbursed and expense offset arrangements (109,930)
=======================================================================================================
Net expenses 22,362
=======================================================================================================
Net investment income (loss) (8,938)
=======================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 89,848
- -------------------------------------------------------------------------------------------------------
Foreign currencies (2)
=======================================================================================================
89,846
=======================================================================================================
Change in net unrealized appreciation of:
Investment securities 16,783
- -------------------------------------------------------------------------------------------------------
Foreign currencies 6
=======================================================================================================
16,789
=======================================================================================================
Net gain from investment securities and foreign currencies 106,635
=======================================================================================================
Net increase in net assets resulting from operations $ 97,697
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND 2003
<Table>
<Caption>
2004 2003
---------- ----------
OPERATIONS:
Net investment income (loss) $ (8,938) $ (7,616)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and foreign currencies 89,846 (7,698)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 16,789 281,016
=============================================================================================================================
Net increase in net assets resulting from operations 97,697 265,702
=============================================================================================================================
Distributions to shareholders from net investment income:
Class A -- (4,400)
- -----------------------------------------------------------------------------------------------------------------------------
Class B -- (3,300)
- -----------------------------------------------------------------------------------------------------------------------------
Class C -- (3,300)
=============================================================================================================================
Decrease in net assets resulting from distributions -- (11,000)
=============================================================================================================================
Share transactions-net:
Class A -- 4,400
- -----------------------------------------------------------------------------------------------------------------------------
Class B -- 3,300
- -----------------------------------------------------------------------------------------------------------------------------
Class C -- 3,300
=============================================================================================================================
Net increase in net assets resulting from share transactions -- 11,000
=============================================================================================================================
Net increase in net assets 97,697 265,702
=============================================================================================================================
NET ASSETS:
Beginning of year 1,178,825 913,123
=============================================================================================================================
End of year (including undistributed net investment income
(loss) of $0 and $(3,792), respectively) $1,276,522 $1,178,825
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Select Basic Value Fund, formerly Basic Value II Fund, (the "Fund") is a
series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware
statutory trust registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of fifteen separate portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently consists of multiple classes
of shares. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund is currently not open to 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 of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers,
trustees, employees and agents are indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in the
normal course of business, the Fund enters into contracts that contain a variety
of indemnification clauses. The Fund's maximum exposure under these arrangements
is unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of issue,
coupon rate, maturity, individual trading characteristics and other market
data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
F-7
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. 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 the event is likely to have
affected the closing price of the security, the security will be valued at
fair value in good faith using procedures approved by the Board of Trustees.
Adjustments to closing prices to reflect fair value may also be based on a
screening process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the principal
market where a foreign security trades is not the current market value as of
the close of the NYSE. Foreign securities meeting the approved degree of
certainty that the price is not reflective of current market value will be
priced at the indication of fair value from the independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net investment
income reported in the Statement of Operations and Statement of Changes in
Net Assets, or the net investment income per share and ratios of expenses and
net investment income reported in the Financial Highlights, nor are they
limited by any expense limitation arrangements between the Fund and the
advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class
of the Fund and which are directly attributable to that class are charged to
the operations of such class. All other expenses are allocated among the
classes based on relative net assets.
F-8
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities
(net of foreign taxes withheld on disposition) and income items denominated
in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions. The Fund does not separately account
for the portion of the results of operations resulting from changes in
foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of changes
in foreign exchange rates and the fluctuation of market prices on investments
(net of estimated foreign tax withholding) are included with the net realized
and unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized foreign currency
gains and losses arise from changes in the fair values of assets and
liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM 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 next $1
billion of the Fund's 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
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B and Class C shares to 1.75% of average daily net assets. In determining
the advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to exceed the caps stated above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds. Voluntary fee waivers or reimbursements may
be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended October 31,
2004, AIM waived fees of $9,586 and reimbursed expenses of $72,639.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $18,019 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $50,000 for such services.
F-9
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 and reimburse AISI for
certain expenses incurred by AISI in the course of providing such services. For
the year ended October 31, 2004, the Fund paid AISI $211. AISI may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking 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, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. 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. AIM Distributors waived all
plan fees of $1,790, $3,834, and $3,834 for the Class A, Class B and Class C
shares, respectively.
Certain officers and trustees of the Trust are officers and directors
of AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of $16
and credits in custodian fees of $212 under expense offset arrangements, which
resulted in a reduction of the Fund's total expenses of $228.
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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of
$4,268 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
F-10
the credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at 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 years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------
Distributions paid from ordinary income $ -- $ 11,000
========================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------
Undistributed long-term gain $ 61,745
- -------------------------------------------------------------
Unrealized appreciation - investments 232,001
- -------------------------------------------------------------
Shares of beneficial interest 982,776
=============================================================
Total net assets $ 1,276,522
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The tax-basis unrealized
appreciation (depreciation) on investments amount includes appreciation on
foreign currencies of $6.
Capital loss carryforward is calculated and reported as of a specific
date. Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $28,102 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes.
The Fund had no capital loss carryforward as of October 31, 2004.
F-11
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, 2004 was $235,807 and $260,695, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 277,994
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (45,999)
===============================================================================
Net unrealized appreciation of investment securities $ 231,995
_______________________________________________________________________________
===============================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of nondeductible excise
tax paid and net operating losses, on October 31, 2004, undistributed net
investment income was increased by $12,730, undistributed net realized gain
(loss) was increased by $1 and shares of beneficial interest decreased by
$12,731. 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 certain 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(a)
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2004 2003
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A -- $ -- 476 $ 4,400
- -----------------------------------------------------------------------------------------------------------------
Class B -- -- 356 3,300
- -----------------------------------------------------------------------------------------------------------------
Class C -- -- 356 3,300
=================================================================================================================
-- $ -- 1,188 $ 11,000
_________________________________________________________________________________________________________________
=================================================================================================================
(a) Currently, the Fund is not open to investors. All shares are owned by AIM.
</Table>
F-12
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.05 2.70 (0.86)
========================================================================================================================
Total from investment operations 0.96 2.63 (0.87)
========================================================================================================================
Less dividends from net investment income -- (0.11) --
========================================================================================================================
Net asset value, end of period $ 12.61 $ 11.65 $ 9.13
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(a) 8.24% 29.12% (8.70)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 511 $ 472 $ 365
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.83% 1.75%(c)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 9.96%(b) 10.27% 23.74%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(b) (0.75)% (0.49)%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 19% 20% 4%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $511,233.
(c) Annualized.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
----------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.06 2.70 (0.86)
========================================================================================================================
Total from investment operations 0.97 2.63 (0.87)
========================================================================================================================
Less dividends from net investment income -- (0.11) --
========================================================================================================================
Net asset value, end of period $ 12.62 $ 11.65 $ 9.13
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(a) 8.33% 29.12% (8.70)%
Ratios/supplemental data:
________________________________________________________________________________________________________________________
========================================================================================================================
Net assets, end of period (000s omitted) $ 383 $ 354 $ 274
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.83% 1.75%(c)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 10.61%(b) 10.92% 24.39%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(b) (0.75)% (0.49)%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 19% 20% 4%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $383,430.
(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 OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.06 2.70 (0.86)
========================================================================================================================
Total from investment operations 0.97 2.63 (0.87)
========================================================================================================================
Less dividends from net investment income -- (0.11) --
========================================================================================================================
Net asset value, end of period $ 12.62 $ 11.65 $ 9.13
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(a) 8.33% 29.12% (8.70)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 383 $ 354 $ 274
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.83% 1.75%(c)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 10.61%(b) 10.92% 24.39%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(b) (0.75)% (0.49)%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 19% 20% 4%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $383,430.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-14
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an
F-15
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
independent distribution consultant to be appointed under the settlements. The
settlement payments will be distributed in accordance with a methodology to be
determined by the independent distribution consultant, in consultation with AIM
and the independent trustees of the AIM Funds and acceptable to the staff of the
SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause the
AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay all
of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
F-16
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
F-17
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM
F-18
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Funds over other mutual funds and that the defendants concealed such payments
from investors by disguising them as brokerage commissions. These lawsuits
allege a variety of theories of recovery, including but not limited to: (i)
violation of various provisions of the Federal securities laws; (ii) breach of
fiduciary duty; and (iii) aiding and abetting a breach of fiduciary duty. These
lawsuits have been filed in Federal courts and seek such remedies as
compensatory and punitive damages; rescission of certain Funds' advisory
agreements and distribution plans and recovery of all fees paid; an accounting
of all fund-related fees, commissions and soft dollar payments; restitution of
all unlawfully or discriminatorily obtained fees and charges; and attorneys' and
experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Select Basic Value Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Select Basic Value Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, 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
Select Basic Value Fund as of October 31, 2004, the results of its operations
for the year then ended, the statements of changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
2
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
Houston, TX Houston, TX
77046-1173 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ==============================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ==============================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com SBV-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM U.S. GROWTH FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM U.S. GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged MSCI World Index is a The fund files its complete schedule of
group of global securities tracked by portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are Morgan Stanley Capital International. and Exchange Commission ("SEC") for the
not available as an investment for 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to o The unmanaged Standard & Poor's on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue Composite Index of 500 Stocks (the S&P are available on the SEC's Web site at
Code, including 401(k) plans, money 500--Registered Trademark-- Index) is an http://www.sec.gov. Copies of the fund's
purchase pension plans and profit index of common stocks frequently used Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing as a general measure of U.S. stock the SEC's Public Reference Room at 450
accounts invested in Class B shares will market performance. Fifth Street, N.W., Washington, D.C.
continue to be allowed to make 20549-0102. You can obtain information
additional purchases. o The fund is not managed to track the on the operation of the Public Reference
performance of any particular index, Room, including information about
PRINCIPAL RISKS OF INVESTING IN THE FUND including the indexes defined here, and duplicating fee charges, by calling
consequently, the performance of the 1-202-942-8090 or by electronic request
o International investing presents fund may deviate significantly from the at the following e-mail address:
certain risks not associated with performance of the indexes. publicinfo@sec.gov. The SEC file numbers
investing solely in the United States. for the fund are 811-1424 and 2-25469.
These include risks relating to o A direct investment cannot be made in The fund's most recent portfolio
fluctuations in the value of the U.S. an index. Unless otherwise indicated, holdings, as filed on Form N-Q, are also
dollar relative to the values of other index results include reinvested available at AIMinvestments.com.
currencies, the custody arrangements dividends, and they do not reflect sales
made for the fund's foreign holdings, charges. Performance of an index of A description of the policies and
differences in accounting, political funds reflects fund expenses; procedures that the fund uses to
risks and the lesser degree of public performance of a market index does not. determine how to vote proxies relating
information required to be provided by to portfolio securities is available
non-U.S. companies. OTHER INFORMATION without charge, upon request, from our
Client Services department at
o Investing in small and mid-size o Bloomberg, Inc. is a well-known 800-959-4246, or on the AIM Web site,
companies involves risks not associated independent financial research and AIMinvestments.com. Scroll down on the
with investing in more established reporting firm. home page and click on AIM Funds Proxy
companies, including business risk, Policy. The information is also
significant stock price fluctuations and o The returns shown in the Management's available on the Securities and Exchange
illiquidity. Discussion of Fund Performance are based commission's Web site, sec.gov.
on net asset values calculated for
o The fund may participate in the shareholder transactions. Generally Information regarding how the fund voted
initial public offering (IPO) market in accepted accounting principles require proxies related to its portfolio
some market cycles. Because of the adjustments to be made to the net assets securities during the 12 months ended
fund's small asset base, any investment of the fund at period end for financial 6/30/04 is available at our Web site. Go
the fund may make in IPOs may reporting purposes, and as such, the net to AIMinvestments.com, access the About
significantly affect the fund's total asset values for shareholder Us tab, click on Required Notices and
return. As the fund's assets grow, the transactions and the returns based on then click on Proxy Voting Activity.
impact of IPO investments will decline, those net asset values may differ from Next, select your fund from the
which may reduce the effect of IPO the net asset values and returns drop-down menu.
investments on the fund's total return. reported in the Financial Highlights.
ABOUT INDEXES USED IN THIS REPORT o Industry classifications used in this
report are generally according to the
o The unmanaged Lipper Large-Cap Growth Global Industry Classification Standard,
Fund Index represents an average of the which was developed by and is the
performance of the 30 largest exclusive property and a service mark of
large-capitalization growth funds Morgan Stanley Capital International
tracked by Lipper, Inc., an independent Inc. and Standard & Poor's.
mutual fund performance monitor.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
[PHOTO OF requiring that an independent fund trustee, meaning a
MARK H. trustee who is not an officer of the fund's investment
WILLIAMSON] advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
MARK H. WILLIAMSON Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
[PHOTO OF Crockett, one of the fourteen independent trustees on the
BRUCE L. AIM Funds' Board, as Chairman. His appointment became
CROCKETT] effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
BRUCE L. CROCKETT Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever, we
encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of
how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
<Table>
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
------------------------------------ --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
</Table>
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
WEAK YEAR FOR GROWTH STOCKS HAMPERED uncertainty and terrorism concerns, as
FUND RESULTS well as soaring oil prices, put a damper
on economic growth and consumer
AIM U.S. Growth Fund's Class A shares Economic news was generally positive, sentiment.
returned 3.19% at net asset value for and it included expansion of gross
the fiscal year ended October 31, 2004. domestic product (GDP), the broadest Also for the fiscal year:
PERFORMANCE SHOWN AT NAV DOES NOT measure of overall economic activity.
INCLUDE FRONT-END SALES CHARGES, WHICH While remaining positive, GDP growth o Energy, utilities and
WOULD HAVE REDUCED THE PERFORMANCE. tapered off somewhat from an annualized telecommunication services were the
Results for the fund's other share rate of 4.2% in the fourth quarter of strongest-performing sectors of the S&P
classes and for its benchmark indexes 2003 to a more modest 3.9% in the third 500 Index; information technology,
are shown in the table on page 3. quarter of 2004. health care and consumer staples were
the weakest-performing sectors.
The fund outperformed its peer group, Despite this slippage, corporate
as measured by the Lipper Large-Cap earnings remained strong. Bloomberg o Among capitalization levels, mid-cap
Growth Fund Index, which returned 2.63% reported that 80% of the companies in stocks generally were strongest,
during the period. This was largely the S&P 500 Index that had reported followed by small-cap stocks. Large-cap
because the fund continued to be managed third-quarter earnings by the close of stocks lagged.
more conservatively than most of its the fiscal year either met or exceeded
peers, and thus remained steadier. expectations; just 20% missed o Value stocks generally outperformed
expectations. growth stocks.
It underperformed the U.S. stock
market in general, as represented by the Generally positive economic YOUR FUND
S&P 500 Index, which returned 9.41% developments prompted the U.S. Federal
during the same period. Much of this Reserve (the Fed) to raise its federal During this fiscal year, we continued to
divergence is attributable to the fund's funds target rate from a decades-low purchase equities of market-leading U.S.
growth orientation, as the value stocks 1.00%, where it stood at the beginning companies that had experienced what we
generally outperformed the growth stocks of the fiscal year, to 1.75% by the considered above-average growth in
within the S&P 500 Index during the fiscal year's close. In its anecdotal earnings over the long term and had what
period. In addition, large-cap stocks report on the economy released in late we believed to be excellent prospects
such as those held by the fund generally October, the Fed said economic activity for sustainable future earnings growth.
underperformed mid-cap and small-cap continued to expand in September and
stocks over the fiscal year. early October. The Fed said that higher We had no difficulty finding
energy costs were constraining consumer attractive growth stocks in all sectors,
MARKET CONDITIONS and business spending; that capital and consequently the fund remained
spending and hiring were rising relatively sector-neutral, meaning that
The U.S. economy showed signs of modestly; and that residential real the distribution of the fund's assets
strength during the fiscal year ended estate activity remained robust, but among the sectors of the S&P 500 Index
October 31, 2004. non-residential activity remained remained relatively similar to that of
relatively weak. In addition, the index itself.
geopolitical
We made the fund somewhat more
aggressive over the fiscal year by
taking advantage of market weakness to
buy equities in some of the more
volatile companies in the
</Table>
<Table>
============================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. Bed Bath & Beyond Inc. 4.0% 1. Pharmaceuticals 8.0%
[PIE CHART]
Industrials 12.9% 2. General Electric Co. 3.9 2. Semiconductors 6.3
Consumer Discretionary 12.6% 3. Citigroup Inc. 3.7 3. Other Diversified Financial Services 5.3
Consumer Staples 9.2% 4. Exxon Mobil Corp. 3.7 4. Systems Software 4.7
Energy 6.2% 5. Pfizer Inc. 3.5 5. Specialty Stores 4.3
Telecommunication Services 3.4% 6. Johnson & Johnson 3.1 6. Integrated Oil & Gas 4.3
Utilities 1.6% 7. Kohl's Corp. 3.0 7. Industrial Conglomerates 3.9
Materials 0.9% 8. Cisco Systems, Inc. 2.9 8. Integrated Telecommunication
Services 3.4
Other Assets Less Liabilities 0.4% 9. Intel Corp. 2.8
9. Investment Banking & Brokerage 3.3
Financials 20.3% 10. Cardinal Health, Inc. 2.8
10. Thrifts & Mortgage Finance 3.2
Information Technology 18.5%
Health Care 14.0%
The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any
particular security.
*Excluding money market fund holdings.
============================================================================================================================
</Table>
2
<Table>
more growth-oriented sectors. This more o Express Scripts, an independent AND OPINIONS MAY NOT BE RELIED UPON AS
aggressive posture, which put the fund pharmacy benefits manager, expanded its INVESTMENT ADVICE OR RECOMMENDATIONS, OR
more in line with the S&P 500 Index, market penetration and continued to gain AS AN OFFER FOR A PARTICULAR SECURITY.
could potentially benefit fund market share. THE INFORMATION IS NOT A COMPLETE
performance during periods of rising ANALYSIS OF EVERY ASPECT OF ANY MARKET,
stock values. Holdings that hampered fund results COUNTRY, INDUSTRY, SECURITY OR THE FUND.
included: STATEMENTS OF FACT ARE FROM SOURCES
At the same time, we maintained CONSIDERED RELIABLE, BUT A I M ADVISORS,
exposure to key non-traditional growth o VERITAS Software had to restate INC. MAKES NO REPRESENTATION OR WARRANTY
sectors such as energy, industrials and second-quarter earnings because of AS TO THEIR COMPLETENESS OR ACCURACY.
basic materials. We continued to believe issues with recognizing earnings in a ALTHOUGH HISTORICAL PERFORMANCE IS NO
that each sector represents a strategic particular quarter, prompting many GUARANTEE OF FUTURE RESULTS, THESE
opportunity with specific catalysts investors to sell the stock. However, we INSIGHTS MAY HELP YOU UNDERSTAND OUR
driving earnings growth for the long considered this largely a one-quarter INVESTMENT MANAGEMENT PHILOSOPHY.
term. For example, we thought high oil problem and maintained our position in
prices could spur energy companies to VERITAS. See important fund and index
increase production in pursuit of still disclosures inside front cover.
higher earnings. Similarly, we believed o Intel's stock declined after its
that rapidly industrializing economies earnings growth for the third quarter of KENNETH A. ZSCHAPPEL
in China and India could provide 2004 fell below expectations due to the Mr. Zschappel is
opportunities for industrials and information technology sector's [ZSCHAPPEL lead portfolio
materials companies to strive for inventory bottleneck. Still, as Intel is PHOTO] manager of AIM U.S.
revenue increases. the world's largest microchip maker, we Growth Fund. He
judged this to be a temporary setback joined AIM in 1990,
The sector that made the largest and retained our holding. and in 1992 became a portfolio analyst
contribution to the fund's performance for equity securities, specializing in
during the period was energy, which was IN CLOSING technology and health care. Mr.
driven by the rising price of oil. The Zschappel received a B.A. in political
only sector that detracted from fund The fund continued to pursue long-term science from Baylor University.
performance was information technology, growth of capital by purchasing holdings
which was likewise the in U.S.-based companies that were market CHRISTIAN A. COSTANZO
poorest-performing sector in the S&P 500 leaders in their industries, showed a Mr. Costanzo is
Index during the period. This sector strong track record of consistent [COSTANZO portfolio manager of
experienced a decline in product demand earnings growth and appeared to us to be PHOT0] AIM U.S. Growth
that led to slowing inventory turnover. in a good position to achieve further Fund. He joined AIM
growth. in 1995 as an
Among holdings that helped fund analyst and assumed his current duties
performance were the following: THE VIEWS AND OPINIONS EXPRESSED IN in 1997. Mr. Costanzo holds a B.A. in
MANAGEMENT'S DISCUSSION OF FUND biology and economics from the
o Exxon Mobil performed well, buoyed by PERFORMANCE ARE THOSE OF A I M ADVISORS, University of Virginia and an M.B.A.
higher oil prices and expectations of INC. THESE VIEWS AND OPINIONS ARE from The University of Texas at Austin.
continued strong product demand. SUBJECT TO CHANGE AT ANY TIME BASED ON
FACTORS SUCH AS MARKET AND ECONOMIC ROBERT LLOYD
CONDITIONS. THESE VIEWS Mr. Lloyd, Chartered
[LLOYD Financial Analyst,
======================================================================================= PHOTO] is portfolio manager
of AIM U.S. Growth
FUND VS. INDEXES TOTAL NET ASSETS $1.1 MILLION Fund. Mr. Lloyd
TOTAL NUMBER OF HOLDINGS* 66 joined AIM in 2000 as a senior analyst
TOTAL RETURNS, 10/31/03-10/31/04, for the technology funds and was
EXCLUDING APPLICABLE SALES promoted to portfolio manager in 2001.
CHARGES. IF SALES CHARGES WERE Mr. Lloyd received a B.B.A. from the
INCLUDED, RETURNS WOULD BE LOWER. University of Notre Dame and an M.B.A.
from the University of Chicago.
CLASS A SHARES 3.19%
BRYAN A. UNTERHALTER
CLASS B SHARES 3.19 Mr. Unterhalter is
[UNTERHALTER portfolio manager of
CLASS C SHARES 3.19 PHOTO] AIM U.S. Growth
Fund. He joined AIM
S&P 500 INDEX (BROAD MARKET AND in 1997 and was
STYLE-SPECIFIC INDEX) 9.41 promoted to his present position in
2003. He holds a B.A. from The
LIPPER LARGE-CAP GROWTH FUND INDEX University of Texas at Austin and an
(PEER GROUP INDEX) 2.63 M.B.A. from the University of St.
Thomas.
SOURCE: LIPPER, INC.
Assisted by Mid Cap Growth Team
=======================================================================================
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES with the amount you invested, to use this information to compare the
estimate the expenses that you paid over ongoing costs of investing in the fund
EXAMPLE the period. Simply divide your account and other funds. To do so, compare this
value by $1,000 (for example, an $8,600 5% hypothetical example with the 5%
As a shareholder of the fund, you incur account value divided by $1,000 = 8.6), hypothetical examples that appear in the
two types of costs: (1) transaction then multiply the result by the number shareholder reports of the other funds.
costs, which may include sales charges in the table under the heading entitled
(loads) on purchase payments; contingent "Actual Expenses Paid During Period" to Please note that the expenses shown
deferred sales charges on redemptions; estimate the expenses you paid on your in the table are meant to highlight your
and redemption fees, if any; and (2) account during this period. ongoing costs only and do not reflect
ongoing costs, including management any transactional costs, such as sales
fees; distribution and/or service fees HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
(12b-1); and other fund expenses. This PURPOSES contingent deferred sales charges on
example is intended to help you redemptions, and redemption fees, if
understand your ongoing costs (in The table below also provides any. Therefore, the hypothetical
dollars) of investing in the fund and to information about hypothetical account information is useful in comparing
compare these costs with ongoing costs values and hypothetical expenses based ongoing costs only, and will not help
of investing in other mutual funds. The on the fund's actual expense ratio and you determine the relative total costs
example is based on an investment of an assumed rate of return of 5% per year of owning different funds. In addition,
$1,000 invested at the beginning of the before expenses, which is not the fund's if these transactional costs were
period and held for the entire period, actual return. The hypothetical account included, your costs would have been
May 1, 2004 - October 31, 2004. values and expenses may not be used to higher.
estimate the actual ending account
ACTUAL EXPENSES balance or expenses you paid for the
period. You may
The table below provides information
about actual account values and actual
expenses. You may use the information in
this table, together
</Table>
<Table>
<Caption>
===================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $974.40 $8.73 $1,016.29 $8.92
Class B 1,000.00 974.40 8.73 1,016.29 8.92
Class C 1,000.00 974.40 8.73 1,016.29 8.92
(1) The actual ending account value is based on the actual total return of the fund
for the period May 1, 2004, to October 31, 2004, after actual expenses and will
differ from the hypothetical ending account value which is based on the fund's
expense ratio and a hypothetical annual return of 5% before expenses. The actual
cumulative return at net asset value for the period May 1, 2004, to October 31,
2004, was -2.56%, -2.56% and -2.56% for Class A, B and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.76%, 1.76% and
1.76% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half
year period).
===================================================================================================
</Table>
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 8/30/02-10/31/04; index data from 8/31/02
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Results for Class B DATE AIM U.S. AIM U.S. AIM U.S. LIPPER
shares are calculated as if a GROWTH GROWTH GROWTH LARGE CAP
hypothetical shareholder had liquidated FUND FUND FUND GROWTH S&P
his entire investment in the fund at the CLASS A CLASS B CLASS C FUND 500
close of the reporting period and paid SHARES SHARES SHARES INDEX INDEX
the applicable contingent deferred sales
charges. Index results include 8/30/02 $ 9450 $10000 $10000
reinvested dividends. Performance of an 8/02 9450 10000 10000 $10000 $10000
index of funds reflects fund expenses 9/02 8571 9070 9070 9031 8914
and management fees; performance of a 10/02 9223 9760 9760 9726 9698
market index does not. Performance shown 11/02 9460 10010 10010 10129 10268
in the chart does not reflect deduction 12/02 8987 9510 9510 9423 9665
of taxes a shareholder would pay on fund 1/03 8682 9187 9187 9206 9413
distributions or sale of fund shares. 2/03 8530 9026 9026 9107 9271
Performance of the indexes does not 3/03 8663 9167 9167 9278 9361
reflect the effects of taxes. 4/03 9272 9812 9812 9957 10132
5/03 9624 10185 10185 10445 10665
6/03 9786 10356 10356 10531 10801
7/03 9967 10547 10547 10837 10992
8/03 10139 10729 10729 11103 11206
9/03 10072 10658 10658 10867 11087
10/03 10414 11020 11020 11526 11714
11/03 10499 11111 11111 11636 11817
12/03 10931 11567 11567 11964 12436
1/04 11087 11733 11733 12193 12664
2/04 11204 11856 11856 12246 12840
3/04 11125 11773 11773 12109 12647
4/04 11027 11669 11669 11838 12448
5/04 11203 11855 11855 12052 12619
6/04 11300 11958 11958 12225 12864
7/04 10647 11267 11267 11502 12438
8/04 10549 11163 11163 11420 12488
9/04 10491 11102 11102 11688 12624
10/04 $10748 $11072 $11372 $11829 $12816
Source: Lipper, Inc.
AVERAGE ANNUAL TOTAL RETURNS The performance data quoted represent
As of 10/31/04, including applicable sales past performance and cannot guarantee
charges comparable future results; current
performance may be lower or higher.
CLASS A SHARES Please visit AIMinvestments.com for the
Inception (8/30/02) 3.38% most recent month-end performance.
1 Year -2.52 Performance figures reflect reinvested
distributions, changes in net asset
CLASS B SHARES value and the effect of the maximum
Inception (8/30/02) 4.80% sales charge unless otherwise stated.
1 Year -1.81 Investment return and principal value
will fluctuate so that you may have a
CLASS C SHARES gain or loss when you sell shares.
Inception (8/30/02) 6.10%
1 Year 2.19 Class A share performance reflects
the maximum 5.50% sales charge, and
In addition to returns as of the close Class B and Class C share performance
of the fiscal year, industry regulations reflects the applicable contingent
require us to provide average annual deferred sales charge (CDSC) for the
total returns as of 9/30/04, the most period involved. The CDSC on Class B
recent calendar quarter-end. shares declines from 5% beginning at the
time of purchase to 0% at the beginning
AVERAGE ANNUAL TOTAL RETURNS of the seventh year. The CDSC on Class C
As of 9/30/04, including applicable sales shares is 1% for the first year after
charges purchase.
CLASS A SHARES The performance of the fund's share
Inception (8/30/02) 2.34% classes will differ due to different
1 Year -1.58 sales charge structures and class
expenses.
CLASS B SHARES
Inception (8/30/02) 3.78% Had the advisor and distributor not
1 Year -0.82 waived fees and/or reimbursed expenses,
performance would have been lower.
CLASS C SHARES
Inception (8/30/02) 5.15%
1 Year 3.18
====================================================================================================================================
</Table>
5
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS--99.64%
ADVERTISING--1.39%
Omnicom Group Inc. 200 $ 15,780
==============================================================================
AIR FREIGHT & LOGISTICS--1.28%
FedEx Corp. 160 14,579
==============================================================================
AIRLINES--1.51%
Southwest Airlines Co. 1,090 17,189
==============================================================================
COMMUNICATIONS EQUIPMENT--2.94%
Cisco Systems, Inc.(a) 1,743 33,483
==============================================================================
COMPUTER HARDWARE--0.68%
Dell Inc.(a) 220 7,713
==============================================================================
CONSUMER FINANCE--2.41%
Capital One Financial Corp. 100 7,376
- ------------------------------------------------------------------------------
MBNA Corp. 780 19,991
==============================================================================
27,367
==============================================================================
DATA PROCESSING & OUTSOURCED SERVICES--2.62%
Affiliated Computer Services, Inc.-Class A(a) 420 22,911
- ------------------------------------------------------------------------------
Paychex, Inc. 210 6,887
==============================================================================
29,798
==============================================================================
DEPARTMENT STORES--3.00%
Kohl's Corp.(a) 671 34,060
==============================================================================
DIVERSIFIED BANKS--1.10%
Wells Fargo & Co. 210 12,541
==============================================================================
DIVERSIFIED CHEMICALS--0.90%
E. I. du Pont de Nemours & Co. 240 10,289
==============================================================================
DIVERSIFIED COMMERCIAL SERVICES--3.00%
Career Education Corp.(a) 250 7,842
- ------------------------------------------------------------------------------
Cintas Corp. 280 12,079
- ------------------------------------------------------------------------------
Corinthian Colleges, Inc.(a) 990 14,216
==============================================================================
34,137
==============================================================================
DRUG RETAIL--1.96%
Walgreen Co. 620 22,252
==============================================================================
ELECTRIC UTILITIES--1.58%
FPL Group, Inc. 260 17,914
==============================================================================
EMPLOYMENT SERVICES--0.93%
Robert Half International Inc. 400 10,612
==============================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
FOOD DISTRIBUTORS--0.45%
Sysco Corp. 160 $ 5,163
=============================================================================
GENERAL MERCHANDISE STORES--0.94%
Dollar Tree Stores, Inc.(a) 370 10,693
=============================================================================
HEALTH CARE DISTRIBUTORS--2.78%
Cardinal Health, Inc. 675 31,556
=============================================================================
HEALTH CARE EQUIPMENT--1.12%
Medtronic, Inc. 250 12,778
=============================================================================
HEALTH CARE SERVICES--1.46%
Express Scripts, Inc. (a) 260 16,640
=============================================================================
HOME IMPROVEMENT RETAIL--0.99%
Lowe's Cos., Inc. 200 11,256
=============================================================================
HOUSEHOLD PRODUCTS--0.99%
Procter & Gamble Co. (The) 220 11,260
=============================================================================
HYPERMARKETS & SUPER CENTERS--2.23%
Wal-Mart Stores, Inc. 470 25,342
=============================================================================
INDUSTRIAL CONGLOMERATES--3.93%
General Electric Co. 1,310 44,697
=============================================================================
INDUSTRIAL MACHINERY--1.75%
Danaher Corp. 160 8,821
- -----------------------------------------------------------------------------
Illinois Tool Works Inc. 120 11,074
=============================================================================
19,895
=============================================================================
INTEGRATED OIL & GAS--4.29%
ChevronTexaco Corp. 130 6,898
- -----------------------------------------------------------------------------
Exxon Mobil Corp. 850 41,837
=============================================================================
48,735
=============================================================================
INTEGRATED TELECOMMUNICATION SERVICES--3.40%
SBC Communications Inc. 1,020 25,765
- -----------------------------------------------------------------------------
Verizon Communications Inc. 330 12,903
=============================================================================
38,668
=============================================================================
INVESTMENT BANKING & BROKERAGE--3.29%
Merrill Lynch & Co., Inc. 220 11,867
- -----------------------------------------------------------------------------
Morgan Stanley 500 25,545
=============================================================================
37,412
=============================================================================
LIFE & HEALTH INSURANCE--0.32%
AFLAC Inc. 100 3,588
=============================================================================
MANAGED HEALTH CARE--0.64%
UnitedHealth Group Inc. 100 7,240
=============================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
MOTORCYCLE MANUFACTURERS--0.71%
Harley-Davidson, Inc. 140 $ 8,060
=============================================================================
MOVIES & ENTERTAINMENT--1.22%
Viacom Inc.-Class B 172 6,276
- -----------------------------------------------------------------------------
Walt Disney Co. (The) 300 7,566
=============================================================================
13,842
=============================================================================
MULTI-LINE INSURANCE--2.56%
American International Group, Inc. 480 29,141
=============================================================================
OIL & GAS EQUIPMENT & SERVICES--0.55%
Weatherford International Ltd. (Bermuda)(a) 120 6,271
=============================================================================
OIL & GAS EXPLORATION & PRODUCTION--1.34%
Apache Corp. 300 15,210
=============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES--5.31%
Citigroup Inc. 960 42,595
- -----------------------------------------------------------------------------
JPMorgan Chase & Co. 460 17,756
=============================================================================
60,351
=============================================================================
PERSONAL PRODUCTS--1.17%
Gillette Co. (The) 320 13,274
=============================================================================
PHARMACEUTICALS--7.97%
Johnson & Johnson 600 35,028
- -----------------------------------------------------------------------------
Merck & Co. Inc. 510 15,968
- -----------------------------------------------------------------------------
Pfizer Inc. 1,370 39,662
=============================================================================
90,658
=============================================================================
PROPERTY & CASUALTY INSURANCE--0.99%
Berkshire Hathaway Inc.-Class B(a) 4 11,216
=============================================================================
REGIONAL BANKS--1.12%
Synovus Financial Corp. 470 12,779
=============================================================================
SEMICONDUCTOR EQUIPMENT--1.30%
Novellus Systems, Inc.(a) 570 14,769
=============================================================================
SEMICONDUCTORS--6.34%
Analog Devices, Inc. 150 6,039
- -----------------------------------------------------------------------------
Intel Corp. 1,430 31,832
- -----------------------------------------------------------------------------
Microchip Technology Inc. 610 18,453
- -----------------------------------------------------------------------------
Texas Instruments Inc. 220 5,379
- -----------------------------------------------------------------------------
Xilinx, Inc. 340 10,404
=============================================================================
72,107
=============================================================================
SOFT DRINKS--2.43%
Coca-Cola Co. (The) 680 27,649
=============================================================================
SPECIALTY STORES--4.34%
Bed Bath & Beyond Inc.(a) 1,115 45,481
- -----------------------------------------------------------------------------
Staples, Inc. 130 3,866
=============================================================================
49,347
=============================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
SYSTEMS SOFTWARE--4.65%
Microsoft Corp. 580 $ 16,234
- ------------------------------------------------------------------------------
Oracle Corp.(a) 1,500 18,990
- ------------------------------------------------------------------------------
VERITAS Software Corp.(a) 805 17,613
==============================================================================
52,837
==============================================================================
THRIFTS & MORTGAGE FINANCE--3.23%
Fannie Mae 440 30,866
- ------------------------------------------------------------------------------
Washington Mutual, Inc. 150 5,807
==============================================================================
36,673
==============================================================================
TRADING COMPANIES & DISTRIBUTORS--0.53%
Fastenal Co. 110 6,075
==============================================================================
Total Common Stocks (Cost $1,070,604) 1,132,896
==============================================================================
TOTAL INVESTMENTS--99.64% (Cost $1,070,604) 1,132,896
==============================================================================
OTHER ASSETS LESS LIABILITIES--0.36% 4,096
==============================================================================
NET ASSETS--100.00% $ 1,136,992
==============================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 2004
<Table>
<Caption>
ASSETS:
Investments, at market value (cost $1,070,604) $1,132,896
- --------------------------------------------------------------------------------
Cash 10,029
- --------------------------------------------------------------------------------
Receivables for:
Investments sold 33,281
- --------------------------------------------------------------------------------
Dividends 1,638
- --------------------------------------------------------------------------------
Amount due from advisor 21,245
- --------------------------------------------------------------------------------
Other assets 126
================================================================================
Total assets 1,199,215
================================================================================
LIABILITIES:
Payables for investments purchased 39,236
- --------------------------------------------------------------------------------
Accrued trustees' fees 2,480
- --------------------------------------------------------------------------------
Accrued transfer agent fees 11
- --------------------------------------------------------------------------------
Accrued operating expenses 20,496
================================================================================
Total liabilities 62,223
================================================================================
Net assets applicable to shares outstanding $1,136,992
================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,023,064
- --------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 51,636
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities 62,292
================================================================================
$1,136,992
________________________________________________________________________________
================================================================================
NET ASSETS:
Class A $454,794
________________________________________________________________________________
================================================================================
Class B $341,099
________________________________________________________________________________
================================================================================
Class C $341,099
________________________________________________________________________________
================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 41,241
________________________________________________________________________________
================================================================================
Class B 30,930
________________________________________________________________________________
================================================================================
Class C 30,930
________________________________________________________________________________
================================================================================
Class A :
Net asset value per share $11.03
- --------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $11.03 (divided by) 94.50%) $11.67
________________________________________________________________________________
================================================================================
Class B :
Net asset value and offering price per share $11.03
________________________________________________________________________________
================================================================================
Class C :
Net asset value and offering price per share $11.03
________________________________________________________________________________
================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2004
<Table>
<Caption>
INVESTMENT INCOME:
Dividends $16,207
================================================================================
EXPENSES:
Advisory fees 8,625
- --------------------------------------------------------------------------------
Administrative services fees 50,000
- --------------------------------------------------------------------------------
Custodian fees 2,505
- --------------------------------------------------------------------------------
Distribution fees:
Class A 1,610
- --------------------------------------------------------------------------------
Class B 3,450
- --------------------------------------------------------------------------------
Class C 3,450
- --------------------------------------------------------------------------------
Transfer agent fees 99
- --------------------------------------------------------------------------------
Trustees' fees and retirement benefits 10,691
- --------------------------------------------------------------------------------
Market timing and litigation expenses 17,373
- --------------------------------------------------------------------------------
Professional fees 31,929
- --------------------------------------------------------------------------------
Other 3,752
================================================================================
Total expenses 133,484
================================================================================
Less: Fees waived, expenses reimbursed and expense offset arrangements (113,364)
================================================================================
Net expenses 20,120
================================================================================
Net investment income (loss) (3,913)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 59,537
- --------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment
securities (21,137)
- --------------------------------------------------------------------------------
Net gain from investment securities 38,400
================================================================================
Net increase in net assets resulting from operations $34,487
________________________________________________________________________________
================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND 2003
<Table>
<Caption>
2004 2003
----------- -----------
OPERATIONS:
Net investment income (loss) $(3,913) $(2,460)
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities 59,537 33,177
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (21,137) 95,453
=============================================================================================
Net increase in net assets resulting from operations 34,487 126,170
=============================================================================================
Distributions to shareholders from net investment income:
Class A (1,511) (2,800)
- ---------------------------------------------------------------------------------------------
Class B (1,134) (2,100)
- ---------------------------------------------------------------------------------------------
Class C (1,133) (2,100)
=============================================================================================
Total distributions from net investment income (3,778) (7,000)
=============================================================================================
Distributions to shareholders from net realized gains:
Class A (8,825) --
- ---------------------------------------------------------------------------------------------
Class B (6,618) --
- ---------------------------------------------------------------------------------------------
Class C (6,619) --
=============================================================================================
Total distributions from net realized gains (22,062) --
=============================================================================================
Decrease in net assets resulting from distributions (25,840) (7,000)
=============================================================================================
Share transactions-net:
Class A 10,336 2,800
- ---------------------------------------------------------------------------------------------
Class B 7,752 2,100
- ---------------------------------------------------------------------------------------------
Class C 7,752 2,100
=============================================================================================
Net increase in net assets resulting from share transactions 25,840 7,000
=============================================================================================
Net increase in net assets 34,487 126,170
=============================================================================================
NET ASSETS:
Beginning of year 1,102,505 976,335
=============================================================================================
End of year (including undistributed net investment
income (loss) of $(0) and $(18), respectively) $1,136,992 $ 1,102,505
_____________________________________________________________________________________________
=============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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 authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund is currently not open to 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 of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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.
F-8
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 the event is
likely to have affected the closing price of the security, the security
will be valued at fair value in good faith using procedures approved by the
Board of Trustees. Adjustments to closing prices to reflect fair value may
also be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current market value as of the close of the NYSE. Foreign
securities meeting the approved degree of certainty that the price is not
reflective of current market value will be priced at the indication of fair
value from the independent pricing service. Multiple factors may be
considered by the independent pricing service in determining adjustments to
reflect fair value and may include information relating to sector indices,
ADRs, domestic and foreign index futures and exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
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 FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM 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 next $1
billion of the Fund's 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
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B and Class C shares to 1.75% of average daily net assets. In determining
the advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to
F-9
exceed the caps stated above: (i) interest; (ii) taxes; (iii) dividend expense
on short sales; (iv) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $8,625 and
reimbursed expenses of $78,044.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $17,992 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement are
included in the Statement of Operations.
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, 2004, 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $99. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking 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, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. 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. For the year ended October
31, 2004 AIM Distributors waived all plan fees of $1,610, $3,450 and $3,450 for
the Class A, Class B and Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of $15
and credits in custodian fees of $178 under expense offset arrangements, which
resulted in a reduction of the Fund's total expenses of $193.
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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
F-10
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $4,268
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at 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 years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 3,778 $ 7,000
Long-term capital gain 22,062 --
- --------------------------------------------------------------------------------
Total distributions $25,840 $ 7,000
================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------------
Undistributed ordinary income $ 3,425
Undistributed long-term gain 48,211
Unrealized appreciation - investments 62,292
Shares of beneficial interest 1,023,064
- --------------------------------------------------------------------------------
Total net assets $1,136,992
================================================================================
</Table>
F-11
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, 2004 was $653,793 and $620,648, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- --------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 107,396
- --------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (45,104)
================================================================================
Net unrealized appreciation of investment securities $ 62,292
________________________________________________________________________________
================================================================================
Investments have the same cost for tax and financial reporting purposes.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income was increased by
$7,709, undistributed net realized gain was decreased by $7,709. 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 certain circumstances, Class A shares are subject to
CDSC. Generally, Class B shares will automatically convert to Class A shares
eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------
2004 2003
------------------ -----------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A(a) 946 $10,336 294 $2,800
- ----------------------------------------------------------------------------------
Class B(a) 708 7,752 221 2,100
- ----------------------------------------------------------------------------------
Class C(a) 708 7,752 221 2,100
==================================================================================
2,362 $25,840 736 $7,000
__________________________________________________________________________________
==================================================================================
</Table>
(a) Currently, the Fund is not open to investors. All shares are owned by AIM.
F-12
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------ OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.94 $ 9.76 $ 10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.02) (0.00)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.39 1.27 (0.24)
===================================================================================================================
Total from investment operations 0.35 1.25 (0.24)
===================================================================================================================
Less distributions:
Dividends from net investment income (0.04) (0.07) --
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.22) -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.26) (0.07) --
===================================================================================================================
Net asset value, end of period $ 11.03 $ 10.94 $ 9.76
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(a) 3.19% 12.92% (2.40)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 455 $ 441 $ 391
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.84% 1.76%(c)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 11.22%(b) 11.21% 22.45%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.34)%(b) (0.25)% (0.22)%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(d) 55% 39% 1%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset and return for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $460,014.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-13
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------ OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.94 $ 9.76 $ 10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.02) (0.00)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.39 1.27 (0.24)
===================================================================================================================
Total from investment operations 0.35 1.25 (0.24)
===================================================================================================================
Less distributions:
Dividends from net investment income (0.04) (0.07) --
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.22) -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.26) (0.07) --
===================================================================================================================
Net asset value, end of period $ 11.03 $ 10.94 $ 9.76
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(a) 3.19% 12.92% (2.40)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 341 $ 331 $ 293
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.84% 1.76%(c)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 11.87%(b) 11.86% 23.10%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.34)%(b) (0.25)% (0.22)%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(d) 55% 39% 1%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset and return for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $345,014.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-14
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------ OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.94 $ 9.76 $ 10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.02) (0.00)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.39 1.27 (0.24)
===================================================================================================================
Total from investment operations 0.35 1.25 (0.24)
===================================================================================================================
Less distributions:
Dividends from net investment income (0.04) (0.07) --
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.22) -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.26) (0.07) --
===================================================================================================================
Net asset value, end of period $ 11.03 $ 10.94 $ 9.76
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(a) 3.19% 12.92% (2.40)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 341 $ 331 $ 293
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.84% 1.76%(c)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 11.87%(b) 11.86% 23.10%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.34)%(b) (0.25)% (0.22)%(c)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(d) 55% 39% 1%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset and return for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $345,014.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-15
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
F-16
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause the
AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay all
of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
F-17
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
F-18
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, 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, 2004, the results of its operations for the
year then ended, the statements of changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
2
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), 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 None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
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), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(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.; President and Chief
Executive Officer, 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
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
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 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP
Suite 100 11 Greenway Plaza Inc. 5 Houston Center
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney
Houston, TX 77046-1173 Suite 100 Suite 1200
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 State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Services, Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2004, 57.42% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2004, the fund designates 47.10%, or the
maximum amount allowable of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported on Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
<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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ================================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A
AIM Trimark Endeavor Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ================================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com USG-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM WEINGARTEN FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM WEINGARTEN FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES o The fund is not managed to track the The fund files its complete schedule of
performance of any particular index, portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are including the indexes defined here, and and Exchange Commission (SEC) for the
not available as an investment for consequently, the performance of the 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to fund may deviate significantly from the on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue performance of the index. are available on the SEC's Web site at
Code, including 401(k) plans, money http://www.sec.gov. Copies of the fund's
purchase pension plans and profit o A direct investment cannot be made in Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing an index. Unless otherwise indicated, the SEC's Public Reference Room at 450
accounts invested in Class B shares will index results include reinvested Fifth Street, N.W., Washington, D.C.
continue to be allowed to make dividends, and they do not reflect sales 20549-0102. You can obtain information
additional purchases. charges. Performance of an index of on the operation of the Public Reference
funds reflects fund expenses; Room, including information about
o Class R shares are available only to performance of a market index does not. duplicating fee charges, by calling
certain retirement plans. Please see the 1-202-942-8090 or by electronic request
prospectus for more information. OTHER INFORMATION at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers
ABOUT INDEXES USED IN THIS REPORT o The Conference Board is a for the fund are 811-1424 and 2-25469.
not-for-profit organization that The fund's most recent portfolio
o The unmanaged Lipper Large-Cap Growth conducts research and publishes holdings, as filed on Form N-Q, are also
Fund Index represents an average of the information and analysis to help available at AIMinvestments.com.
performance of the 30 largest businesses strengthen their performance.
large-capitalization growth funds A description of the policies and
tracked by Lipper, Inc., an independent o The returns shown in the Management's procedures that the fund uses to
mutual fund performance monitor. Discussion of Fund Performance are based determine how to vote proxies relating
on net asset values calculated for to portfolio securities is available
o The unmanaged MSCI World Index is a shareholder transactions. Generally without charge, upon request, from our
group of global securities tracked by accepted accounting principles require Client Services department at
Morgan Stanley Capital International. adjustments to be made to the net assets 800-959-4246 or on the AIM Web site,
of the fund at period end for financial AIMinvestments.com. Scroll down on the
o The unmanaged Russell reporting purposes, and as such, the net home page and click on AIM Funds Proxy
1000--Registered Trademark-- Growth asset values for shareholder Voting Policies. The information is also
Index is a subset of the unmanaged transactions and the returns based on available on the Securities and Exchange
Russell 1000--Registered Trademark-- those net asset values may differ from Commission's Web site, sec.gov.
Index, which represents the performance the net asset values and returns
of the stocks of large-capitalization reported in the Financial Highlights. Information about how the fund voted
companies; the Growth subset measures proxies related to its portfolio
the performance of Russell 1000 o Industry classifications used in this securities during the 12 months ended
companies with higher price/book ratios report are generally according to the 6/30/04 is available at our Web site. Go
and higher forecasted growth values. Global Industry Classification Standard, to AIMinvestments.com, click on About
which was developed by and is the Us, then on Required Notices and then
o The unmanaged Standard & Poor's exclusive property and a service mark of select your fund from the drop-down
Composite Index of 500 Stocks (the S&P Morgan Stanley Capital International menu.
500--Registered Trademark--Index) is an Inc. and Standard & Poor's.
index of common stocks frequently used
as a general measure of U.S. stock
market performance.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
[PHOTO OF requiring that an independent fund trustee, meaning a
MARK H. trustee who is not an officer of the fund's investment
WILLIAMSON] advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
MARK H. WILLIAMSON Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
[PHOTO OF Crockett, one of the fourteen independent trustees on the
BRUCE L. AIM Funds' Board, as Chairman. His appointment became
CROCKETT] effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
BRUCE L. CROCKETT Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
acquired certain funds that had been advised by CIGNA. He had been a member of
the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------ ------------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
STRONG STOCK SELECTION HELPED FUND Board reported that consumer sentiment
PERFORMANCE hit a two-year high in July, before
declining in August, September and
For the fiscal year ended October 31, included expansion of gross domestic October. The organization also reported
2004, AIM Weingarten Fund Class A shares product (GDP), the broadest measure of that its index of leading economic
returned 3.71% at net asset value (NAV). overall economic activity. While indicators declined in October, its
Performance shown at NAV does not remaining positive, GDP growth tapered fifth consecutive monthly decline.
include front-end sales charges, which off somewhat from an annualized rate of
would have reduced the performance. The 4.2% in the fourth quarter of 2003 to a YOUR FUND
fund paced its style-specific index, the more modest 3.9% in the third quarter of
Russell 1000 Growth Index, and its peer 2004. Throughout the fiscal year, we continued
group index, the Lipper Large-Cap Growth to seek out stocks of established,
Fund Index, which returned 3.38% and Generally positive economic market-leading companies with the
2.63%, respectively. The fund lagged its developments prompted the U.S. Federal potential to deliver above-average,
broad market index, the S&P 500 Index, Reserve (the Fed) to raise its federal sustainable revenue and earnings growth.
which returned 9.41%. (Fiscal year funds target rate from a decades-low We did so because we remained convinced
returns for all of the fund's share 1.00%, where it stood at the beginning that stocks of companies with
classes appear in the table on page 3.) of the fiscal year, to 1.75% by the consistent, sustainable, above-average
fiscal year's close. In its anecdotal growth are likely to outperform
The fund underperformed the S&P 500 report on the economy released in late unmanaged market indexes over time. By
Index because of its minimal exposure to October, the Fed said economic activity doing this, we hoped to achieve the
the energy, utilities and materials continued to expand in September and fund's investment objective, growth of
sectors, which were among the early October. The Fed said that higher capital.
strongest-performing sectors for the energy costs were constraining consumer
year, and due to the fact that large-cap and business spending; that capital For the fiscal year as a whole, the
stocks and growth stocks were out of spending and hiring were rising fund was positioned for a moderate
favor for much of the fiscal year. Solid modestly; and that residential real economic recovery. Relative to its
stock selection in the health care and estate activity remained robust, but style-specific index, the fund was
industrials sectors, and, to a lesser non-residential activity remained somewhat overweight consumer
degree, the information technology relatively weak. discretionary, financials and
sector helped performance compared to information technology stocks for this
the other two indexes. This generally positive economic news fiscal year--sectors whose performance
was offset somewhat by geopolitical is typically tied to the state of the
MARKET CONDITIONS uncertainty and terrorism concerns, as economy. The fund was somewhat
well as soaring oil prices. In underweight consumer staples and health
The U.S. economy showed signs of mid-October, Fed Chairman Alan Greenspan care stocks, both considered more
strength during the fiscal year ended said that "so far this year, the rise in defensive sectors. Of course, keep in
October 31, 2004. Economic news was the value of imported oil--essentially a mind that the fund's sector weightings,
generally positive, and it tax on U.S. residents--has amounted to and any changes that may occur in those
about 3/4 [of one] percent of GDP." The weightings, are the result of our
Conference bottom-up analysis of individual stocks
rather than a top-down "sector bet."
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Tyco International Ltd. 1. Communications Equipment 6.7%
[PIE CHART] (Bermuda) 4.0%
2. Pharmaceuticals 6.4
Industrials 14.2% 2. Yahoo! Inc. 2.7
3. Computer Hardware 4.5
Financials 10.0% 3. Aetna Inc. 2.4
4. Industrial Conglomerates 4.5
Consumer Staples 7.4% 4. Dell Inc. 2.2
5. Managed Health Care 3.9
Energy 2.0% 5. Cendant Corp. 2.2
6. Investment Banking & Brokerage 3.9
Money Market Funds Plus Other 6. Kohl's Corp. 2.1
Assets Less Liabilities 1.7% 7. Department Stores 3.8
7. Cisco Systems, Inc. 2.0
Materials 0.6% 8. Systems Software 3.8
8. Target Corp. 2.0
Information Technology 28.0% 9. Personal Products 3.6
9. Johnson & Johnson 2.0
Consumer Discretionary 18.8% 10. Internet Software & Services 3.5
10. Procter & Gamble Co. (The) 1.7
Health Care 17.3%
*Excluding 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>
Strong stock selection contributed to stock at the close of the fiscal year JAMES G. BIRDSALL
fund performance, particularly in four because we believed that it remained Mr. Birdsall is a
sectors--consumer staples, health care, attractive on a long-term basis. [BIRDSALL portfolio manager of AIM
industrials and information technology. PHOTO] Weingarten Fund. He has
We were less successful in the energy IN CLOSING been associated with AIM
and telecommunications sectors, which Investments since 1997,
contributed little or nothing to fund Economic and geopolitical uncertainty, and assumed his current position in
performance for the fiscal year. The as well as record-high oil prices, made 1999. Mr. Birdsall received his B.B.A.
fund was significantly underweight both the fiscal year a difficult one, with a concentration in finance from
sectors relative to its style-specific especially for large-cap growth Stephen F. Austin State University
index, and in each sector average return stocks--the type of equities in which before earning his M.B.A. with a
was far lower for the fund than for the the fund invests the bulk of its assets. concentration in finance and
index. That's why we were particularly pleased international business from the
to have delivered positive returns for University of St. Thomas.
Individual stocks that affected fund the fiscal year. We did so by focusing
performance during the fiscal year on earnings of individual companies when
included Research In Motion and Novellus deciding which stocks we should buy and LANNY H. SACHNOWITZ
Systems. which we should sell. Thank you for your Mr. Sachnowitz is the
continued participation in AIM [SACHNOWITZ lead portfolio manager of
Research In Motion performed well for Weingarten Fund. PHOTO] AIM Weingarten Fund. He
the fund. The company designs, joined AIM in 1987 as a
manufactures and markets wireless THE VIEWS AND OPINIONS EXPRESSED IN money market trader and
solutions for the worldwide mobile MANAGEMENT'S DISCUSSION OF FUND research analyst. In 1990, Mr.
communications industry. On September PERFORMANCE ARE THOSE OF A I M ADVISORS, Sachnowitz became head of equity
30, the company announced that the INC. THESE VIEWS AND OPINIONS ARE trading, and in 1991, he was named to
number of its Blackberry--Registered SUBJECT TO CHANGE AT ANY TIME BASED ON his current position. Mr. Sachnowitz
Trademark-- subscribers had surpassed 1.6 FACTORS SUCH AS MARKET AND ECONOMIC received a B.S. in finance from the
million, and that its quarterly earnings CONDITIONS. THESE VIEWS AND OPINIONS MAY University of Southern California and an
rose 147% from one year earlier. After NOT BE RELIED UPON AS INVESTMENT ADVICE M.B.A. from the University of Houston.
our position in the stock tripled in OR RECOMMENDATIONS, OR AS AN OFFER FOR A
value, we did take some profits. PARTICULAR SECURITY. THE INFORMATION IS Assisted by the Large Cap Growth Team
NOT A COMPLETE ANALYSIS OF EVERY ASPECT
Novellus, which manufactures OF ANY MARKET, COUNTRY, INDUSTRY,
semiconductor production equipment, SECURITY OR THE FUND. STATEMENTS OF FACT
performed poorly for the fund. During ARE FROM SOURCES CONSIDERED RELIABLE,
the fiscal year, a number of chip makers BUT A I M ADVISORS, INC. MAKES NO
and electronics manufacturers that buy REPRESENTATION OR WARRANTY AS TO THEIR
capital equipment from Novellus reported COMPLETENESS OR ACCURACY. ALTHOUGH
rising inventories, as sales failed to HISTORICAL PERFORMANCE IS NO GUARANTEE
meet expectations. This, together with OF FUTURE RESULTS, THESE INSIGHTS MAY
the September announcement by Intel (not HELP YOU UNDERSTAND OUR INVESTMENT
a fund holding) that its third-quarter MANAGEMENT PHILOSOPHY.
sales and earnings would fall short,
hurt many semiconductor-related stocks. See important fund and index
We held the disclosures inside front cover.
======================================== ===========================================
FUND VS. INDEXES TOTAL NET ASSETS $2.4 billion
TOTAL RETURNS, 10/31/03-10/31/04, TOTAL NUMBER OF HOLDINGS* 89
EXCLUDING APPLICABLE SALES CHARGES. IF
SALES CHARGES WERE INCLUDED, RETURNS ===========================================
WOULD BE LOWER.
CLASS A SHARES 3.71%
CLASS B SHARES 2.99
CLASS C SHARES 2.99
CLASS R SHARES 3.46
S&P 500 INDEX
(BROAD MARKET INDEX) 9.41
RUSSELL 1000 GROWTH INDEX
(STYLE-SPECIFIC INDEX) 3.38
LIPPER LARGE-CAP GROWTH FUND INDEX
(PEER GROUP INDEX) 2.63
SOURCE: LIPPER, INC.
======================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, costs of investing in the fund and other
to estimate the expenses that you paid funds. To do so, compare this 5%
As a shareholder of the fund, you incur over the period. Simply divide your hypothetical example with the 5%
two types of costs: (1) transaction account value by $1,000 (for example, an hypothetical examples that appear in the
costs, which may include sales charges $8,600 account value divided by $1,000 = shareholder reports of the other funds.
(loads) on purchase payments; contingent 8.6), then multiply the result by the
deferred sales charges on redemptions; number in the table under the heading Please note that the expenses shown
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During in the table are meant to highlight your
ongoing costs, including management Period" to estimate the expenses you ongoing costs only and do not reflect
fees; distribution and/or service fees paid on your account during this period. any transactional costs, such as sales
(12b-1); and other fund expenses. This charges (loads) on purchase payments,
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
understand your ongoing costs (in PURPOSES redemptions, and redemption fees, if
dollars) of investing in the fund and to any. Therefore, the hypothetical
compare these costs with ongoing costs The table below also provides information is useful in comparing
of investing in other mutual funds. The information about hypothetical account ongoing costs only, and will not help
example is based on an investment of values and hypothetical expenses based you determine the relative total costs
$1,000 invested at the beginning of the on the fund's actual expense ratio and of owning different funds. In addition,
period and held for the entire period, an assumed rate of return of 5% per year if these transactional costs were
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's included, your costs would have been
actual return. The hypothetical account higher.
ACTUAL EXPENSES values and expenses may not be used to
estimate the actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may use this information to
expenses. You may use the information in compare the ongoing
this table,
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,010.10 $ 7.23 $1,017.95 $ 7.25
Class B 1,000.00 1,006.40 10.74 1,014.43 10.79
Class C 1,000.00 1,006.40 10.74 1,014.43 10.79
Class R 1,000.00 1,009.30 8.23 1,016.94 8.26
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004 to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004 to
October 31, 2004, was 1.01%, 0.64%, 0.64% and 0.93% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.43%, 2.13%, 2.13%, and 1.63% for Class A, B, C, and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee comparable RESULTS OF A $10,000 INVESTMENT
future results. 6/17/69-10/31/04; index results from 6/30/69
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable sales
charges, fund expenses and management fees. AIM WEINGARTEN FUND S&P 500
Index results include reinvested dividends, DATE CLASS A SHARES INDEX
but they do not reflect sales charges.
Performance of an index of funds reflects 6/17/69 $ 9450
fund expenses and management fees; 6/69 8991 $ 10000
performance of a market index does not. 10/69 9412 10063
Performance shown in the chart does not 10/70 8239 8948
reflect deduction of taxes a shareholder 10/71 11479 10456
would pay on fund distributions or sale of 10/72 14242 12748
fund shares. Performance of the indexes 10/73 12901 12749
does not reflect the effects of taxes. 10/74 8113 9080
10/75 10270 11438
In evaluating this chart, please note 10/76 10492 13744
that the chart uses a logarithmic scale 10/77 12919 12914
along the vertical axis (the value scale). 10/78 15590 13734
This means that each scale increment always 10/79 21778 15855
represents the same percent change in 10/80 40403 20946
price; in a linear chart each scale 10/81 40775 21066
increment always represents the same 10/82 46283 24496
absolute change in price. In this example, 10/83 65454 31342
the scale increment between $5,000 and 10/84 63085 33338
$10,000 is the same as that between $10,000 10/85 75461 39782
and $20,000. In a linear chart, the latter 10/86 107199 52984
scale increment would be twice as large. 10/87 113273 56374
The benefit of using a logarithmic scale is 10/88 127769 64694
that it better illustrates performance 10/89 172650 81744
during the early years before reinvested 10/90 165700 75630
distributions and compounding create the 10/91 240064 100902
potential for the original investment to 10/92 256524 110940
grow to very large numbers. Had the chart 10/93 272346 127481
used a linear scale along its vertical 10/94 282539 132398
axis, you would not be able to see as 10/95 362254 167362
clearly the movements in the value of the 10/96 415916 207665
fund and the indexes during the fund's 10/97 527513 274323
early years. We use a logarithmic scale in 10/98 592670 334707
financial reports of funds that have more 10/99 821856 420602
than five years of performance history. 10/00 908729 446165
10/01 478173 335120
AVERAGE ANNUAL TOTAL RETURNS 10/02 358332 284528
As of 10/31/04, including applicable sales 10/03 438116 343672
charges 10/04 $454517 $376019
Source: Lipper, Inc.
CLASS A SHARES CLASS R SHARES
Inception (6/17/69) 11.39% 10 Years 4.65% The performance data quoted represent
10 Years 4.27 5 Years -11.36 past performance and cannot guarantee
5 Years -12.18 1 Year 3.46 comparable future results; current
1 Year -1.96 performance may be lower or higher.
In addition to returns as of the close Please visit AIMinvestments.com for the
CLASS B SHARES of the fiscal year, industry regulations most recent month-end performance.
Inception (6/26/95) 2.79% require us to provide average annual Performance figures reflect reinvested
5 Years -12.09 total returns as of 9/30/04, the most distributions, changes in net asset
1 Year -2.01 recent calendar quarter-end. value and the effect of the maximum
sales charge unless otherwise stated.
CLASS C SHARES AVERAGE ANNUAL TOTAL RETURNS Investment return and principal value
Inception (8/4/97) -3.02% As of 9/30/04, including applicable sales will fluctuate so that you may have a
5 Years -11.82 charges gain or loss when you sell shares.
1 Year 1.99
CLASS A SHARES Class A share performance reflects
Inception (6/17/69) 11.36% the maximum 5.50% sales charge, and
10 Years 4.38 Class B and Class C share performance
5 Years -11.74 reflects the applicable contingent
1 Year 2.34 deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
CLASS B SHARES shares declines from 5% beginning at the
Inception (6/26/95) 2.60% time of purchase to 0% at the beginning
5 Years -11.64 of the seventh year. The CDSC on Class C
1 Year 2.55 shares is 1% for the first year after
purchase. Class R shares do not have a
CLASS C SHARES front-end sales charge; returns shown
Inception (8/4/97) -3.30% are at net asset value and do not
5 Years -11.38 reflect a 0.75% CDSC that may be imposed
1 Year 6.54 on a total redemption of retirement plan
assets within the first year.
CLASS R SHARES
10 Years 4.75% The performance of the fund's share
5 Years -10.94 classes will differ due to different
1 Year 7.82 sales charge structures and class
expenses.
Class R shares' inception date is
6/3/02. Returns since that date are
historical returns. All other returns
are blended returns of historical Class
R share performance and restated Class A
share performance (for periods prior to
the inception date of Class R shares) at
net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to
Class R shares.
===================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM WEINGARTEN FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Please note that past performance is not
AVERAGE ANNUAL TOTAL RETURNS indicative of future results. More recent
The following information has been For periods ended 10/31/04 returns may be more or less than those
prepared to provide Institutional Class Inception (10/8/91) 5.78% shown. All returns assume reinvestment of
shareholders with a performance overview 10 Years 5.37 distributions at net asset value.
specific to their holdings. Institutional 5 Years -10.70 Investment return and principal value
Class shares are offered exclusively to 1 Year 4.34 will fluctuate so your shares, when
institutional investors, including redeemed, may be worth more or less than
defined contribution plans that meet ========================================= their original cost. See full report for
certain criteria. AVERAGE ANNUAL TOTAL RETURNS information on comparative benchmarks.
For periods ended 9/30/04 Please consult your fund prospectus for
Inception (10/8/91) 5.66% more information. For the most current
10 Years 5.48 month-end performance, please call
5 Years -10.26 800-451-4246 or visit AIMinvestments.com.
1 Year 8.90
=========================================
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Performance of Institutional
Class shares will differ from performance
of other share classes due to differing
sales charges and class expenses.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com WEI-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account value use this information to compare the
by $1,000 (for example, an $8,600 account ongoing costs of investing in the fund
As a shareholder of the fund, you incur value divided by $1,000 = 8.6), then and other funds. To do so, compare this
ongoing costs, including management fees; multiply the result by the number in the 5% hypothetical example with the 5%
and other fund expenses. This example is table under the heading entitled "Actual hypothetical examples that appear in the
intended to help you understand your Expenses Paid During Period" to estimate shareholder reports of the other funds.
ongoing costs (in dollars) of investing the expenses you paid on your account
in the fund and to compare these costs during this period. Please note that the expenses shown in
with ongoing costs of investing in other the table are meant to highlight your
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR ongoing costs only. Therefore, the
investment of $1,000 invested at the COMPARISON PURPOSES hypothetical information is useful in
beginning of the period and held for the comparing ongoing costs only, and will
entire period, May 1, 2004, to October The table below also provides information not help you determine the relative total
31, 2004. about hypothetical account values and costs of owning different funds.
hypothetical expenses based on the fund's
ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
The table below provides information which is not the fund's actual return.
about actual account values and actual The hypothetical account values and
expenses. You may use the information in expenses may not be used to estimate the
this table, together with the amount you actual ending account balance or expenses
invested, to estimate the expenses that you paid for the period. You may
you paid over the
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,012.70 $4.65 $1,020.51 $4.67
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 1.27% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 0.92% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period)
====================================================================================================================================
</Table>
AIMinvestments.com WEI-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.24%
AEROSPACE & DEFENSE-2.24%
Boeing Co. (The) 350,000 $ 17,465,000
- --------------------------------------------------------------------------
General Dynamics Corp. 150,000 15,318,000
- --------------------------------------------------------------------------
Honeywell International Inc. 600,000 20,208,000
==========================================================================
52,991,000
==========================================================================
AIR FREIGHT & LOGISTICS-0.58%
FedEx Corp. 150,000 13,668,000
==========================================================================
APPAREL RETAIL-1.65%
Chico's FAS, Inc.(a)(b) 400,000 16,012,000
- --------------------------------------------------------------------------
Gap, Inc. (The) 1,150,000 22,977,000
==========================================================================
38,989,000
==========================================================================
APPLICATION SOFTWARE-1.76%
Amdocs Ltd. (United Kingdom)(a) 1,200,000 30,180,000
- --------------------------------------------------------------------------
Intuit Inc.(a) 250,000 11,340,000
==========================================================================
41,520,000
==========================================================================
BIOTECHNOLOGY-3.13%
Biogen Idec Inc.(a) 400,000 23,264,000
- --------------------------------------------------------------------------
Genentech, Inc.(a) 600,000 27,318,000
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 675,000 23,375,250
==========================================================================
73,957,250
==========================================================================
BROADCASTING & CABLE TV-0.79%
Univision Communications Inc.-Class A(a) 600,000 18,576,000
==========================================================================
COMMUNICATIONS EQUIPMENT-6.69%
Avaya Inc.(a) 475,000 6,840,000
- --------------------------------------------------------------------------
Cisco Systems, Inc.(a) 2,500,000 48,025,000
- --------------------------------------------------------------------------
Motorola, Inc. 2,000,000 34,520,000
- --------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 1,500,000 23,130,000
- --------------------------------------------------------------------------
QUALCOMM Inc. 400,000 16,724,000
- --------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 325,000 28,665,000
==========================================================================
157,904,000
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.75%
Best Buy Co., Inc. 300,000 17,766,000
==========================================================================
COMPUTER HARDWARE-4.47%
Apple Computer, Inc.(a) 675,000 35,457,750
- --------------------------------------------------------------------------
Dell Inc.(a) 1,500,000 52,590,000
- --------------------------------------------------------------------------
PalmOne, Inc.(a)(c) 600,000 17,382,000
==========================================================================
105,429,750
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
COMPUTER STORAGE & PERIPHERALS-1.06%
Lexmark International, Inc.-Class A(a) 300,000 $ 24,933,000
==========================================================================
CONSUMER FINANCE-2.27%
American Express Co. 550,000 29,188,500
- --------------------------------------------------------------------------
MBNA Corp. 950,000 24,348,500
==========================================================================
53,537,000
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.66%
Alliance Data Systems Corp.(a) 62,100 2,625,588
- --------------------------------------------------------------------------
Automatic Data Processing, Inc. 300,000 13,017,000
==========================================================================
15,642,588
==========================================================================
DEPARTMENT STORES-3.83%
J.C. Penney Co., Inc. 650,000 22,483,500
- --------------------------------------------------------------------------
Kohl's Corp.(a) 1,000,000 50,760,000
- --------------------------------------------------------------------------
Nordstrom, Inc. 400,000 17,272,000
==========================================================================
90,515,500
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.67%
Apollo Group, Inc.-Class A(a) 175,000 11,550,000
- --------------------------------------------------------------------------
Cendant Corp. 2,500,000 51,475,000
==========================================================================
63,025,000
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.41%
Rockwell Automation, Inc. 800,000 33,352,000
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.70%
Agilent Technologies, Inc.(a) 1,600,000 40,096,000
==========================================================================
FOOTWEAR-1.03%
NIKE, Inc.-Class B 300,000 24,393,000
==========================================================================
GENERAL MERCHANDISE STORES-2.01%
Target Corp. 950,000 47,519,000
==========================================================================
HEALTH CARE EQUIPMENT-1.51%
Bard (C.R.), Inc. 300,000 17,040,000
- --------------------------------------------------------------------------
Waters Corp.(a) 450,000 18,580,500
==========================================================================
35,620,500
==========================================================================
HEALTH CARE SERVICES-1.37%
Caremark Rx, Inc.(a) 550,000 16,483,500
- --------------------------------------------------------------------------
IMS Health Inc. 750,000 15,885,000
==========================================================================
32,368,500
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE SUPPLIES-1.06%
Alcon, Inc. (Switzerland) 350,000 $ 24,920,000
==========================================================================
HOME IMPROVEMENT RETAIL-0.87%
Home Depot, Inc. (The) 500,000 20,540,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.01%
Starwood Hotels & Resorts Worldwide, Inc. 500,000 23,865,000
==========================================================================
HOUSEHOLD PRODUCTS-1.73%
Procter & Gamble Co. (The) 800,000 40,944,000
==========================================================================
HOUSEWARES & SPECIALTIES-1.08%
Fortune Brands, Inc. 350,000 25,487,000
==========================================================================
HYPERMARKETS & SUPER CENTERS-1.22%
Costco Wholesale Corp. 600,000 28,764,000
==========================================================================
INDUSTRIAL CONGLOMERATES-4.45%
3M Co. 150,000 11,635,500
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 3,000,000 93,450,000
==========================================================================
105,085,500
==========================================================================
INDUSTRIAL MACHINERY-2.81%
Danaher Corp. 600,000 33,078,000
- --------------------------------------------------------------------------
Eaton Corp. 200,000 12,790,000
- --------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 300,000 20,532,000
==========================================================================
66,400,000
==========================================================================
INTEGRATED OIL & GAS-1.33%
BP PLC-ADR (United Kingdom) 175,000 10,193,750
- --------------------------------------------------------------------------
ChevronTexaco Corp. 200,000 10,612,000
- --------------------------------------------------------------------------
ConocoPhillips 125,000 10,538,750
==========================================================================
31,344,500
==========================================================================
INTERNET RETAIL-1.88%
Amazon.com, Inc.(a) 300,000 10,239,000
- --------------------------------------------------------------------------
eBay Inc.(a) 350,000 34,163,500
==========================================================================
44,402,500
==========================================================================
INTERNET SOFTWARE & SERVICES-3.49%
Google Inc.-Class A(a)(c) 100,000 19,070,500
- --------------------------------------------------------------------------
Yahoo! Inc.(a) 1,750,000 63,332,500
==========================================================================
82,403,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.85%
Goldman Sachs Group, Inc. (The) 400,000 39,352,000
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 300,000 24,645,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 500,000 26,970,000
==========================================================================
90,967,000
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
MANAGED HEALTH CARE-3.90%
Aetna Inc. 600,000 $ 57,000,000
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 485,000 35,114,000
==========================================================================
92,114,000
==========================================================================
MOTORCYCLE MANUFACTURERS-0.73%
Harley-Davidson, Inc. 300,000 17,271,000
==========================================================================
MOVIES & ENTERTAINMENT-0.86%
Walt Disney Co. (The) 800,000 20,176,000
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.65%
Varco International, Inc.(a) 550,000 15,224,000
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.67%
Citigroup Inc. 550,000 24,403,500
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 1,000,000 38,600,000
==========================================================================
63,003,500
==========================================================================
PERSONAL PRODUCTS-3.62%
Avon Products, Inc. 450,000 17,797,500
- --------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 900,000 38,655,000
- --------------------------------------------------------------------------
Gillette Co. (The) 700,000 29,036,000
==========================================================================
85,488,500
==========================================================================
PHARMACEUTICALS-6.35%
Johnson & Johnson 800,000 46,704,000
- --------------------------------------------------------------------------
Lilly (Eli) & Co. 250,000 13,727,500
- --------------------------------------------------------------------------
Pfizer Inc. 1,200,000 34,740,000
- --------------------------------------------------------------------------
Sepracor Inc.(a)(c) 500,000 22,965,000
- --------------------------------------------------------------------------
Wyeth 800,000 31,720,000
==========================================================================
149,856,500
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.61%
Allstate Corp. (The) 300,000 14,427,000
==========================================================================
RESTAURANTS-2.34%
McDonald's Corp. 1,000,000 29,150,000
- --------------------------------------------------------------------------
Yum! Brands, Inc. 600,000 26,100,000
==========================================================================
55,250,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-1.65%
Novellus Systems, Inc.(a) 1,500,000 38,865,000
==========================================================================
SEMICONDUCTORS-2.69%
Analog Devices, Inc. 900,000 36,234,000
- --------------------------------------------------------------------------
Microchip Technology Inc. 900,000 27,225,000
==========================================================================
63,459,000
==========================================================================
SOFT DRINKS-0.84%
PepsiCo, Inc. 400,000 19,832,000
==========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.57%
Ecolab Inc. 400,000 $ 13,540,000
==========================================================================
SYSTEMS SOFTWARE-3.81%
Microsoft Corp. 850,000 23,791,500
- --------------------------------------------------------------------------
Oracle Corp.(a) 1,600,000 20,256,000
- --------------------------------------------------------------------------
Symantec Corp.(a) 500,000 28,470,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 800,000 17,504,000
==========================================================================
90,021,500
==========================================================================
THRIFTS & MORTGAGE FINANCE-0.59%
Fannie Mae 200,000 14,030,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,847,833,159) 2,319,483,588
==========================================================================
MONEY MARKET FUNDS-0.55%
Liquid Assets Portfolio-Institutional
Class(d) 6,546,085 6,546,085
- --------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
STIC Prime Portfolio-Institutional Class(d) 6,546,085 $ 6,546,085
==========================================================================
Total Money Market Funds (Cost
$13,092,170) 13,092,170
==========================================================================
TOTAL INVESTMENTS-98.79% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,860,925,329) 2,332,575,758
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.74%
STIC Prime Portfolio-Institutional
Class(d)(e) 40,952,850 40,952,850
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $40,952,850) 40,952,850
==========================================================================
TOTAL INVESTMENTS-100.53% (Cost
$1,901,878,179) 2,373,528,608
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.53%) (12,485,091)
==========================================================================
NET ASSETS-100.00% $2,361,043,517
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1H
and Note 9.
(c) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,847,833,159)* $ 2,319,483,588
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $54,045,020) 54,045,020
============================================================
Total investments (cost $1,901,878,179) 2,373,528,608
============================================================
Receivables for:
Investments sold 50,411,057
- ------------------------------------------------------------
Fund shares sold 448,667
- ------------------------------------------------------------
Dividends 1,592,101
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 269,768
- ------------------------------------------------------------
Other assets 104,007
============================================================
Total assets 2,426,354,208
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 15,055,134
- ------------------------------------------------------------
Fund shares reacquired 5,956,291
- ------------------------------------------------------------
Options written, at market value
(premiums received $421,040) 397,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 534,825
- ------------------------------------------------------------
Collateral upon return of securities
loaned 40,952,850
- ------------------------------------------------------------
Accrued distribution fees 865,367
- ------------------------------------------------------------
Accrued trustees' fees 3,163
- ------------------------------------------------------------
Accrued transfer agent fees 963,599
- ------------------------------------------------------------
Accrued operating expenses 581,962
============================================================
Total liabilities 65,310,691
============================================================
Net assets applicable to shares outstanding $ 2,361,043,517
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 5,229,262,118
- ------------------------------------------------------------
Undistributed net investment income (loss) (484,385)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (3,339,408,185)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 471,673,969
============================================================
$ 2,361,043,517
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,844,930,443
____________________________________________________________
============================================================
Class B $ 434,572,230
____________________________________________________________
============================================================
Class C $ 78,330,084
____________________________________________________________
============================================================
Class R $ 1,448,080
____________________________________________________________
============================================================
Institutional Class $ 1,762,680
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 153,486,063
____________________________________________________________
============================================================
Class B 39,386,838
____________________________________________________________
============================================================
Class C 7,092,782
____________________________________________________________
============================================================
Class R 121,135
____________________________________________________________
============================================================
Institutional Class 138,489
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 12.02
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.02 divided by
94.50%) $ 12.72
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 11.03
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 11.04
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 11.95
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.73
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $39,055,836
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $168,938) $ 18,735,081
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $91,112)* 336,832
===========================================================================
Total investment income 19,071,913
===========================================================================
EXPENSES:
Advisory fees 17,028,857
- ---------------------------------------------------------------------------
Administrative services fees 533,540
- ---------------------------------------------------------------------------
Custodian fees 272,422
- ---------------------------------------------------------------------------
Distribution fees:
Class A 6,122,534
- ---------------------------------------------------------------------------
Class B 5,114,549
- ---------------------------------------------------------------------------
Class C 873,155
- ---------------------------------------------------------------------------
Class R 5,355
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 9,316,175
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,931
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 61,515
- ---------------------------------------------------------------------------
Other 1,785,513
===========================================================================
Total expenses 41,115,546
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (276,057)
===========================================================================
Net expenses 40,839,489
===========================================================================
Net investment income (loss) (21,767,576)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 236,255,290
- ---------------------------------------------------------------------------
Foreign currencies 24
===========================================================================
236,255,314
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (114,844,681)
- ---------------------------------------------------------------------------
Foreign currencies (7)
- ---------------------------------------------------------------------------
Option contracts written 23,540
===========================================================================
(114,821,148)
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 121,434,166
===========================================================================
Net increase in net assets resulting from operations $ 99,666,590
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (21,767,576) $ (22,244,366)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and options contracts 236,255,314 (152,819,227)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (114,821,148) 703,701,978
==============================================================================================
Net increase in net assets resulting from operations 99,666,590 528,638,385
==============================================================================================
Share transactions-net:
Class A (395,056,301) (354,029,189)
- ----------------------------------------------------------------------------------------------
Class B (138,803,397) (78,758,321)
- ----------------------------------------------------------------------------------------------
Class C (15,793,039) (11,803,823)
- ----------------------------------------------------------------------------------------------
Class R 1,126,374 190,176
- ----------------------------------------------------------------------------------------------
Institutional Class (547,138) (83,682)
==============================================================================================
Net increase (decrease) in net assets resulting from share
transactions (549,073,501) (444,484,839)
==============================================================================================
Net increase (decrease) in net assets (449,406,911) 84,153,546
==============================================================================================
NET ASSETS:
Beginning of year 2,810,450,428 2,726,296,882
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(484,385) and $(462,775), respectively) $2,361,043,517 $2,810,450,428
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to provide growth of capital. Each
company listed in the Schedule of Investments is organized in the United States
of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-7
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
F-8
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first
$30 million of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $30 million up to and including $350
million, plus 0.625% of the Fund's average daily net assets in excess of $350
million. AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $5,987. Under the terms of a master
sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM
Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $227,266 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
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, 2004, AIM was
paid $533,540 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 and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $9,316,175 for Class A, Class B, Class C and Class R shares
and $1,931 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to selected dealers and financial
institutions who furnish continuing personal shareholder services to customers
who purchase and own shares of such classes. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended October 31, 2004, the Class A, Class B, Class C and
Class R shares paid $6,122,534, $5,114,549, $873,155 and $5,355, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$252,306 in front-end sales commissions from the sale of Class A shares and
$1,900, $55,846, $6,948 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
F-9
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $36,428,079 $ 401,226,654 $ (431,108,648) $ -- $ 6,546,085 $124,213 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 36,428,079 401,226,654 (431,108,648) -- 6,546,085 121,507 --
==================================================================================================================================
Subtotal $72,856,158 $ 802,453,308 $ (862,217,296) $ -- $13,092,170 $245,720 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $38,996,800 $ 574,759,331 $ (613,756,131) $ -- $ -- $ 79,923 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class -- 125,196,850 (84,244,000) -- 40,952,850 $ 11,189 --
==================================================================================================================================
Subtotal $38,996,800 $ 699,956,181 $ (698,000,131) $ -- $40,952,850 $ 91,112 $ --
==================================================================================================================================
Total $111,852,958 $1,502,409,489 $(1,560,217,427) $ -- $54,045,020 $336,832 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $79,267,272 and $21,738,445,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $42,804 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$42,804.
NOTE 6--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. Those Trustees who defer 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. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $13,966
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
F-10
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $39,055,836 were
on loan to brokers. The loans were secured by cash collateral of $40,952,850
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $91,112 for securities
lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 3,000 421,040
===================================================================================
End of year 3,000 $421,040
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------------
OCTOBER 31, 2004
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET UNREALIZED
CALLS MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------
Chico's FAS, Inc. Nov-04 $40.0 3,000 $421,040 $397,500 $23,540
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
F-11
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 450,268,418
- -----------------------------------------------------------------------------
Temporary book/tax differences (484,385)
- -----------------------------------------------------------------------------
Capital loss carryforward (3,318,002,634)
- -----------------------------------------------------------------------------
Shares of beneficial interest 5,229,262,118
=============================================================================
Total net assets $ 2,361,043,517
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the tax deferral of losses
on wash sales and the deferral of losses on certain straddles. The tax-basis
unrealized appreciation on investments amount includes appreciation on option
contracts of $23,539.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $200,737,719 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------------------------
October 31, 2009 $2,358,363,619
- ------------------------------------------------------------------------------
October 31, 2010 763,027,747
- ------------------------------------------------------------------------------
October 31, 2011 196,611,268
==============================================================================
Total capital loss carryforward $3,318,002,634
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--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, 2004 was $1,931,481,698 and $2,445,456,487, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $466,806,274
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (16,561,395)
==============================================================================
Net unrealized appreciation of investment securities $450,244,879
______________________________________________________________________________
==============================================================================
</Table>
Cost of investments for tax purposes is $1,923,283,729.
NOTE 12--RECLASSIFICATIONS OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2004, undistributed net
investment income increased by $21,745,966, undistributed net realized gain
(loss) was decreased by $25 and shares of beneficial interest decreased by
$21,745,941. This reclassification had no effect on the net assets of the Fund.
F-12
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,161,430 $ 74,474,713 10,192,956 $ 102,256,843
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,836,554 31,535,843 5,051,931 47,044,808
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,109,204 12,390,482 1,715,252 15,941,057
- --------------------------------------------------------------------------------------------------------------------------
Class R 139,257 1,669,192 23,136 234,973
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 13,498 172,948 16,638 177,847
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 4,502,782 54,704,748 1,369,192 14,331,798
- --------------------------------------------------------------------------------------------------------------------------
Class B (4,888,349) (54,704,748) (1,477,850) (14,331,798)
==========================================================================================================================
Reacquired:
Class A (43,655,916) (524,235,762) (47,251,093) (470,617,830)
- --------------------------------------------------------------------------------------------------------------------------
Class B (10,449,964) (115,634,492) (12,154,199) (111,471,331)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,535,106) (28,183,521) (2,990,841) (27,744,880)
- --------------------------------------------------------------------------------------------------------------------------
Class R (45,049) (542,818) (4,184) (44,797)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (56,324) (720,086) (25,361) (261,529)
==========================================================================================================================
(46,867,983) $(549,073,501) (45,534,423) $(444,484,839)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 17% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.59 $ 9.47 $ 12.65 $ 28.16 $ 28.31
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.07) (0.07)(a) (0.10) (0.14)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.51 2.19 (3.11) (11.87) 3.18
============================================================================================================================
Total from investment operations 0.43 2.12 (3.18) (11.97) 3.04
============================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
============================================================================================================================
Net asset value, end of period $ 12.02 $ 11.59 $ 9.47 $ 12.65 $ 28.16
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 3.71% 22.39% (25.14)% (47.38)% 10.61%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,844,930 $2,160,823 $2,104,660 $4,001,552 $8,948,781
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.39%(c) 1.47% 1.33% 1.21% 1.03%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.40%(c) 1.47% 1.33% 1.22% 1.07%
============================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.67)%(c) (0.68)% (0.64)% (0.56)% (0.45)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $2,040,844,523.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.71 $ 8.82 $ 11.86 $ 26.82 $ 27.29
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.14) (0.15)(a) (0.21) (0.36)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 2.03 (2.89) (11.21) 3.08
==========================================================================================================================
Total from investment operations 0.32 1.89 (3.04) (11.42) 2.72
==========================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
==========================================================================================================================
Net asset value, end of period $ 11.03 $ 10.71 $ 8.82 $ 11.86 $ 26.82
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 2.99% 21.43% (25.63)% (47.75)% 9.76%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $434,572 $555,779 $533,224 $922,476 $1,927,514
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.09%(c) 2.17% 2.04% 1.92% 1.78%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.10%(c) 2.17% 2.04% 1.93% 1.82%
==========================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.37)%(c) (1.38)% (1.34)% (1.27)% (1.20)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $511,454,890.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.72 $ 8.83 $ 11.87 $ 26.85 $ 27.30
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.14) (0.15)(a) (0.21) (0.36)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 2.03 (2.89) (11.23) 3.10
======================================================================================================================
Total from investment operations 0.32 1.89 (3.04) (11.44) 2.74
======================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
======================================================================================================================
Net asset value, end of period $ 11.04 $ 10.72 $ 8.83 $ 11.87 $ 26.85
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 2.99% 21.40% (25.61)% (47.77)% 9.83%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $78,330 $91,325 $86,455 $150,604 $301,590
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.09%(c) 2.17% 2.04% 1.92% 1.78%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.10%(c) 2.17% 2.04% 1.93% 1.82%
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.37)%(c) (1.38)% (1.34)% (1.27)% (1.20)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $87,315,520.
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.56 $ 9.47 $ 11.36
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.06) (0.03)(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.49 2.15 (1.86)
====================================================================================================
Total from investment operations 0.39 2.09 (1.89)
====================================================================================================
Net asset value, end of period $ 11.95 $11.56 $ 9.47
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 3.37% 22.07% (16.64)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,448 $ 311 $ 76
====================================================================================================
Ratio of expenses to average net assets 1.59%(c)(d) 1.67% 1.53%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (0.87)%(c) (0.88)% (0.84)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate 74% 111% 217%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $1,071,094.
(d) After fee waivers and/or expense reimbursements. Ratio of expense to
average net asset prior to fee waivers and/or expense reimbursements is
1.60%.
(e) Annualized.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.20 $ 9.91 $13.16 $29.00 $ 28.96
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) 0.00 (0.01)(a) (0.01) (0.06)(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.54 2.29 (3.24) (12.29) 3.29
================================================================================================================
Total from investment operations 0.53 2.29 (3.25) (12.30) 3.23
================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
================================================================================================================
Net asset value, end of period $12.73 $12.20 $ 9.91 $13.16 $ 29.00
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 4.34% 23.11% (24.70)% (47.11)% 11.07%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,763 $2,213 $1,883 $7,667 $18,634
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.84%(c) 0.78% 0.82% 0.69% 0.64%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.85%(c) 0.78% 0.82% 0.70% 0.68%
================================================================================================================
Ratio of net investment income (loss) to average net assets (0.12)%(c) 0.01% (0.12)% (0.04)% (0.04)%
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions.
(c) Ratios are based on average daily net assets of $1,931,035.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office
F-17
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
for the Southern District of New York, some of which concern one or more of the
AIM Funds formerly advised by IFG. IFG is providing full cooperation with
respect to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
F-18
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Weingarten Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Weingarten Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements 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, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Weingarten Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
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 114
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 and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), 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, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); 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), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (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.;
President and Chief Executive Officer, 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
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired 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 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
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.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
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 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered
investment company)
- ----------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical
Trustee (California) Group, Inc.
Formerly: Associate Justice of the
California Court of Appeals
- ----------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ----------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ----------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development and None
Trustee Operations, Hines Interests Limited
Partnership (real estate development
company)
- ----------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and Chief
Compliance Officer, A I M Advisors, Inc.;
Vice President and Chief Compliance
Officer, A I M Capital Management, Inc.
and A I M Distributors, Inc.; and Vice
President, AIM Investment Services, Inc.
and Fund Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware Investments
Family of Funds
- ----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial services
Officer holding company) and A I M Advisors,
Inc.; Director and Vice President,
INVESCO Distributors, Inc.; Vice
President, A I M Capital Management,
Inc., and AIM Investment Services, Inc.;
Director, Vice President and General
Counsel, Fund Management Company and
Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds Group,
LLC and Vice President, A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments, Chief
Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Ernst & Young LLP A I M Capital
Suite 100 11 Greenway Plaza Inc. 5 Houston Center Management, Inc.
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1401 McKinney 11 Greenway Plaza
Houston, TX 77046-1173 Suite 100 Houston, TX Suite 100
Houston, TX 77010-4035 Houston, TX
77046-1173 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) =====================================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR
AIM Total Return Fund*(1) THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund =====================================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) 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. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com WEI-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). 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. Dr. Mathai-Davis is
"independent" within the meaning of that term as used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY E&Y RELATED TO THE REGISTRANT
E&Y billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees Percentage of Fees
Billed Applicable to Billed Applicable to
Non-Audit Services Non-Audit Services
Provided for fiscal Provided for fiscal
Fees Billed for year end 2004 Fees Billed for year end 2003
Services Rendered to Pursuant to Waiver of Services Rendered to Pursuant to Waiver of
the Registrant for Pre-Approval the Registrant for Pre-Approval
fiscal year end 2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
--------------------- --------------------- --------------------- ---------------------
Audit Fees $ 477,418 N/A $ 492,675 N/A
Audit-Related Fees(3) $ 16,800 0% $ 0 0%
Tax Fees(4) $ 39,795 0% $ 23,112 0%
All Other Fees $ 0 0% $ 0 0%
--------------------- ---------------------
Total Fees $ 534,013 0% $ 515,787 0%
</Table>
E&Y billed the Registrant aggregate non-audit fees of $56,595 for the fiscal
year ended 2004, and $23,112 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant to E&Y during a fiscal year; and (iii) such services are
promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(3) Audit-Related Fees for the fiscal year end October 31, 2004 includes fees
billed for agreed upon procedures for fund mergers.
(4) Tax fees for the fiscal year end October 31, 2004 includes fees billed for
reviewing tax returns and consultation services. Tax fees for fiscal year
end October 31, 2003 includes fees billed for reviewing tax returns.
FEES BILLED BY E&Y RELATED TO AIM AND AIM AFFILIATES
E&Y billed AIM Advisors, Inc. ("AIM"), the Registrant's adviser, and any
entity controlling, controlled by or under common control with AIM that provides
ongoing services to the Registrant ("AIM Affiliates") aggregate fees for
pre-approved non-audit services rendered to AIM and AIM Affiliates for the last
two fiscal years as follows:
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2004 Provided for fiscal fiscal year end 2003 Provided for fiscal
That Were Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
--------------------- --------------------- --------------------- ---------------------
Audit-Related Fees(4) $ 185,000 0% $ 196,777 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
--------------------- ---------------------
Total Fees(5) $ 185,000 0% $ 196,777 0%
</Table>
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant, AIM and AIM Affiliates to E&Y during a fiscal year; and (iii)
such services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the fees billed for non-audit
services shown in this column only represents fees for pre-approved
non-audit services rendered after May 6, 2003, to AIM and AIM Affiliates.
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(4) Audit-Related Fees for the fiscal year ended October 31, 2004 includes fees
billed for services to test and report on the controls and operations of an
affiliated transfer agent. Audit-Related Fees for the fiscal year ended
October 31, 2003 includes fees billed for services to test and report on
the controls and operations of an affiliated transfer agent.
(5) Including the fees for services not required to be pre-approved by the
registrant's audit committee, E&Y billed AIM and AIM Affiliates aggregate
non-audit fees of $265,511 for the fiscal year ended 2004, and $258,650 for
the fiscal year ended 2003, for non-audit services rendered to AIM and AIM
Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining E&Y's independence. To the extent that such
services were provided, the Audit Committee determined that the provision
of such services is compatible with E&Y maintaining independence with
respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
Last Amended September 14, 2004
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of general
pre-approved fee levels will also require specific pre-approval by the Audit
Committees.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and states otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms (including fees) will be subject to
specific pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial
statements with SEC registration statements, periodic reports and other
documents filed with the SEC or other documents issued in connection with
securities offerings.
GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of fees or established amounts for services to be provided by the
Auditor under general pre-approval policies will be set periodically by the
Audit Committees. Any proposed fees exceeding 110% of the maximum such amounts
will be reported to the Audit Committees at the quarterly Audit Committees
meeting and will require specific pre-approval by the Audit Committees. The
Audit Committee will always factor in the overall relationship of fees for audit
and non-audit services in determining whether to pre-approve any such services.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the
Auditor. The list will describe the non-audit services in reasonable detail and
will include an estimated range of fees where possible and such other
information as the Audit Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can
reasonably conclude that the results of the service would not be subject to
audit procedures in connection with the audit of the Fund's financial
statements)
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client
o Financial information systems design and implementation Appraisal or
valuation services, fairness opinions, or contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
Categorically Prohibited Non-Audit Services
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board determines
by regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part
of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 16, 2004, an evaluation was performed under the supervision
and with the participation of the officers of the Registrant, including the
PEO and PFO, to assess the effectiveness of the Registrant's disclosure
controls and procedures, as that term is defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act"), as amended. Based on that
evaluation, the Registrant's officers, including the PEO and PFO, concluded
that, as of December 16, 2004, the Registrant's disclosure controls and
procedures were reasonably designed to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the PEO
and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting. However, on September 20, 2004, the Registrant appointed a Chief
Compliance Officer ("Registrant CCO") who reports to the Registrant's Board
of Trustees. The Registrant CCO also serves as Chief Compliance Officer of
A I M Advisors, Inc. ("AIM"), the investment advisor for the series
portfolios of the Registrant. The Registrant CCO is a member of the
Disclosure Controls Committee ("DCC") for the Registrant, which reports to
the Registrant's PEO and PFO. The DCC is made up of employees of AIM some
of whom are officers of the Registrant. Among other things, the DCC assists
the PEO and PFO in their responsibilities related to internal control over
financial reporting. The addition of the Registrant CCO is expected to
enhance the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
12(a) (1) Code of Ethics.
12(a) (2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the
Investment Company Act of 1940.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the
Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Equity Funds
By: /s/ ROBERT H. GRAHAM
-----------------------------------------------------------
Robert H. Graham
Principal Executive Officer
Date: January 5, 2005
------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
-----------------------------------------------------------
Robert H. Graham
Principal Executive Officer
Date: January 5, 2005
------------------------
By: /s/ SIDNEY M. DILGREN
-----------------------------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: January 5, 2005
------------------------
EXHIBIT INDEX
12(a) (1) Code of Ethics.
12(a) (2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the
Investment Company Act of 1940.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.