N-CSR 1 h10324bnvcsr.txt AIM EQUITY FUNDS - DATED OCTOBER 31, 2003 OMB APPROVAL ------------------------- OMB Number: 3235-0570 Expires: Nov. 30, 2005 Estimated average burden hours per response: 5.0 ------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-1424 -------------------------------------------------------------------------- AIM Equity Funds -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 11 Greenway Plaza, Suite 100 Houston, Texas 77046 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (713) 626-1919 ----------------------------- Date of fiscal year end: 10/31 ----------------- Date of reporting period: 10/31/03 ----------------- AIM CORE STRATEGIES FUND Annual Report to Shareholders o October 31, 2003 [COVER IMAGE] YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE] --Servicemark-- --Servicemark-- ================================================================================ AIM CORE STRATEGIES FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL. ================================================================================ ABOUT INFORMATION THROUGHOUT THIS REPORT: o Unless otherwise stated, information o The fund may participate in the o Industry classifications used in this presented is as of 10/31/03 and is initial public offering (IPO) market in report are generally according to the based on total net assets. some market cycles. Because of the Global Industry Classification Standard, fund's small asset base, any investment which was developed by and is the o AIM Core Strategies Fund's performance the fund may make in IPOs may exclusive property and a service mark of figures are historical, and they reflect significantly affect the fund's total Morgan Stanley Capital International fund expenses, the reinvestment of return. As the fund's assets grow, the Inc. and Standard & Poor's. distributions, and changes in net asset impact of IPO investments will decline, value. which may reduce the effect of IPO o A direct investment cannot be made in investments on the fund's total return. an index. Unless otherwise indicated, o When sales charges are included in index results include reinvested performance figures, Class A share o The fund's investment return and dividends, and they do not reflect sales performance reflects the maximum 5.50% principal value will fluctuate, so an charges. Performance of an index of sales charge, and Class B and Class C investor's shares, when redeemed, may be funds reflects fund expenses; share performance reflects the worth more or less than their original performance of a market index does not. applicable contingent deferred sales cost. charge (CDSC) for the period involved. A description of the policies and The CDSC on Class B shares declines from o The unmanaged Standard & Poor's procedures that the fund uses to 5% beginning at the time of purchase to Composite Index of 500 Stocks (the S&P determine how to vote proxies relating 0% at the beginning of the seventh year. 500(R)) is an index of common stocks to portfolio securities is available The CDSC on Class C shares is 1% for the frequently used as a general measure of without charge, upon request, by calling first year after purchase. The U.S. stock market performance. 800-959-4246, or on the AIM Web site, performance of the fund's share classes AIMinvestments.com. will differ due to different sales o The unmanaged Lipper Large-Cap Core charge structures and class expenses. Fund Index represents an average of the performance of the 30 largest o Had the advisor and distributor not large-capitalization core equity funds waived fees and/or reimbursed expenses, tracked by Lipper, Inc., an independent returns would have been lower. mutual fund performance monitor.
===================================================== NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or to persons who have received a current prospectus of ===================================================== the fund.
AIMinvestments.com TO OUR SHAREHOLDERS DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to THE AIM FAMILY OF FUNDS discourage harmful short-term trading. These steps --Registered Trademark--: include: [PHOTO OF As you may be aware, there has o Strengthening daily monitoring of trading ROBERT H. been a great deal of media activities. GRAHAM] coverage recently about the mutual fund industry and o Imposing redemption fees on additional ROBERT H. GRAHAM allegations of improper funds we believe may be vulnerable to activities by certain harmful short-term trading activity. [PHOTO OF individuals and companies. As MARK H. part of these widespread o Implementing an enhanced exchange policy WILLIAMSON] investigations, INVESCO Funds (effective on or about March 1, 2004) Group (IFG), the former designed to limit exchanges between MARK H. WILLIAMSON adviser to certain INVESCO funds. Funds, was recently named as a defendant in separate civil enforcement actions by o Employing an enhanced fair value pricing the U.S. Securities and Exchange Commission (SEC), policy on certain foreign securities as the Office of the New York Attorney General and well as certain illiquid securities. the State of Colorado over an issue known as "market timing." A number of private class or None of these tools alone, nor all of derivative actions also were filed in the wake them taken together, eliminate the possibility of of the regulators' actions. short-term trading strategies that may be detrimental to a fund. Moreover, each of these Investors are understandably concerned tools involves judgments that are inherently and frustrated about these reports, and we would subjective. We have always sought and continue to like to take this opportunity to assure you that, seek to make these judgments to the best of our based on an investigation conducted by an outside abilities and in a manner that we believe is firm, IFG and its parent company, AMVESCAP PLC, consistent with the best interests of our fund believe that these civil actions are without shareholders. And we remain committed to being as merit. IFG is contesting the charges. vigilant as possible in the future to identify and address any harmful market timing investors who We encourage you to continue to monitor have the potential to harm our long-term fund this situation, particularly as IFG has the shareholders. opportunity to address the allegations that have been made. Current information will be posted on We sincerely hope these developments and our Web site at AIMinvestments.com. We will the media coverage surrounding them do not result continue to communicate to you on our Web site in you or other shareholders losing confidence in about our finding, and the actions we are taking AIM or INVESCO Funds. Amidst this storm of to protect and promote the interests of our controversy in the mutual fund industry, we shareholders. The independent trustees of the believe we can find encouragement in the funds are receiving regular reports from their recovering economy and rising equity markets. As independent counsel and outside counsel hired by we write this letter, for instance, the S&P 500 AMVESCAP PLC, the parent of AIM and IFG, to --Registered Trademark-- Index is up approximately perform an ongoing investigation of market timing. 23% year-to-date. Although past performance is no guarantee of future results, there appear to A COMPLEX ISSUE be indicators that the economy and stock markets are showing signs of welcomed improvement. We Market timing is an investment technique not encourage you to read the enclosed discussion of your defined in any regulation that involves frequent fund's performance during this past reporting period. short-term trading of mutual fund shares, sometimes with a goal to exploit inefficiencies in OUR UNWAVERING COMMITMENT the way mutual funds price their shares. We recognize that fund management companies have At AIM Investments, we have never wavered in our tried to deal with this complex issue in various commitment to helping you build solutions for your ways and believe that industry-wide guidance is in financial goals. Our company was founded on a core order. To that end, we welcome SEC Chairman principle of integrity, and we have always worked William Donaldson's pledge to adopt new rules hard to earn the trust of our shareholders. We are designed to curb market timing abuses. committed to doing all we can to maintain your Comprehensive rulemaking is necessary and is the trust and confidence. best way to establish new industry responsibilities designed to protect shareholders. Thank you for your continued We support practical rule changes and structural participation in AIM Investments. Please call your modifications that are fair, enforceable and, most financial advisor or one of our Client Service importantly, beneficial for investors. representatives at 800-959-4246 if you have any further questions or concerns about your AIM AIM Investments has policies in place Investments account. designed to identify, prevent and eliminate harmful trading or other activities deemed to be Sincerely, detrimental to the funds. We have also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON Robert H. Graham Mark H. Williamson Chairman and President President and CEO The AIM Family of Funds AIM Investments --Registered Trademark-- December 18, 2003
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE revenues and earnings. We also seek to mitigate risk by applying our own fundamental research and insights as MARKET CONDITIONS IMPROVE IN FUND'S SECOND YEAR well as a proprietary quantitative model that incorporates numerous earnings This report covers the fiscal year ended For most of the fiscal year, the growth and valuation factors. We choose October 31, 2003. Class A shares of AIM Federal Reserve Board (the Fed) kept the each stock individually, and we also Core Strategies Fund returned 15.95% at short-term federal funds rate at 1.25%. examine the portfolio as a whole to net asset value for the year. This can On June 25, 2003, it lowered that rate ensure that in building the composite we be compared to the 16.86% return of the to 1.00%, its lowest level since 1958. have not introduced a risk factor such Lipper Large-Cap Core Fund Index, an The Fed said it favored a more expansive as over-exposure to one sector. index of funds with a similar investment monetary policy because the economy had style investing primarily in stocks of not yet exhibited sustainable growth. By ======================================== the same market capitalization. October, the Fed reported that the pace WE ARE PLEASED TO BE of economic expansion had picked up, MARKET CONDITIONS consumer spending had generally ABLE TO REPORT POSITIVE, strengthened, and residential real Gross domestic product (GDP) growth estate was strong. However, commercial DOUBLE-DIGIT RETURNS FOR improved over the reporting period. The real estate was sluggish, and labor annualized GDP growth for both the last markets remained weak. THE FISCAL YEAR. quarter of 2002 and the first quarter of ======================================== 2003 was 1.4%. For second-quarter 2003, The job market was comparatively it was 3.3%, annualized. On November 25, weak throughout the period, with the On October 31, 2003, the fund was 2003, after the close of the reporting U.S. unemployment rate measuring 6.0% invested in all 10 sectors of the S&P period, the preliminary estimate for for the last two months of 2002, 500 Index. Our largest sector weightings third-quarter GDP growth was announced reaching a high for the reporting period were in financials, information as 8.2%, annualized. of 6.4% in June, and declining in August technology, and health care. Both and October to end the period at 6.0%. financials and information technology The S&P 500 Index, frequently cited were strong contributors to the fund's as a measure of the performance of the YOUR FUND return. Stocks in the consumer U.S. stock market in general, returned discretionary sector also made a 20.79% for the year ended October 31, We endeavor to choose the stocks of positive contribution. Health care 2003. All sectors of the S&P 500 companies which we believe have sound stocks detracted from the fund's recorded gains for the year. financial health and the potential for performance; this year, the sector was above-average growth in among the weakest-performing sectors in the S&P 500. The
PORTFOLIO COMPOSITION BY MARKET CAPITALIZATION Based On Total Equity Holdings [PIE CHART] Mid-Cap Stocks 13% Small-Cap Stocks 8% Large-Cap Stocks 79% ========================================================================================= FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS 135 Total returns 10/31/02-10/31/03, excluding sales charges TOTAL NET ASSETS $0.93 million Class A Shares 15.95% Class B Shares 15.95 Class C Shares 15.95 S&P 500 Index (Broad Market and Style-Specific Index) 20.79 Lipper Large-Cap Core Fund Index (Peer Group Index) 16.86 Source: Lipper, Inc. =========================================================================================
2 stocks in the fund's portfolio in the insurance groups. Though a market Duy Nguyen utilities, materials, and consumer leader, its profits have not met [PHOTO OF Duy Nguyen, Chartered staples sectors underperformed their analysts' expectations, and its share DUY NGUYEN] Financial Analyst, counterparts in their respective sectors price has suffered. PBG is the world's is the portfolio in the S&P 500. largest manufacturer and distributor of manager of AIM Core Pepsi-Cola beverages, accounting for Strategies Fund. We focus on market leaders. This about 40% of PepsiCo's global beverage emphasis gives the fund a long-term sales. In March 2003, PBG reduced its Mr. Nguyen joined AIM in May 2000. investment perspective, which sometimes first-quarter earnings forecast because Prior to joining AIM, he served as results in long holding periods. Seven of poor weather on the East Coast, assistant vice president and of the top-10 holdings that were listed generally sluggish soft drink sales, and quantitative equity analyst for Van in the fund's annual report dated rising energy costs. S&P analysts then Kampen American Capital, as well as vice October 31, 2002, were still among the downgraded the stock's ranking, president and director of quantitative top-10 holdings at fiscal-year-end 2003. resulting in a one-day price drop of services of FactSet Research Systems, 18%. We have reduced the fund's holdings Inc. Mr. Nguyen earned a B.B.A. at The Technology-sector companies Cisco in AIG, and the fund no longer owns University of Texas. and Intel were two important shares in PBG. contributors to the fund's return this Assisted by the Mid/Large Cap Core Team. year. Both Cisco and Intel far exceeded IN CLOSING the returns of the technology sector. Cisco, the dominant provider of We are encouraged by the most recent equipment that powers the Internet and earnings reports and some of the connects networks, posted an 89% economic news of late. We are pleased to increase in one-year net income growth be able to report positive, double-digit as of its fiscal year-end in July 2003. returns for the fiscal year. We believe Intel, the world's largest maker of that market volatility will continue to semiconductors, reported earnings of be a factor and that complete recovery $1.7 billion, or 25 cents per share for may be slow. However, we also believe the quarter ended September 30, 2003. that the inclusion of a This compared to $686 million, or 10 sector-diversified, actively managed cents per share, for the same quarter of fund investing in market-leading the previous year. companies can be an important part of an investor's portfolio. Fund holdings that lagged the market during the period included American International Group (AIG) and Pepsi See important fund and index Bottling Group (PBG). AIG is one of the disclosures inside front cover. world's largest
[GRAPHIC] For More Information Visit AIMinvestments.com ================================================================================================================== TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES 1. Intel Corp. 3.3% 1. Pharmaceuticals 7.9% 2. Citigroup Inc. 3.1 2. Diversified Banks 5.6 3. General Electric Co. 3.0 3. Systems Software 5.1 4. Microsoft Corp. 3.0 4. Semiconductors 4.3 5. Johnson & Johnson 2.6 5. Consumer Finance 3.8 6. Exxon Mobil Corp. 2.6 6. Computer Hardware 3.8 7. Wal-Mart Stores, Inc. 2.6 7. Industrial Conglomerates 3.7 8. Dell Inc. 2.5 8. Other Diversified Financial Services 3.1 9. Pfizer Inc. 2.2 9. Integrated Oil & Gas 3.1 10. Cisco Systems, Inc. 2.1 10. Thrifts & Mortgage Finance 2.8 The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security. ==================================================================================================================
3 FUND PERFORMANCE [MOUNTAIN CHART] RESULTS OF A $10,000 INVESTMENT 12/31/01-10/31/03
DATE AIM CORE AIM CORE AIM CORE STRATEGIES FUND STRATEGIES FUND STRATEGIES FUND S&P 500 CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX 12/31/2001 $9450 $10000 $10000 $10000 1/31/02 9299 9840 9840 9854 2/28/02 9091 9620 9620 9664 3/31/02 9411 9959 9959 10028 4/30/02 8948 9469 9469 9420 5/31/02 8882 9399 9399 9351 6/30/02 8306 8789 8789 8685 7/31/02 7767 8220 8220 8008 8/31/02 7786 8239 8239 8061 9/30/02 7059 7470 7470 7185 10/31/02 7550 7990 7990 7817 11/30/02 7787 8240 8240 8277 12/31/02 7379 7808 7808 7791 1/31/03 7215 7635 7635 7587 2/28/03 7109 7522 7522 7473 3/31/03 7185 7604 7604 7545 4/30/03 7647 8093 8093 8167 5/31/03 8032 8500 8500 8597 6/30/03 8090 8561 8561 8706 7/31/03 8196 8673 8673 8860 8/31/03 8330 8815 8815 9032 9/30/03 8282 8764 8764 8937 10/31/03 $8756 $ 8900 $ 9264 $ 9442 Source: Lipper, Inc.
Your fund's total return includes sales charges, expenses and management fees. Results for B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the fund at the close of the reporting period and paid the applicable contingent deferred sales charges. The performance of the fund's share classes will differ due to different sales charge structures and class expenses. For fund performance calculations and indexes used in this report, please see the inside front cover. Performance shown in the chart and table does not reflect deduction of taxes a shareholder would pay on fund distributions or on sale of fund shares. Performance of the index does not reflect the effects of taxes. =============================================================================================================================== AVERAGE ANNUAL TOTAL RETURNS Past performance cannot guarantee AVERAGE ANNUAL TOTAL RETURNS As of 10/31/03, including sales charges comparable future results. DUE TO As of 9/30/03, including sales charges SIGNIFICANT MARKET VOLATILITY, RESULTS CLASS A SHARES OF AN INVESTMENT MADE TODAY MAY DIFFER CLASS A SHARES Inception (12/31/01) -6.99% SUBSTANTIALLY FROM THE HISTORICAL Inception (12/31/01) -10.21 % 1 Year 9.51 PERFORMANCE SHOWN. CALL YOUR FINANCIAL 1 Year 10.95 ADVISOR FOR MORE CURRENT PERFORMANCE. CLASS B SHARES CLASS B SHARES Inception (12/31/01) -6.16 In addition to fund returns as of the Inception (12/31/01) -9.36 1 Year 10.95 close of the fiscal year, industry 1 Year 12.34 regulations require us to provide CLASS C SHARES average annual total returns (including CLASS C SHARES Inception (12/31/01) -4.08 sales charges) for periods ended Inception (12/31/01) -7.26 1 Year 14.95 9/30/03, the most recent calendar 1 Year 16.34 quarter-end, which were as follows. ===============================================================================================================================
4 FINANCIALS SCHEDULE OF INVESTMENTS October 31, 2003
MARKET SHARES VALUE ---------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-97.80% AEROSPACE & DEFENSE-2.47% General Dynamics Corp. 60 $ 5,022 ---------------------------------------------------------------- Rockwell Collins, Inc. 220 6,039 ---------------------------------------------------------------- United Technologies Corp. 140 11,857 ================================================================ 22,918 ================================================================ APPAREL RETAIL-0.60% Foot Locker, Inc. 150 2,685 ---------------------------------------------------------------- Gap, Inc. (The) 150 2,862 ================================================================ 5,547 ================================================================ APPAREL, ACCESSORIES & LUXURY GOODS-0.88% Carter's, Inc.(a) 200 5,600 ---------------------------------------------------------------- Liz Claiborne, Inc. 70 2,582 ================================================================ 8,182 ================================================================ APPLICATION SOFTWARE-0.45% Amdocs Ltd. (United Kingdom)(a) 120 2,575 ---------------------------------------------------------------- Reynolds & Reynolds Co. (The)-Class A 60 1,630 ================================================================ 4,205 ================================================================ ASSET MANAGEMENT & CUSTODY BANKS-0.29% National Financial Partners Corp.(a) 100 2,710 ================================================================ AUTO PARTS & EQUIPMENT-1.39% Autoliv, Inc. 180 5,962 ---------------------------------------------------------------- Lear Corp.(a) 30 1,743 ---------------------------------------------------------------- LKQ Corp.(a) 300 5,190 ================================================================ 12,895 ================================================================ BIOTECHNOLOGY-1.60% Amgen Inc.(a) 150 9,264 ---------------------------------------------------------------- Gilead Sciences, Inc.(a) 20 1,092 ---------------------------------------------------------------- Invitrogen Corp.(a) 70 4,451 ================================================================ 14,807 ================================================================ BUILDING PRODUCTS-0.83% Masco Corp. 280 7,700 ================================================================ CASINOS & GAMING-0.29% GTECH Holdings Corp. 60 2,681 ================================================================ COMMUNICATIONS EQUIPMENT-2.49% Cisco Systems, Inc.(a) 940 19,721 ---------------------------------------------------------------- QLogic Corp.(a) 60 3,363 ================================================================ 23,084 ================================================================
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MARKET SHARES VALUE COMPUTER & ELECTRONICS RETAIL-0.82% Best Buy Co., Inc. 100 $ 5,831 ---------------------------------------------------------------- RadioShack Corp. 60 1,799 ================================================================ 7,630 ================================================================ COMPUTER HARDWARE-3.77% Dell Inc.(a) 640 23,117 ---------------------------------------------------------------- Hewlett-Packard Co. 290 6,470 ---------------------------------------------------------------- International Business Machines Corp. 60 5,369 ================================================================ 34,956 ================================================================ CONSUMER FINANCE-3.82% American Express Co. 300 14,079 ---------------------------------------------------------------- Capital One Financial Corp. 110 6,688 ---------------------------------------------------------------- First Marblehead Corp. (The)(a) 200 4,430 ---------------------------------------------------------------- MBNA Corp. 410 10,147 ================================================================ 35,344 ================================================================ DATA PROCESSING & OUTSOURCED SERVICES-1.50% Alliance Data Systems Corp.(a) 60 1,667 ---------------------------------------------------------------- Ceridian Corp.(a) 130 2,730 ---------------------------------------------------------------- First Data Corp. 180 6,426 ---------------------------------------------------------------- SunGard Data Systems Inc.(a) 110 3,085 ================================================================ 13,908 ================================================================ DEPARTMENT STORES-0.36% Federated Department Stores, Inc. 70 3,328 ================================================================ DIVERSIFIED BANKS-5.61% Bank of America Corp. 210 15,903 ---------------------------------------------------------------- Bank One Corp. 50 2,122 ---------------------------------------------------------------- U.S. Bancorp 460 12,521 ---------------------------------------------------------------- Wachovia Corp. 270 12,385 ---------------------------------------------------------------- Wells Fargo & Co. 160 9,011 ================================================================ 51,942 ================================================================ DIVERSIFIED CAPITAL MARKETS-0.78% J.P. Morgan Chase & Co. 200 7,180 ================================================================ DIVERSIFIED CHEMICALS-0.68% Engelhard Corp. 220 6,288 ================================================================ DIVERSIFIED COMMERCIAL SERVICES-2.31% Apollo Group, Inc.-Class A(a) 50 3,176 ---------------------------------------------------------------- Cendant Corp.(a) 300 6,129 ---------------------------------------------------------------- Deluxe Corp. 110 4,441 ---------------------------------------------------------------- Equifax Inc. 200 4,888 ---------------------------------------------------------------- University of Phoenix Online(a) 40 2,750 ================================================================ 21,384 ================================================================
F-1
MARKET SHARES VALUE ---------------------------------------------------------------- ELECTRIC UTILITIES-0.88% Entergy Corp. 50 $ 2,695 ---------------------------------------------------------------- Exelon Corp. 60 3,807 ---------------------------------------------------------------- Southern Co. (The) 55 1,639 ================================================================ 8,141 ================================================================ ELECTRONIC EQUIPMENT MANUFACTURERS-0.82% Amphenol Corp.-Class A(a) 40 2,350 ---------------------------------------------------------------- Thermo Electron Corp.(a) 240 5,275 ================================================================ 7,625 ================================================================ FERTILIZERS & AGRICULTURAL CHEMICALS-0.43% Monsanto Co. 160 4,008 ================================================================ FOOD DISTRIBUTORS-0.47% Sysco Corp. 130 4,376 ================================================================ FOOD RETAIL-1.18% Kroger Co. (The)(a) 280 4,897 ---------------------------------------------------------------- SUPERVALU INC 240 6,053 ================================================================ 10,950 ================================================================ FOOTWEAR-1.05% NIKE, Inc.-Class B 110 7,029 ---------------------------------------------------------------- Reebok International Ltd. 70 2,726 ================================================================ 9,755 ================================================================ GENERAL MERCHANDISE STORES-0.78% Dollar General Corp. 180 4,045 ---------------------------------------------------------------- Target Corp. 80 3,179 ================================================================ 7,224 ================================================================ HEALTH CARE DISTRIBUTORS-0.19% Cardinal Health, Inc. 30 1,780 ================================================================ HEALTH CARE EQUIPMENT-1.45% Apogent Technologies Inc.(a) 210 4,609 ---------------------------------------------------------------- Becton, Dickinson & Co. 110 4,022 ---------------------------------------------------------------- Guidant Corp. 30 1,530 ---------------------------------------------------------------- Stryker Corp. 40 3,244 ================================================================ 13,405 ================================================================ HEALTH CARE SERVICES-0.23% IMS Health Inc. 90 2,118 ================================================================ HEALTH CARE SUPPLIES-0.56% Bausch & Lomb Inc. 50 2,408 ---------------------------------------------------------------- Fisher Scientific International Inc.(a) 70 2,817 ================================================================ 5,225 ================================================================ HOME ENTERTAINMENT SOFTWARE-0.21% Electronic Arts Inc.(a) 20 1,981 ================================================================
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MARKET SHARES VALUE HOME IMPROVEMENT RETAIL-2.06% Home Depot, Inc. (The) 340 $ 12,604 ---------------------------------------------------------------- Lowe's Cos., Inc. 110 6,482 ================================================================ 19,086 ================================================================ HOMEBUILDING-0.54% M.D.C. Holdings, Inc. 30 2,020 ---------------------------------------------------------------- Toll Brothers, Inc.(a) 80 2,947 ================================================================ 4,967 ================================================================ HOUSEHOLD PRODUCTS-2.72% Clorox Co. (The) 120 5,436 ---------------------------------------------------------------- Colgate-Palmolive Co. 150 7,978 ---------------------------------------------------------------- Procter & Gamble Co. (The) 120 11,795 ================================================================ 25,209 ================================================================ HYPERMARKETS & SUPER CENTERS-2.55% Wal-Mart Stores, Inc. 400 23,580 ================================================================ INDUSTRIAL CONGLOMERATES-3.73% 3M Co. 50 3,943 ---------------------------------------------------------------- General Electric Co. 960 27,850 ---------------------------------------------------------------- Tyco International Ltd. (Bermuda) 130 2,714 ================================================================ 34,507 ================================================================ INDUSTRIAL MACHINERY-0.86% Donaldson Co., Inc. 40 2,289 ---------------------------------------------------------------- Graco Inc. 150 5,715 ================================================================ 8,004 ================================================================ INSURANCE BROKERS-0.14% Marsh & McLennan Cos., Inc. 30 1,282 ================================================================ INTEGRATED OIL & GAS-3.05% Exxon Mobil Corp. 650 23,777 ---------------------------------------------------------------- Royal Dutch Petroleum Co.-New York Shares (Netherlands) 100 4,438 ================================================================ 28,215 ================================================================ INTEGRATED TELECOMMUNICATION SERVICES-2.28% BellSouth Corp. 245 6,446 ---------------------------------------------------------------- SBC Communications Inc. 330 7,913 ---------------------------------------------------------------- Verizon Communications Inc. 200 6,720 ================================================================ 21,079 ================================================================ INTERNET RETAIL-0.18% eBay Inc. 30 1,678 ================================================================ INTERNET SOFTWARE & SERVICES-0.28% Yahoo! Inc.(a) 60 2,622 ================================================================ INVESTMENT BANKING & BROKERAGE-2.62% Bear Stearns Cos. Inc. (The) 40 3,050 ---------------------------------------------------------------- Lehman Brothers Holdings Inc. 40 2,880 ---------------------------------------------------------------- Merrill Lynch & Co., Inc. 170 10,064 ----------------------------------------------------------------
F-2
MARKET SHARES VALUE ---------------------------------------------------------------- INVESTMENT BANKING & BROKERAGE-(CONTINUED) Morgan Stanley 150 $ 8,231 ================================================================ 24,225 ================================================================ IT CONSULTING & OTHER SERVICES-0.50% DigitalNet Holdings, Inc.(a) 200 4,622 ================================================================ LIFE & HEALTH INSURANCE-0.42% Prudential Financial, Inc. 100 3,864 ================================================================ MANAGED HEALTH CARE-2.23% Anthem, Inc.(a) 120 8,212 ---------------------------------------------------------------- UnitedHealth Group Inc. 140 7,123 ---------------------------------------------------------------- WellPoint Health Networks Inc.(a) 60 5,334 ================================================================ 20,669 ================================================================ MOTORCYCLE MANUFACTURERS-0.56% Harley-Davidson, Inc. 110 5,215 ================================================================ MOVIES & ENTERTAINMENT-0.78% Viacom Inc.-Class B 180 7,177 ================================================================ MULTI-LINE INSURANCE-1.05% American International Group, Inc. 160 9,733 ================================================================ OTHER DIVERSIFIED FINANCIAL SERVICES-3.12% Citigroup Inc. 610 28,914 ================================================================ PERSONAL PRODUCTS-0.73% Avon Products, Inc. 100 6,796 ================================================================ PHARMACEUTICALS-7.92% Abbott Laboratories 300 12,786 ---------------------------------------------------------------- Bristol-Myers Squibb Co. 70 1,776 ---------------------------------------------------------------- Johnson & Johnson 480 24,158 ---------------------------------------------------------------- King Pharmaceuticals, Inc.(a) 120 1,608 ---------------------------------------------------------------- Merck & Co. Inc. 200 8,850 ---------------------------------------------------------------- Pfizer Inc. 640 20,224 ---------------------------------------------------------------- Wyeth 90 3,973 ================================================================ 73,375 ================================================================ PROPERTY & CASUALTY INSURANCE-0.40% Progressive Corp. (The) 50 3,690 ================================================================ REGIONAL BANKS-1.33% National City Corp. 280 9,145 ---------------------------------------------------------------- PNC Financial Services Group 60 3,214 ================================================================ 12,359 ================================================================ RESTAURANTS-1.38% CBRL Group, Inc. 50 1,938 ---------------------------------------------------------------- McDonald's Corp. 160 4,002 ----------------------------------------------------------------
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MARKET SHARES VALUE RESTAURANTS-(CONTINUED) Yum! Brands, Inc.(a) 200 $ 6,828 ================================================================ 12,768 ================================================================ SEMICONDUCTORS-4.28% AMIS Holdings, Inc.(a) 200 4,030 ---------------------------------------------------------------- Intel Corp. 910 30,076 ---------------------------------------------------------------- Linear Technology Corp. 130 5,539 ================================================================ 39,645 ================================================================ SOFT DRINKS-2.30% Coca-Cola Co. (The) 160 7,424 ---------------------------------------------------------------- PepsiCo, Inc. 290 13,868 ================================================================ 21,292 ================================================================ SPECIALTY CHEMICALS-0.19% Cytec Industries Inc.(a) 50 1,746 ================================================================ SPECIALTY STORES-1.19% AutoNation, Inc.(a) 330 6,171 ---------------------------------------------------------------- Bed Bath & Beyond Inc.(a) 70 2,957 ---------------------------------------------------------------- Staples, Inc.(a) 70 1,877 ================================================================ 11,005 ================================================================ SYSTEMS SOFTWARE-5.14% Adobe Systems Inc. 100 4,384 ---------------------------------------------------------------- Microsoft Corp. 1,060 27,719 ---------------------------------------------------------------- Oracle Corp.(a) 750 8,970 ---------------------------------------------------------------- VERITAS Software Corp.(a) 180 6,507 ================================================================ 47,580 ================================================================ THRIFTS & MORTGAGE FINANCE-2.79% Countrywide Financial Corp. 50 5,256 ---------------------------------------------------------------- Fannie Mae 95 6,811 ---------------------------------------------------------------- IndyMac Bancorp, Inc. 80 2,352 ---------------------------------------------------------------- Washington Mutual, Inc. 260 11,375 ================================================================ 25,794 ================================================================ TOBACCO-1.00% Altria Group, Inc. 200 9,300 ================================================================ WIRELESS TELECOMMUNICATION SERVICES-0.29% AT&T Wireless Services Inc.(a) 370 2,683 ================================================================ Total Common Stocks & Other Equity Interests (Cost $862,413) 905,958 ================================================================ TOTAL INVESTMENTS-97.80% (Cost $862,413) 905,958 ================================================================ OTHER ASSETS LESS LIABILITIES-2.20% 20,405 ================================================================ NET ASSETS-100.00% $926,363 ________________________________________________________________ ================================================================
Notes to Schedule of Investments: (a) Non-income producing security. See Notes to Financial Statements. F-3 STATEMENT OF ASSETS AND LIABILITIES October 31, 2003 ASSETS: Investments, at market value (cost $862,413) $905,958 ---------------------------------------------------------- Cash 27,500 ---------------------------------------------------------- Receivables for: Dividends 1,208 ---------------------------------------------------------- Amount due from advisor 14,249 ---------------------------------------------------------- Investment for deferred compensation plan 5,332 ========================================================== Total assets 954,247 __________________________________________________________ ========================================================== LIABILITIES: Payables for: Investments purchased 3,200 ---------------------------------------------------------- Deferred compensation plan 5,332 ---------------------------------------------------------- Accrued trustees' fees 569 ---------------------------------------------------------- Accrued transfer agent fees 10 ---------------------------------------------------------- Accrued operating expenses 18,773 ========================================================== Total liabilities 27,884 ========================================================== Net assets applicable to shares outstanding $926,363 __________________________________________________________ ========================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $998,865 ---------------------------------------------------------- Undistributed net investment income (loss) (4,522) ---------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and option contracts (111,525) ---------------------------------------------------------- Unrealized appreciation of investment securities and option contracts 43,545 ========================================================== $926,363 __________________________________________________________ ========================================================== NET ASSETS: Class A $370,543 __________________________________________________________ ========================================================== Class B $277,910 __________________________________________________________ ========================================================== Class C $277,910 __________________________________________________________ ========================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 40,723 __________________________________________________________ ========================================================== Class B 30,542 __________________________________________________________ ========================================================== Class C 30,542 __________________________________________________________ ========================================================== Class A: Net asset value per share $ 9.10 ---------------------------------------------------------- Offering price per share: (Net asset value of $9.10 divided by 94.50%) $ 9.63 __________________________________________________________ ========================================================== Class B: Net asset value and offering price per share $ 9.10 __________________________________________________________ ========================================================== Class C: Net asset value and offering price per share $ 9.10 __________________________________________________________ ==========================================================
See Notes to Financial Statements. F-4 STATEMENT OF OPERATIONS For the year ended October 31, 2003 INVESTMENT INCOME: Dividends (net of foreign withholding tax of $17) $ 12,197 ====================================================================== EXPENSES: Advisory fees 6,219 ---------------------------------------------------------------------- Administrative services fees 50,000 ---------------------------------------------------------------------- Custodian fees 4,661 ---------------------------------------------------------------------- Distribution fees: Class A 1,160 ---------------------------------------------------------------------- Class B 2,488 ---------------------------------------------------------------------- Class C 2,488 ---------------------------------------------------------------------- Transfer agent fees 112 ---------------------------------------------------------------------- Trustees' fees 8,659 ---------------------------------------------------------------------- Professional fees 23,951 ---------------------------------------------------------------------- Other 2,466 ====================================================================== Total expenses 102,204 ====================================================================== Less: Fees waived, expenses reimbursed and expense offset arrangements (87,700) ====================================================================== Net expenses 14,504 ====================================================================== Net investment income (loss) (2,307) ====================================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities (12,501) ---------------------------------------------------------------------- Option contracts written 1,450 ====================================================================== (11,051) ====================================================================== Change in net unrealized appreciation (depreciation) of: Investment securities 140,573 ---------------------------------------------------------------------- Option contracts written (78) ====================================================================== 140,495 ====================================================================== Net gain from investment securities and option contracts 129,444 ====================================================================== Net increase in net assets resulting from operations $127,137 ______________________________________________________________________ ======================================================================
See Notes to Financial Statements. F-5 STATEMENT OF CHANGES IN NET ASSETS For the year ended October 31, 2003 and the period December 31, 2001 (date operations commenced) to October 31, 2002
2003 2002 ------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (2,307) $ (3,380) ------------------------------------------------------------------------------------ Net realized gain (loss) from investment securities and option contracts (11,051) (100,474) ------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and option contracts 140,495 (96,950) ==================================================================================== Net increase (decrease) in net assets resulting from operations 127,137 (200,804) ==================================================================================== Distributions to shareholders from net investment income: Class A (5,600) -- ------------------------------------------------------------------------------------ Class B (4,200) -- ------------------------------------------------------------------------------------ Class C (4,200) -- ==================================================================================== Decrease in net assets resulting from distributions (14,000) -- ==================================================================================== Share transactions-net: Class A 5,600 400,010 ------------------------------------------------------------------------------------ Class B 4,200 300,010 ------------------------------------------------------------------------------------ Class C 4,200 300,010 ==================================================================================== Net increase in net assets resulting from share transactions 14,000 1,000,030 ==================================================================================== Net increase in net assets 127,137 799,226 ==================================================================================== NET ASSETS: Beginning of year 799,226 -- ==================================================================================== End of year (including undistributed net investment income (loss) of $(4,522) and $11,693 for 2003 and 2002, respectively) $926,363 $ 799,226 ____________________________________________________________________________________ ====================================================================================
See Notes to Financial Statements. F-6 NOTES TO FINANCIAL STATEMENTS October 31, 2003 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Core Strategies Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of fifteen separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund is currently closed to new investors. The Fund's investment objective is to provide long-term growth of capital. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Market trends, movement in exchange traded funds and ADRs, and the bid/ask quotes of brokers and information providers may be reviewed in the course of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes. D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code. E. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis; that is, the Fund will own the underlying security. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to F-7 that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1 billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1 billion of average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $2 billion. AIM has voluntarily agreed to waive fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items, including other items designated as such by the Board of Trustees and increases in expenses due to expense offset arrangements, if any) for Class A, Class B and Class C shares to the extent necessary to limit the total annual fund operating expenses of Class A shares to 1.75%. Voluntary fee waivers or reimbursements may be modified or discontinued at any time without further notice to investors. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended October 31, 2003, AIM waived fees of $6,219 and reimbursed fees of $75,063. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2003, AIM was paid $50,000 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI"), formerly known as AIM Fund Services, Inc., a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 2003, AISI retained $63 for such services. The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, AIM Distributors may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total amount of sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. AIM Distributors has voluntarily agreed to waive all fees during the time the shares are not available for sale. Waivers may be modified or discontinued at any time. Pursuant to the Plans, for the year ended October 31, 2003, the Class A, Class B and Class C shares paid $0, $0 and $0, respectively after AIM Distributors waived fees of $1,160, $2,488 and $2,488, respectively. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors. NOTE 3--EXPENSE OFFSET ARRANGEMENTS For the year ended October 31, 2003, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $9 and reductions in custodian fees of $273 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $282. NOTE 4--TRUSTEES' FEES Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. Certain former Trustees also participate in a retirement plan and receive benefits under such plan. During the year ended October 31, 2003, the Fund paid legal fees of $2,189 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 5--BORROWINGS The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. Effective June 26, 2003, the Fund became a participant in an uncommitted unsecured revolving line of credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving line of credit facility. Additionally the Fund is permitted to carry a negative or overdrawn balance in its account with the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points. F-8 NOTE 6--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD --------------------------------------------------------- CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------------------------------------------------------- Beginning of year 10 $ 405 --------------------------------------------------------- Written 34 1,638 --------------------------------------------------------- Closed (12) (574) --------------------------------------------------------- Exercised (4) (246) --------------------------------------------------------- Expired (28) (1,223) --------------------------------------------------------- End of year -- $ -- _________________________________________________________ =========================================================
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS Distributions to Shareholders: The tax character of distributions paid during the year ended October 31, 2003 and the period December 31, 2001 (date operations commenced) through October 31, 2002 was as follows:
2003 2002 ----------------------------------------------------------- Distributions paid from ordinary income $14,000 -- ___________________________________________________________ ===========================================================
Tax Components of Net Assets: As of October 31, 2003, the components of net assets on a tax basis were as follows: Undistributed ordinary income $ 1,317 ---------------------------------------------------------- Unrealized appreciation -- investments 43,545 ---------------------------------------------------------- Temporary book/tax differences (5,839) ---------------------------------------------------------- Capital loss carryforward (111,525) ---------------------------------------------------------- Shares of beneficial interest 998,865 ========================================================== Total net assets $ 926,363 __________________________________________________________ ==========================================================
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the deferral of trustee compensation. The Fund has a capital loss carryforward for tax purposes which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD ---------------------------------------------------------- October 31, 2010 $100,474 ---------------------------------------------------------- October 31, 2011 11,051 ========================================================== Total capital loss carryforward $111,525 __________________________________________________________ ==========================================================
NOTE 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended October 31, 2003 was $651,530 and $651,758, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ---------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 92,822 ---------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (49,277) ========================================================== Net unrealized appreciation of investment securities $ 43,545 __________________________________________________________ ========================================================== Investments have the same cost for tax and financial statement purposes.
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES Primarily as a result of differing book/tax treatment of stock issuance costs and nondeductible excise tax paid by the fund, on October 31, 2003, undistributed net investment income was increased by $92 and shares of beneficial interest decreased by $92. This reclassification had no effect on the net assets of the Fund. F-9 NOTE 10--SHARE INFORMATION The Fund currently consists of three different classes of shares that are not currently available for sale: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING -------------------------------------------------------------------------------------------------------- DECEMBER 31, 2001 (DATE OPERATIONS YEAR ENDED COMMENCED) TO OCTOBER 31, 2003 OCTOBER 31, 2002 ----------------- --------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------- Sold: Class A* -- $ -- 40,001 $ 400,010 -------------------------------------------------------------------------------------------------------- Class B* -- -- 30,001 300,010 -------------------------------------------------------------------------------------------------------- Class C* -- -- 30,001 300,010 ======================================================================================================== Issued as reinvestment of dividends: Class A* 722 5,600 -- -- -------------------------------------------------------------------------------------------------------- Class B* 541 4,200 -- -- -------------------------------------------------------------------------------------------------------- Class C* 541 4,200 -- -- ======================================================================================================== 1,804 $14,000 100,003 $1,000,030 ________________________________________________________________________________________________________ ========================================================================================================
* Currently, the Fund is not open to investors and consequently all shares are owned by AIM. NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the period indicated.
CLASS A ------------------------------------------ DECEMBER 31, 2001 (DATE YEAR ENDED OPERATIONS COMMENCED) TO OCTOBER 31, OCTOBER 31, 2003 2002 -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.99 $ 10.00 -------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.03) -------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.27 (1.98) ======================================================================================================== Total from investment operations 1.25 (2.01) ======================================================================================================== Less dividends from net investment income (0.14) -- ======================================================================================================== Net asset value, end of period $ 9.10 $ 7.99 ________________________________________________________________________________________________________ ======================================================================================================== Total return(a) 15.95% (20.10)% ________________________________________________________________________________________________________ ======================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 371 $ 320 ________________________________________________________________________________________________________ ======================================================================================================== Ratio of expenses to average net assets: With fee waivers and expense reimbursements 1.78%(b) 1.82%(c) -------------------------------------------------------------------------------------------------------- Without fee waivers and expense reimbursements 11.94%(b) 13.71%(c) ======================================================================================================== Ratio of net investment income (loss) to average net assets (0.28)%(b) (0.45)%(c) ________________________________________________________________________________________________________ ======================================================================================================== Portfolio turnover rate(d) 81% 42% ________________________________________________________________________________________________________ ========================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year. (b) Ratios are based on average daily net assets of $331,666. (c) Annualized. (d) Not annualized for periods less than one year. F-10 NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B ------------------------------------------ DECEMBER 31, 2001 (DATE YEAR ENDED OPERATIONS COMMENCED) TO OCTOBER 31, OCTOBER 31, 2003 2002 -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.99 $ 10.00 -------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.03) -------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.27 (1.98) ======================================================================================================== Total from investment operations 1.25 (2.01) ======================================================================================================== Less dividends from net investment income (0.14) -- ======================================================================================================== Net asset value, end of period $ 9.10 $ 7.99 ________________________________________________________________________________________________________ ======================================================================================================== Total return(a) 15.95% (20.10)% ________________________________________________________________________________________________________ ======================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 278 $ 240 ________________________________________________________________________________________________________ ======================================================================================================== Ratio of expenses to average net assets: With fee waivers and expense reimbursements 1.78%(b) 1.82%(c) -------------------------------------------------------------------------------------------------------- Without fee waivers and expense reimbursements 12.59%(b) 14.36%(c) ======================================================================================================== Ratio of net investment income (loss) to average net assets (0.28)%(b) (0.45)%(c) ________________________________________________________________________________________________________ ======================================================================================================== Portfolio turnover rate(d) 81% 42% ________________________________________________________________________________________________________ ========================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year. (b) Ratios are based on average daily net assets of $248,752. (c) Annualized. (d) Not annualized for periods less than one year. F-11 NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C ------------------------------------------ DECEMBER 31, 2001 (DATE YEAR ENDED OPERATIONS COMMENCED) TO OCTOBER 31, OCTOBER 31, 2003 2002 -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.99 $ 10.00 -------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.03) -------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.27 (1.98) ======================================================================================================== Total from investment operations 1.25 (2.01) ======================================================================================================== Less dividends from net investment income (0.14) -- ======================================================================================================== Net asset value, end of period $ 9.10 $ 7.99 ________________________________________________________________________________________________________ ======================================================================================================== Total return(a) 15.95% (20.10)% ________________________________________________________________________________________________________ ======================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 278 $ 240 ________________________________________________________________________________________________________ ======================================================================================================== Ratio of expenses to average net assets: With fee waivers and expense reimbursements 1.78%(b) 1.82%(c) -------------------------------------------------------------------------------------------------------- Without fee waivers and expense reimbursements 12.59%(b) 14.36%(c) ======================================================================================================== Ratio of net investment income (loss) to average net assets (0.28)%(b) (0.45)%(c) ________________________________________________________________________________________________________ ======================================================================================================== Portfolio turnover rate(d) 81% 42% ________________________________________________________________________________________________________ ========================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year. (b) Ratios are based on average daily net assets of $248,752. (c) Annualized. (d) Not annualized for periods less than one year. NOTE 12--SUBSEQUENT EVENTS Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until recently, the investment advisor to the INVESCO Funds. On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as the Chief Executive Officer of INVESCO. Mr. Cunningham currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group, Inc., the parent company of AIM, and he also holds the position of Senior Vice President with AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against INVESCO. Neither your Fund nor any of the Funds in the AIM Family of Funds--Registered Trademark-- which includes the INVESCO Funds (the "Funds") has been named as a defendant in any of these proceedings. The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief. The NYAG proceeding is also based on the circumstances described above. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from the alleged illegal activities; civil monetary penalties; and other relief. The Colorado proceeding is also based on the circumstances described above. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief; civil monetary penalties; and other relief. If INVESCO is unsuccessful in its defense of these proceedings, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Similarly, if Mr. Cunningham is unsuccessful in his defense of these proceedings, he could be barred from serving as an officer or director of any registered investment company. Such results could also affect the ability of AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment company, including your Fund. Your Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as your Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. F-12 NOTE 12--SUBSEQUENT EVENTS (CONTINUED) AIM has received inquiries from the SEC, NASD, Inc., NYAG, and the Secretary of the Commonwealth of Massachusetts with respect to market timing, late trading, fair value pricing and other similar issues and AIM has been providing full cooperation with respect to these inquiries. In addition to the complaints described above, multiple lawsuits, including purported class action and shareholder derivative suits, have been filed against certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily based upon the allegations in the complaints described above, but also regarding the funds' fair valuation pricing methodology. Such lawsuits allege a variety of theories for recovery including, but not limited to: (i) violation of various provisions of the Federal securities laws; (ii) breach of fiduciary duty; and (iii) breach of contract. The lawsuits have been filed in both Federal and state courts and seek such remedies as compensatory damages; restitution; rescission; accounting for wrongfully gotten gains, profits and compensation; injunctive relief; disgorgement; equitable relief; interest and the payment of attorneys' and experts' fees. Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Funds, INVESCO, AIM, AMVESCAP and related parties in the future. At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of these matters described above may have on the Fund or AIM's financial condition. F-13 REPORT OF INDEPENDENT AUDITORS To the Shareholders of AIM Core Strategies Fund And Board of Trustees of AIM Equity Funds: We have audited the accompanying statement of assets and liabilities of AIM Core Strategies Fund (a portfolio of AIM Equity Funds), including the schedule of investments, as of October 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Core Strategies Fund as of October 31, 2003, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. Houston, Texas /s/ ERNST & YOUNG LLP December 16, 2003 F-14 PROXY RESULTS (UNAUDITED) A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory trust, was held on October 21, 2003. The meeting was held for the following purpose: (1)* To elect sixteen individuals to the Board, each of whom will serve until his or her successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry Soll, Ph.D. and Mark H. Williamson. The results of the voting on the above matters were as follows:
WITHHOLDING DIRECTORS/MATTER VOTES FOR AUTHORITY --------------------------------------------------------------------------------- (1)* Bob R. Baker................................. 983,597,298 14,109,942 Frank S. Bayley.............................. 983,595,385 14,111,855 James T. Bunch............................... 983,970,384 13,736,856 Bruce L. Crockett............................ 983,967,974 13,739,266 Albert R. Dowden............................. 983,892,850 13,814,390 Edward K. Dunn, Jr........................... 983,672,087 14,035,153 Jack M. Fields............................... 983,987,281 13,719,959 Carl Frischling.............................. 983,352,244 14,354,996 Robert H. Graham............................. 983,794,290 13,912,950 Gerald J. Lewis.............................. 983,317,525 14,389,715 Prema Mathai-Davis........................... 983,676,086 14,031,154 Lewis F. Pennock............................. 983,703,651 14,003,589 Ruth H. Quigley.............................. 983,356,521 14,350,719 Louis S. Sklar............................... 983,812,619 13,894,621 Larry Soll, Ph.D............................. 983,820,425 13,886,815 Mark H. Williamson........................... 983,676,844 14,030,396
* Proposal required approval by a combined vote of all the portfolios of AIM Equity Funds F-15 OTHER INFORMATION TRUSTEES AND OFFICERS As of January 1, 2003 The address of each trustee and officer of AIM Equity Funds (the "Trust") is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust's organizational documents. Column two below includes length of time served with predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED PERSONS ------------------------------------------------------------------------------------------------------------------------------------ Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc. None Trustee, Chairman and (financial services holding company); and Director and Vice President Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -- AIM Division (parent of AIM and a global investment management firm) Formerly: President and Chief Executive Officer, A I M Management Group Inc.; Director, Chairman and President, A I M Advisors, Inc. (registered investment advisor); and Director and Chairman, A I M Capital Management, Inc. (registered investment advisor), A I M Distributors, Inc. (registered broker dealer), AIM Investment Services, Inc., (registered transfer agent), and Fund Management Company (registered broker dealer); and Chief Executive Officer, AMVESCAP PLC -- Managed Products ------------------------------------------------------------------------------------------------------------------------------------ Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M Director and Chairman, Trustee and Executive Vice Management Group Inc. (financial services holding company); INVESCO Bond Funds, President Director, Chairman and President, A I M Advisors, Inc. Inc., INVESCO (registered investment advisor); Director, A I M Capital Combination Stock & Management, Inc. (registered investment advisor) and A I M Bond Funds, Inc., Distributors, Inc. (registered broker dealer); Director and INVESCO Counselor Chairman, AIM Investment Services, Inc. (registered transfer Series Funds, Inc., agent); and Fund Management Company (registered broker INVESCO International dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM Funds, Inc., INVESCO Division (parent of AIM and a global investment management Manager Series Funds, firm) Inc., INVESCO Money Formerly: Director, Chairman, President and Chief Executive Market Funds, Inc., Officer, INVESCO Funds Group, Inc. and INVESCO Distributors, INVESCO Sector Funds, Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed Inc., INVESCO Stock Products; Chairman and Chief Executive Officer of Funds, Inc., INVESCO NationsBanc Advisors, Inc.; and Chairman of NationsBanc Treasurer's Series Investments, Inc. Funds, Inc. and INVESCO Variable Investment Funds, Inc. ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Bob R. Baker(3) -- 1936 2003 Consultant None Trustee Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation ------------------------------------------------------------------------------------------------------------------------------------ Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc. Trustee (registered investment company) ------------------------------------------------------------------------------------------------------------------------------------ James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd., None Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation Formerly: General Counsel and Director, Boettcher & Co.; and Chairman and Managing Partner, law firm of Davis, Graham & Stubbs ------------------------------------------------------------------------------------------------------------------------------------ Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance Trustee consulting company) company); and Captaris, Inc. (unified messaging provider) ------------------------------------------------------------------------------------------------------------------------------------ Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc. Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered investment and management) and Magellan Insurance Company investment company); Formerly: Director, President and Chief Executive Officer, Annuity and Life Re Volvo Group North America, Inc.; Senior Vice President, AB (Holdings), Ltd. Volvo; and director of various affiliated Volvo Group (insurance company) companies ------------------------------------------------------------------------------------------------------------------------------------ Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and None Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust Co.; and President, Mercantile Bankshares Corp. ------------------------------------------------------------------------------------------------------------------------------------ Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff Trustee (government affairs company) and Texana Timber LP ------------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Graham is considered an interested person of the Trust because he is a director of AMVESCAP PLC, parent of the advisor to the Trust. (2) Mr. Williamson is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. Mr. Williamson became Executive Vice President of the Trust on March 4, 2003. (3) Elected trustee of the Trust on October 21, 2003. Trustees and Officers (continued) As of January 1, 2003 The address of each trustee and officer of AIM Equity Funds (the "Trust") is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust's organizational documents. Column two below includes length of time served with predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S) TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Cortland Trust, Inc. Trustee (registered investment company) ------------------------------------------------------------------------------------------------------------------------------------ Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego, General Chemical Trustee California) Group, Inc., Formerly: Associate Justice of the California Court of Wheelabrator Appeals Technologies, Inc. (waste management company), Fisher Scientific, Inc., Henley Manufacturing, Inc. (laboratory supplies), and California Coastal Properties, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None Trustee ------------------------------------------------------------------------------------------------------------------------------------ Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None Trustee ------------------------------------------------------------------------------------------------------------------------------------ Ruth H. Quigley -- 1935 2001 Retired None Trustee ------------------------------------------------------------------------------------------------------------------------------------ Louis S. Sklar -- 1939 1989 Executive Vice President, Development and Operations Hines None Trustee Interests Limited Partnership (real estate development company) ------------------------------------------------------------------------------------------------------------------------------------ Larry Soll, Ph.D.(3) -- 1942 2003 Retired None Trustee ------------------------------------------------------------------------------------------------------------------------------------ OTHER OFFICERS ------------------------------------------------------------------------------------------------------------------------------------ Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice President, Secretary and General N/A Senior Vice President Counsel, A I M Management Group Inc. (financial services holding company) and A I M Advisors, Inc.; Vice President, A I M Capital Management, Inc., A I M Distributors, Inc. and AIM Investment Services, Inc.; and Director, Vice President and General Counsel, Fund Management Company Formerly: Senior Vice President and General Counsel, Liberty Financial Companies, Inc.; and Senior Vice President and General Counsel, Liberty Funds Group, LLC ------------------------------------------------------------------------------------------------------------------------------------ Gary T. Crum(5) -- 1947 1988 Director, Chairman and Director of Investments, A I M N/A Senior Vice President Capital Management, Inc.; Director and Executive Vice President, A I M Management Group Inc.; Director and Senior Vice President, A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC Formerly: Chief Executive Officer and President, A I M Capital Management Inc. ------------------------------------------------------------------------------------------------------------------------------------ Stuart W. Coco -- 1955 2002 Managing Director and Chief Research Officer -- Fixed N/A Vice President Income, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Melville B. Cox -- 1943 1992 Vice President and Chief Compliance Officer, A I M Advisors, N/A Vice President Inc. and A I M Capital Management, Inc.; and Vice President, AIM Investment Services, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M Advisors, Inc., and President, Chief N/A Vice President Executive Officer and Chief Investment Officer, A I M Capital Management, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Dana R. Sutton -- 1959 1988 Vice President and Fund Treasurer, A I M Advisors, Inc. N/A Vice President and Treasurer ------------------------------------------------------------------------------------------------------------------------------------
(3) Elected trustee of the Trust on October 21, 2003. (4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003. (5) Information is current as of January 10, 2003. The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.347.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200 Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035 COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company 1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED) Of ordinary dividends paid to shareholders during the Fund's tax year ended October 31, 2003, 64.77% is eligible for the dividends received deduction for corporations. For its tax year ended October 31, 2003, the Fund designated 1.86%, or the maximum allowable, of its dividend distributions as qualified dividend income. The actual amounts for the calendar year will be designated in the Fund's year end tax statement. DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE AIM Balanced Fund* AIM Developing Markets Fund AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5) AIM Large Cap Growth Fund AIM Libra Fund TAX-FREE AIM Mid Cap Basic Value Fund AIM Mid Cap Core Equity Fund SECTOR EQUITY AIM High Income Municipal Fund AIM Mid Cap Growth Fund AIM Municipal Bond Fund AIM Opportunities I Fund AIM Global Health Care Fund AIM Tax-Exempt Cash Fund AIM Opportunities II Fund AIM Real Estate Fund AIM Tax-Free Intermediate Fund AIM Opportunities III Fund INVESCO Advantage Health Sciences Fund AIM Premier Equity Fund INVESCO Energy Fund AIM Select Equity Fund INVESCO Financial Services Fund AIM Small Cap Equity Fund(2) INVESCO Gold & Precious Metals Fund AIM Small Cap Growth Fund(3) INVESCO Health Sciences Fund AIM Trimark Endeavor Fund INVESCO Leisure Fund AM Trimark Small Companies Fund INVESCO Multi-Sector Fund AIM Weingarten Fund INVESCO Technology Fund INVESCO Core Equity Fund INVESCO Utilities Fund INVESCO Dynamics Fund INVESCO Mid-Cap Growth Fund INVESCO Small Company Growth Fund INVESCO S&P 500 Index Fund INVESCO Total Return Fund*
* Domestic equity and income fund (1)Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM Diversified Dividend Fund. (2)AIM Small Cap Equity Fund was closed to most investors on December 19, 2003. For information on who may continue to invest in AIM Small Cap Equity Fund, please contact your financial advisor. (3)AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For information on who may continue to invest in AIM Small Cap Growth Fund, please contact your financial advisor. (4)Effective April 30, 2003, AIM Worldwide Spectrum Fund was renamed AIM Global Value Fund. (5)Effective November 24, 2003, INVESCO International Blue Chip Value Fund was renamed INVESCO International Core Equity Fund. For more complete information about any AIM or INVESCO fund, including sales charges and expenses, ask your financial advisor for a prospectus. Please read it carefully before investing. If used after January 20, 2004, this brochure must be accompanied by a fund Performance & Commentary or by an AIM Quarterly Performance Review for the most recent quarter-end. Mutual funds distributed by A I M Distributors, Inc. A I M Management Group Inc. has provided leadership in the investment management industry since 1976 and manages $142 billion in assets for approximately 11 million shareholders, including individual investors, corporate clients and financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's largest independent financial services companies with $345 billion in assets under management. Data as of September 30, 2003. AIMinvestments.com CSTR-AR-1 YOUR GOALS. OUR SOLUTIONS.--Servicemark-- ------------------------------------------------------------------------------------------ MUTUAL RETIREMENT ANNUITIES COLLEGE SEPARATELY OFFSHORE ALTERNATIVE CASH [AIM INVESTMENTS LOGO APPEARS HERE] FUNDS PRODUCTS SAVINGS MANAGED PRODUCTS INVESTMENTS MANAGEMENT --Servicemark-- PLANS ACCOUNTS
AIM U.S. GROWTH FUND Annual Report to Shareholders o October 31, 2003 [COVER IMAGE] YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE] --Servicemark-- --Servicemark-- ================================================================================ AIM U.S. GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL. ================================================================================ ABOUT INFORMATION THROUGHOUT THIS REPORT: o Unless otherwise stated, information o The prices of foreign securities may o The unmanaged Standard & Poor's presented is as of 10/31/03 and is based be affected by factors not present with Composite Index of 500 Stocks (the S&P on total net assets. securities traded in the U.S. markets, 500--Registered Trademark--) is an index including currency exchange rates, of common stocks frequently used as a o AIM U.S. Growth Fund's performance political and economic conditions, less general measure of U.S. stock market figures are historical, and they reflect stringent regulation and higher performance. fund expenses, the reinvestment of volatility. As a result, many foreign distributions, and changes in net asset securities may be less liquid and more o Bloomberg, Inc. is a well-known value. volatile than U.S. securities. independent financial research and reporting firm. o Had the advisor and distributor not o The fund may participate in the waived fees and/or reimbursed expenses, initial public offering (IPO) market in o Hoover's is a provider of proprietary returns would have been lower. some market cycles. Because of the business information about corporations. fund's small asset base, any investment o When sales charges are included in the fund may make in IPOs may o A direct investment cannot be made in performance figures, Class A share significantly affect the fund's total an index. Unless otherwise indicated, performance reflects the maximum 5.50% return. As the fund's assets grow, the index results include reinvested sales charge, and Class B and Class C impact of IPO investments will decline, dividends, and they do not reflect sales share performance reflects the which may reduce the effect of IPO charges or fund expenses. applicable contingent deferred sales investments on the fund's total return. charge (CDSC) for the period involved. A description of the policies and The CDSC on Class B shares declines from o Investing in small and mid-size procedures that the fund uses to 5% beginning at the time of purchase to companies may involve risks not determine how to vote proxies relating to 0% at the beginning of the seventh year. associated with investing in more portfolio securities is available without The CDSC on Class C shares is 1% for the established companies. Also, small charge, upon request, by calling first year after purchase. The companies may have business risk, 800-959-4246, or on the AIM Web site, performance of the fund's share classes significant stock price fluctuations and AIMinvestments.com. will differ due to different sales illiquidity. charge structures and class expenses. o The fund's investment return and o Effective 9/30/03, Class B shares are principal value will fluctuate, so an not available as an investment for investor's shares, when redeemed, may be retirement plans maintained pursuant to worth more or less than their original Section 401 of the Internal Revenue cost. Code, including 401(k) plans, money purchase pension plans and profit o Industry classifications used in this sharing plans. Plans that have existing report are generally according to the accounts invested in Class B shares will Global Industry Classification Standard, continue to be allowed to make which was developed by and is the additional purchases. exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's.
============================================================ NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE This report may be distributed only to shareholders or to persons who have received a current prospectus of the fund. ============================================================
AIMinvestments.com TO OUR SHAREHOLDERS DEAR FELLOW SHAREHOLDER IN new policies and strengthened existing ones--to discourage THE AIM FAMILY OF FUNDS harmful short-term trading. These steps include: --Registered Trademark--: o Strengthening daily monitoring of trading activities. [PHOTO OF As you may be aware, there has been a ROBERT H. great deal of media coverage recently o Imposing redemption fees on additional funds we GRAHAM] about the mutual fund industry and believe may be vulnerable to harmful short-term allegations of improper activities by trading activity. ROBERT H. GRAHAM certain individuals and companies. As part of these widespread investigations, o Implementing an enhanced exchange policy (effective on INVESCO Funds Group (IFG), the former or about March 1, 2004) designed to limit exchanges [PHOTO OF adviser to certain INVESCO Funds, was between funds. MARK H. recently named as a defendant in WILLIAMSON] separate civil enforcement actions by o Employing an enhanced fair value pricing policy on the U.S. Securities and Exchange certain foreign securities as well as certain illiquid MARK H. WILLIAMSON Commission (SEC), the Office of the New securities. York Attorney General and the State of Colorado over an issue known as "market timing." A number of None of these tools alone, nor all of them taken private class or derivative actions also were filed in the together, eliminate the possibility of short-term trading wake of the regulators' actions. strategies that may be detrimental to a fund. Moreover, each of these tools involves judgments that are inherently Investors are understandably concerned and frustrated subjective. We have always sought and continue to seek to about these reports, and we would like to take this make these judgments to the best of our abilities and in a opportunity to assure you that, based on an investigation manner that we believe is consistent with the best interests conducted by an outside firm, IFG and its parent company, of our fund shareholders. And we remain committed to being AMVESCAP PLC, believe that these civil actions are without as vigilant as possible in the future to identify and merit. IFG is contesting the charges. address any harmful market timing investors who have the potential to harm our long-term fund shareholders. We encourage you to continue to monitor this situation, particularly as IFG has the opportunity to address the We sincerely hope these developments and the media allegations that have been made. Current information will be coverage surrounding them do not result in you or other posted on our Web site at AIMinvestments.com. We will shareholders losing confidence in AIM or INVESCO Funds. continue to communicate to you on our Web site about our Amidst this storm of controversy in the mutual fund finding, and the actions we are taking to protect and industry, we believe we can find encouragement in the promote the interests of our shareholders. The independent recovering economy and rising equity markets. As we write trustees of the funds are receiving regular reports from this letter, for instance, the S&P 500--Registered their independent counsel and outside counsel hired by Trademark-- Index is up approximately 23% year-to-date. AMVESCAP PLC, the parent of AIM and IFG, to perform an Although past performance is no guarantee of future results, ongoing investigation of market timing. there appear to be indicators that the economy and stock markets are showing signs of welcomed improvement. We A COMPLEX ISSUE encourage you to read the enclosed discussion of your fund's performance during this past reporting period. Market timing is an investment technique not defined in any regulation that involves frequent short-term trading of OUR UNWAVERING COMMITMENT mutual fund shares, sometimes with a goal to exploit inefficiencies in the way mutual funds price their shares. At AIM Investments, we have never wavered in our commitment We recognize that fund management companies have tried to to helping you build solutions for your financial goals. Our deal with this complex issue in various ways and believe company was founded on a core principle of integrity, and we that industry-wide guidance is in order. To that end, we have always worked hard to earn the trust of our welcome SEC Chairman William Donaldson's pledge to adopt new shareholders. We are committed to doing all we can to rules designed to curb market timing abuses. Comprehensive maintain your trust and confidence. rulemaking is necessary and is the best way to establish new industry responsibilities designed to protect shareholders. Thank you for your continued participation in AIM We support practical rule changes and structural Investments. Please call your financial advisor or one of modifications that are fair, enforceable and, most our Client Service representatives at 800-959-4246 if you importantly, beneficial for investors. have any further questions or concerns about your AIM Investments account. AIM Investments has policies in place designed to identify, prevent and eliminate harmful trading or other Sincerely, activities deemed to be detrimental to the funds. We have also recently taken additional steps--implemented /s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON Robert H. Graham Mark H. Williamson Chairman and President President and CEO The AIM Family of Funds AIM Investments --Registered Trademark-- December 18, 2003
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM U.S. GROWTH FUND'S FIRST YEAR yet exhibited sustainable growth. PRODUCES DOUBLE-DIGIT RETURNS All sectors of the S&P 500 recorded AIM U.S. Growth Fund commenced level for the fiscal year on March 11, gains for the fiscal year. Information operations August 30, 2002, in the 2003. The index then rallied, posting a technology, materials and utilities were depths of a bear market that had already gain of 32.67% through the end of the the top-performing sectors while lasted more than two years. For the fiscal year. telecommunication services, consumer fiscal year ended October 31, 2003, the staples and health care were the fund produced total returns of 12.92% During this rally, the United States weakest-performing sectors. for Class A, Class B and Class C shares and its allies took military action at net asset value. The S&P 500 Index against Iraq and ousted the regime of Small- and mid-cap stocks generally returned 20.79% for the same period. Saddam Hussein. The nation's gross outperformed large-cap stocks for the During that time, the market was more domestic product, generally considered fiscal year. While the performance of favorable to cyclical stocks that were the broadest measure of economic large-cap growth and large-cap value more leveraged and had higher volatility activity, expanded at an annualized rate stocks was similar, mid- and small-cap than those that make up the majority of of 3.3% in the second quarter and 8.2% growth stocks, on average, outperformed the fund's holdings, which are more in the third quarter of 2003. According their value counterparts by wider noncyclical and are less leveraged and to Bloomberg, as of the close of the margins. less volatile. Compared with the index, fiscal year, 405 companies in the S&P the fund was underweight certain areas 500 had reported third-quarter earnings. YOUR FUND of the technology, financial and A total of 65.4% of those companies industrial sectors that did well during reported earnings that exceeded The fund invests primarily in core the period. expectations, compared to 60.2% for the growth stocks--equity securities of U.S. third quarter of 2002. The job market companies that we believe have MARKET CONDITIONS remained weak, however, as the nation's experienced above-average growth in unemployment rate stood at 6.0% at the earnings, have exhibited long-term Amid a backdrop of generally improving close of the reporting period. earnings consistency, and have what we economic conditions, the S&P 500 Index, believe to be excellent prospects for frequently cited as a measure of the For most of the fiscal year, the sustainable future earnings growth. performance of the U.S. stock market in Federal Reserve (the Fed) kept the Investment candidates must have strong general, rose in November 2002, then short-term federal funds rate at 1.25%. management teams and healthy balance fell over the next three months, On June 25, 2003, it lowered that rate sheets, and must be considered leaders dropping to its lowest to 1.00%, its lowest level since 1958. in their respective industries. At the time, the Fed said it favored a more expansive monetary policy because We invest in equities without regard to the economy had not
================================================================================================================================== FUND VS. INDEX TOP 10 EQUITY HOLDINGS* TOP 10 SECTORS* Total returns 10/31/02-10/31/03, excluding sales charges 1. Pfizer Inc. 4.1% 1. Financials 20.5% Class A Shares 12.92% 2. Microsoft Corp. 3.7 2. Health Care 17.4 Class B Shares 12.92 3. Exxon Mobil Corp. 2.8 3. Information Technology 15.0 Class C Shares 12.92 4. Altria Group, Inc. 2.8 4. Consumer Staples 12.6 S&P 500 Index 20.79 5. Johnson & Johnson 2.7 5. Consumer Discretionary 11.3 Source: Lipper, Inc. 6. AFLAC Inc. 2.7 6. Industrials 8.2 7. American International Group, 7. Energy 4.6 TOTAL NUMBER OF HOLDINGS* 69 Inc. 2.6 TOTAL NET ASSETS $1.1 million 8. Other 3.7 8. Affiliated Computer Services, Inc. Class A 2.6 9. Telecommunication Services 3.7 9. Wal-Mart Stores, Inc. 2.5 10. Utilities 1.5 10. Dell Inc. 2.5 *Excludes money market fund holdings. The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security. ==================================================================================================================================
2 market capitalization, and as of October to fund performance was General KENNETH A. ZSCHAPPEL 31, 2003, 79% of holdings were Electric, which makes not only the [PHOTO OF Mr. Zschappel is lead large-cap, 21% were mid-cap, and we had familiar lighting, kitchen and laundry KENNETH A. portfolio manager of AIM no holdings in the small-cap category. appliances, but other products ranging ZSCHAPPEL] U.S. Growth Fund. He The fund is diversified, with exposure from aircraft engines to medical imaging joined AIM in 1990. Mr. across all market sectors. The fund equipment. Zschappel received a B.A. in political keeps 80% of its assets in U.S. science from Baylor University. securities, but may invest up to 20% of The fund also experienced negative its assets in foreign securities. performance from some holdings, CHRISTIAN A. COSTANZO including highly respected companies [PHOTO OF Mr. Costanzo is portfolio During the year ended October 31, such as diversified health care product CHRISTIAN A. manager of AIM U.S. 2003, all sectors of the S&P 500 Index maker Johnson & Johnson, defense COSTANZO] Growth Fund. He joined contributed positively to fund contractor Lockheed Martin, and AIM in 1995 and assumed performance except telecommunications, telecommunications giant AT&T. We judged his current duties in 1997. Mr. Costanzo which detracted by about half a percent. it best to sell our position in AT&T, holds a B.A. in biology and economics The largest positive contributions to which has seen long-distance rates from the University of Virginia and an fund results came from the information driven to all-time lows by competition, M.B.A. from The University of Texas at technology, financials and consumer but considered the long-term prospects Austin. discretionary sectors. for Johnson & Johnson and Lockheed Martin to be sound enough to make them ROBERT LLOYD Among specific holdings that made worth retaining in the portfolio. [PHOTO OF Mr. Lloyd, Chartered notable positive contributions to the ROBERT Financial Analyst, is fund for the fiscal year was financial IN CLOSING LLOYD] portfolio manager of AIM services firm Citigroup, which surpassed U.S. Growth Fund. Mr. Japan's Mizuho Financial in 2003 to We will continue to invest in a Lloyd joined AIM in 2000 and was become the world's largest financial well-diversified portfolio of equities promoted to portfolio manager in 2001. services firm, according to Hoover's. of companies we believe are well Mr. Lloyd received a B.B.A. from the Additional positive contributions were positioned to provide sustainable future University of Notre Dame and an M.B.A. made by Cisco Systems, a major supplier earnings growth, focusing on quality from the University of Chicago. of routers, switches and other equipment companies that we believe have the for linking computer systems together, potential for above-average growth. BRYAN A. UNTERHALTER and CDW Corp., which markets tens of [PHOTO OF Mr. Unterhalter is thousands of computer products, See important fund and index BRYAN A. portfolio manager of AIM primarily through catalogs, telesales disclosures inside front cover. UNTERHALTER] U.S. Growth Fund. He and its Web site. A further positive joined AIM in 1997 and contributor was promoted to his present position in 2003. He holds a B.A. from The University of Texas at Austin and an M.B.A. from the University of St. Thomas. Assisted by Mid Cap Growth Team
======================================= TOP 10 INDUSTRIES* 1. Pharmaceuticals 8.9% REDUCE YOUR PAPER MAIL WITH AIM'S EDELIVERY 2. Data Processing & Outsourced Services 5.8 Sign up for eDelivery and you can have your fund reports, prospectuses and quarterly account statements delivered electronically. To enroll, go to aiminvestments.com, 3. Restaurants 4.3 select "My Account," log in, click on the "Service Center" tab and select "Register for eDelivery." You will no longer receive paper copies of these documents. Instead 4. Regional Banks 3.9 you'll receive a link to the documents via email. (You can cancel the service at the Web site at any time.) 5. Systems Software 3.8 If you receive account statements, fund reports and prospectuses from your financial 6. Integrated Oil & Gas 3.7 advisor rather than from AIM, eDelivery is not accessible to you. Ask your financial advisor if his or her firm offers electronic delivery. 7. Integrated Telecommunication Services 3.7 8. Household Products 3.1 [GRAPHIC] 9. Tobacco 2.8 10. Industrial Conglomerates 2.8 =======================================
3 FUND PERFORMANCE RESULTS OF A $10,000 INVESTMENT 8/30/02-10/31/03* [MOUNTAIN CHART]
DATE AIM U.S. AIM U.S. AIM U.S. GROWTH FUND GROWTH FUND GROWTH FUND S&P 500 CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX 8/30/2002 $ 9450 $ 10000 $ 10000 $ 10000 9/30/02 8571 9070 9070 8914 10/31/02 9223 9760 9760 9698 11/30/02 9460 10010 10010 10268 12/31/02 8987 9510 9510 9665 1/31/03 8682 9187 9187 9413 2/28/03 8530 9026 9026 9271 3/31/03 8663 9167 9167 9361 4/30/03 9272 9812 9812 10132 5/31/03 9624 10185 10185 10665 6/30/03 9786 10356 10356 10801 7/31/03 9967 10547 10547 10992 8/31/03 10139 10729 10729 11206 9/30/03 10072 10658 10658 11087 10/31/03 $ 10416 $ 10621 $ 11021 $ 11714 Source: Lipper, Inc.
Your fund's total return includes sales charges, expenses and management fees. Results for Class B shares are calculated as if a hypothetical shareholder had liquidated his entire investment in the fund at the close of the reporting period and paid the applicable contingent deferred sales charges. The performance of the fund's share classes will differ due to different sales charge structures and class expenses. For fund performance calculations and indexes used in this report, please see the inside front cover. Performance shown in the chart and table does not reflect deduction of taxes a shareholder would pay on fund distributions or sale of fund shares. Performance of the index does not reflect the effects of taxes. Past performance cannot guarantee comparable future results. DUE TO SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE. *Index returns from 8/31/02-10/31/03 =================================================================================================================================== AVERAGE ANNUAL TOTAL RETURNS In addition to returns as of the close AVERAGE ANNUAL TOTAL RETURNS As of 10/31/03, including sales charges of the fiscal year, industry regulations As of 9/30/03, including sales charges require us to provide average annual CLASS A SHARES total returns (including sales charges) CLASS A SHARES Inception (8/30/02) 3.55% for periods ended 9/30/03, the most Inception (8/30/02) 0.68% 1 Year 6.68 recent calendar quarter-end. 1 Year 11.02 CLASS B SHARES CLASS B SHARES Inception (8/30/02) 5.28 Inception (8/30/02) 2.37% 1 Year 7.92 1 Year 12.51 CLASS C SHARES CLASS C SHARES Inception (8/30/02) 8.66 Inception (8/30/02) 6.05% 1 Year 11.92 1 Year 16.51 ===================================================================================================================================
4 AIM U.S. GROWTH FUND SCHEDULE OF INVESTMENTS October 31, 2003
MARKET SHARES VALUE -------------------------------------------------------------------------------- COMMON STOCKS--96.27% AEROSPACE & DEFENSE--1.98% Lockheed Martin Corp. 240 $ 11,126 -------------------------------------------------------------------------------- Northrop Grumman Corp. 120 10,728 ================================================================================ 21,854 ================================================================================ AIR FREIGHT & LOGISTICS--1.10% FedEx Corp. 160 12,122 ================================================================================ AIRLINES--1.21% Southwest Airlines Co. 690 13,386 ================================================================================ APPAREL RETAIL--0.48% TJX Cos., Inc. (The) 250 5,247 ================================================================================ ASSET MANAGEMENT & CUSTODY BANKS--0.42% Northern Trust Corp. 100 4,645 ================================================================================ BIOTECHNOLOGY--0.95% Amgen Inc.(a) 170 10,499 ================================================================================ COMMUNICATIONS EQUIPMENT--0.58% Cisco Systems, Inc.(a) 303 6,357 ================================================================================ COMPUTER HARDWARE--2.46% Dell Inc.(a) 750 27,090 ================================================================================ CONSUMER FINANCE--1.75% MBNA Corp. 780 19,305 ================================================================================ DATA PROCESSING & OUTSOURCED SERVICES--5.82% Affiliated Computer Services, Inc.-Class A(a) 580 28,379 -------------------------------------------------------------------------------- Fiserv, Inc.(a) 465 16,424 -------------------------------------------------------------------------------- Paychex, Inc. 210 8,173 -------------------------------------------------------------------------------- SunGard Data Systems Inc.(a) 400 11,220 ================================================================================ 64,196 ================================================================================ DEPARTMENT STORES--1.12% Kohl's Corp.(a) 221 12,391 ================================================================================ DIVERSIFIED BANKS--2.03% Bank of America Corp. 80 6,058 -------------------------------------------------------------------------------- Wells Fargo & Co. 290 16,333 ================================================================================ 22,391 ================================================================================ DIVERSIFIED CHEMICALS--0.88% E. I. du Pont de Nemours & Co. 240 9,696 ================================================================================
F-1
MARKET SHARES VALUE -------------------------------------------------------------------------------- DRUG RETAIL--1.64% Walgreen Co. 520 $ 18,106 ================================================================================ ELECTRIC UTILITIES--1.50% FPL Group, Inc. 260 16,572 ================================================================================ GENERAL MERCHANDISE STORES--0.54% Target Corp. 150 5,961 ================================================================================ HEALTH CARE DISTRIBUTORS--1.75% Cardinal Health, Inc. 325 19,285 ================================================================================ HEALTH CARE EQUIPMENT--2.27% Biomet, Inc. 380 13,627 -------------------------------------------------------------------------------- Medtronic, Inc. 250 11,393 ================================================================================ 25,020 ================================================================================ HEALTH CARE FACILITIES--0.56% HCA Inc. 160 6,120 ================================================================================ HEALTH CARE SERVICES--2.15% Express Scripts, Inc.(a) 420 23,066 -------------------------------------------------------------------------------- Medco Health Solutions, Inc.(a) 18 598 ================================================================================ 23,664 ================================================================================ HOME ENTERTAINMENT SOFTWARE--0.36% Electronic Arts Inc.(a) 40 3,962 ================================================================================ HOME IMPROVEMENT RETAIL--1.50% Lowe's Cos., Inc. 280 16,500 ================================================================================ HOUSEHOLD PRODUCTS--3.06% Colgate-Palmolive Co. 320 17,021 -------------------------------------------------------------------------------- Procter & Gamble Co. (The) 170 16,709 ================================================================================ 33,730 ================================================================================ HYPERMARKETS & SUPER CENTERS--2.51% Wal-Mart Stores, Inc. 470 27,707 ================================================================================ INDUSTRIAL CONGLOMERATES--2.75% 3M Co. 60 4,732 -------------------------------------------------------------------------------- General Electric Co. 880 25,529 ================================================================================ 30,261 ================================================================================ INDUSTRIAL GASES--0.62% Air Products & Chemicals, Inc. 150 6,812 ================================================================================ INDUSTRIAL MACHINERY--0.60% Danaher Corp. 80 6,628 ================================================================================
F-2
MARKET SHARES VALUE -------------------------------------------------------------------------------- INSURANCE BROKERS--1.20% Marsh & McLennan Cos., Inc. 310 $ 13,253 ================================================================================ INTEGRATED OIL & GAS--3.70% ChevronTexaco Corp. 130 9,659 -------------------------------------------------------------------------------- Exxon Mobil Corp. 850 31,093 ================================================================================ 40,752 ================================================================================ INTEGRATED TELECOMMUNICATION SERVICES--3.65% SBC Communications Inc. 1,020 24,460 -------------------------------------------------------------------------------- Verizon Communications Inc. 470 15,792 ================================================================================ 40,252 ================================================================================ LIFE & HEALTH INSURANCE--2.68% AFLAC Inc. 810 29,549 ================================================================================ MANAGED HEALTH CARE--0.83% UnitedHealth Group Inc. 180 9,158 ================================================================================ MOTORCYCLE MANUFACTURERS--1.63% Harley-Davidson, Inc. 380 18,016 ================================================================================ MOVIES & ENTERTAINMENT--1.69% Viacom Inc.-Class B 190 7,575 -------------------------------------------------------------------------------- Walt Disney Co. (The) 490 11,094 ================================================================================ 18,669 ================================================================================ MULTI-LINE INSURANCE--2.65% American International Group, Inc. 480 29,198 ================================================================================ OIL & GAS DRILLING--0.51% Nabors Industries, Ltd. (Bermuda)(a) 150 5,670 ================================================================================ OIL & GAS EQUIPMENT & SERVICES--0.38% Weatherford International Ltd. (Bermuda)(a) 120 4,170 ================================================================================ OTHER DIVERSIFIED FINANCIAL SERVICES--2.28% Citigroup Inc. 530 25,122 ================================================================================ PERSONAL PRODUCTS--0.93% Gillette Co. (The) 320 10,208 ================================================================================ PHARMACEUTICALS--8.89% Bristol-Myers Squibb Co. 290 7,357 -------------------------------------------------------------------------------- Johnson & Johnson 600 30,198 -------------------------------------------------------------------------------- Lilly (Eli) & Co. 130 8,661 -------------------------------------------------------------------------------- Merck & Co. Inc. 150 6,638 -------------------------------------------------------------------------------- Pfizer Inc. 1,430 45,188 ================================================================================ 98,042 ================================================================================
F-3
MARKET SHARES VALUE -------------------------------------------------------------------------------- PROPERTY & CASUALTY INSURANCE--1.90% Ambac Financial Group, Inc. 150 $ 10,611 -------------------------------------------------------------------------------- Berkshire Hathaway Inc.-Class B(a) 4 10,370 ================================================================================ 20,981 ================================================================================ REGIONAL BANKS--3.86% Fifth Third Bancorp 300 17,388 -------------------------------------------------------------------------------- Synovus Financial Corp. 910 25,116 ================================================================================ 42,504 ================================================================================ RESTAURANTS--4.29% Brinker International, Inc.(a) 690 21,963 -------------------------------------------------------------------------------- Starbucks Corp.(a) 240 7,584 -------------------------------------------------------------------------------- Wendy's International, Inc. 480 17,784 ================================================================================ 47,331 ================================================================================ SOFT DRINKS--1.68% Coca-Cola Co. (The) 400 18,560 ================================================================================ SYSTEMS SOFTWARE--3.75% Microsoft Corp. 1,580 41,317 ================================================================================ TECHNOLOGY DISTRIBUTORS--2.07% CDW Corp. 380 22,819 ================================================================================ THRIFTS & MORTGAGE FINANCE--1.76% Fannie Mae 270 19,356 ================================================================================ TOBACCO--2.78% Altria Group, Inc. 660 30,690 ================================================================================ TRADING COMPANIES & DISTRIBUTORS--0.57% Fastenal Co. 140 6,226 ================================================================================ Total Common Stocks (Cost $977,921) 1,061,350 ================================================================================ TOTAL INVESTMENTS--96.27% (Cost $977,921) 1,061,350 ================================================================================ OTHER ASSETS LESS LIABILITIES--3.73% 41,155 ================================================================================ NET ASSETS--100.00% $1,102,505 ================================================================================
Notes to Schedule of Investments: (a) Non-income producing security. See Notes to Financial Statements. F-4 AIM U.S. GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2003 ASSETS: Investments, at market value (cost $977,921) $ 1,061,350 -------------------------------------------------------------------------------- Cash 50,631 -------------------------------------------------------------------------------- Receivables for: Investments sold 12,161 -------------------------------------------------------------------------------- Dividends 1,630 -------------------------------------------------------------------------------- Amount due from advisor 16,483 -------------------------------------------------------------------------------- Investment for deferred compensation plan 3,462 -------------------------------------------------------------------------------- Other assets 116 ================================================================================ Total assets 1,145,833 ================================================================================ LIABILITIES: Payables for: Investments purchased 16,983 -------------------------------------------------------------------------------- Deferred compensation plan 3,462 -------------------------------------------------------------------------------- Accrued trustees' fees 575 -------------------------------------------------------------------------------- Accrued transfer agent fees 6 -------------------------------------------------------------------------------- Accrued operating expenses 22,302 ================================================================================ Total liabilities 43,328 ================================================================================ Net assets applicable to shares outstanding $ 1,102,505 ================================================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $ 997,224 -------------------------------------------------------------------------------- Undistributed net investment income (loss) (18) -------------------------------------------------------------------------------- Undistributed net realized gain from investment securities 21,870 -------------------------------------------------------------------------------- Unrealized appreciation of investment securities 83,429 ================================================================================ $ 1,102,505 ________________________________________________________________________________ ================================================================================ NET ASSETS: Class A $ 440,999 ________________________________________________________________________________ ================================================================================ Class B $ 330,753 ________________________________________________________________________________ ================================================================================ Class C $ 330,753 ________________________________________________________________________________ ================================================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Class A 40,295 ________________________________________________________________________________ ================================================================================ Class B 30,222 ________________________________________________________________________________ ================================================================================ Class C 30,222 ________________________________________________________________________________ ================================================================================ Class A: Net asset value per share $ 10.94 -------------------------------------------------------------------------------- Offering price per share: (Net asset value of $10.94 / 94.50%) $ 11.58 ________________________________________________________________________________ ================================================================================ Class B: Net asset value and offering price per share $ 10.94 ________________________________________________________________________________ ================================================================================ Class C: Net asset value and offering price per share $ 10.94 ________________________________________________________________________________ ================================================================================
See Notes to Financial Statements. F-5 STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003 INVESTMENT INCOME: Dividends $ 15,079 ================================================================================ EXPENSES: Advisory fees 7,519 -------------------------------------------------------------------------------- Administrative services fees 50,000 -------------------------------------------------------------------------------- Custodian fees 1,231 -------------------------------------------------------------------------------- Distribution fees: Class A 1,403 -------------------------------------------------------------------------------- Class B 3,008 -------------------------------------------------------------------------------- Class C 3,008 -------------------------------------------------------------------------------- Transfer agent fees 77 -------------------------------------------------------------------------------- Trustees' fees 8,828 -------------------------------------------------------------------------------- Professional fees 34,251 -------------------------------------------------------------------------------- Other 6,975 ================================================================================ Total expenses 116,300 ================================================================================ Less: Fees waived, expenses reimbursed and expense offset arrangements (98,761) ================================================================================ Net expenses 17,539 ================================================================================ Net investment income (loss) (2,460) ================================================================================ REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES: Net realized gain from investment securities 33,177 -------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities 95,453 ================================================================================ Net gain from investment securities 128,630 ================================================================================ Net increase in net assets resulting from operations $ 126,170 ________________________________________________________________________________ ================================================================================
See Notes to Financial Statements. F-6 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED OCTOBER 31, 2003 AND THE PERIOD AUGUST 30, 2002 (DATE OPERATIONS COMMENCED) THROUGH OCTOBER 31, 2002.
2003 2002 --------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (2,460) $ (364) --------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) from investment securities 33,177 (11,307) --------------------------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities 95,453 (12,024) =========================================================================================================================== Net increase (decrease) in net assets resulting from operations 126,170 (23,695) =========================================================================================================================== Distributions to shareholders from net investment income: Class A (2,800) -- --------------------------------------------------------------------------------------------------------------------------- Class B (2,100) -- --------------------------------------------------------------------------------------------------------------------------- Class C (2,100) -- =========================================================================================================================== Decrease in net assets resulting from distributions (7,000) -- =========================================================================================================================== Share transactions-net: Class A 2,800 400,010 --------------------------------------------------------------------------------------------------------------------------- Class B 2,100 300,010 --------------------------------------------------------------------------------------------------------------------------- Class C 2,100 300,010 =========================================================================================================================== Net increase in net assets resulting from share transactions 7,000 1,000,030 =========================================================================================================================== Net increase in net assets 126,170 976,335 =========================================================================================================================== NET ASSETS: Beginning of year 976,335 -- =========================================================================================================================== End of year (including undistributed net investment income (loss) of $(18) and $6,561 for 2003 and 2002, respectively $ 1,102,505 $ 976,335 ___________________________________________________________________________________________________________________________ ===========================================================================================================================
See Notes to Financial Statements. F-7 NOTES TO FINANCIAL STATEMENTS October 31, 2003 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES AIM U.S. Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of fifteen separate portfolios, each having an unlimited number of shares of beneficial interest. The Fund currently consists of multiple classes of shares. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund is currently closed to new investors. The Fund's investment objective is to provide long-term growth of capital. Each company listed in the Schedule of Investments is organized in the United States unless otherwise noted. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued on the basis of prices furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Market trends, movement in exchange traded funds and ADRs, and the bid/ask quotes of brokers and information providers may be reviewed of making a good faith determination of a security's fair value. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. F-8 B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes. D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. Any capital loss carryforwards listed are reduced for limitations, if any, to the extent required by the Internal Revenue Code. E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. NOTE 2 -- ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1 billion of the Fund's average daily net assets, plus 0.70% of the Fund's next $1 billion of average daily net assets, plus 0.65% of the Fund's average daily net assets in excess of $2 billion. AIM has voluntarily agreed to waive fees and/or reimburse expenses (excluding interest, taxes, fund merger and reorganization expenses, extraordinary items and increases in expenses due to expense offset arrangements, if any) for Class A, Class B and Class C shares to the extent necessary to limit the total annual fund operating expenses of Class A, Class B and Class C shares to 1.75%. Voluntary fee waivers or reimbursements may be modified or discontinued at any time without further notice to investors. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended October 31, 2003, AIM waived fees of $7,519 and reimbursed expenses of $82,945. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2003, AIM was paid $50,000 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 2003, AISI retained $44 for such services. The Trust has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and Class C shares. Of these amounts, AIM Distributors may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own shares of such classes. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. NASD Rules also impose a cap on the total amount of sales charges, including asset-based sales charges that may be paid by any class of shares of the Fund. AIM Distributors has voluntarily agreed to waive all fees during the time the shares are not available for sale. Voluntary fee waivers may be modified or discontinued at any time. Pursuant to the Plans, for the year ended October 31, 2003, the Class A, Class B and Class C shares paid $0, $0 and $0, respectively after AIM Distributors waived plan fees of $1,403, $3,008 and $3,008, respectively. Certain officers and trustees of the Trust are officers and directors of AIM, AISI and/or AIM Distributors. F-9 NOTE 3 -- EXPENSE OFFSET ARRANGEMENTS For the year ended October 31, 2003, the Fund received reductions in transfer agency fees from AISI (an affiliate of AIM) of $11 and reductions in custodian fees of $867 under expense offset arrangements which resulted in a reduction of the Fund's total expenses of $878. NOTE 4 -- TRUSTEES' FEES Trustees' fees represent remuneration paid to each Trustee of the Trust who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. Certain former Trustees also participate in a retirement plan and receive benefits under such plan. During the year ended October 31, 2003, the Fund paid legal fees of $2,189 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 5 -- BORROWINGS The Fund may participate in an interfund lending facility that AIM has established for temporary borrowings by the AIM Funds. An interfund loan will be made under this facility only if the loan rate (an average of the rate available on bank loans and the rate available on investments in overnight repurchase agreements) is favorable to both the lending fund and the borrowing fund. Under certain circumstances, a loan will be secured by collateral. To the extent that the loan is required to be secured by collateral, the collateral is marked to market daily to ensure that the market value is at least 102% of the outstanding principal value of the loan. Effective June 26, 2003, the Fund became a participant in an uncommitted unsecured revolving line of credit facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit can borrow on a first come, first served basis. Principal on each loan outstanding shall bear interest at the bid rate quoted by SSB at the time of the request for the loan. During the year ended October 31, 2003, the Fund did not borrow or lend under the interfund lending facility or borrow under the uncommitted unsecured revolving line of credit facility. Additionally the Fund is permitted to carry a negative or overdrawn balance in its account with the custodian bank To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds in the account so the custodian can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank. In either case, the custodian bank will be compensated an amount equal to the Federal Funds rate plus 100 basis points. NOTE 6 -- DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS Distributions to Shareholders: The tax character of distributions paid during the year ended October 31, 2003 and the period August 30, 2002 (date operations commenced) through October 31, 2002 was as follows:
2003 2002 -------------------------------------------------------------------------------- Distributions paid from ordinary income $ 7,000 $ --
Tax Components of Net Assets: As of October 31, 2003, the components of net assets on a tax basis were as follows: Undistributed ordinary income $ 25,830 ---------------------------------------------------------------- Unrealized appreciation - investments 83,243 ---------------------------------------------------------------- Temporary book/tax differences (3,792) ---------------------------------------------------------------- Shares of beneficial interest 997,224 ---------------------------------------------------------------- Total net assets $ 1,102,505 ================================================================
F-10 The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation difference is attributable primarily to the tax deferral of losses on wash sales. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of the deferral of trustee compensation. NOTE 7 -- INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the year ended October 31, 2003 was $379,065 and $405,462, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ---------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 108,470 ---------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (25,227) ================================================================ Net unrealized appreciation of investment securities $ 83,243 ________________________________________________________________ ================================================================ Cost of investments for tax purposes is $978,107.
NOTE 8 -- RECLASSIFICATION OF PERMANENT DIFFERENCES As a result of differing book/tax treatment of stock issuance cost and non-deductible excise taxes, on October 31, 2003, undistributed net investment income was increased by $2,881 and the shares of beneficial interest decreased by $2,881. This reclassification had no effect on the net assets of the Fund. NOTE 9 -- SHARE INFORMATION The Fund currently consists of three different classes of shares that are not available for sale: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with CDSC. Under some circumstances, Class A shares are subject to CDSC. Generally, Class B shares will automatically convert to Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING ---------------------------------------------------------------------------------------------------------------------- AUGUST 30, 2002 (DATE OPERATIONS YEAR ENDED COMMENCED) TO OCTOBER 31, 2003 OCTOBER 31, 2002 ---------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------------------------------------------------------------- Sold: Class A* -- $ -- 40,001 $ 400,010 ---------------------------------------------------------------------------------------------------------------------- Class B* -- -- 30,001 300,010 ---------------------------------------------------------------------------------------------------------------------- Class C* -- -- 30,001 300,010 ====================================================================================================================== Issued as reinvestment of dividends: Class A* 294 2,800 -- -- ---------------------------------------------------------------------------------------------------------------------- Class B* 221 2,100 -- -- ---------------------------------------------------------------------------------------------------------------------- Class C* 221 2,100 -- -- ====================================================================================================================== 736 $ 7,000 100,003 $1,000,030 ______________________________________________________________________________________________________________________ ======================================================================================================================
* Currently, the fund is not open to investors and consequently all shares are owned by AIM. F-11 NOTE 10 -- FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding during the year ended October 31, 2003 and the period August 30, 2002 (date operations commenced) to October 31, 2002.
CLASS A ------------------------------ AUGUST 30, 2002 (DATE OPERATIONS YEAR ENDED COMMENCED) TO OCTOBER 31, OCTOBER 31, 2003 2002 ----------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.76 $ 10.00 ----------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) 0.00 ----------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.27 (0.24) =========================================================================================================== Total from investment operations 1.25 (0.24) =========================================================================================================== Less dividends from net investment income (0.07) -- =========================================================================================================== Net asset value, end of period $ 10.94 $ 9.76 ___________________________________________________________________________________________________________ =========================================================================================================== Total return(a) 12.92% (2.40)% ___________________________________________________________________________________________________________ =========================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 441 $ 391 ___________________________________________________________________________________________________________ =========================================================================================================== Ratio of expenses to average net assets: With fee waivers and expense reimbursements 1.84%(b) 1.76%(c) ----------------------------------------------------------------------------------------------------------- Without fee waivers and expense reimbursements 11.21%(b) 22.45%(c) ___________________________________________________________________________________________________________ =========================================================================================================== Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.22)%(c) ___________________________________________________________________________________________________________ =========================================================================================================== Portfolio turnover rate(d) 39% 1% ___________________________________________________________________________________________________________ ===========================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year. (b) Ratios are based on average daily net assets of $401,019. (c) Annualized. (d) Not annualized for periods less than one year. F-12 NOTE 10 -- FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B ------------------------------ AUGUST 30, 2002 (DATE OPERATIONS YEAR ENDED COMMENCED) TO OCTOBER 31, OCTOBER 31, 2003 2002 ------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 9.76 $ 10.00 ------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.02) (0.00) ------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) 1.27 (0.24) ====================================================================================================== Total from investment operations 1.25 (0.24) ====================================================================================================== Less dividends from net investment income (0.07) -- ====================================================================================================== Net asset value, end of period $ 10.94 $ 9.76 ______________________________________________________________________________________________________ ====================================================================================================== Total return(a) 12.92% (2.40)% ______________________________________________________________________________________________________ ====================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 331 $ 293 ______________________________________________________________________________________________________ ====================================================================================================== Ratio of expenses to average net assets: With fee waivers and expense reimbursements 1.84%(b) 1.76%(c) ------------------------------------------------------------------------------------------------------ Without fee waivers and expense reimbursements 11.86%(b) 23.10%(c) ______________________________________________________________________________________________________ ====================================================================================================== Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.22)%(c) ______________________________________________________________________________________________________ ====================================================================================================== Portfolio turnover rate(d) 39% 1% ______________________________________________________________________________________________________ ======================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year. (b) Ratios are based on average daily net assets of $300,767. (c) Annualized. (d) Not annualized for periods less than one year. F-13 NOTE 10 -- FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C ----------------------------- AUGUST 30, 2002 (DATE OPERATIONS YEAR ENDED COMMENCED) TO OCTOBER 31, OCTOBER 31, 2003 2002 --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.76 $ 10.00 --------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.00) --------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.27 (0.24) =================================================================================================== Total from investment operations 1.25 (0.24) =================================================================================================== Less dividends from net investment income (0.07) -- =================================================================================================== Net asset value, end of period $ 10.94 $ 9.76 ___________________________________________________________________________________________________ =================================================================================================== Total return(a) 12.92% (2.40)% ___________________________________________________________________________________________________ =================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 331 $ 293 ___________________________________________________________________________________________________ =================================================================================================== Ratio of expenses to average net assets: With fee waivers and expense reimbursements 1.84%(b) 1.76%(c) --------------------------------------------------------------------------------------------------- Without fee waivers and expense reimbursements 11.86%(b) 23.10%(c) ___________________________________________________________________________________________________ =================================================================================================== Ratio of net investment income (loss) to average net assets (0.25)%(b) (0.22)%(c) ___________________________________________________________________________________________________ =================================================================================================== Portfolio turnover rate(d) 39% 1% ___________________________________________________________________________________________________ ===================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America, does not include sales charges and is not annualized for periods less than one year. (b) Ratios are based on average daily net assets of $300,767. (c) Annualized. (d) Not annualized for periods less than one year. NOTE 11 -- SUBSEQUENT EVENTS Your Fund's investment advisor, A I M Advisors, Inc. ("AIM") is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("INVESCO"), was, until recently, the investment advisor to the INVESCO Funds. On December 2, 2003, each of the Securities and Exchange Commission ("SEC") and the Office of the Attorney General of the State of New York ("NYAG") filed civil proceedings against INVESCO and Raymond R. Cunningham, in his capacity as the chief executive officer of INVESCO. Mr. Cunningham currently holds the positions of Chief Operating Officer and Senior Vice President of A I M Management Group, Inc., the parent company of AIM, and he also holds the position of Senior Vice President with AIM. In addition, on December 2, 2003, the State of Colorado filed civil proceedings against INVESCO. Neither your Fund nor any of the funds in the AIM Family of Funds(R), which includes the INVESCO Funds (the "Funds") has been named as a defendant in any of these proceedings. The SEC proceeding alleges that INVESCO failed to disclose in the INVESCO Funds' prospectuses and to the INVESCO Funds' independent directors that INVESCO had entered into certain arrangements permitting market timing of the INVESCO Funds. The SEC is seeking injunctions, including permanent injunctions from serving as an investment advisor, officer or director of an investment company; an accounting of all market timing as well as certain fees and compensation received; disgorgement; civil monetary penalties; and other relief. The NYAG proceeding is also based on the circumstances described above. The NYAG is seeking injunctions, including permanent injunctions from directly or indirectly selling or distributing shares of mutual funds; disgorgement of all profits obtained, including fees collected, and payment of all restitution and damages caused, directly or indirectly from alleged illegal activities; civil penalties; and other relief. The Colorado proceeding is also based on the circumstances described above. The State of Colorado is seeking injunctions; restitution, disgorgement and other equitable relief; civil monetary penalties; and other relief. F-14 NOTE 11 -- SUBSEQUENT EVENTS (CONTINUED) If INVESCO is unsuccessful in its defense of these proceedings, it could be barred from serving as an investment advisor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Similarly, if Mr. Cunningham is unsuccessful in his defense of these proceedings, he could be barred from serving as an officer or director of any registered investment company. Such results could also affect the ability of AIM, or any other investment advisor directly or indirectly owned by AMVESCAP, from serving as an investment advisor to any registered investment, including your Fund. Your Fund has been informed by AIM that, if either of these results occurs, AIM will seek exemptive relief from the SEC to permit it to continue to serve as your Fund's investment advisor. There can be no assurance that such exemptive relief will be granted. AIM has received inquiries from the SEC, the NASD, Inc., the NYAG and the Secretary of the Commonwealth of Massachusetts with respect to market timing, late trading, fair value pricing and other similar issues and AIM has been providing full cooperation with respect to these inquiries. In addition to the complaints described above, multiple lawsuits, including purported class action and shareholder derivative suits, have been filed against certain Funds, INVESCO, AIM, AMVESCAP and certain related parties, primarily based upon the allegations in the complaints described above, but also regarding the funds fair valuation pricing methodology. Such lawsuits allege a variety of theories for recovery including, but not limited to: (i) violation of various provisions of the Federal securities laws; (ii) breach of fiduciary duty; and (iii) breach of contract. The lawsuits have been filed in both Federal and state courts to seek such remedies as compensatory damages; restitution; rescission; accounting for wrongfully gotten gains, profits and compensation; injunction relief; disgorgement; equitable relief; interest and the payment of attorneys' fees and experts' fees. Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Funds, INVESCO, AIM, AMVESCAP and related parties in the future. At the present time, management of AIM and the Fund is unable to estimate the impact, if any, that the outcome of these matters described above may have on the Fund or AIM's financial condition. F-15 REPORT OF INDEPENDENT AUDITORS To the Shareholders of AIM U.S. Growth Fund And Board of Trustees of AIM Equity Funds: We have audited the accompanying statement of assets and liabilities of AIM U.S. Growth Fund (a portfolio of AIM Equity Funds), including the schedule of investments, as of October 31, 2003, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM U.S. Growth Fund as of October 31, 2003, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. Houston, Texas /s/ ERNST & YOUNG LLP December 16, 2003 F-16 PROXY RESULTS (UNAUDITED) A Special Meeting of Shareholders of AIM Equity Funds, a Delaware statutory trust, was held on October 21, 2003. The meeting was held for the following purpose: (1)* To elect sixteen individuals to the Board, each of whom will serve until his or her successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry Soll, Ph.D. and Mark H. Williamson. The results of the voting on the above matters were as follows:
WITHHOLDING DIRECTORS/MATTER VOTES FOR AUTHORITY --------------------------------------------------------------------------------- (1)* Bob R. Baker................................. 983,597,298 14,109,942 Frank S. Bayley.............................. 983,595,385 14,111,855 James T. Bunch............................... 983,970,384 13,736,856 Bruce L. Crockett............................ 983,967,974 13,739,266 Albert R. Dowden............................. 983,892,850 13,814,390 Edward K. Dunn, Jr........................... 983,672,087 14,035,153 Jack M. Fields............................... 983,987,281 13,719,959 Carl Frischling.............................. 983,352,244 14,354,996 Robert H. Graham............................. 983,794,290 13,912,950 Gerald J. Lewis.............................. 983,317,525 14,389,715 Prema Mathai-Davis........................... 983,676,086 14,031,154 Lewis F. Pennock............................. 983,703,651 14,003,589 Ruth H. Quigley.............................. 983,356,521 14,350,719 Louis S. Sklar............................... 983,812,619 13,894,621 Larry Soll, Ph.D............................. 983,820,425 13,886,815 Mark H. Williamson........................... 983,676,844 14,030,396
* Proposal required approval by a combined vote of all the portfolios of AIM Equity Funds F-17 OTHER INFORMATION TRUSTEES AND OFFICERS As of January 1, 2003 The address of each trustee and officer of AIM Equity Funds (the "Trust") is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust's organizational documents. Column two below includes length of time served with predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) TRUST SINCE DURING PAST 5 YEARS ---------------------------------------------------------------------------------------------------------------- INTERESTED PERSONS ---------------------------------------------------------------------------------------------------------------- Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group Inc. Trustee, Chairman and (financial services holding company); and Director and Vice President Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -- AIM Division (parent of AIM and a global investment management firm) Formerly: President and Chief Executive Officer, A I M Management Group Inc.; Director, Chairman and President, A I M Advisors, Inc. (registered investment advisor); and Director and Chairman, A I M Capital Management, Inc. (registered investment advisor), A I M Distributors, Inc. (registered broker dealer), AIM Investment Services, Inc., (registered transfer agent), and Fund Management Company (registered broker dealer); and Chief Executive Officer, AMVESCAP PLC -- Managed Products ---------------------------------------------------------------------------------------------------------------- Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M Trustee and Executive Vice Management Group Inc. (financial services holding company); President Director, Chairman and President, A I M Advisors, Inc. (registered investment advisor); Director, A I M Capital Management, Inc. (registered investment advisor) and A I M Distributors, Inc. (registered broker dealer); Director and Chairman, AIM Investment Services, Inc. (registered transfer agent); and Fund Management Company (registered broker dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM Division (parent of AIM and a global investment management firm) Formerly: Director, Chairman, President and Chief Executive Officer, INVESCO Funds Group, Inc. and INVESCO Distributors, Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed Products; Chairman and Chief Executive Officer of NationsBanc Advisors, Inc.; and Chairman of NationsBanc Investments, Inc. ---------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES ---------------------------------------------------------------------------------------------------------------- Bob R. Baker(3) -- 1936 2003 Consultant Trustee Formerly: President and Chief Executive Officer, AMC Cancer Research Center; and Chairman and Chief Executive Officer, First Columbia Financial Corporation ---------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Trustee ---------------------------------------------------------------------------------------------------------------- James T. Bunch(3) -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd., Trustee (investment banking firm); and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation Formerly: General Counsel and Director, Boettcher & Co.; and Chairman and Managing Partner, law firm of Davis, Graham & Stubbs ---------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology Trustee consulting company) ---------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Director of a number of public and private business Trustee corporations, including the Boss Group Ltd. (private investment and management) and Magellan Insurance Company Formerly: Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; and director of various affiliated Volvo Group companies ---------------------------------------------------------------------------------------------------------------- Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust Co.; and President, Mercantile Bankshares Corp. ---------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Trustee (government affairs company) and Texana Timber LP ---------------------------------------------------------------------------------------------------------------- NAME, YEAR OF BIRTH AND POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S) TRUST HELD BY TRUSTEE -------------------------------- ---------------------- INTERESTED PERSONS ------------------------------------------------------------------------------- Robert H. Graham(1) -- 1946 None Trustee, Chairman and President ------------------------------------------------------------------------------------------------------ Mark H. Williamson(2) -- 1951 Director and Chairman, Trustee and Executive Vice INVESCO Bond Funds, President Inc., INVESCO Combination Stock & Bond Funds, Inc., INVESCO Counselor Series Funds, Inc., INVESCO International Funds, Inc., INVESCO Manager Series Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO Sector Funds, Inc., INVESCO Stock Funds, Inc., INVESCO Treasurer's Series Funds, Inc. and INVESCO Variable Investment Funds, Inc. ---------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES ---------------------------------------------------------------------------------------------------------------- Bob R. Baker(3) -- 1936 None Trustee ---------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 Badgley Funds, Inc. Trustee (registered investment company) ---------------------------------------------------------------------------------------------------------------- James T. Bunch(3) -- 1942 None Trustee ---------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 ACE Limited (insurance Trustee company); and Captaris, Inc. (unified messaging provider) ---------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 Cortland Trust, Inc. Trustee (Chairman) (registered investment company); Annuity and Life Re (Holdings), Ltd. (insurance company) ---------------------------------------------------------------------------------------------------------------- Edward K. Dunn, Jr. -- 1935 None Trustee ---------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 Administaff Trustee ----------------------------------------------------------------------------------------------------------------
(1) Mr. Graham is considered an interested person of the Trust because he is a director of AMVESCAP PLC, parent of the advisor to the Trust. (2) Mr. Williamson is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. Mr. Williamson became Executive Vice President of the Trust on March 4, 2003. (3) Elected trustee of the Trust on October 21, 2003. Trustees and Officers (continued) As of January 1, 2003 The address of each trustee and officer of AIM Equity Funds (the "Trust") is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 132 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust's organizational documents. Column two below includes length of time served with predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S) POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE ----------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1988 Partner, law firm of Cortland Trust, Inc. Trustee Kramer Levin Naftalis (registered and Frankel LLP investment company) ----------------------------------------------------------------------------------------------------- Gerald J. Lewis(3) -- 1933 2003 Chairman, Lawsuit General Chemical Trustee Resolution Services Group, Inc., (San Diego, California) Wheelabrator Technologies, Inc. Formerly: Associate (waste management Justice of the company), Fisher California Court of Scientific, Inc., Appeals Henley Manufacturing, Inc. (laboratory supplies), and California Coastal Properties, Inc. ----------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly: Chief None Trustee Executive Officer, YWCA of the USA ----------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1988 Partner, law firm of None Trustee Pennock & Cooper ----------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee ----------------------------------------------------------------------------------------------------- Louis S. Sklar -- 1939 1989 Executive Vice None Trustee President, Development and Operations Hines Interests Limited Partnership (real estate development company) ----------------------------------------------------------------------------------------------------- Larry Soll, Ph.D.(3) -- 1942 2003 Retired None Trustee ----------------------------------------------------------------------------------------------------- OTHER OFFICERS ----------------------------------------------------------------------------------------------------- Kevin M. Carome(4) -- 1956 2003 Director, Senior Vice N/A Senior Vice President President, Secretary and General Counsel, A I M Management Group Inc. (financial services holding company) and A I M Advisors, Inc.; Vice President, A I M Capital Management, Inc., A I M Distributors, Inc. and AIM Investment Services, Inc.; and Director, Vice President and General Counsel, Fund Management Company Formerly: Senior Vice President and General Counsel, Liberty Financial Companies, Inc.; and Senior Vice President and General Counsel, Liberty Funds Group, LLC ----------------------------------------------------------------------------------------------------- Gary T. Crum(5) -- 1947 1988 Director, Chairman and N/A Senior Vice President Director of Investments, A I M Capital Management, Inc.; Director and Executive Vice President, A I M Management Group Inc.; Director and Senior Vice President, A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC Formerly: Chief Executive Officer and President, A I M Capital Management Inc. ----------------------------------------------------------------------------------------------------- Stuart W. Coco -- 1955 2002 Managing Director and N/A Vice President Chief Research Officer -- Fixed Income, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. ----------------------------------------------------------------------------------------------------- Melville B. Cox -- 1943 1992 Vice President and N/A Vice President Chief Compliance Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; and Vice President, AIM Investment Services, Inc. ----------------------------------------------------------------------------------------------------- Edgar M. Larsen(5) -- 1940 1999 Vice President, A I M N/A Vice President Advisors, Inc., and President, Chief Executive Officer and Chief Investment Officer, A I M Capital Management, Inc. ----------------------------------------------------------------------------------------------------- Dana R. Sutton -- 1959 1988 Vice President and Fund N/A Vice President and Treasurer Treasurer, A I M Advisors, Inc. -----------------------------------------------------------------------------------------------------
(3) Elected trustee of the Trust on October 21, 2003. (4) Mr. Carome became Senior Vice President of the Trust on May 13, 2003. (5) Information is current as of January 10, 2003. The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.347.4246. OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center Houston, TX 77046 Suite 100 Suite 100 1401 McKinney, Suite 1200 Houston, TX 77046 Houston, TX 77046-1173 Houston, TX 77010-4035 COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 Trust Company 1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street Philadelphia, PA 19103 New York, NY 10022-3852 Boston, MA 02110
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED) Of ordinary dividends paid to shareholders during the Fund's tax year ended October 31, 2003, 6.78% is eligible for the dividends received deduction for corporations. DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE AIM Balanced Fund* AIM Developing Markets Fund AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund AIM Constellation Fund AIM Global Value Fund(4) AIM Money Market Fund AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(5) AIM Large Cap Growth Fund TAX-FREE AIM Libra Fund SECTOR EQUITY AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund AIM Mid Cap Core Equity Fund AIM Global Health Care Fund AIM Municipal Bond Fund AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund AIM Opportunities II Fund INVESCO Energy Fund AIM Opportunities III Fund INVESCO Financial Services Fund AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund AIM Select Equity Fund INVESCO Health Sciences Fund AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Trimark Endeavor Fund INVESCO Technology Fund AM Trimark Small Companies Fund INVESCO Utilities Fund AIM Weingarten Fund INVESCO Core Equity Fund INVESCO Dynamics Fund INVESCO Mid-Cap Growth Fund INVESCO Small Company Growth Fund INVESCO S&P 500 Index Fund INVESCO Total Return Fund*
* Domestic equity and income fund (1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM Diversified Dividend Fund. (2) AIM Small Cap Equity Fund was closed to most investors on December 19, 2003. For information on who may continue to invest in AIM Small Cap Equity Fund, please contact your financial advisor. (3) AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For information on who may continue to invest in AIM Small Cap Growth Fund, please contact your financial advisor. (4) Effective April 30, 2003, AIM Worldwide Spectrum Fund was renamed AIM Global Value Fund. (5) Effective November 24, 2003, INVESCO International Blue Chip Value Fund was renamed INVESCO International Core Equity Fund. For more complete information about any AIM or INVESCO fund, including sales charges and expenses, ask your financial advisor for a prospectus. Please read it carefully before investing. If used after January 20, 2004, this brochure must be accompanied by a fund Performance & Commentary or by an AIM Quarterly Performance Review for the most recent quarter-end. Mutual funds distributed by A I M Distributors, Inc. A I M Management Group Inc. has provided leadership in the investment management industry since 1976 and manages $142 billion in assets for approximately 11 million shareholders, including individual investors, corporate clients and financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's largest independent financial services companies with $345 billion in assets under management. Data as of September 30, 2003. AIMinvestments.com USG-AR-1 YOUR GOALS. OUR SOLUTIONS.--Servicemark-- -------------------------------------------------------------------------------------------- Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE] Funds Products Savings Managed Products Investments Management --Servicemark-- Plans Accounts
ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, Registrant had adopted a code of ethics (the "Code") that applies to the Registrant's principal executive office ("PEO") and principal financial officer ("PFO"). There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees has determined that the registrant has at least one audit committee financial expert serving on its Audit Committee. The Audit Committee financial expert is Prema Mathai-Davis. Ms. Mathai-Davis is "independent" within the meaning of that term used in Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) As of December 18, 2003, an evaluation was performed under the supervision and with the participation of the officers of AIM Equity Funds (the "Company"), including the Principal Executive Officer (PEO") and Principal Financial Officer ("PFO"), to assess the effectiveness of the Company's disclosure controls and procedures, as that term in defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act"), as amended. Based on that evaluation, the Company's officers, including the PEO and PFO, concluded that, as of December 18, 2003, the Company's disclosure controls and procedures were reasonably designed so as to ensure: (1) that information required to be disclosed by the Company on Form N-C SR is recorded, processed, summarized and reported with in the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Company is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. 1 (b) There have been no changes in the Company's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the Company's last fiscal half-year (the Company's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 10. EXHIBITS. CODE OF ETHICS. (a)(1) Code of Ethics. (a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Act. (b) Certification of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Act and Section 906 of the Sarbanes-Oxley Act of 2002. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Registrant: AIM Equity Funds By: /s/ ROBERT H. GRAHAM ----------------------------------- Robert H. Graham Principal Executive Officer Date: December 18, 2003 --------------------------------- By: /s/ DANA R. SUTTON --------------------------------- Dana R. Sutton Principal Financial Officer Date: December 18, 2003 --------------------------------- EXHIBIT INDEX 10(a)(1) Code of Ethics 10(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended. (b) Certification of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002.