<PAGE> 1
[PHOTO APPEARS HERE]
AIM CHARTER FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT OCTOBER 31, 1996
<PAGE> 2
[PHOTO APPEARS HERE]
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o The Fund's average annual total returns, including sales charges, for
periods ended 9/30/96 (the most recent calendar quarter end) are as follows.
For A shares, one year, 7.57% (13.83% excluding sales charges); five years,
10.89%; 10 years, 14.11%. For B shares one year, 8.05% (13.05% excluding
sales charges); since inception on 6/15/95, 16.22%.
o AIM Charter Fund performance figures are historical and reflect reinvestment
of all distributions and changes in net asset value. Unless otherwise
indicated, Fund results were computed at net asset value without reflecting
sales charges.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class B share
performance reflects the applicable contingent deferred sales charge (CDSC)
for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The performance of the Fund's Class B shares will differ from that of
Class A shares due to differences in sales charge structure and class
expenses.
o One-year performance includes reinvested distributions of $1.061 per share
for Class A shares and $0.987 for Class B shares.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o Past performance cannot guarantee comparable future results.
o The Fund's portfolio composition is subject to change, and there is no
assurance the Fund will continue to hold any particular security.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o Lipper Analytical Services, Inc. is an independent mutual fund performance
monitor. The unmanaged Lipper Growth and Income Fund Index represents an
average of the performance of the 30 largest growth-and-income mutual funds.
o Standard & Poor's Corporation (S&P) is a credit-rating agency. The unmanaged
Standard & Poor's Composite Index of 500 Stocks (S&P 500) is widely regarded
by investors as representative of the stock market in general.
o The Dow Jones Industrial Average (DJIA) is an unmanaged composite of the
performance of 30 large-company stocks.
o The Consumer Price Index (CPI) is a measure of change in consumer prices as
determined by the U.S. Bureau of Labor Statistics.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE; AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
AIM CHARTER FUND
For shareholders who seek
growth and income by investing
primarily in stocks of large-cap,
well-run companies with
a history of stable and
improving earnings
and generally increasing
dividend payouts.
<PAGE> 3
THE CHAIRMAN'S LETTER
Dear Shareholder:
As you may have heard in the financial news, A I M Management
Group Inc. recently announced a significant event in our
company's history--an agreement to merge with INVESCO PLC,
[PHOTO of one of the world's largest independent investment management
CHARLES T. groups.
BAUER, AIM has long been known for its strategic planning and
Chairman of forward thinking. In seeking this merger, AIM had specific
the Board of goals in choosing a partner: to better AIM's position to
the Fund succeed in an increasingly competitive financial services
APPEARS HERE] environment, both in the U.S. and globally; to ensure the
continuation of AIM's independent culture, investment
philosophy, and dedication to our shareholders; and to offer
the broadest range of products and services to our
shareholders.
A MERGER OF EQUALS" THAT PRESERVES INDEPENDENCE
When the merger is completed, AIM and INVESCO will be combined under a new
holding company to be named AMVESCO, to reflect the strongly complementary
strengths of our two companies which together create a "merger of equals."
AMVESCO will have combined assets under management in excess of $150 billion.
Most importantly, the agreement enables AIM to preserve its independent
culture--which has been so essential to our company's success. The locations,
management, structure, and brand names of AIM and INVESCO will not change.
With INVESCO, AIM achieves a strategic combination with a partner that
offers complementary rather than overlapping strengths. AIM has delivered
impressive performance over the years as a domestic retail fund manager.
INVESCO brings to AIM its primary strengths as an institutional money manager,
and as a successful international investment manager with significant
operations in North America, Europe, and the Pacific region.
NO CHANGES IN YOUR AIM FUND OR ITS MANAGEMENT
While AIM certainly will be enriched through these added strengths, it will
retain those qualities that have produced two decades of successful
performance. The reputation of AIM funds has been built by its seasoned team of
portfolio managers who adhere to AIM's disciplined and successful investment
management process. AIM's central goal is to keep the current investment team
in place and our time-tested investment philosophy intact. Also, the names of
AIM funds will not change.
Moreover, because the merger will not result in any changes in the way AIM
does business, this transaction will be seamless--without any disruption of
service to you.
YOUR VOTE IS IMPORTANT
The merger is expected to be completed on or about February 28. As a result of
the merger, it is necessary for shareholders of AIM funds to approve a new
investment advisory agreement.
Recently, we mailed an announcement for the shareholder meeting planned on
February 7, along with a proxy card that describes proposals that relate to the
management and policies of your Fund. We encourage you to review and return
your proxy as soon as possible. Your Fund's Board of Directors carefully
considered and unanimously approved the proposals and recommends that you vote
in favor of each one. Your vote is important to us. If you haven't yet mailed
your proxy card, please send it today.
The AIM/INVESCO merger marks a new and promising era for AIM, and we
believe it will yield exciting opportunities for AIM shareholders. We
appreciate the trust you have placed in us.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
---------------------------
With INVESCO, AIM
achieves a strategic
combination with a
partner that offers comple-
mentary rather than
overlapping strengths.
---------------------------
<PAGE> 4
THE MANAGERS' OVERVIEW
FUND PURSUES CONSERVATIVE APPROACH TO GROWTH AND INCOME INVESTING
A ROUNDTABLE DISCUSSION WITH THE FUND MANAGEMENT TEAM FOR AIM CHARTER FUND FOR
THE FISCAL YEAR ENDED OCTOBER 31, 1996.
- --------------------------------------------------------------------------------
Q. HOW DID AIM CHARTER FUND PERFORM DURING THE FISCAL YEAR?
A: The Fund's total return was 16.70% for A shares and 15.90% for B shares,
which is consistent with the Fund's attractive historical returns: 17.09%
average annual total returns for the 20 years ended October 31, 1996.* By
comparison, over the same 20-year period, the average annual total return
for the Lipper Growth and Income Fund Index was 14.19%.
During the fiscal year, the Fund paid income distributions of $1.061 per
share for A shares and $0.987 for B shares. Net assets of the Fund grew from
$2.07 billion to $3.19 billion during the fiscal year.
Q. HOW WOULD YOU DESCRIBE MARKET CONDITIONS DURING THE FISCAL YEAR?
A. Financial markets produced very good returns, but they were quite volatile.
For example, the widely followed Dow Jones Industrial Average (DJIA) rose a
dramatic 20% during the first 10 months of 1996, but it was hardly a smooth
ride up. Trading curbs were triggered often on the New York Stock Exchange
because there was so much intraday volatility in stock prices. And between
July 1 and 15, the DJIA lost 7% of its value when unexpectedly strong
employment figures heightened fears of inflation. The market was pretty
unforgiving, and the Fund's performance also slumped during the summer
downturn.
But toward the end of the fiscal year, data suggested what some have
called a "Goldilocks economy"--not too hot, not too cold. The DJIA recouped
its losses and by October 14 had passed the 6,000 level. However, market
participants became more cautious. There was a "flight to quality."
Investors began to favor steady-growing blue-chip stocks over more volatile
small-company stocks.
Q. HOW DID YOU MANAGE THE PORTFOLIO DURING THIS PERIOD?
A. We continued our comparatively conservative approach, stressing growth and
income. We looked for companies that are growing their earnings and that
give us confidence those earnings are going to stay there whatever the state
of the economy.
About 80% of the portfolio is invested in dividend-paying common stocks
and convertible securities. Convertibles often are very attractive because
they produce a steady income stream while participating in any advance in
the market value of the underlying common stock.
Q. DID THE PORTFOLIO CONTAIN ANY NOTABLE CONVERTIBLE SECURITIES?
A. Service Corp. International, or SCI, has been a profitable holding. SCI is
the world's largest operator of funeral homes and cemeteries, and through
aggressive acquisitions has been the leading consolidator in a very
fragmented, localized industry. SCI's convertible preferred stock has
offered dividends combined with growth in market value as the price of the
company's common stock has risen.
Q. WERE THERE PARTICULAR INDUSTRIES IN WHICH YOU FOUND GOOD OPPORTUNITIES?
A. We found good opportunities in the health-care sector, particularly
pharmaceuticals, and also in technology.
Q. WHAT DO YOU LIKE ABOUT THE HEALTH-CARE SECTOR?
A. One health-care industry, pharmaceuticals, represents more than 9% of the
Fund's portfolio. It's an industry in which recent mergers have improved
efficiencies and reduced costs. An additional trend has been the search for
less intrusive but more effective medical treatments.
One holding, American Home Products, participates in both these trends.
Its 1994 acquisition of American Cyanamid boosted earnings per share because
of cost savings. And the company owns a majority stake in Immunex, which
recently received Food
=================================================
GROWTH IN NET ASSETS
- -------------------------------------------------
10/31/95 $2.07 BILLION
10/31/96 $3.19 BILLION
=================================================
* The 20-year performance figure is for A shares only; B shares became
available June 15, 1995. Please see page 4 for a chart comparing the
Fund's performance since inception to benchmark indexes.
See important Fund & index disclosures inside front cover.
2
<PAGE> 5
================================================================================
PORTFOLIO COMPOSITION
As of 10/31/96
- --------------------------------------------------------------------------------
Number of Holdings: 216
Convertible Preferred Stock 6.55%
Common Stock 75.58%
Convertible Bonds 12.95%
U.S. Government Bonds 4.52%
Other 0.40%
================================================================================
================================================================================
Top 10 Holdings
(excluding U.S. Treasuries)
- --------------------------------------------------------------------------------
1. MFS Communications Co.
2. Federal National Mortgage Association
3. Philip Morris Companies, Inc.
4. SmithKline Beecham plc-ADR
5. Intel Corp.
6. Cincinnati Bell, Inc.
7. CIGNA Corp.
8. Nabisco Holdings Corp.
9. Federal Home Loan Mortgage Association
10. SCI Financial LLC
===============================================================================
Please keep in mind that the Fund's portfolio composition is subject to change
and there is no assurance the Fund will continue to hold any particular
security.
and Drug Administration approval for an easier-to-administer version of a
drug that treats side effects of chemotherapy for leukemia. Other
pharmaceutical holdings include SmithKline Beecham and Johnson & Johnson,
companies whose earnings are growing and where it looks like the
fundamentals are in their favor probably for another two or three years at
least.
A number of compelling factors suggest further growth for the health-care
industry. An aging population is bound to produce continued demand. A new
federal entitlement initiative in the health-care area seems unlikely, which
means a more certain environment in the industry. Finally, health-care
companies have made enormous strides in cost control and increased
efficiency through consolidation in recent years.
Q. DID YOU FIND TECHNOLOGY STOCKS THAT ESCAPED THE GENERAL VOLATILITY IN THAT
SECTOR?
A. Many technology stocks tend to be volatile, and many had steep declines late
in 1995 and during the July sell-off. A number already have started to
rebound, and trends favor some technology companies over others. For
example, while commodity-type semiconductor producers are suffering from
overcapacity and an inability to raise prices, that helps personal computer
makers like Compaq and Dell--both portfolio holdings--whose component costs
decrease as a result.
Technology leaders like Microsoft and Intel are still going strong. And
new products, such as Windows NT from Microsoft and the Pentium Pro chip
from Intel, should fuel another upgrade cycle for corporations. We are
optimistic about the technology sector in general.
Additionally, some companies aren't official members of the technology
universe but act as if they are. We can use another portfolio holding as an
example. As its name suggests, Cincinnati Bell, Inc. used to be a local
phone company. It had excellent billing and customer information services.
Capitalizing on this expertise, it now furnishes data processing, consulting
and software development services to AT&T Corp., among others.
Q. WHICH OTHER INDUSTRIES DID YOU FIND ATTRACTIVE?
A. Financial companies, especially asset managers, have been a good investment.
Record trading volumes on the nation's biggest stock exchanges and a wave of
merger and acquisition activity have contributed to record earnings for
brokerage houses. The profitability of the mutual fund industry also has
helped such portfolio holdings as Morgan Stanley and Merrill Lynch.
At the close of the fiscal year, the Fund's portfolio was composed of 216
holdings. Of course, the portfolio's composition is subject to change and
there can be no assurance the Fund will continue to hold any particular
security.
Q. WHAT IS YOUR MARKET OUTLOOK FOR THE NEAR TERM?
A. As the Fund's fiscal year drew to a close, economic growth appeared to be
slowing, led by a slowdown in consumer spending. The job market began
displaying signs of weakness; the average monthly gain in employment during
the third quarter of 1996 was barely half the average monthly gain during
the second quarter of the year. Inflation remained at bay, though the
specter of wage inflation still hovers.
The bull market for stocks marked its sixth year in October, making it the
longest in history. Can this continue? Analysts disagree. Some predict the
bulls will continue running into 1997; others think the rally may end soon.
No one can know for sure.
To some the stock market seems overpriced after the huge runup in values
the past two years. We certainly don't think the market is undervalued, but
many companies continue to report favorable earnings, even with a slower
rate of growth. And a good earnings report is the most important indicator
about a stock's future performance.
See important Fund & index disclosures inside front cover.
3
<PAGE> 6
LONG-TERM PERFORMANCE
THE AIM CHARTER FUND GROWTH STORY
GROWTH OF A $10,000 INVESTMENT: NOVEMBER 26, 1968-OCTOBER 31, 1996
<TABLE>
<CAPTION>
(In thousands)
======================================================================================================================
AIM Charter Fund Class A Shares Lipper Growth & Income Fund Index S&P 500 Cost of Living Index
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/26/68 9,446 10,000 10,000 10,000
10/69 9,562 9,021 9,358 10,537
10/70 7,024 7,799 8,320 11,130
10/71 9,170 9,110 9,719 11,554
10/72 12,768 10,509 11, 845 11,949
10/73 14,160 10,360 11,840 12,881
10/74 9,720 7,891 8,436 14,435
10/75 11,892 9,912 10,635 15,508
10/76 14,361 11,936 12,769 16,356
10/77 16,072 11,723 11,980 17,401
10/78 21,504 12,662 12,733 18,955
10/79 27,400 15,052 14,683 21,243
10/80 42,232 19,849 19,398 23,955
10/81 45,389 20,371 19,504 26,384
10/82 49,226 24,322 22,689 27,740
10/83 63,796 30,952 29,015 28,531
10/84 58,881 32,352 30,844 29,746
10/85 67,367 38,411 36,810 30,706
10/86 88,645 50,076 49,011 31,158
10/87 94,606 51,255 52,120 32,571
10/88 100,188 60,569 59,852 33,955
10/89 133,926 73,179 75,575 35,480
10/90 139,089 64,719 69,896 37,712
10/91 191,451 86,510 93,313 38,814
10/92 199,439 94,214 102,577 40,057
10/93 233,177 112,580 117,846 41,158
10/94 227,232 116,140 122,407 42,232
10/95 288,652 139,691 154,670 43,418
10/96 336,862 169,575 191,827 44,576
======================================================================================================================
</TABLE>
Past performance is no guarantee of comparable future results.
<TABLE>
<CAPTION>
11/12/68 10/69 10/70 10/71 10/72 10/73 10/74 10/75 10/76 10/77 10/78 10/79 10/80 10/81
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Dividends Reinvested $ 0 94 228 214 135 0 34 157 139 147 222 364 866 1,190
Capital Gains Reinvested $ 0 0 114 0 0 1,240 0 0 0 0 1,219 4,972 2,625 6,476
Total Distributions Reinvested $ 0 94 342 214 135 1,240 34 157 139 147 1,441 5,336 3,491 7,666
Total Account Value $ 9,446 9,562 7,024 9,170 12,768 14,160 9,720 11,892 14,361 16,072 21,504 27,400 42,232 45,389
</TABLE>
<PAGE> 7
AIM CHARTER FUND CLASS A SHARES VS. BENCHMARK INDEXES
The chart compares your Fund's Class A shares to indexes. It is important to
understand differences between your Fund and these indexes. An index measures
performance of a hypothetical portfolio. A market index, such as the S&P 500,
is not managed, incurring no sales charges, expenses or fees. If you could buy
all the securities that make up an index, you would incur expenses that would
affect your investment's return. An index of funds, such as the Lipper Growth
and Income Fund Index, includes a number of mutual funds grouped by investment
objective. Each of those funds interprets that objective differently, and each
employs a different management style and investment strategy. Use of these
indexes is intended to give you a general idea of how your Fund performed
compared to these benchmarks.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For periods ended 10/31/96. Including sales charges.
A SHARES B SHARES
Since Inception (11/26/68) 13.43% Since Inception (6/15/95) 15.68%
25 Years 15.24 1 Year 10.90**
20 Years 16.76
10 Years 13.64 **15.90% excluding sales charges
5 Years 10.70
1 Year 10.28*
*16.70% excluding sales charges
================================================================================
<TABLE>
<CAPTION>
10/82 10/83 10/84 10/85 10/86 10/87 10/88 10/89 10/90 10/91 10/92 10/93
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Dividends Reinvested 2,287 2,585 1,475 1,723 1,677 1,893 1,718 3,432 4,900 3,185 3,752 6,868
Capital Gains Reinvested 3,670 0 5,560 0 5,030 20,211 20,038 0 8,070 6,583 5,287 0
Total Distributions Reinvested 5,957 2,585 7,035 1,723 6,707 22,104 21,756 3,432 12,970 9,768 9,039 6,868
Total Account Value 49,226 63,796 58,881 67,367 88,645 94,606 100,188 133,926 139,089 191,451 199,439 233,177
<CAPTION>
10/94 10/95 10/96
<C> <C> <C>
Income Dividends Reinvested 4,023 5,275 4,672
Capital Gains Reinvested 3,882 8,298 24,466
Total Distributions Reinvested 7,905 13,573 29,138
Total Account Value 227,232 288,652 336,862
</TABLE>
Data shown are as of the Fund's fiscal year-end. Class A shares' total return
includes sales charges, expenses, and management fees. The performance of Class
B shares will differ from that of Class A shares due to differing fees and
expenses. For Fund performance calculations and descriptions of indexes cited
on this page, please refer to the inside front cover. Source: Towers Data
Systems HYPO -- Registered Trademark --.
<PAGE> 8
SCHEDULE OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-75.58%
ADVERTISING/BROADCASTING-0.56%
Eagle River Interactive, Inc.(a) 400,000 $ 3,750,000
- -----------------------------------------------------------------
True North Communications, Inc. 600,000 14,250,000
- -----------------------------------------------------------------
18,000,000
- -----------------------------------------------------------------
AEROSPACE/DEFENSE-2.00%
Boeing Co. (The) 160,000 15,260,000
- -----------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 700,000 16,537,500
- -----------------------------------------------------------------
Northrop Grumman Corp. 100,000 8,075,000
- -----------------------------------------------------------------
Rockwell International Corp. 200,000 11,000,000
- -----------------------------------------------------------------
United Technologies Corp. 100,000 12,875,000
- -----------------------------------------------------------------
63,747,500
- -----------------------------------------------------------------
AIRLINES-0.25%
Sabre Group Holdings Inc.(a) 260,000 7,930,000
- -----------------------------------------------------------------
APPLIANCES-0.31%
Sunbeam Corp., Inc. 400,000 9,850,000
- -----------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.46%
Lear Corp.(a) 400,000 14,800,000
- -----------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.84%
General Motors Corp. 500,000 26,937,500
- -----------------------------------------------------------------
BANKING-0.50%
Marshall & Ilsley Corp. 500,000 16,062,500
- -----------------------------------------------------------------
BANKING (MONEY CENTER)-1.11%
BankAmerica Corp. 200,000 18,300,000
- -----------------------------------------------------------------
Chase Manhattan Corp. 200,000 17,150,000
- -----------------------------------------------------------------
35,450,000
- -----------------------------------------------------------------
BEVERAGES-0.24%
PepsiCo. Inc. 260,000 7,702,500
- -----------------------------------------------------------------
BUSINESS SERVICES-2.43%
Accustaff Inc.(a) 300,000 8,025,000
- -----------------------------------------------------------------
CUC International, Inc.(a) 500,000 12,250,000
- -----------------------------------------------------------------
Diebold, Inc. 400,000 23,000,000
- -----------------------------------------------------------------
Dun & Bradstreet Corp. 214,900 12,437,338
- -----------------------------------------------------------------
Equifax, Inc. 600,000 17,850,000
- -----------------------------------------------------------------
Olsten Corp. 200,000 4,000,000
- -----------------------------------------------------------------
77,562,338
- -----------------------------------------------------------------
COMPUTER MAINFRAMES-0.48%
International Business Machines
Corp. 120,000 15,480,000
- -----------------------------------------------------------------
COMPUTER NETWORKING-2.25%
Ascend Communications, Inc.(a) 300,000 19,612,500
- -----------------------------------------------------------------
Cascade Communications Corp.(a) 160,000 11,620,000
- -----------------------------------------------------------------
Cisco Systems, Inc.(a) 400,000 24,750,000
- -----------------------------------------------------------------
ECI Telecommunications Ltd. Designs 800,000 16,000,000
- -----------------------------------------------------------------
71,982,500
- -----------------------------------------------------------------
COMPUTER PERIPHERALS-0.39%
U.S. Robotics Corp.(a) 200,000 12,575,000
- -----------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-4.94%
Computer Associates International,
Inc. 300,000 17,737,500
- -----------------------------------------------------------------
Electronic Data Systems Corp. 600,000 27,000,000
- -----------------------------------------------------------------
Farallon Communications(a) 235,000 2,996,250
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
Fiserv, Inc.(a) 340,000 $ 13,047,500
- -----------------------------------------------------------------
HBO & Co. 200,000 12,025,000
- -----------------------------------------------------------------
Informix Corp.(a) 300,000 6,656,250
- -----------------------------------------------------------------
Learning Co., Inc. (The)(a) 300,000 6,093,750
- -----------------------------------------------------------------
Microsoft Corp.(a) 120,000 16,470,000
- -----------------------------------------------------------------
Oracle Corp.(a) 300,000 12,693,750
- -----------------------------------------------------------------
Saville Systems Ireland PLC-ADR
(Ireland)(a) 200,000 8,625,000
- -----------------------------------------------------------------
Sterling Commerce, Inc.(a) 700,000 19,687,500
- -----------------------------------------------------------------
Wallace Computer Services, Inc. 500,000 14,687,500
- -----------------------------------------------------------------
157,720,000
- -----------------------------------------------------------------
CONGLOMERATES-2.20%
AlliedSignal Inc. 200,000 13,100,000
- -----------------------------------------------------------------
Corning, Inc. 240,000 9,300,000
- -----------------------------------------------------------------
E.I. du Pont de Nemours and Co. 160,000 14,840,000
- -----------------------------------------------------------------
Loews Corp. 400,000 33,050,000
- -----------------------------------------------------------------
70,290,000
- -----------------------------------------------------------------
COSMETICS & TOILETRIES-1.21%
Avon Products, Inc. 240,000 13,020,000
- -----------------------------------------------------------------
Gillette Co. (The) 140,000 10,465,000
- -----------------------------------------------------------------
Warner-Lambert Co. 240,000 15,270,000
- -----------------------------------------------------------------
38,755,000
- -----------------------------------------------------------------
ELECTRIC POWER-2.22%
Allegheny Power System, Inc. 400,000 11,950,000
- -----------------------------------------------------------------
American Electric Power Co. 360,000 14,940,000
- -----------------------------------------------------------------
Carolina Power & Light Co. 280,000 10,115,000
- -----------------------------------------------------------------
Duke Power Co. 300,000 14,662,500
- -----------------------------------------------------------------
Southern Co. 500,000 11,062,500
- -----------------------------------------------------------------
Texas Utilities Co. 200,000 8,100,000
- -----------------------------------------------------------------
70,830,000
- -----------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-1.49%
General Electric Co. 200,000 19,350,000
- -----------------------------------------------------------------
General Signal Corp. 200,000 8,150,000
- -----------------------------------------------------------------
Honeywell, Inc. 140,000 8,697,500
- -----------------------------------------------------------------
Imation Corp.(a) 58,100 1,590,487
- -----------------------------------------------------------------
Sony Corp.-ADR (Japan) 160,000 9,660,000
- -----------------------------------------------------------------
47,447,987
- -----------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-1.40%
Merrill Lynch & Co., Inc. 240,000 16,860,000
- -----------------------------------------------------------------
Morgan Stanley Group, Inc. 220,000 11,055,000
- -----------------------------------------------------------------
Ryder System, Inc. 300,000 8,925,000
- -----------------------------------------------------------------
United Assets Management Corp. 320,000 7,840,000
- -----------------------------------------------------------------
44,680,000
- -----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-3.58%
American Express Co. 200,000 9,400,000
- -----------------------------------------------------------------
Federal Home Loan Mortgage Corp. 340,000 34,340,000
- -----------------------------------------------------------------
Federal National Mortgage
Association 1,800,000 70,425,000
- -----------------------------------------------------------------
114,165,000
- -----------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (SAVINGS & LOAN)-0.32%
Washington Mutual, Inc. 240,000 $ 10,140,000
- -----------------------------------------------------------------
FOOD/PROCESSING-0.94%
Dole Food Co. 240,000 9,360,000
- -----------------------------------------------------------------
Interstate Bakeries Corp. 240,000 10,170,000
- -----------------------------------------------------------------
Nabisco Holdings Corp. 277,100 10,321,975
- -----------------------------------------------------------------
29,851,975
- -----------------------------------------------------------------
FUNERAL SERVICES-0.25%
Loewen Group, Inc. 200,000 7,925,000
- -----------------------------------------------------------------
GAMING-0.33%
International Game Technology 500,000 10,562,500
- -----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.23%
Provident Companies, Inc. 200,000 7,425,000
- -----------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-3.90%
Allstate Corp. 400,000 22,450,000
- -----------------------------------------------------------------
CIGNA Corp. 300,000 39,150,000
- -----------------------------------------------------------------
ITT Hartford Group, Inc. 140,000 8,820,000
- -----------------------------------------------------------------
MBIA, Inc. 100,000 8,862,500
- -----------------------------------------------------------------
Travelers Group, Inc. 400,000 21,700,000
- -----------------------------------------------------------------
Travelers/Aetna Property Casualty
Corp. 400,000 12,000,000
- -----------------------------------------------------------------
USF&G Corp. 600,000 11,400,000
- -----------------------------------------------------------------
124,382,500
- -----------------------------------------------------------------
LEISURE & RECREATION-1.16%
Brunswick Corp. 500,000 11,750,000
- -----------------------------------------------------------------
Callaway Golf Co. 300,000 9,187,500
- -----------------------------------------------------------------
Eastman Kodak Co. 200,000 15,950,000
- -----------------------------------------------------------------
36,887,500
- -----------------------------------------------------------------
MACHINE TOOLS-0.48%
Stanley Works 540,000 15,255,000
- -----------------------------------------------------------------
MEDICAL (DRUGS)-8.94%
American Home Products Corp. 360,000 22,050,000
- -----------------------------------------------------------------
Bristol-Myers Squibb Co. 300,000 31,725,000
- -----------------------------------------------------------------
Johnson & Johnson 680,000 33,490,000
- -----------------------------------------------------------------
Lilly (Eli) & Co. 240,000 16,920,000
- -----------------------------------------------------------------
Pfizer Inc. 300,000 24,825,000
- -----------------------------------------------------------------
Pharmacia & Upjohn, Inc. 800,000 28,800,000
- -----------------------------------------------------------------
Rhone-Poulenc Rorer, Inc. 480,000 32,220,000
- -----------------------------------------------------------------
Schering-Plough Corp. 500,000 32,000,000
- -----------------------------------------------------------------
SmithKline Beecham PLC-ADR (United
Kingdom) 640,000 40,080,000
- -----------------------------------------------------------------
Teva Pharmaceuticals Industries
Ltd.-ADR (Israel) 320,000 13,400,000
- -----------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 300,000 10,012,500
- -----------------------------------------------------------------
285,522,500
- -----------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-3.12%
American Medical Response, Inc.(a) 300,000 9,000,000
- -----------------------------------------------------------------
Columbia/HCA Healthcare Corp. 900,000 32,175,000
- -----------------------------------------------------------------
MedPartners, Inc.(a) 1,000,000 21,125,000
- -----------------------------------------------------------------
OrNda HealthCorp(a) 360,000 9,810,000
- -----------------------------------------------------------------
Oxford Health Plans, Inc.(a) 100,000 4,550,000
- -----------------------------------------------------------------
PacifiCare Health System, Inc.(a) 28,500 2,002,125
- -----------------------------------------------------------------
RoTech Medical Corp.(a) 400,000 6,400,000
- -----------------------------------------------------------------
Tenet Healthcare Corp.(a) 700,000 14,612,500
- -----------------------------------------------------------------
99,674,625
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL INSTRUMENTS/PRODUCTS-1.29%
Baxter International, Inc. 400,000 $ 16,650,000
- -----------------------------------------------------------------
Boston Scientific Corp.(a) 300,000 16,312,500
- -----------------------------------------------------------------
Omnicare, Inc. 300,000 8,175,000
- -----------------------------------------------------------------
41,137,500
- -----------------------------------------------------------------
NATURAL GAS PIPELINE-1.49%
PanEnergy Corp. 300,000 11,550,000
- -----------------------------------------------------------------
Sonat, Inc. 200,000 9,850,000
- -----------------------------------------------------------------
Williams Companies, Inc. 500,000 26,125,000
- -----------------------------------------------------------------
47,525,000
- -----------------------------------------------------------------
OIL & GAS (SERVICES)-3.39%
Halliburton Co. 260,000 14,722,500
- -----------------------------------------------------------------
Mobil Corp. 160,000 18,680,000
- -----------------------------------------------------------------
National Fuel Gas Co. 42,500 1,583,125
- -----------------------------------------------------------------
Petroleum Geo-Services A.S.A.-ADR
(Norway)(a) 266,600 9,131,050
- -----------------------------------------------------------------
Reading & Bates Corp.(a) 420,000 12,075,000
- -----------------------------------------------------------------
Royal Dutch Petroleum Co. (Netherlands) 100,000 16,537,500
- -----------------------------------------------------------------
Texaco, Inc. 160,000 16,260,000
- -----------------------------------------------------------------
Transocean Offshore Inc. 160,000 10,120,000
- -----------------------------------------------------------------
YPF S.A.-ADR (Argentina) 400,000 9,100,000
- -----------------------------------------------------------------
108,209,175
- -----------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.81%
Coastal Corp. 400,000 17,200,000
- -----------------------------------------------------------------
Diamond Offshore Drilling, Inc.(a) 140,000 8,522,500
- -----------------------------------------------------------------
25,722,500
- -----------------------------------------------------------------
PUBLISHING-0.91%
Gannett Co., Inc. 168,000 12,747,000
- -----------------------------------------------------------------
Tribune Co. 200,000 16,350,000
- -----------------------------------------------------------------
29,097,000
- -----------------------------------------------------------------
RAILROADS-0.11%
Wisconsin Central Transportation
Corp. 100,000 3,600,000
- -----------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS-2.38%
Crescent Real Estate Equities, Inc. 400,000 16,700,000
- -----------------------------------------------------------------
FelCor Suite Hotels, Inc. 320,000 10,480,000
- -----------------------------------------------------------------
National Health Investors, Inc. 300,000 10,462,500
- -----------------------------------------------------------------
Patroit American Hospitality, Inc. 440,000 15,455,000
- -----------------------------------------------------------------
Spieker Properties, Inc. 300,000 9,225,000
- -----------------------------------------------------------------
Starwood Lodging Trust 300,000 13,500,000
- -----------------------------------------------------------------
75,822,500
- -----------------------------------------------------------------
RETAIL (FOOD & DRUG)-0.89%
Food Lion, Inc.-Class A 1,300,000 11,131,250
- -----------------------------------------------------------------
Safeway, Inc.(a) 400,000 17,150,000
- -----------------------------------------------------------------
28,281,250
- -----------------------------------------------------------------
RETAIL (STORES)-1.69%
Blue Square-Israel Ltd-ADR
(Israel)(a) 110,500 1,740,375
- -----------------------------------------------------------------
Dayton-Hudson Corp. 300,000 10,387,500
- -----------------------------------------------------------------
Fila Holdings S.p.A.-ADR (Italy) 141,700 10,202,400
- -----------------------------------------------------------------
J.C. Penney Co., Inc. 300,000 15,750,000
- -----------------------------------------------------------------
Wal-Mart Stores, Inc. 600,000 15,975,000
- -----------------------------------------------------------------
54,055,275
- -----------------------------------------------------------------
SEMICONDUCTORS-1.24%
Intel Corp. 360,000 39,555,000
- -----------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SHOES & RELATED APPAREL-0.44%
NIKE, Inc. Class B 240,000 $ 14,130,000
- -----------------------------------------------------------------
TELECOMMUNICATIONS-6.19%
ADC Telecommunications(a) 140,000 9,572,500
- -----------------------------------------------------------------
American Portable Telecom, Inc.(a) 500,000 3,812,500
- -----------------------------------------------------------------
Andrew Corp.(a) 340,000 16,575,000
- -----------------------------------------------------------------
Frontier Corp. 540,000 15,660,000
- -----------------------------------------------------------------
Koor Industries Ltd.-ADR (Israel) 240,000 4,170,000
- -----------------------------------------------------------------
LCI International, Inc.(a) 315,789 10,065,775
- -----------------------------------------------------------------
Lucent Technologies, Inc. 400,000 18,800,000
- -----------------------------------------------------------------
MFS Communications Co., Inc.(a) 1,004,936 50,372,417
- -----------------------------------------------------------------
Nokia Corp.-Class A-ADR (Finland) 360,000 16,695,000
- -----------------------------------------------------------------
Pacific Telesis Group 300,000 10,200,000
- -----------------------------------------------------------------
Telecomunicacoes Brasileiras
S.A.-ADR (Brazil) 200,000 14,900,000
- -----------------------------------------------------------------
Telefonaktiebolaget L.M.
Ericsson-ADR (Sweden) 600,000 16,575,000
- -----------------------------------------------------------------
Tellabs, Inc.(a) 120,000 10,215,000
- -----------------------------------------------------------------
197,613,192
- -----------------------------------------------------------------
TELEPHONE-2.79%
Ameritech Corp. 300,000 16,425,000
- -----------------------------------------------------------------
BellSouth Corp. 500,000 20,375,000
- -----------------------------------------------------------------
Cincinnati Bell, Inc. 800,000 39,500,000
- -----------------------------------------------------------------
SBC Communications, Inc. 260,000 12,642,500
- -----------------------------------------------------------------
88,942,500
- -----------------------------------------------------------------
TEXTILES-0.23%
VF Corp. 109,900 7,184,712
- -----------------------------------------------------------------
TOBACCO-3.11%
Philip Morris Companies, Inc. 700,000 64,837,500
- -----------------------------------------------------------------
RJR Nabisco Holdings Corp. 1,200,000 34,650,000
- -----------------------------------------------------------------
99,487,500
- -----------------------------------------------------------------
TRANSPORTATION-0.09%
Hvide Marine, Inc. Class A(a) 200,000 2,975,000
- -----------------------------------------------------------------
Total Common Stocks 2,412,932,529
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS-12.95%
AUTOMOBILE/TRUCK PARTS & TIRES-0.41%
Magna International, Inc.,
Conv. Sub Deb., 5.00%, 10/15/02 $12,000,000 $ 13,110,000
- -----------------------------------------------------------------
BUSINESS SERVICES-0.30%
Career Horizons, Inc.,
Conv. Bonds, 7.00%, 11/01/02(b)
(acquired 10/16/95-11/27/95; cost
$4,015,000) 4,000,000 9,725,601
- -----------------------------------------------------------------
CHEMICALS-1.08%
Hexcel Corp.,
Conv. Sub. Notes, 7.00%, 08/01/03 6,000,000 8,010,000
- -----------------------------------------------------------------
Sandoz Capital BVI Ltd.
(Switzerland),
Sr. Conv. Deb., 2.00%, 10/06/02(b)
(acquired 01/09/96-06/05/96; cost
$24,018,250) 24,000,000 26,430,000
- -----------------------------------------------------------------
34,440,000
- -----------------------------------------------------------------
COMPUTER NETWORKING-0.77%
3Com Corp.,
Conv. Sub. Notes, 10.25%,
11/01/01(b)
(acquired 11/07/95-08/28/96; cost
$19,300,448) 12,000,000 24,720,000
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-0.25%
Comverse Technology Inc.,
Conv. Sub. Deb., 5.75%,
10/01/06(b)
(acquired 10/01/96-10/24/96; cost
$8,029,250) $ 8,000,000 $ 7,960,000
- -----------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.95%
ADT Operations,
Conv. Sub. Notes, 4.32%,
07/06/10(c) 25,000,000 14,937,500
- -----------------------------------------------------------------
Checkpoint Systems Inc.,
Conv. Sub. Deb., 5.25%,
11/01/05(b)
(acquired 10/17/95-11/15/95; cost
$4,013,125) 4,000,000 5,450,750
- -----------------------------------------------------------------
SCI Systems, Inc.,
Conv. Sub. Notes, 5.00%,
05/01/06(b)
(acquired 10/24/96-10/28/96; cost
$9,952,680) 8,000,000 9,800,000
- -----------------------------------------------------------------
30,188,250
- -----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.59%
First Financial Management Corp.,
Conv. Deb., 5.00%, 12/15/99 10,000,000 18,800,000
- -----------------------------------------------------------------
HOTELS/MOTELS-0.62%
HFS, Inc.,
Conv. Sr. Notes, 4.75%, 03/01/03 10,000,000 12,887,500
- -----------------------------------------------------------------
Prime Hospitality Corp.,
Conv. Sub. Notes, 7.00%, 04/15/02 5,000,000 7,012,500
- -----------------------------------------------------------------
19,900,000
- -----------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.57%
Thermo Electron Corp.,
Conv. Sub. Deb., 4.25%,
01/01/03(b)
(acquired 11/29/95-04/01/96; cost
$17,830,575) 16,000,000 18,240,000
- -----------------------------------------------------------------
MEDICAL (DRUGS)-0.47%
ICN Pharmaceuticals Inc.,
Conv. Sub. Notes, 8.50%, 11/15/99 14,000,000 15,155,000
- -----------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-1.87%
Genesis Health Ventures,
Sr. Conv. Sub. Deb., 6.00%,
11/30/03 5,000,000 7,684,995
- -----------------------------------------------------------------
HEALTHSOUTH Rehabilitation Corp.,
Conv. Sub. Deb., 5.00%, 04/01/01 6,000,000 12,120,000
- -----------------------------------------------------------------
Multicare Companies,
Conv. Sub. Deb., 7.00%,
03/15/03(b)
(acquired 11/30/95; cost
$6,210,000) 6,000,000 7,132,500
- -----------------------------------------------------------------
Phycor, Inc.,
Conv. Sub. Deb., 4.50%, 02/15/03 12,000,000 12,225,000
- -----------------------------------------------------------------
Quintiles Transnational,
Conv. Sub. Notes, 4.25%,
05/31/00(b)
(acquired 04/23/96; cost
$12,027,000) 12,000,000 12,480,000
- -----------------------------------------------------------------
Renal Treatment Centers,
Conv. Sub Notes, 5.625%,
07/15/06(b)
(acquired 06/06/96-06/07/96; cost
$7,988,500) 8,000,000 8,000,000
- -----------------------------------------------------------------
59,642,495
- -----------------------------------------------------------------
OFFICE AUTOMATION-0.55%
Danka Business Systems PLC,
Conv. Sub. Deb., 6.75%, 04/01/02
(United Kingdom) 12,000,000 17,580,000
- -----------------------------------------------------------------
OFFICE PRODUCTS-0.23%
U.S. Office Products Co.,
Conv. Sub. Notes, 5.50%, 02/01/01 6,500,000 7,426,531
- -----------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL EQUIPMENT & SUPPLIES-0.56%
Apache Corp.,
Conv. Sub. Deb., 6.00%,
01/15/02(b)
(acquired 06/14/96-08/22/96; cost
$9,188,750) $ 8,000,000 $ 10,120,000
- -----------------------------------------------------------------
Pride Petroleum Services, Inc.,
Conv. Sub. Deb., 6.25%, 02/15/06 5,000,000 7,725,000
- -----------------------------------------------------------------
17,845,000
- -----------------------------------------------------------------
POLLUTION CONTROL-0.62%
Sanifill, Inc.,
Conv. Sub. Deb., 5.00%, 03/01/06 6,000,000 7,770,000
- -----------------------------------------------------------------
U.S. Filter Corp.,
Conv. Sub. Notes, 6.00%, 09/15/05 6,200,000 11,888,500
- -----------------------------------------------------------------
19,658,500
- -----------------------------------------------------------------
RETAIL (STORES)-2.03%
Federated Department Stores,
Conv. Notes, 5.00%, 10/01/03 10,000,000 11,287,500
- -----------------------------------------------------------------
Home Depot, Inc.,
Conv. Sub. Notes, 3.25%, 10/01/01 11,000,000 11,027,500
- -----------------------------------------------------------------
SAKS Holdings,
Conv. Sub. Notes, 5.50%, 09/15/06 15,000,000 15,900,000
- -----------------------------------------------------------------
Sports Authority, Inc. (The),
Conv. Sub. Notes, 5.25%,
09/15/01(b)
(acquired 09/17/96; cost
$14,000,000) 14,000,000 13,930,000
- -----------------------------------------------------------------
Staples, Inc.,
Conv. Sub. Deb., 4.50%,
10/01/00(b)
(acquired 09/16/96-10/28/96; cost
$13,282,260) 12,000,000 12,720,000
- -----------------------------------------------------------------
64,865,000
- -----------------------------------------------------------------
SEMICONDUCTORS-0.81%
Altera Corp.,
Conv. Sub. Notes, 5.75%,
06/15/02(b)
(acquired 09/16/96-09/26/96; cost
$14,249,080) 12,000,000 16,440,000
- -----------------------------------------------------------------
Analog Devices,
Conv. Sub. Notes, 3.50%, 12/01/00 8,000,000 9,300,000
- -----------------------------------------------------------------
25,740,000
- -----------------------------------------------------------------
TRANSPORTATION (MISCELLANEOUS)-0.27%
Seacor Holdings Inc.,
Conv. Sub. Notes, 5.375%,
11/15/06(b)
(acquired 10/30/96; cost
$8,250,000) 8,250,000 8,497,500
- -----------------------------------------------------------------
Total Convertible Corporate
Bonds 413,493,877
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS-6.55%
COMPUTER SOFTWARE/SERVICES-1.08%
Ceridian Corp.-$2.75 Conv. Pfd. 220,000 23,980,000
- -----------------------------------------------------------------
Vanstar Corp.-$3.375 Conv. Pfd.(b)
(acquired 09/2796-10/30/96; cost
$10,034,500) 200,000 10,350,000
- -----------------------------------------------------------------
34,330,000
- -----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.75%
Penncorp Financial Group-$3.375
Conv. Pfd. 100,000 8,100,000
- -----------------------------------------------------------------
SunAmerica Inc.-Series E, $3.10 Dep.
Conv. Pfd. 180,000 15,795,000
- -----------------------------------------------------------------
23,895,000
- -----------------------------------------------------------------
FUNERAL SERVICES-1.06%
SCI Financial LLC-Series A, $3.125
Conv. Pfd. 360,000 33,840,000
- -----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.79%
Conseco Inc.-$4.279 Conv. Pfd.
PRIDES 260,000 25,350,000
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE PROPERTY)-0.66%
Aetna Inc.-$4.758 Conv. Pfd. 160,000 $ 11,220,000
- -----------------------------------------------------------------
PMI Group, Inc.-$2.30 Exch. Conv.
Pfd. 200,000 9,925,000
- -----------------------------------------------------------------
21,145,000
- -----------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-0.38%
U.S. Surgical Corp.-Series A, $2.20
Conv. Pfd 300,000 12,000,000
- -----------------------------------------------------------------
PUBLISHING-0.27%
Hollinger International, Inc.-$0.951
Conv. Pfd PRIDES 700,000 8,575,000
- -----------------------------------------------------------------
RETAIL (STORES)-0.57%
TJX Companies, Inc.-Series E, $7.00
Conv. Pfd 80,000 18,200,000
- -----------------------------------------------------------------
TELECOMMUNICATIONS-0.82%
MFS Communications Co., Inc.-$2.68
Conv. Pfd 300,000 26,025,000
- -----------------------------------------------------------------
UTILITIES (MISCELLANEOUS)-0.17%
MCN Corp.-$2.013 Conv. Pfd. PRIDES 200,000 5,500,000
- -----------------------------------------------------------------
Total Convertible Preferred
Stocks 208,860,000
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U. S. TREASURY NOTES-4.52%
5.375%, 11/30/97 $ 12,000,000 $ 11,981,400
- -----------------------------------------------------------------
5.25%, 12/31/97 12,000,000 11,961,960
- -----------------------------------------------------------------
5.00%, 01/31/98 12,000,000 11,915,400
- -----------------------------------------------------------------
5.125%, 02/28/98 12,000,000 11,925,360
- -----------------------------------------------------------------
6.125%, 03/31/98 12,000,000 12,084,240
- -----------------------------------------------------------------
5.875%, 04/30/98 12,000,000 12,043,200
- -----------------------------------------------------------------
6.00%, 05/31/98 12,000,000 12,061,680
- -----------------------------------------------------------------
6.25%, 06/30/98 12,000,000(d) 12,110,160
- -----------------------------------------------------------------
6.25%, 07/31/98 12,000,000(d) 12,110,880
- -----------------------------------------------------------------
6.125%, 08/31/98 12,000,000 12,085,200
- -----------------------------------------------------------------
6.00%, 09/30/98 12,000,000(d) 12,060,600
- -----------------------------------------------------------------
5.875%, 10/31/98 12,000,000 12,030,120
- -----------------------------------------------------------------
Total U. S. Treasury Notes 144,370,200
- -----------------------------------------------------------------
TOTAL INVESTMENTS-99.60% 3,179,656,606
- -----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.40% 12,814,809
- -----------------------------------------------------------------
NET ASSETS-100.00% $ 3,192,471,415
=================================================================
</TABLE>
Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debenture
Dep. - Depository
Exch. - Exchangeable
Jr. - Junior
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Sr. - Senior
Sub. - Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at October 31, 1996 was
$201,996,351 which represented 6.33% of net assets.
(c) Zero coupon bond. The interest rate shown represents the rate of the
original issue discount.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
See Notes to Financial Statements.
9
<PAGE> 12
Financials
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,723,507,418) $3,179,656,606
- ---------------------------------------------------------
Cash 4,227,663
- ---------------------------------------------------------
Receivable for:
Investments sold 46,357,131
- ---------------------------------------------------------
Capital stock sold 10,899,789
- ---------------------------------------------------------
Dividends and interest 9,846,941
- ---------------------------------------------------------
Variation margin 425,000
- ---------------------------------------------------------
Investment for deferred compensation
plan 30,282
- ---------------------------------------------------------
Other assets 60,778
- ---------------------------------------------------------
Total assets 3,251,504,190
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 51,431,948
- ---------------------------------------------------------
Capital stock reacquired 3,913,155
- ---------------------------------------------------------
Deferred compensation 30,282
- ---------------------------------------------------------
Accrued advisory fees 1,684,854
- ---------------------------------------------------------
Accrued administrative services fees 12,855
- ---------------------------------------------------------
Accrued distribution fees 1,104,528
- ---------------------------------------------------------
Accrued transfer agent fees 571,997
- ---------------------------------------------------------
Accrued operating expenses 283,156
- ---------------------------------------------------------
Total liabilities 59,032,775
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $3,192,471,415
=========================================================
NET ASSETS:
Class A $2,647,207,658
=========================================================
Class B $ 515,672,339
=========================================================
Institutional Class $ 29,591,418
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 236,469,378
=========================================================
Class B:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 46,136,132
=========================================================
Institutional Class:
Authorized 200,000,000
- ---------------------------------------------------------
Outstanding 2,633,153
=========================================================
Class A:
Net asset value and redemption price
per share $ 11.19
=========================================================
Offering price per share:
(Net asset value of $11.19 divided
by 94.50%) $ 11.84
=========================================================
Class B:
Net asset value and offering price per
share $ 11.18
=========================================================
Institutional Class:
Net asset value, offering and
redemption price per share $ 11.24
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $226,295 foreign
withholding tax) $ 51,362,438
- --------------------------------------------------------
Interest 25,650,354
- --------------------------------------------------------
Total investment income 77,012,792
- --------------------------------------------------------
EXPENSES:
Advisory fees 16,686,866
- --------------------------------------------------------
Administrative services fees 114,489
- --------------------------------------------------------
Custodian fees 228,479
- --------------------------------------------------------
Directors' fees 23,489
- --------------------------------------------------------
Distribution fees-Class A 6,952,782
- --------------------------------------------------------
Distribution fees-Class B 2,831,042
- --------------------------------------------------------
Transfer agent fees-Class A 3,479,192
- --------------------------------------------------------
Transfer agent fees-Class B 755,257
- --------------------------------------------------------
Transfer agent fees-Institutional Class 2,105
- --------------------------------------------------------
Other 735,932
- --------------------------------------------------------
Total expenses 31,809,633
- --------------------------------------------------------
Less fees waived by advisor (156,975)
- --------------------------------------------------------
Expenses paid indirectly (40,776)
- --------------------------------------------------------
Net expenses 31,611,882
- --------------------------------------------------------
Net investment income 45,400,910
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN
CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 187,783,804
- --------------------------------------------------------
Foreign currencies 108,458
- --------------------------------------------------------
Futures contracts (153,728)
- --------------------------------------------------------
187,738,534
- --------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF:
Investment securities 171,825,605
- --------------------------------------------------------
Foreign currencies 1,822
- --------------------------------------------------------
Futures contracts (51,980)
- --------------------------------------------------------
171,775,447
- --------------------------------------------------------
Net gain on investment securities,
foreign currencies and futures
contracts 359,513,981
- --------------------------------------------------------
Net increase in net assets resulting from
operations $404,914,891
========================================================
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 13
Financials
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 45,400,910 $ 26,980,252
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities, foreign currencies and futures
contracts 187,738,534 179,125,169
- -------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities, foreign currencies and futures
contracts 171,775,447 200,981,202
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 404,914,891 407,086,623
- -------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (34,698,850) (34,589,802)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (2,262,959) (55,355)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class (506,177) (536,096)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on investments:
Class A (170,497,932) (57,274,888)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (8,672,692) (12,593)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class (2,168,635) (759,222)
- -------------------------------------------------------------------------------------------------------------------------------
Net equalization credits (charges):
Class A 511,762 (284,916)
- -------------------------------------------------------------------------------------------------------------------------------
Class B 219,669 24,584
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,194 (13,270)
- -------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 518,654,491 86,486,354
- -------------------------------------------------------------------------------------------------------------------------------
Class B 417,063,105 66,768,426
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 2,366,710 (206,795)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 1,124,924,577 466,633,050
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,067,546,838 1,600,913,788
- -------------------------------------------------------------------------------------------------------------------------------
End of period $3,192,471,415 $2,067,546,838
===============================================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $2,544,742,646 $1,606,658,340
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 8,877,492 102,563
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment securities, foreign currencies and
futures contracts 182,752,246 176,462,351
- -------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and futures contracts 456,099,031 284,323,584
- -------------------------------------------------------------------------------------------------------------------------------
$3,192,471,415 $2,067,546,838
===============================================================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 14
Financials
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc.
(the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six operating diversified
portfolios: AIM Charter Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund,
AIM Capital Development Fund, AIM Constellation Fund and AIM Weingarten Fund.
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and the Institutional Class. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. The Fund's investment objective is to provide growth of
capital, with current income as a secondary objective.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
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.
A. Security Valuations-Except as provided in the next sentence, a security
listed or traded on an exchange is valued at its last sales price on the
exchange where the security is principally traded, or lacking any sales on a
particular day, the security is valued at the mean between the closing bid
and asked prices on that day. Exchange listed convertible bonds are valued at
the mean between the closing bid and asked prices obtained from a
broker-dealer. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date, or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations that are issued or guaranteed by the U.S. Treasury
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 yield,
type of issue, coupon rate and maturity date. Securities for which market
prices are not provided by any of the above methods are valued at the mean
between last bid and asked prices based upon quotes furnished by independent
sources. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision
of the Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
also generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions-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 as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1996
$109,380 was reclassified from undistributed net realized gains to
undistributed net investment income as a result of differing book/tax
treatment of foreign currency transactions. Net assets of the Fund were
unaffected as a result of this reclassification.
C. Federal Income Taxes-The Fund intends to comply with the requirements 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 gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
D. Expenses-Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to all
classes, e.g. advisory fees, are allocated among them.
E. Equalization-The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and costs of repurchases of
Fund shares, equivalent on a per share basis to the amount of undistributed
net investment income, is credited or charged to undistributed net income
when the transaction is recorded so that the undistributed net investment
income per share is unaffected by sales or redemptions of Fund shares.
F. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation.
12
<PAGE> 15
Financials
Purchases and sales of portfolio securities and income items denominated in
foreign currencies are translated into U.S. dollar amounts on the respective
dates of such transactions.
G. Foreign Currency Contracts-A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed upon price at a future
date. The Fund may enter into a forward currency contract for the purchase or
sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of that security. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts.
H. Stock Index Futures Contracts-The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and the change in the value of the contracts may not correlate with changes
in the value of the securities being hedged.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.0% of
the first $30 million of the Fund's average daily net assets, plus 0.75% of the
Fund's average daily net assets in excess of $30 million to and including $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. AIM has agreed to voluntarily waive a portion of its advisory fees paid
by the Fund to AIM to the extent necessary to reduce the fees paid by the Fund
at net asset levels higher than those currently incorporated in the present
advisory fee schedule. Under the voluntary waiver, AIM will receive a fee
calculated at the annual rate of 1.0% of the first $30 million of the Fund's
average daily net assets, plus 0.75% of the Fund's average daily net assets in
excess of $30 million to and including $150 million, plus 0.625% of the Fund's
average daily net assets in excess of $150 million to and including $2 billion,
plus 0.60% of the Fund's average daily net assets in excess of $2 billion. The
approval of Board of Directors would be necessary before AIM can discontinue
this waiver. During the year ended October 31, 1996, AIM waived fees of
$156,975. Under the terms of a master sub-advisory agreement between AIM and
A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the
amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1996, AIM was
reimbursed $114,489 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Class A and Class B shares. During the year
ended October 31, 1996, AFS was paid $2,264,602 for such services. During the
year ended October 31, 1996, the Fund paid A I M Institutional Fund Services,
Inc. ("AIFS") $2,105 for shareholder and transfer agency services with respect
to the Institutional Class.
The Fund received reductions in transfer agency fees of $37,315 from dividends
received on balances in cash management bank accounts. In addition, the Fund
incurred expenses of $3,461 for pricing services which are paid through directed
brokerage commissions. The effect of the above arrangements resulted in a
reduction in the Fund's total expenses of $40,776 during the year ended October
31, 1996.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A and Class B shares and a master distribution agreement with Fund
Management Company ("FMC") to serve as the distributor for the Institutional
Class. The Company has adopted Plans pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Class A shares (the "Class A Plan") and with respect
to the Fund's Class B shares (the "Class B Plan") (collectively, the "Plans").
The Fund, pursuant to the Class A Plan, pays AIM Distributors compensation at
the annual rate of 0.30% of the average daily net assets attributable to the
Class A shares. The Class A Plan is designed to compensate AIM Distributors for
certain promotional and other sales related costs and provides periodic payments
to selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. The Fund, pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of this amount, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class B shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own Class B shares of the Fund. Any
amounts not paid as a service fee under such Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. AIM Distributors may, from time to time, assign, transfer or pledge to
one or more designees, its rights to all or a designed portion of (a)
compensation received by AIM Distributors from the Fund pursuant to the Class B
Plan (but not AIM Distributors' duties and obligations pursuant to the Class B
Plan), and (b) any contingent deferred sales charges received by AIM
13
<PAGE> 16
Financials
Distributors related to the Class B shares. During the year ended October 31,
1996, the Class A and Class B shares paid AIM Distributors $6,952,782 and
$2,831,042, respectively, as compensation under the Plans.
AIM Distributors received commissions of $2,705,618 from sales of shares of
the Class A shares of the Fund during the year ended October 31, 1996. Such
commissions are not an expense of the Fund. They are deducted from, and are not
included in, the proceeds from sales of Class A shares. During the year ended
October 31, 1996, AIM Distributors received commissions of $32,497 in contingent
deferred sales charges imposed on redemptions of Fund shares. Certain officers
and directors of the Company are officers and directors of AIM, AIM Capital, AIM
Distributors, AFS, AIFS and FMC.
During the year ended October 31, 1996, the Fund paid legal fees of $8,908 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 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 may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $28,500,000. During the year ended October 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.08% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1996 was
$5,045,277,974 and $4,249,301,619, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1996, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $479,518,418
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (24,739,986)
- ------------------------------------------------------------
Net unrealized appreciation of investment
securities $454,778,432
============================================================
Cost of investments for tax purposes is
$2,724,878,174.
</TABLE>
NOTE 6-CAPITAL STOCK
Changes in the capital stock outstanding for the years ended October 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold
- ---------------------------------------------------------------------------------------------------------------------------------
Class A 71,824,128 $752,853,277 40,727,782 $396,439,839
- ---------------------------------------------------------------------------------------------------------------------------------
Class B* 41,436,800 435,348,846 6,409,868 67,237,422
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class 448,911 4,759,971 335,121 3,269,772
- ---------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
- ---------------------------------------------------------------------------------------------------------------------------------
Class A 19,521,139 192,994,968 10,283,705 77,653,310
- ---------------------------------------------------------------------------------------------------------------------------------
Class B* 1,039,513 10,333,913 5,996 64,162
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class 252,209 2,504,537 134,103 1,130,381
- ---------------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (40,679,494) (427,193,754) (42,561,203) (387,606,795)
- ---------------------------------------------------------------------------------------------------------------------------------
Class B* (2,705,793) (28,619,654) (50,252) (533,158)
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class (464,310) (4,897,798) (519,822) (4,606,948)
- ---------------------------------------------------------------------------------------------------------------------------------
90,673,103 $938,084,306 14,765,298 $153,047,985
=================================================================================================================================
</TABLE>
* Class B shares commenced sales on June 26, 1995.
NOTE 7-FUTURES CONTRACT
On October 31, 1996, $1,738,000 par value U.S. Treasury obligations were pledged
as collateral to cover margin requirements for futures contracts.
Futures contracts outstanding at October 31, 1996:
(Contracts--$500 times index/delivery month/commitment)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
--------------
<S> <C>
S&P 500 Index/125 contracts/March 97/Buy $(51,980)
=================================================================================================================================
</TABLE>
14
<PAGE> 17
Financials
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the ten-year period ended October 31, 1996 and for a Class
B share outstanding during the year ended October 31, 1996 and the period June
26, 1995 (date sales commenced) through October 31, 1995.
<TABLE>
<CAPTION>
CLASS A:
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.63 $ 8.90 $ 9.46 $ 8.36 $ 8.42 $ 6.55
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income 0.19 0.15 0.21 0.17 0.18 0.18
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Net gains (losses) on securities
(both realized and unrealized) 1.43 2.11 (0.45) 1.22 0.16 2.15
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Total from investment operations 1.62 2.26 (0.24) 1.39 0.34 2.33
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment income (0.16) (0.20) (0.16) (0.29) (0.17) (0.15)
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Distributions from capital gains (0.90) (0.33) (0.16) -- (0.23) (0.31)
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Total distributions (1.06) (0.53) (0.32) (0.29) (0.40) (0.46)
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 11.19 $ 10.63 $ 8.90 $ 9.46 $ 8.36 $ 8.42
====================================== ========== ========== ========== ========== ========== ========
Total return(a) 16.70% 27.03% (2.55)% 16.92% 4.17% 37.65%
====================================== ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $2,647,208 $1,974,417 $1,579,074 $1,690,482 $1,256,151 $443,546
====================================== ========== ========== ========== ========== ========== ========
Ratio of expenses to average net
assets 1.12%(b)(c) 1.17% 1.17% 1.17% 1.17% 1.29%
====================================== ========== ========== ========== ========== ========== ========
Ratio of net investment income to
average net assets 1.81%(b) 1.55% 2.32% 1.89% 2.14% 2.14%
====================================== ========== ========== ========== ========== ========== ========
Portfolio turnover rate 164% 161% 126% 144% 95% 144%
====================================== ========== ========== ========== ========== ========== ========
Average broker commission rate(d) $ 0.0638 N/A N/A N/A N/A N/A
====================================== ========== ========== ========== ========== ========== ========
<CAPTION>
1990 1989 1988 1987
-------- ------- ------- -------
<S> <C> <<C> <C> <C>
Net asset value, beginning of period $ 6.97 $ 5.40 $ 6.61 $ 8.18
- -------------------------------------- -------- ------- ------- -------
Income from investment operations:
Net investment income 0.18 0.21 0.15 0.09
- -------------------------------------- -------- ------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) 0.08 1.55 0.16 0.35
- -------------------------------------- -------- ------- ------- -------
Total from investment operations 0.26 1.76 0.31 0.44
- -------------------------------------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.26) (0.19) (0.12) (0.14)
- -------------------------------------- -------- ------- ------- -------
Distributions from capital gains (0.42) -- (1.40) (1.87)
- -------------------------------------- -------- ------- ------- -------
Total distributions (0.68) (0.19) (1.52) (2.01)
- -------------------------------------- -------- ------- ------- -------
Net asset value, end of period $ 6.55 $ 6.97 $ 5.40 $ 6.61
====================================== ======== ======= ======= =======
Total return(a) 3.86% 33.68% 5.90% 6.72%
====================================== ======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $102,499 $70,997 $65,799 $82,756
====================================== ======== ======= ======= =======
Ratio of expenses to average net
assets 1.35% 1.35% 1.46% 1.15%
====================================== ======== ======= ======= =======
Ratio of net investment income to
average net assets 2.51% 3.73% 2.83% 1.57%
====================================== ======== ======= ======= =======
Portfolio turnover rate 215% 131% 247% 225%
====================================== ======== ======= ======= =======
Average broker commission rate(d) N/A N/A N/A N/A
====================================== ======== ======= ======= =======
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $2,317,594,098.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratios of expenses to average net assets would have remained the same.
(d) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
<TABLE>
<CAPTION>
CLASS B:
1996 1995
---------- -------
<S> <C> <C>
Net asset value, beginning of period $ 10.62 $ 9.81
- ---------------------------------------------------------------------------------------- -------- -------
Income from investment operations:
Net investment income 0.10 0.03
- ---------------------------------------------------------------------------------------- -------- -------
Net gains (losses) on securities (both realized and unrealized) 1.45 0.80
- ---------------------------------------------------------------------------------------- -------- -------
Total from investment operations 1.55 0.83
- ---------------------------------------------------------------------------------------- -------- -------
Less distributions:
Dividends from net investment income (0.09) (0.02)
- ---------------------------------------------------------------------------------------- -------- -------
Distributions from capital gains (0.90) --
- ---------------------------------------------------------------------------------------- -------- -------
Total distributions (0.99) (0.02)
- ---------------------------------------------------------------------------------------- -------- -------
Net asset value, end of period $ 11.18 $ 10.62
======================================================================================== ======== =======
Total return(a) 15.90% 8.48%
======================================================================================== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $515,672 $67,592
======================================================================================== ======== =======
Ratio of expenses to average net assets 1.94%(b)(c) 1.98%(d)
======================================================================================== ======== =======
Ratio of net investment income to average net assets 0.99%(b) 0.74%(d)
======================================================================================== ======== =======
Portfolio turnover rate 164% 161%
======================================================================================== ======== =======
Average broker commission rate(e) $ 0.0638 N/A
======================================================================================== ======== =======
</TABLE>
(a) Total returns do not deduct contingent deferred sales charge and are not
annualized for periods less than one year.
(b) Ratios are based on average net assets of $283,104,175.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratios of expenses to average net assets would have remained the same.
(d) Annualized.
(e) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
NOTE 9-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
PLC announced the execution of an Agreement and Plan of Merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO PLC. AIM Management is the parent company of the fund's advisor. The
merger is conditional on, among other things, approval by the shareholders of
INVESCO PLC and AIM Management and the shareholders of the AIM Funds and the
mutual funds managed by INVESCO PLC, and is expected to take place during the
first quarter of 1997.
15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Charter Fund:
We have audited the accompanying statement of assets and
liabilities of the AIM Charter Fund (a portfolio of AIM
Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1996, the related statement
of operations for the year then ended, the statement of
changes in net assets for each of the years in the
two-year period then ended and the financial highlights
for each of the years in the three-year period then ended.
These financial statements and financial highlights are
the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
The financial highlights for each of the years in the
seven-year period ended October 31, 1993 were audited by
other auditors whose report thereon, dated November 12,
1993 expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally
accepted auditing standards. 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, 1996, by correspondence
with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Charter
Fund as of October 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended and
the financial highlights for each of the years in the
three-year period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 6, 1996
16
<PAGE> 19
DIRECTORS & OFFICERS
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman and Chief Executive Officer Chairman Suite 1919
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Formerly Director, President, and
Chief Executive Officer John J. Arthur A I M Advisors, Inc.
COMSAT Corporation Senior Vice President and Treasurer 11 Greenway Plaza
Suite 1919
Owen Daly II Gary T. Crum Houston, TX 77046
Director Senior Vice President
Cortland Trust Inc. TRANSFER AGENT
Scott G. Lucas
Carl Frischling Senior Vice President A I M Fund Services, Inc.
Partner P.O. Box 4739
Kramer, Levin, Naftalis & Frankel Carol F. Relihan Houston, TX 77210-4739
Senior Vice Presidentand Secretary
Robert H. Graham CUSTODIAN
President and Chief Operating Officer Jonathan C. Schoolar
A I M Management Group Inc. Senior Vice President State Street Bank & Trust
225 Franklin Street
John F. Kroeger Melville B. Cox Boston, MA 02110
Formerly Consultant Vice President
Wendell & Stockel Associates, Inc. COUNSEL TO THE FUND
Dana R. Sutton
Lewis F. Pennock Vice President and Assistant Treasurer Ballard Spahr
Attorney Andrews & Ingersoll
P. Michelle Grace 1735 Market Street
Ian W. Robinson Assistant Secretary Philadelphia, PA 19103
Consultant; Formerly Executive Vice President and
Chief Financial Officer David L. Kite COUNSEL TO THE DIRECTORS
Bell Atlantic Management Assistant Secretary
Services, Inc. Kramer, Levin, Naftalis & Frankel
Nancy L. Martin 919 Third Avenue
Louis S. Sklar Assistant Secretary New York, NY 10022
Executive Vice President
Hines Interests Ofelia M. Mayo DISTRIBUTOR
Limited Partnership Assistant Secretary
A I M Distributors, Inc.
Kathleen J. Pflueger 11 Greenway Plaza
Assistant Secretary Suite 1919
Houston, TX 77046
Samuel D. Sirko
Assistant Secretary AUDITORS
Stephen I. Winer KPMG Peat Marwick LLP
Assistant Secretary 700 Louisiana
NationsBank Bldg.
Mary J. Benson Houston, TX 77002
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Charter Fund Class A and Class B shares paid ordinary dividends in the
amount of $0.737 and $0.663 per share, respectively, during the Fund's tax year
ended October 31, 1996. Of this amount 35% is eligible for the dividends
received deduction for corporations. The Fund also distributed long-term
capital gains of $0.324 per share for Class A and Class B shares during the
Fund's tax year ended October 31, 1996.
REQUIRED STATE INCOME TAX INFORMATION
Of the total income dividends paid, 11% was derived from U.S. Treasury
obligations.
<PAGE> 20
<TABLE>
<S> <C>
[PHOTO OF 11 GREENWAY PLAZA THE AIM FAMILY OF FUNDS -- REGISTERED TRADEMARK --
APPEARS HERE]
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Capital Development Fund
AIM Constellation Fund
AIM Global Aggressive Growth Fund
GROWTH
AIM Blue Chip Fund
AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME
AIM Balanced Fund
AIM Charter Fund
INCOME AND GROWTH
AIM Global Utilities Fund
HIGH CURRENT INCOME
AIM High Yield Fund
CURRENT INCOME
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
HIGH DEGREE OF SAFETY AND CURRENT INCOME
AIM Limited Maturity Treasury Shares
STABILITY, LIQUIDITY, AND CURRENT INCOME
AIM Money Market Fund
STABILITY, LIQUIDITY, AND CURRENT TAX-FREE INCOME
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the mutual fund
industry since 1976 and currently manages approximately $60 billion in *AIM Aggressive Growth Fund was closed to new investors
assets for more than 3.5 million shareholders, including individual on July 18, 1995. For more complete information about
investors, corporate clients, and financial institutions. The AIM any AIM Fund(s), including sales charges and expenses,
Family of Funds -- Registered Trademark -- is distributed nationwide, ask your financial consultant or securities dealer for
and AIM today ranks among the nation's top 15 mutual fund companies in a free prospectus(es). Please read the prospectus(es)
assets under management, according to Lipper Analytical Services, Inc. carefully before you invest or send money.
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[AIM LOGO APPEARS HERE] BULK RATE
U.S. POSTAGE
A I M Distributors, Inc. PAID
11 Greenway Plaza, Suite 1919 HOUSTON, TX
Houston, TX 77046 Permit No. 1919
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