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[APPLICATION INSIDE]
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS(--Registered Trademark--)
RETAIL CLASS OF AIM EQUITY FUNDS, INC.
AIM AGGRESSIVE GROWTH FUND
(Growth)
PROSPECTUS
AUGUST 4, 1997
This Prospectus contains information about the AIM AGGRESSIVE GROWTH FUND
("AGGRESSIVE GROWTH" or the "Fund"), one of six separate investment portfolios
comprising series of AIM Equity Funds, Inc. (the "Company"), an open-end,
series, management investment company.
The Fund is a diversified portfolio which seeks to achieve long-term growth of
capital by investing primarily in common stocks, convertible bonds, convertible
preferred stocks and warrants of companies which in the opinion of the Fund's
investment advisor are expected to achieve earnings growth over time at a rate
in excess of 15% per year. The Fund has discontinued public sales of its shares
to new investors. See "Summary" and "Closure of the Fund to New Investors" in
this Prospectus for more complete information.
This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated
August 4, 1997, has been filed with the United States Securities and Exchange
Commission (the "SEC") and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon written request to the
Company at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173 or by calling
(800) 347-4246. The SEC maintains a Web site at http://www.sec.gov that contains
the Statement of Additional Information, material incorporated by reference, and
other information regarding the Fund. Additional information about the Fund may
also be obtained from http://www.aimfunds.com.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE FUND'S SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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PAGE PAGE
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SUMMARY.................................. 2 Introduction to The AIM Family of
THE FUND................................. 4 Funds............................... A-1
Table of Fees and Expenses............. 4 How to Purchase Shares................. A-1
Financial Highlights................... 5 Terms and Conditions of Purchase of the
Performance............................ 6 AIM
Investment Program..................... 6 Funds............................... A-2
Management............................. 9 Special Plans.......................... A-9
Organization of the Company............ 11 Exchange Privilege..................... A-11
Closure of the Fund to New Investors... 12 How to Redeem Shares................... A-13
Legal Matters.......................... 12 Determination of Net Asset Value....... A-17
INVESTOR'S GUIDE TO THE AIM FAMILY OF Dividends, Distributions and Tax
FUNDS(R)............................... A-1 Matters............................. A-18
General Information.................... A-20
APPLICATION INSTRUCTIONS................. B-1
</TABLE>
SUMMARY
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THE FUND
AIM Equity Funds, Inc. (the "Company") is a Maryland corporation organized as
an open-end, diversified, series, management investment company. Currently, the
Company offers six series comprising six separate investment portfolios, each of
which pursues unique investment objectives. This Prospectus relates only to
AGGRESSIVE GROWTH. The Fund's investment objective is to achieve long-term
growth of capital by investing primarily in common stocks, convertible bonds,
convertible preferred stocks and warrants of companies which, in the opinion of
the Fund's investment advisor, are expected to achieve earnings growth over time
at a rate in excess of 15% per year. There is no assurance that the investment
objective of the Fund will be achieved. For more complete information on the
Fund's investment policies, see "Investment Program."
The Company also offers other classes of shares in five other investment
portfolios, AIM BLUE CHIP FUND ("BLUE CHIP"), AIM CAPITAL DEVELOPMENT FUND
("CAPITAL DEVELOPMENT"), AIM CHARTER FUND ("CHARTER"), AIM CONSTELLATION FUND
("CONSTELLATION") and AIM WEINGARTEN FUND ("WEINGARTEN") each of which pursues
unique investment objectives. The other classes of shares of the other Funds of
the Company have different sales charges and expenses, which may affect
performance. To obtain information about the other shares of BLUE CHIP, CAPITAL
DEVELOPMENT, CHARTER, CONSTELLATION, or WEINGARTEN call (800) 347-4246. See
"General Information."
AGGRESSIVE GROWTH has discontinued public sales of its shares to new
investors. Shareholders who maintain an open account will be able to continue to
make investments in the Fund and reinvest any dividends and capital gains
distributions, as well as open additional accounts in the Fund under certain
conditions. If an account is closed, however, additional investments in the Fund
may not be possible. The Fund may resume sales of its shares to new investors at
some future date. See "Closure of the Fund to New Investors" in this Prospectus
for additional information.
The assets of each Fund are invested in a separate portfolio. The classes of
each Fund share a common investment objective and portfolio of investments. The
income from the investment portfolio of a Fund is allocated to each class of the
Fund based on the net assets of such class as of the close of business on the
previous business day, as adjusted for the current day's shareholder activity.
Each class bears proportionately those expenses, such as the advisory fee, that
are allocated to the Fund as a whole and bears separately certain expenses, such
as those associated with the distribution of the shares of such class.
Consequently, the amounts available for payment of dividends and the net asset
value per share of each class will vary. See "General Information."
THE ADVISOR. A I M Advisors, Inc. ("AIM") serves as the Fund's investment
advisor pursuant to a Master Investment Advisory Agreement. AIM, together with
its subsidiaries, manages or advises 53 investment company portfolios (including
the Fund). As of July 15, 1997, the total assets of the investment company
portfolios advised or managed by AIM or its subsidiaries were approximately
$76.0 billion. Under the Master Investment Advisory Agreement dated as of
February 28, 1997 (the "Master Advisory Agreement"), AIM receives a fee for its
services based on the Fund's average daily net assets. Under the Master
Administrative Services Agreement between the Company and AIM dated as of
February 28, 1997 (the "Master Administrative Services Agreement"), AIM may
receive reimbursement of its costs to perform certain accounting and other
administrative services to the Fund. Under a Transfer Agency and Service
Agreement, A I M Fund Services, Inc. ("AFS"), AIM's wholly owned subsidiary and
a registered transfer agent, receives a fee for its provision of transfer
agency, dividend distribution and disbursement, and shareholder services to the
Retail Class of the Fund.
The total advisory fees paid by the Fund is higher than those paid by many
other investment companies of all sizes and investment objectives. However, the
effective fee paid by the Fund at its current size is lower than the fees paid
by many other funds with similar investment objectives. See "Management."
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PURCHASING SHARES. Class A shares of the Fund are offered by this Prospectus
at net asset value plus a sales charge of 5.50% of the public offering price
(5.82% of the net amount invested). The sales charge is reduced on purchases of
$25,000 or more. Initial investments must be at least $500 and additional
investments must be at least $50. The minimum initial investment is modified for
investments through tax-qualified retirement plans and accounts initially
established with an Automatic Investment Plan. The distributor of the Fund's
shares is A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston,
TX 77210-4739. See "How to Purchase Shares" and "Special Plans."
EXCHANGE PRIVILEGE. The Fund is among those mutual funds distributed by AIM
Distributors (collectively, "The AIM Family of Funds"). Shares of the Fund may
be exchanged for shares of other funds in The AIM Family of Funds in the manner
and subject to the policies and charges set forth herein. See "Exchange
Privilege."
REDEEMING SHARES. Shareholders may redeem all or a portion of their shares at
their net asset value on any business day, generally without charge. A
contingent deferred sales charge of 1.00% may apply to certain redemptions where
a purchase of more than $1 million is made at net asset value. See "How to
Redeem Shares."
DISTRIBUTIONS. The Fund currently declares and pays dividends from net
investment income, if any, on an annual basis. The Fund makes distributions of
realized capital gains, if any, on an annual basis. Dividends and distributions
of the Fund may be reinvested at net asset value without payment of a sales
charge in the Fund's shares or may be invested in shares of the other funds in
The AIM Family of Funds. See "Dividends, Distributions and Tax Matters" and
"Special Plans."
THE AIM FAMILY OF FUNDS, THE AIM FAMILY OF FUNDS AND DESIGN (I.E., THE AIM
LOGO), AIM AND DESIGN, AIM, AIM LINK, AIM INSTITUTIONAL FUNDS, LA FAMILIA AIM DE
FONDOS AND LA FAMILIA AIM DE FONDOS AND DESIGN ARE REGISTERED SERVICE MARKS AND
AIMFUNDS.COM AND INVEST WITH DISCIPLINE ARE SERVICE MARKS OF A I M MANAGEMENT
GROUP INC.
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THE FUND
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TABLE OF FEES AND EXPENSES
The following table is designed to help an investor in the Fund understand the
various costs that an investor will bear, both directly and indirectly. The fees
and expenses set forth in the table are based on the actual average net assets
for its 1996 fiscal year. The rules of the SEC require that the maximum sales
charge be reflected in the table, even though certain investors may qualify for
reduced sales charges. See "How to Purchase Shares."
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Shareholder Transaction Expenses (Retail Class)
Maximum sales load imposed on purchase of shares (as a
percentage of offering price).......................... 5.50%
Maximum sales load imposed on reinvested dividends and
distributions.......................................... None
Deferred sales load(1).................................... None
Redemption fees........................................... None
Exchange fee.............................................. None
Annual Fund Operating Expenses (Retail Class) (as a
percentage of average net assets)
Management fee............................................ .64%
12b-1 fees(2)............................................. .25%
Other expenses:
Transfer agent fees and costs.......................... .16%
Other.................................................. .06%
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Total other expenses................................... .22%
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Total fund operating expenses............................. 1.11%
====
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(1) Purchases of $1 million or more are not subject to an initial sales
charge. However, a contingent deferred sales charge of 1% applies to
certain redemptions made within 18 months from the date such shares were
purchased. See the Investor's Guide, under the caption "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases."
(2) As a result of 12b-1 fees, a long-term shareholder may pay more than the
economic equivalent of the maximum front-end sales charges permitted by
the rules of the National Association of Securities Dealers, Inc. Given
the Rule 12b-1 fee of the Fund, however, it is estimated that it would
take a substantial number of years for a shareholder to exceed such
maximum front-end sales charges.
EXAMPLES. An investor would pay the following expenses on a $1,000 investment,
assuming (a) a 5% annual return and (b) redemption at the end of each time
period:
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1 year.................................................. $66
3 years................................................. $88
5 years................................................. $113
10 years................................................. $183
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The above examples assume payment of a sales charge at the time of purchase;
actual expenses may vary for purchases of $1 million or more, which are made at
net asset value and subject to a contingent deferred sales charge for 18 months
following the date such shares were purchased.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF ACTUAL OR FUTURE
EXPENSES, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN. IN ADDITION, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, ACTUAL PERFORMANCE WILL VARY AND MAY RESULT
IN AN ACTUAL RETURN THAT IS GREATER OR LESS THAN 5%. THE EXAMPLE ASSUMES
REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND THAT THE PERCENTAGE AMOUNTS
FOR TOTAL FUND OPERATING EXPENSES REMAIN THE SAME FOR EACH YEAR.
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FINANCIAL HIGHLIGHTS
Shown below for the periods indicated are per share data, ratios and
supplemental data of the Fund. The data for the six-month period ended April 30,
1997, is unaudited. The data for the fiscal years ended October 31, 1996, 1995,
1994 and the ten months ended October 31, 1993 has been audited by KPMG Peat
Marwick LLP, independent auditors, whose unqualified report thereon appears in
the Statement of Additional Information and is available upon request from AIM
Distributors, and the data for the five years ended December 31, 1992 has been
derived from financial statements audited by Price Waterhouse LLP.
(PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
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TEN
FISCAL YEAR MONTHS
ENDED OCTOBER 31, ENDED
APRIL 30, ---------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993
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Net asset value, beginning of period.... $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52
Income from investment operations:
Net investment income (loss)........... (0.16) (0.32) (0.04) (0.05) (0.02)
Net gains (losses) on securities (both
realized and unrealized)............. (6.08) 6.09 11.80 4.57 5.35
---------- ---------- ---------- -------- --------
Total from investment operations....... (6.24) 5.77 11.76 4.52 5.33
---------- ---------- ---------- -------- --------
Less distributions:
Dividends from net investment income... -- -- -- -- --
Distributions from capital gains....... (2.30) (0.97) -- -- --
---------- ---------- ---------- -------- --------
Total distributions.................... (2.30) (0.97) -- -- --
---------- ---------- ---------- -------- --------
Net asset value, end of period.......... $ 36.39 $ 44.93 $ 40.13 $ 28.37 $ 23.85
========== ========== ========== ======== ========
Total return(b)......................... (14.54)% 14.77% 41.45% 18.96% 28.78%
========== ========== ========== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $2,176,719 $2,750,564 $2,245,554 $687,238 $217,256
========== ========== ========== ======== ========
Ratio of expenses to average net
assets(c)............................ 1.06%(d)(e) 1.11% 1.08% 1.07% 1.00%(g)
========== ========== ========== ======== ========
Ratio of net investment income (loss)
to average net assets(f)............. (0.77)%(d) (0.76)% (0.19)% (0.26)% (0.24)%(g)
========== ========== ========== ======== ========
Portfolio turnover rate................ 36% 79% 52% 75% 61%
========== ========== ========== ======== ========
Average broker commission rate(h)...... $ 0.0539 $ 0.0545 N/A N/A N/A
========== ========== ========== ======== ========
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YEAR ENDED DECEMBER 31,
----------------------------------------------
1992(a) 1991 1990 1989 1988
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Net asset value, beginning of period.... $ 16.06 $ 11.85 $13.30 $ 11.07 $ 9.86
Income from investment operations:
Net investment income (loss)........... (0.03) (0.04) 0.08 0.03 0.05
Net gains (losses) on securities (both
realized and unrealized)............. 3.41 7.29 (0.95) 2.28 1.21
------- ------- ------ ------- -------
Total from investment operations....... 3.38 7.25 (0.87) 2.31 1.26
------- ------- ------ ------- -------
Less distributions:
Dividends from net investment income... -- -- (0.09) (0.03) (0.05)
Distributions from capital gains....... (0.92) (3.04) (0.49) (0.05) --
------- ------- ------ ------- -------
Total distributions.................... (0.92) (3.04) (0.58) (0.08) (0.05)
------- ------- ------ ------- -------
Net asset value, end of period.......... $ 18.52 $ 16.06 $11.85 $ 13.30 $ 11.07
======= ======= ====== ======= =======
Total return(b)......................... 21.34% 63.90% (6.50)% 20.89% 12.77%
======= ======= ====== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $38,238 $16,218 $9,234 $11,712 $12,793
======= ======= ====== ======= =======
Ratio of expenses to average net
assets(c)............................ 1.25% 1.25% 1.25% 1.25% 1.22%
======= ======= ====== ======= =======
Ratio of net investment income (loss)
to average net assets(f)............. (0.59)% (0.31)% 0.62% 0.24% 0.38%
======= ======= ====== ======= =======
Portfolio turnover rate................ 164% 165% 137% 69% 56%
======= ======= ====== ======= =======
Average broker commission rate(h)...... N/A N/A N/A N/A N/A
======= ======= ====== ======= =======
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(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and, for periods less than one year, total
returns are not annualized.
(c) Ratios of expenses to average net assets prior to reduction of advisory fees
and expense reimbursements were 1.15%, 1.09%, 1.17% (annualized), 1.65%,
1.83%, 1.99%, 1.80% and 1.56% for 1995-88, respectively.
(d) Ratios are annualized and based on average net assets of $2,584,346,866.
(e) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have been 1.05%.
(f) Ratios of net investment income (loss) to average net assets prior to
reduction of advisory fees and expense reimbursements were (0.26)%, (0.28)%,
(0.41)% (annualized), (0.99)%, (0.89)%, (0.11)%, (0.31)% and 0.04% for
1995-88, respectively.
(g) Annualized.
(h) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
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PERFORMANCE
The Fund's performance may be quoted in advertising in terms of yield or total
return. All advertisements of the Fund will disclose the maximum sales charge
imposed on purchases of the Fund's shares. If any advertised performance data
does not reflect the maximum sales charge, if any, such advertisement will
disclose that the sales charge has not been deducted in computing the
performance data, and that, if reflected, the maximum sales charge would reduce
the performance quoted. See the Statement of Additional Information for further
details concerning performance comparisons used in advertisements by the Fund.
Further information regarding the Fund's performance is contained in the annual
report to shareholders which is available upon request and without charge.
Total return shows the overall change in value, including changes in share
price and assuming all the dividends and capital gain distributions are
reinvested and that all charges and expenses are deducted. A cumulative total
return reflects the Fund's performance over a stated period of time. An average
annual total return reflects the hypothetical annually compounded return that
would have produced the same cumulative total return if the Fund's performance
had been constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO
EVEN OUT VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH
RETURNS ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the
components of overall performance, the Fund may separate its cumulative and
average annual returns into income results and capital gain or loss.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information and can be expected to fluctuate from time
to time and is not necessarily indicative of future results. Accordingly, yield
information may not provide a basis for comparison with investments which pay a
fixed rate of interest for a stated period of time. Yield is a function of the
type and quality of investments, the maturity and the operating expense ratio of
the Fund.
From time to time and in its discretion, AIM may waive all or a portion of its
advisory fees and/or assume certain expenses of the Fund. Such a practice will
have the effect of increasing the Fund's total return. The performance will vary
from time to time and past results are not necessarily indicative of future
results. Performance is a function of its portfolio management in selecting the
type and quality of portfolio securities and is affected by operating expenses
of the Fund and market conditions. A shareholder's investment is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment.
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INVESTMENT PROGRAM
The Company has six series, each of which is a separate investment
portfolio -- BLUE CHIP, CAPITAL DEVELOPMENT, CHARTER, WEINGARTEN, AGGRESSIVE
GROWTH and CONSTELLATION. BLUE CHIP, CAPITAL DEVELOPMENT, CHARTER, WEINGARTEN
and CONSTELLATION are offered to investors pursuant to separate prospectuses.
The investment objective of the Fund is to achieve long-term growth of capital
by investing primarily in common stocks, convertible bonds, convertible
preferred stocks and warrants of companies which in the opinion of the Fund's
investment advisor are expected to achieve earnings growth over time at a rate
in excess of 15% per year. Many of these companies are in the small to
medium-sized category. Management of the Fund will be particularly interested in
companies that are likely to benefit from new or innovative products, services
or processes that should enhance such companies' prospects for future growth in
earnings. As a result of this policy, the market prices of many of the
securities purchased and held by the Fund may fluctuate widely. Any income
received from securities held by the Fund will be incidental, and an investor
should not consider a purchase of shares of the Fund as equivalent to a complete
investment program. The Fund's portfolio is primarily comprised of securities of
two basic categories of companies: (a) "core" companies, which Fund management
considers to have experienced above-average and consistent long-term growth in
earnings and to have excellent prospects for outstanding future growth, and (b)
"earnings acceleration" companies which Fund management believes are currently
enjoying a dramatic increase in profits. See "Certain Investment Strategies and
Policies" below and "Investment Objectives and Policies" in the Statement of
Additional Information. The Fund's strategy does not preclude investment in
large, seasoned companies which in the judgment of AIM possess superior
potential returns similar to companies with formative growth profiles. The Fund
will also invest in established smaller companies (under $500 million in market
capitalization) which offer exceptional value based upon substantially above
average earnings growth potential relative to market value. Investors should
realize that equity securities of small to medium-sized companies may involve
greater risk than is associated with investing in more established companies.
Small to medium-sized companies often have limited product and market
diversification, fewer financial resources or may be dependent on a few key
managers. Any one of the foregoing may change suddenly and have an immediate
impact on the value of the company's securities. Furthermore, whenever the
securities markets are experiencing rapid price changes due to national economic
trends, secondary growth securities have historically been subject to
exaggerated price changes. The Fund may invest in non-equity securities, such as
corporate bonds or U.S. Government obligations during periods when, in the
opinion of AIM, prevailing market, financial, or economic conditions warrant, as
well as when such holdings are advisable in light of a change in circumstances
of a particular company or within a particular industry.
There can, of course, be no assurance that the Fund will in fact achieve its
objectives since all investments are inherently subject to market risks. The
Board of Directors of the Company reserves the right to change any of the
investment policies, strategies or prac-
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tices of the Fund, as described in this Prospectus and in the Statement of
Additional Information, without shareholder approval, except in those instances
where shareholder approval is expressly required.
CERTAIN INVESTMENT STRATEGIES AND POLICIES. In pursuit of its objectives and
policies, the Fund may employ one or more of the following strategies in order
to enhance investment results:
TEMPORARY DEFENSIVE MEASURES. A portion of each Fund's assets may be held,
from time to time, in cash, repurchase agreements, commercial paper, U.S.
government obligations, taxable municipal securities, investment grade (high
quality) corporate bonds or other debt securities, when such positions are
deemed advisable in light of economic or market conditions or for daily cash
management purposes. In addition, each of the Funds may invest, for temporary
defensive purposes, all or a substantial portion of their assets in the
securities described above. To the extent that a Fund invests to a significant
degree in these instruments, its ability to achieve its investment objective may
be adversely affected.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. A
repurchase agreement is an instrument under which the Fund acquires ownership of
a debt security and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby determining the
yield during the Fund's holding period. With regard to repurchase transactions,
in the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) a possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase and
sell stock index futures contracts and may also purchase options on stock index
futures as a hedge against changes in market conditions. A stock index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar or other currency
amount times the difference between the stock index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying stocks in the index is
made. The Fund may purchase and sell futures contracts and may purchase related
options in order to hedge the value of its portfolio against changes in market
conditions. Generally, the Fund may elect to close a position in a futures
contract by taking an opposite position which will operate to terminate the
Fund's position in the futures contract. See the Statement of Additional
Information for a description of the Fund's investments in futures contracts and
options on futures contracts, including certain related risks. The Fund may
purchase or sell futures contracts or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits and premiums on open
positions with respect to futures contracts and related options would not exceed
5% of the market value of the Fund's total assets.
There are risks associated with investments in stock index futures contracts
and options on such contracts. During certain market conditions, purchases and
sales of futures contracts may not completely offset a decline or rise in the
value of a Fund's portfolio. In the futures markets, it may not always be
possible to execute a buy or sell order at the desired price, or to close out an
open position due to market conditions, limits on open positions and/or daily
price fluctuations. Changes in the market value of a Fund's portfolio may differ
substantially from the changes anticipated by the Fund when hedged positions
were established, and unanticipated price movements in a futures contract may
result in a loss substantially greater than a Fund's initial investment in such
contract. Successful use of futures contracts and related options is dependent
upon AIM's ability to predict correctly movements in the direction of the
applicable markets. No assurance can be given that AIM's judgment in this
respect will be correct.
WRITING COVERED CALL OPTION CONTRACTS. The Fund may write (sell) covered call
options. The purpose of such transactions is to hedge against changes in the
market value of the Fund's portfolio securities caused by fluctuating interest
rates, fluctuating currency exchange rates and changing market conditions, and
to close out or offset existing positions in such options or futures contracts
as described below. The Fund will not engage in such transactions for
speculative purposes.
The Fund may write (sell) call options, but only if such options are covered
and remain covered as long as the Fund is obligated as a writer of the option
(seller). A call option is "covered" if the Fund owns the underlying security
covered by the call. If a "covered" call option expires unexercised, the writer
realizes a gain in the amount of the premium received. If the covered call
option is exercised, the writer realizes either a gain or loss from the sale or
purchase of the underlying security with the proceeds to the writer being
increased by the amount of the premium. Prior to its expiration, a call option
may be closed out by means of a purchase of an identical option. Any gain or
loss from such transaction will depend on whether the amount paid is more or
less than the premium received for the option plus related transaction costs.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Fund's other investments and the risk
that there might not be a liquid secondary market for the option when the Fund
seeks to hedge against adverse market movements. In general, options whose
strike prices are close to their underlying securities' current values will have
the highest trading value, while options whose strike prices are further away
may be less liquid. The liquidity of options may also be affected if options
exchanges impose trading halts, particularly when markets are volatile.
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The investment policies of the Fund permit the writing of call options on
securities comprising no more than 25% of the value of the Fund's net assets.
The Fund's policies with respect to the writing of call options may be changed
by the Company's Board of Directors, without shareholder approval.
ILLIQUID SECURITIES. The Fund will not invest more than 15% of its net assets
in illiquid securities, including repurchase agreements with maturities in
excess of seven days.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Fund may invest in other
investment companies to the extent permitted by the Investment Company Act of
1940, and rules and regulations thereunder, and, if applicable, exemptive orders
granted by the SEC.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. The Fund may
purchase securities on a "when-issued" basis, that is, delivery of and payment
for the securities is not fixed at the date of purchase, but is set after the
securities are issued (normally within forty-five days after the date of the
transaction). The Fund also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed delivery securities are fixed at the time the buyer
enters into the commitment. The Fund will only make commitments to purchase
when-issued or delayed delivery securities with the intention of actually
acquiring such securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. For further information regarding
securities issued on a when-issued or delayed delivery basis see the caption
"Investment Objectives and Policies" in the Statement of Additional Information.
RULE 144A SECURITIES. The Fund may invest in securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933 (the "1933 Act"). These securities are sometimes referred
to as private placements. Although securities which may be resold only to
"qualified institutional buyers" in accordance with the provisions of Rule 144A
under the 1933 Act are unregistered securities, the Fund may purchase Rule 144A
securities without regard to the limitation on investments in illiquid
securities described above under "Illiquid Securities," provided that a
determination is made that such securities have a readily available trading
market. AIM will determine the liquidity of Rule 144A securities under the
supervision of the Company's Board of Directors. The liquidity of Rule 144A
securities will be monitored by AIM and, if as a result of changed conditions,
it is determined that a Rule 144A security is no longer liquid, the Fund's
holdings of illiquid securities will be reviewed to determine what, if any,
action is required to assure that the Fund does not exceed its applicable
percentage limitation for investments in illiquid securities.
FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in
foreign securities which may be payable in U.S. or foreign currencies and
publicly traded in the United States or abroad. For purposes of computing such
limitation, American Depository Receipts, European Depository Receipts and other
securities representing underlying securities of foreign issuers are treated as
foreign securities. To the extent the Fund invests in securities denominated in
foreign currencies, the Fund bears the risk of changes in the exchange rates
between U.S. currency and the foreign currency, as well as the availability and
status of foreign securities markets. These securities will be marketable equity
securities (including common and preferred stock, depositary receipts for stock
and fixed income or equity securities exchangeable for or convertible into
stock) of foreign companies which, with their predecessors, have been in
continuous operation for three years or more and which generally are listed on a
recognized foreign securities exchange or traded in a foreign over-the-counter
market. The Fund may also invest in foreign securities listed on recognized U.S.
securities exchanges or traded in the U.S. over-the-counter market. Such foreign
securities may be issued by foreign companies located in developing countries in
various regions of the world. A "developing country" is a country in the initial
stages of its industrial cycle. As compared to investment in the securities
markets of developed countries, investment in the securities markets of
developing countries involves exposure to markets that may have substantially
less trading volume and greater price volatility, economic structures that are
less diverse and mature, and political systems that may be less stable. For a
discussion of the risks pertaining to investments in foreign obligations, see
"Risk Factors Regarding Foreign Securities" below.
FOREIGN EXCHANGE TRANSACTIONS. The Fund has authority to deal in foreign
exchange between currencies of the different countries in which it will invest
as a hedge against possible variations in the foreign exchange rate between
those currencies. This may be accomplished through direct purchases or sales of
foreign currency, purchases of options on futures contracts with respect to
foreign currency, and contractual agreements to purchase or sell a specified
currency at a specified future date (up to one year) at a price set at the time
of the contract. Such contractual commitments may be forward contracts entered
into directly with another party or exchange-traded futures contracts. The Fund
may purchase and sell options on futures contracts or forward contracts which
are denominated in a particular foreign currency to hedge the risk of
fluctuations in the value of another currency. The Fund's dealings in foreign
exchange will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of foreign
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase or sale of its portfolio securities, the sale
and redemption of shares of the Fund, or the payment of dividends and
distributions by the Fund. Position hedging is the purchase or sale of foreign
currency with respect to portfolio security positions denominated or quoted in a
foreign currency. The Fund will not speculate in foreign exchange, nor commit
more than 10% of its total assets to foreign exchange hedges.
8
<PAGE> 9
RISK FACTORS REGARDING FOREIGN SECURITIES. Investments by the Fund in foreign
securities, whether denominated in U.S. currencies or foreign currencies, may
entail all of the risks set forth below. Investments in ADRs, EDRs or similar
securities also may entail some or all of the risks as set forth below.
Currency Risk. The value of the Fund's foreign investments will be affected by
changes in currency exchange rates. The U.S. dollar value of a foreign security
decreases when the value of the U.S. dollar rises against the foreign currency
in which the security is denominated, and increases when the value of the U.S.
dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in which
the Fund may invest are not as developed as the United States economy and may be
subject to significantly different forces. Political or social instability,
expropriation or confiscatory taxation, and limitations on the removal of funds
or other assets could also adversely affect the value of the Fund's investments.
Regulatory Risk. Foreign companies are not registered with the SEC and are
generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Fund may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the Fund
invests will have substantially less trading volume than the major United States
markets. As a result, the securities of some foreign companies may be less
liquid and experience more price volatility than comparable domestic securities.
Increased custodian costs as well as administrative costs (such as the need to
use foreign custodians) may be associated with the maintenance of assets in
foreign jurisdictions. There is generally less government regulation and
supervision of foreign stock exchanges, brokers and issuers which may make it
difficult to enforce contractual obligations. In addition, transaction costs in
foreign securities markets are likely to be higher, since brokerage commission
rates in foreign countries are likely to be higher than in the United States.
PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds
reinvested, whenever such action is deemed prudent from the viewpoint of the
Fund's investment objectives, regardless of the holding period of that security.
The historical portfolio turnover rates are included in the Financial Highlights
table herein. A higher rate of portfolio turnover may result in higher
transaction costs, including brokerage commissions. Also, to the extent that
higher portfolio turnover results in a higher rate of net realized capital gains
to the Fund, the portion of the Fund's distributions constituting taxable
capital gains may increase.
The investment objectives and policies stated above are not fundamental
policies of the Fund and may be changed by the Board of Directors of the Company
without shareholder approval. Shareholders will be notified before any material
change in the investment policies stated above become effective.
INVESTMENT RESTRICTIONS. The Fund has adopted a number of investment
restrictions, including the following:
BORROWING. The Fund may borrow money to a limited extent from banks (including
the Fund's custodian bank) for temporary or emergency purposes. The Fund may
borrow amounts from banks provided that no borrowing may exceed one-third of the
value of its total assets, including the proceeds of such borrowing, and may
secure such borrowings by pledging up to one-third of the value of its total
assets. The Fund will not purchase additional securities when any borrowings
from banks exceed 5% of the Fund's total assets.
LENDING OF FUND SECURITIES. The Fund may also lend its portfolio securities in
amounts up to one-third of the total assets of the Fund. Such loans could
involve risks of delay in receiving additional collateral in the event the value
of the collateral decreased below the value of the securities loaned or of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially. However, loans will be
made only to borrowers deemed by AIM to be of good standing and only when, in
AIM's judgment, the income to be earned from the loans justifies the attendant
risks.
The foregoing investment restrictions are matters of fundamental policy and
may not be changed without shareholder approval. For additional investment
restrictions applicable to the Fund, see the Statement of Additional
Information.
- --------------------------------------------------------------------------------
MANAGEMENT
The overall management of the business and affairs of the Fund is vested with
the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company and persons or companies furnishing
services to the Fund, including the Master Advisory Agreement with AIM, the
Master Administrative Services Agreement with AIM, the Master Distribution
Agreement with AIM Distributors as the distributor of the shares of the Fund,
the Custodian Agreement with State Street Bank and Trust Company as custodian
and the Transfer Agency and Service Agreement with AFS as transfer agent. The
day-to-day operations of the Fund are delegated to its officers and to AIM,
subject always to the objectives and policies of the Fund and to the general
supervision of the Company's Board of Directors. Information concerning the
Board of Directors may be found in the Statement of Additional Information.
Certain directors and officers of the Company are affiliated with AIM and A I M
Management Group Inc. ("AIM Management"), the parent of AIM. AIM Management is
an indirect wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its
subsid-
9
<PAGE> 10
iaries are an independent investment management group engaged in institutional
investment management and retail mutual fund businesses in the United States,
Europe and the Pacific Region.
INVESTMENT ADVISOR. AIM, 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, serves as the investment advisor to the Fund pursuant to the Master
Advisory Agreement. AIM, together with its subsidiaries, advises or manages 53
investment company portfolios (including the Fund). As of July 15, 1997, the
total assets of the investment company portfolios advised or managed by AIM and
its subsidiaries were approximately $76.0 billion. AIM is a wholly-owned
subsidiary of AIM Management.
Under the terms of the Master Advisory Agreement, AIM supervises all aspects
of the Fund's operations and provides investment advisory services to the Fund.
AIM obtains and evaluates economic, statistical and financial information to
formulate and implement investment programs for the Fund. AIM will not be liable
to the Fund or its shareholders except in the case of AIM's willful misfeasance,
bad faith, gross negligence or reckless disregard of duty; provided, however,
that AIM may be liable for certain breaches of duty under the 1940 Act.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information. In accordance with policies established by the directors, AIM may
take into account sales of shares of the Fund and other funds advised by AIM in
selecting broker-dealers to effect portfolio transactions on behalf of the Fund.
ADMINISTRATOR. The Company has entered into a Master Administrative Services
Agreement effective as of February 28, 1997, with AIM, pursuant to which AIM has
agreed to provide or arrange for the provision of certain accounting and other
administrative services to the Fund, including the services of a principal
financial officer and related staff. As compensation to AIM for its services
under the Master Administrative Services Agreements, the Fund reimburses AIM for
expenses incurred by AIM or its subsidiaries in connection with such services.
FEE WAIVERS. AIM may in its discretion, from time to time, agree to
voluntarily waive all or any portion of its advisory fee and/or assume certain
expenses of the Fund but will retain its ability to be reimbursed prior to the
end of the fiscal year.
ADVISORY FEES. As compensation for its services AIM is paid an investment
advisory fee. For the fiscal year ended October 31, 1996, AIM received total
advisory fees of $16,492,564 which represented 0.64% of the Fund's average daily
net assets.
AIM received reimbursement of administrative services costs for the fiscal
year ended October 31, 1996, which represented 0.004% of the Fund's average net
assets.
In addition, the Company and AFS, P.O. Box 4739, Houston, TX 77210-4739, a
wholly owned subsidiary of AIM and registered transfer agent, have entered into
the Transfer Agency and Service Agreement, pursuant to which AFS provides
transfer agency, dividend distribution and disbursement, and shareholder
services to the Retail Class of the Fund.
DISTRIBUTOR. The Company has entered into a Master Distribution Agreement,
dated as of October 18, 1993, on behalf of Class A shares of the Retail Class of
the Fund (the "Distribution Agreement") with AIM Distributors, a registered
broker-dealer and a wholly-owned subsidiary of AIM, to act as the distributor of
the shares of the Fund. The address of AIM Distributors is 11 Greenway Plaza,
Suite 100, Houston, TX 77046-1173. The Distribution Agreement provides that AIM
Distributors has the exclusive right to distribute shares of the Retail Class of
the Fund through affiliated broker-dealers and through other broker-dealers with
whom AIM Distributors has entered into selected dealer agreements. Certain
directors and officers of the Company are affiliated with AIM Distributors.
DISTRIBUTION PLAN. The Company has adopted a Master Distribution Plan
applicable to Class A shares of the Fund (the "Class A Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Class A Plan, the Company may compensate AIM
Distributors an aggregate amount of 0.25% of the average daily net assets of the
Fund on an annualized basis for the purpose of financing any activity that is
intended to result in the sale of shares of the Fund. The Class A Plan is
designed to compensate AIM Distributors, on a quarterly basis, for certain
promotional and other sales-related costs, and to implement a dealer incentive
program which provides for periodic payments to selected dealers who furnish
continuing personal shareholder services to their customers who purchase and own
shares of the Fund. In addition, certain banks who have entered into a Bank
Shareholder Service Agreement and who sell shares of a Fund on an agency basis,
may receive payments pursuant to the Class A Plan. Administrators of retirement
plans may also be paid fees to offset costs of services. The Company will obtain
a representation from financial institutions that they will be licensed as
dealers as required under applicable state law, or that they will not engage in
activities which would constitute acting as a "dealer" as defined under
applicable state law. Activities appropriate for financing under the Class A
Plan include, but are not limited to, the following: preparation and
distribution of advertising material and sales literature; expenses of
organizing and conducting sales seminars; overhead of AIM Distributors; printing
of prospectuses and statements of additional information (and supplements
thereto) and reports for other than existing shareholders; supplemental payments
to dealers under a dealer incentive program; and costs of administering the
Class A Plan. The fees payable to selected dealers, banks and retirement plan
administrators who participate in the program are calculated at the annual rate
of 0.25% of the average daily net asset value of the Fund's shares that are held
in such institution's customers' accounts which were purchased on or after a
prescribed date set forth in the Class A Plan.
The Class A Plan conforms to the amended rules of the National Association of
Securities Dealers, Inc., by providing that, of the aggregate amount payable
under the Class A Plan, payments to dealers and other financial institutions
that provide continuing personal shareholder services to their customers who
purchase and own shares of the Fund, in amounts of up to 0.25% of the average
net assets of the Fund attributable to the customers of such dealers or
financial institutions may be characterized as a service fee, and that
10
<PAGE> 11
payments to dealers and other financial institutions in excess of such amount
and payments to AIM Distributors would be characterized as an asset-based sales
charge pursuant to the Class A Plan. The Class A Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund. The Class A Plan does not obligate
the Fund to reimburse AIM Distributors for the actual expenses AIM Distributors
may incur in fulfilling its obligations under the Class A Plan on behalf of the
Fund. Thus, under the Class A Plan, even if AIM Distributors' actual expenses
exceed the fee payable to AIM Distributors thereunder at any given time, the
Fund will not be obligated to pay more than that fee. If AIM Distributors'
expenses are less than the fee it receives, AIM Distributors will retain the
full amount of the fee. Payments pursuant to the Plans are subject to any
applicable limitations imposed by rules of the National Association of
Securities Dealers, Inc.
Under the Class A Plan, AIM Distributors may in its discretion from time to
time agree to waive voluntarily all or any portion of its fee, while retaining
its ability to be reimbursed for such fee prior to the end of each fiscal year.
The Plan may be terminated at any time by a vote of the majority of those
directors who are not interested "interested persons" of the Company or by a
vote of the majority of the outstanding shares.
PORTFOLIO MANAGERS
AIM uses a team approach and a disciplined investment process in providing
investment advisory services to all of its accounts, including the Funds. AIM's
investment staff consists of approximately 125 individuals. While individual
members of AIM's investment staff are assigned primary responsibility for the
day-to-day management of each of AIM's accounts, all accounts are reviewed on a
regular basis by AIM's Investment Policy Committee to ensure that they are being
invested in accordance with the account's and AIM's investment policies. The
individuals who are primarily responsible for the day-to-day management of the
Funds and their titles, if any, with AIM or its affiliates and the Fund, the
length of time they have been responsible for the management, and their years of
investment experience and prior experience (if they have been with AIM for less
than five years) are shown below.
Robert M. Kippes, Kenneth A. Zschappel and Charles D. Scavone are primarily
responsible for the day-to-day management of AGGRESSIVE GROWTH. Mr. Kippes is
Vice President of A I M Capital Management, Inc. ("AIM Capital"), a wholly owned
subsidiary of AIM and has been responsible for the Fund since 1992. Mr. Kippes
has been associated with AIM and/or its subsidiaries since 1989 and has eight
years of experience as an investment professional. Mr. Zschappel is Assistant
Vice President of AIM Capital and has been responsible for the Fund since 1996.
Mr. Zschappel has been associated with AIM and/or its subsidiaries since 1990
and has six years of experience as an investment professional. Mr. Scavone is
Vice President of AIM Capital and has been responsible for the Fund and has been
associated with AIM and/or its subsidiaries since 1996. Mr. Scavone has six
years experience as an investment professional. Prior to joining AIM, Mr.
Scavone was Associate Portfolio Manager for Van Kampen American Capital Asset
Management, Inc. from 1994-1996. From 1991 to 1994, he worked in the investments
department at Texas Commerce Investment Management Company, with his last
position being Equity Research Analyst/Assistant Portfolio Manager.
- --------------------------------------------------------------------------------
ORGANIZATION OF THE COMPANY
The Company was organized in 1988 as a Maryland corporation, and is registered
with the SEC as a diversified, open-end, series, management investment company.
The Company currently consists of six separate portfolios: CHARTER and
WEINGARTEN, each of which has retail classes of shares consisting of Class A,
Class B and Class C shares and an Institutional Class; CONSTELLATION, which has
retail classes of shares consisting of Class A and Class C shares and an
Institutional Class; AGGRESSIVE GROWTH, which has a retail class of shares
consisting of Class A shares; and BLUE CHIP and CAPITAL DEVELOPMENT, which have
retail classes of shares consisting of Class A, Class B and Class C shares. The
Company's common stock is classified into eighteen different classes. Each class
represents an interest in one of six portfolios. Prior to October 15, 1993, the
Fund was a portfolio of AIM Funds Group, a Massachusetts business trust.
Pursuant to an Agreement and Plan of Reorganization between the Company and AIM
Funds Group, the Fund was redomesticated as a portfolio of the Company effective
as of October 15, 1993.
Each class of shares of the same Fund represent interests in that Fund's
assets and have identical voting, dividend, liquidation and other rights on the
same terms and conditions, except that each class of shares bears differing
class-specific expenses, such as those associated with the shareholder servicing
of their shares, is subject to differing sales loads, conversion features and
exchange privileges, and has exclusive voting rights on matters pertaining to
that class' distribution plan.
Except as specifically noted above, shareholders of each Fund are entitled to
one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the different classes of shares,
where applicable, of a Fund. However, on matters affecting one portfolio of the
Company or one class of shares, a separate vote of shareholders of that
portfolio or class is required. Shareholders of a portfolio or class are not
entitled to vote on any matter which does not affect that portfolio or class but
which requires a separate vote of another portfolio or class. An example of a
matter which would be voted on separately by shareholders of a portfolio is the
approval of an advisory agreement, and an example of a matter which would be
voted on separately by shareholders of a class of shares is approval of a
distribution plan. When issued, shares of each Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are fully
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights. Shares do not have cumulative voting
rights, which means that in situations in which sharehold-
11
<PAGE> 12
ers elect directors, holders of more than 50% of the shares voting for the
election of directors can elect all of the directors of the Company, and the
holders of less than 50% of the shares voting for the election of directors will
not be able to elect any directors.
The holder of shares of the Fund is entitled to such dividends payable out of
the net assets allocable to the Fund as may be declared by the Board of
Directors of the Company. In the event of liquidation or dissolution of the
Company, the holders of shares of the Fund will be entitled to receive pro rata,
subject to the rights of creditors, the net assets of the Company allocable to
the Fund. Fractional shares of the Fund have the same rights as full shares to
the extent of their proportionate interest.
Under Maryland law and the Company's By-Laws, the Company need not hold an
annual meeting of shareholders unless a meeting is required under the 1940 Act
to elect directors. Shareholders may remove directors from office, and a meeting
of shareholders may be called at the request of the holders of 10% or more of
the Company's outstanding shares.
- --------------------------------------------------------------------------------
CLOSURE OF THE FUND TO NEW INVESTORS
The Fund reached a size in assets under management where, due to the limited
size of the market of common stocks of small capitalized companies, it became
increasingly difficult to satisfy the investment objective and guidelines. For
this reason, the Board of Directors of the Fund determined that it would be
advisable under the then current market conditions to close AGGRESSIVE GROWTH to
new investors effective as of the close of business June 5, 1997.
Shareholders who maintain open accounts in the Fund will be able to continue
to make additional investments in the Fund. Please note applicable minimum
account balance requirements in the Investor's Guide. Notwithstanding the right
to reinstatement described in the Investor's Guide, no shareholder of AGGRESSIVE
GROWTH who redeems their account in full will have the right of reinstatement.
The Fund may resume sales of shares to new investors at some future date if
the Board of Directors determines that it would be in the best interests of
shareholders.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby is
being passed upon by Ballard Spahr Andrews & Ingersoll, 1735 Market Street,
Philadelphia, Pennsylvania.
On October 25, 1996 a shareholder of the Fund filed a lawsuit in United States
District Court, Southern District of Texas, against the Company, AIM, AIM
Distributors and Aggressive Growth as a nominal defendant. The action was
instituted under Section 36(b) of the Investment Company Act of 1940 and seeks
to recover damages allegedly suffered by the Fund in connection with fees paid
for marketing and shareholder services after the Fund was closed to new
investors.
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<PAGE> 13
THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND SHAREHOLDER
ASSISTANCE IS
(800) 959-4246 (7:30 A.M. TO 6:00 P.M. CENTRAL TIME).
INVESTOR'S GUIDE
TO THE AIM FAMILY OF FUNDS--Registered Trademark--
- --------------------------------------------------------------------------------
INTRODUCTION TO THE AIM FAMILY OF FUNDS
THE AIM FAMILY OF FUNDS consists of the following mutual funds:
<TABLE>
<S> <C>
AIM ADVISOR CASH MANAGEMENT FUND(1),(2) AIM GLOBAL INCOME FUND
AIM ADVISOR FLEX FUND AIM GLOBAL UTILITIES FUND
AIM ADVISOR INCOME FUND(2) AIM GROWTH FUND
AIM ADVISOR INTERNATIONAL VALUE FUND AIM HIGH YIELD FUND
AIM ADVISOR LARGE CAP VALUE FUND AIM INCOME FUND
AIM ADVISOR MULTIFLEX FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM ADVISOR REAL ESTATE FUND AIM INTERNATIONAL EQUITY FUND
AIM AGGRESSIVE GROWTH FUND AIM LIMITED MATURITY TREASURY SHARES
AIM BALANCED FUND AIM MONEY MARKET FUND(1)
AIM BLUE CHIP FUND AIM MUNICIPAL BOND FUND
AIM CAPITAL DEVELOPMENT FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM CHARTER FUND AIM TAX-EXEMPT CASH FUND(1)
AIM CONSTELLATION FUND AIM TAX-FREE INTERMEDIATE SHARES
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM VALUE FUND
AIM GLOBAL GROWTH FUND AIM WEINGARTEN FUND
</TABLE>
(1) Class A shares of AIM TAX-EXEMPT CASH FUND, AIM Cash Reserve Shares of AIM
MONEY MARKET FUND, and Class A and Class C shares of AIM ADVISOR CASH
MANAGEMENT FUND, are offered to investors at net asset value, without
payment of a sales charge, as described below. Other funds, including the
Class A, Class B and Class C shares of AIM MONEY MARKET FUND, are sold with
an initial sales charge or subject to a contingent deferred sales charge
upon redemption, as described below.
(2)Fund closed to new investments on August 4, 1997. However, until October 3,
1997 the Fund will continue to accept investments (i) from shareholders of
record on August 4, 1997 of AIM ADVISOR CASH MANAGEMENT FUND, AIM ADVISOR
FLEX FUND, AIM ADVISOR INCOME FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM
ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND and AIM ADVISOR REAL
ESTATE FUND or (ii) on behalf of clients of selling group members who were
INVESCO Advisor Funds, Inc. selling group members on August 1, 1997. Please
refer to "Exchange Privilege" herein and the Fund's prospectus dated August
4, 1997.
IT IS IMPORTANT FOR SHAREHOLDERS CONSIDERING AN EXCHANGE TO CAREFULLY REVIEW
THE PROSPECTUS OF THE FUND WHOSE SHARES WILL BE ACQUIRED IN AN EXCHANGE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SHARES OF ANY FUND OTHER THAN
THE FUND(S) NAMED ON THE COVER PAGE OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
HOW TO OPEN AN ACCOUNT. In order to purchase shares of any of The AIM Family
of Funds ("AIM Funds"), an investor must submit a fully completed new Account
Application form directly to A I M Fund Services, Inc. ("AFS" or the "Transfer
Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM
Distributors") to sell shares of the AIM Funds.
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form
W-9 (certifying exempt status) accompanying the registration information will be
subject to backup withholding. See the Account Application for applicable
Internal Revenue Service penalties. The minimum initial investment is $500,
except for accounts initially established through an Automatic Investment Plan,
which requires a special authorization form (see "Special Plans") and for
certain retirement accounts. The minimum initial investment for accounts
established with an Automatic Investment Plan is $50. The minimum initial
investment for an Individual Retirement Arrangement ("IRA") is $250. There are
no minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, IRA/Simplified Employee
Pension ("SEP") accounts, 403(b) plans or 457 (state deferred compensation)
plans (except that the minimum initial investment for salary deferrals for such
plans is $25), or for investment of dividends and distributions of any of the
AIM Funds into any existing AIM Funds account. A Salary Reduction SEP ("SARSEP")
may not be established after December 31, 1996; however existing SARSEP accounts
can remain in effect.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
MCF-A 07/97
A-1
<PAGE> 14
For additional information or assistance, investors should call the Client
Services Department of AFS at:
(800) 959-4246
Shares of any AIM Funds not named on the cover of this Prospectus are offered
pursuant to separate prospectuses. Copies of other prospectuses may be obtained
by calling (800) 347-4246.
HOW TO PURCHASE ADDITIONAL SHARES. The minimum investment for subsequent
purchases is $50. The minimum employee salary deferral investment for
participants in money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or
457 plans is $25. There are no such minimum investment requirements for
investment of dividends and distributions of any of the AIM Funds into any other
existing AIM Funds account.
Additional shares may be purchased directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors.
Direct investments may be made by mail or by wiring payment to AFS as follows:
SUBSEQUENT PURCHASES BY MAIL: Investors must indicate their account number and
the name of the Fund being purchased. The remittance slip from a confirmation
statement should be used for this purpose, and sent to AFS.
PURCHASES BY WIRE: To insure prompt credit to his account, an investor or his
dealer should call AFS' Client Services Department at (800) 959-4246 prior to
sending a wire to receive a reference number for the wire. The following wire
instructions should be used:
<TABLE>
<S> <C>
Beneficiary Bank ABA/Routing #: 113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund Services, Inc.
RFB: Fund name, Reference Number (16 character limit)
OBI: Shareholder Name, Shareholder Account Number
(70 character limit)
</TABLE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS
Shares of the AIM Funds, including Class A shares (the "Class A shares") of
AIM ADVISOR CASH MANAGEMENT FUND, AIM ADVISOR FLEX FUND, AIM ADVISOR INCOME
FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND,
AIM ADVISOR MULTIFLEX FUND, AIM ADVISOR REAL ESTATE FUND, AIM AGGRESSIVE GROWTH
FUND, AIM BALANCED FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM
CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM
GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM GLOBAL UTILITIES FUND, AIM
GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT
FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND
FUND, AIM VALUE FUND and AIM WEINGARTEN FUND, collectively (other than AIM
AGGRESSIVE GROWTH FUND), the "Multiple Class Funds," may be purchased at their
respective net asset value plus a sales charge as indicated below, except that
Class A shares of AIM TAX-EXEMPT CASH FUND, Class A shares of AIM ADVISOR CASH
MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY MARKET FUND are sold
without a sales charge and Class B shares (the "Class B shares") and Class C
shares ("Class C shares") of the Multiple Class Funds (except Class C shares of
AIM ADVISOR CASH MANAGEMENT FUND) are sold at net asset value subject to a
contingent deferred sales charge payable upon certain redemptions. These
contingent deferred sales charges are described under the caption "How to Redeem
Shares -- Multiple Distribution System." Securities dealers and other persons
entitled to receive compensation for selling or servicing shares of a Multiple
Class Fund may receive different compensation for selling or servicing one
particular class of shares over another class in the same Multiple Class Fund.
Factors an investor should consider prior to purchasing Class A, Class B or
Class C shares (or, if applicable, AIM Cash Reserve Shares) of a Multiple Class
Fund are described below under "Special Information Relating to Multiple Class
Funds." For information on purchasing any of the AIM Funds and to receive a
prospectus, please call (800) 347-4246. As described below, the sales charge
otherwise applicable to a purchase of shares of a fund may be reduced if certain
conditions are met. In order to take advantage of a reduced sales charge, the
prospective investor or his dealer must advise AIM Distributors that the
conditions for obtaining a reduced sales charge have been met. Net asset value
is determined in the manner described under the caption "Determination of Net
Asset Value." The following tables show the sales charge and dealer concession
at various investment levels for the AIM Funds.
MCF-A 07/97
A-2
<PAGE> 15
SALES CHARGES AND DEALER CONCESSIONS
GROUP I. Certain AIM Funds are currently sold with a sales charge ranging from
5.50% to 2.00% of the offering price on purchases of less than $1,000,000. These
AIM Funds include Class A shares of each of AIM ADVISOR FLEX FUND, AIM ADVISOR
INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, AIM AGGRESSIVE GROWTH FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL UTILITIES
FUND, AIM GROWTH FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM
VALUE FUND and AIM WEINGARTEN FUND.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
GROUP II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM ADVISOR INCOME FUND, AIM ADVISOR REAL ESTATE FUND, AIM BALANCED
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL
INCOME FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT
FUND and AIM MUNICIPAL BOND FUND.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
MCF-A 07/97
A-3
<PAGE> 16
GROUP III. Certain AIM Funds are currently sold with a sales charge ranging
from 1.00% to 0.50% of the offering price on purchases of less than $1,000,000.
These AIM Funds are AIM LIMITED MATURITY TREASURY SHARES and the Class A shares
of AIM TAX-FREE INTERMEDIATE SHARES.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE INTERMEDIATE
SHARES as follows: 1% of the first $2 million of such purchases, plus 0.80% of
the next $1 million of such purchases, plus 0.50% of the next $17 million of
such purchases, plus 0.25% of amounts in excess of $20 million of such
purchases. See "Contingent Deferred Sales Charge Program for Large Purchases."
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), and which are sold at net
asset value and are not subject to a contingent deferred sales charge, in an
amount up to 0.10% of such purchases of shares of AIM LIMITED MATURITY TREASURY
SHARES, and in an amount up to 0.25% of such purchases of shares of AIM TAX-FREE
INTERMEDIATE SHARES.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price (0.60% of the
purchase price of the AIM ADVISOR INCOME FUND) of the Class C shares sold by the
dealer or institution, and will consist of a sales commission of 0.75% of the
purchase price (0.35% of the purchase price of the AIM ADVISOR INCOME FUND) of
the Class C shares sold plus an advance of the first year service fee of 0.25%
with respect to such shares. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record. The
portion of the payments to AIM Distributors under the Class C Plan attributable
to Class C shares which constitutes an asset-based sales charge (0.75%) (0.35%
for AIM ADVISOR INCOME FUND) is intended in part to permit AIM Distributors to
recoup a portion of such on-going sales commission plus financing costs, if any.
MCF-A 07/97
A-4
<PAGE> 17
TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund
(other than AIM MONEY MARKET FUND, as described below) received prior to the
close of the New York Stock Exchange ("NYSE"), which is generally 4:00 p.m.
Eastern Time (and which is hereinafter referred to as "NYSE Close") on any
business day of an AIM Fund will be confirmed at the price next determined.
Orders received after NYSE Close will be confirmed at the price determined on
the next business day of the AIM Fund. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent.
Any loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. Please see "How to Purchase
Shares -- Purchases by Wire" for information on obtaining a reference number for
wire orders, which will facilitate the handling of such orders and ensure prompt
credit to an investor's account. A "business day" of an AIM Fund is any day on
which the NYSE is open for business. It is expected that the NYSE will be closed
during the next twelve months on Saturdays and Sundays and on the days on which
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.
SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class Funds
currently offer two or more classes of shares through separate distribution
systems (the "Multiple Distribution System"). Although each class of shares of a
particular Multiple Class Fund represents an interest in the same portfolio of
investments, each class is subject to a different distribution structure and, as
a result, differing expenses. This Multiple Distribution System allows investors
to select the class that is best suited to the investor's needs and objectives.
In considering the options afforded by the Multiple Distribution System,
investors should consider both the applicable initial sales charge or contingent
deferred sales charge, as well as the ongoing expenses borne by each class of
shares and other relevant factors, such as whether his or her investment goals
are long-term or short-term.
CLASS A SHARES (except Class A shares of AIM ADVISOR CASH MANAGEMENT FUND)
are sold subject to the initial sales charges described above and are
subject to the other fees and expenses described herein. Class A shares of
AIM MONEY MARKET FUND are designed to meet the needs of an investor who
wishes to establish a dollar cost averaging program, pursuant to which
Class A shares an investor owns may be exchanged at net asset value for
Class A shares of another Multiple Class Fund or shares of another AIM Fund
which is not a Multiple Class Fund, subject to the terms and conditions
described under the caption "Exchange Privilege -- Terms and Conditions of
Exchanges."
CLASS B SHARES are sold without an initial sales charge. Thus, the entire
purchase price of Class B shares is immediately invested in Class B shares.
Class B shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class B shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class B shares redeemed
within six years from the date such shares were purchased are subject to a
contingent deferred sales charge ranging from 5% for redemptions made
within the first year to 1% for redemptions made within the sixth year. No
contingent deferred sales charge will be imposed if Class B shares are
redeemed after six years from the date such shares were purchased.
Redemptions of Class B shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class B shares will automatically convert into Class A shares of the same
Multiple Class Fund (together with a pro rata portion of all Class B shares
acquired through the reinvestment of dividends and distributions) eight
years from the end of the calendar month in which the purchase of Class B
shares was made. Following such conversion of their Class B shares,
investors will be relieved of the higher Rule 12b-1 Plan payments
associated with Class B shares. See "Management -- Distribution Plans."
CLASS C SHARES are sold without an initial sales charge. Thus the entire
purchase price of Class C shares is immediately invested in Class C shares.
Class C shares (except Class C shares of AIM ADVISOR CASH MANAGEMENT FUND)
are subject, however, to Rule 12b-1 Plan payments of 1.00% per annum on the
average daily net assets of a Multiple Class Fund attributable to Class C
shares. See the discussion under the caption "Management -- Distribution
Plans." In addition, Class C shares (except Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) redeemed within one year from the date such shares
were purchased are subject to a 1.00% contingent deferred sales charge. No
contingent deferred sales charge will be imposed if Class C shares are
redeemed after one year from the date such shares were purchased.
Redemptions of Class C shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class A and Class C shares of AIM ADVISOR CASH MANAGEMENT FUND and AIM Cash
Reserve Shares of AIM MONEY MARKET FUND are sold without an initial sales
charge and are not subject to a contingent deferred sales charge. (A
contingent deferred sales charge may be imposed upon redemptions of Class A
and Class C shares of AIM ADVISOR CASH MANAGEMENT FUND when such shares
were purchased in an exchange. See "How to Redeem Shares -- Multiple
Distribution System -- Class C Shares" and "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases").
AIM Cash Reserve Shares of AIM MONEY MARKET FUND are, however, subject to
the other fees and expenses described in the prospectus for AIM MONEY
MARKET FUND.
MCF-A 07/97
A-5
<PAGE> 18
TIMING OF PURCHASE, EXCHANGE AND REDEMPTION ORDERS (AIM MONEY MARKET FUND
ONLY). Orders for purchases, exchanges and redemptions of shares of AIM MONEY
MARKET FUND received prior to 12:00 noon Eastern Time or NYSE Close on any
business day of the Fund will be confirmed at the price next determined. Net
asset value is normally determined at 12:00 noon Eastern Time and NYSE Close on
each business day of AIM MONEY MARKET FUND.
SPECIAL INFORMATION RELATING TO AIM ADVISOR CASH MANAGEMENT FUND, AIM MONEY
MARKET FUND, AND AIM TAX-EXEMPT CASH FUND (THE "MONEY MARKET FUNDS"). Because
each Money Market Fund uses the amortized cost method of valuing the securities
it holds and rounds its per share net asset value to the nearest whole cent, it
is anticipated that the net asset value of the shares of such funds will remain
constant at $1.00 per share. However, there is no assurance that each Money
Market Fund can maintain a $1.00 net asset value per share. In order to earn
dividends with respect to AIM MONEY MARKET FUND on the same day that a purchase
is made, purchase payments in the form of federal funds must be received by the
Transfer Agent before 12:00 noon Eastern Time on that day. Purchases made by
payments in any other form, or payments in the form of federal funds received
after such time but prior to NYSE Close, will begin to earn dividends on the
next business day following the date of purchase. The Money Market Funds
generally will not issue share certificates but will record investor holdings in
noncertificate form and regularly advise the shareholder of his ownership
position.
SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon
written request by a shareholder to AIM Distributors or the Transfer Agent.
Otherwise, such shares will be held on the shareholder's behalf by the
applicable AIM Fund(s) and be recorded on the books of such fund(s). See
"Exchange Privilege -- Exchanges by Telephone" and "How to Redeem
Shares -- Redemptions by Telephone" for restrictions applicable to shares issued
in certificate form. Please note that certificates will not be issued for shares
held in prototype retirement plans.
MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect
for at least one year and the shareholder has not made an additional purchase in
that account within the preceding six calendar months and (2) the value of such
account drops below $500 for three consecutive months as a result of redemptions
or exchanges, the fund has the right to redeem the account, after giving the
shareholder 60 days' prior written notice, unless the shareholder makes
additional investments within the notice period to bring the account value up to
$500. If a fund determines that a shareholder has provided incorrect information
in opening an account with a fund or in the course of conducting subsequent
transactions with the fund related to such account, the fund may, in its
discretion, redeem the account and distribute the proceeds of such redemption to
the shareholder.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
TAX-EXEMPT CASH FUND, Class A and Class C shares of AIM ADVISOR CASH MANAGEMENT
FUND, AIM Cash Reserve Shares of AIM MONEY MARKET FUND and Class B and Class C
shares of the Multiple Class Funds will not be taken into account in determining
whether a purchase qualifies for a reduction in initial sales charges.
The term "purchaser" means:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), provided that:
a. the employer/sponsor must submit contributions for all participating
employees in a single contribution transmittal (i.e., the funds will
not accept contributions submitted with respect to individual
participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by submitting
an application on behalf of each new participant with the
contribution transmittal;
- a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension ("SEP"), Salary Reduction and other Elective
Simplified Employee Pension account ("SARSEP") where the employer has
notified AIM Distributors in writing that all of its related employee SEP or
SARSEP accounts should be linked;
MCF-A 07/97
A-6
<PAGE> 19
- any other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase at a discount of redeemable securities of a
registered investment company; or
- the discretionary advised accounts of A I M Advisors, Inc. ("AIM") or A I M
Capital Management, Inc. ("AIM Capital").
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine whether
any purchaser is entitled, by virtue of the foregoing definition, to the reduced
sales charge. No person or entity may distribute shares of the AIM Funds without
payment of the applicable sales charge other than to persons or entities who
qualify for a reduction in the sales charge as provided herein.
(1) LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for
(i) Class A shares of AIM TAX-EXEMPT CASH FUND, Class A and Class C shares of
AIM ADVISOR CASH MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY
MARKET FUND and (ii) Class B and Class C shares of the Multiple Class Funds)
within the following 13 consecutive months. By marking the LOI section on the
account application and by signing the account application, the purchaser
indicates that he understands and agrees to the terms of the LOI and is bound by
the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the Transfer Agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the Transfer Agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date, he
irrevocably constitutes and appoints the Transfer Agent as his attorney to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
(2) RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) Class A shares of
AIM TAX-EXEMPT CASH FUND, Class A and Class C shares of AIM ADVISOR CASH
MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY MARKET FUND and (ii)
Class B and Class C shares of the Multiple Class Funds) at the time of the
proposed purchase. Rights of Accumulation are also available to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992. To determine
whether or not a reduced initial sales charge applies to a proposed purchase,
AIM Distributors takes into account not only the money which is invested upon
such proposed purchase, but also the value of all shares of the AIM Funds
(except for (i) Class A shares of AIM TAX-EXEMPT CASH FUND, Class A and Class C
shares of AIM ADVISOR CASH MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM
MONEY MARKET FUND and (ii) Class B and Class C shares of the Multiple Class
Funds) owned by such purchaser, calculated at their then current public offering
price. If a purchaser so qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money then being invested by such
purchaser and not just to the portion that exceeds the breakpoint above which a
reduced sales charge applies. For example, if a purchaser already owns
qualifying shares of any AIM Fund with a value of $20,000 and wishes to invest
an additional $20,000 in a fund with a maximum
MCF-A 07/97
A-7
<PAGE> 20
initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will
apply to the full $20,000 purchase and not just to the $15,000 in excess of the
$25,000 breakpoint. To qualify for obtaining the discount applicable to a
particular purchase, the purchaser or his dealer must furnish AFS with a list of
the account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a fund
(see "Dividends, Distributions and Tax Matters"); (b) exchanges of shares of
certain other funds (see "Exchange Privilege"); (c) use of the reinstatement
privilege (see "How to Redeem Shares"); or (d) a merger, consolidation or
acquisition of assets of a fund.
Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM
CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A
shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A
shares of the particular AIM Fund(s) whose shares they owned on such date, at
net asset value (without payment of a sales charge) for as long as they
continuously own Class A shares of such AIM Fund(s) having a market value of at
least $500. In addition, discretionary advised clients of any investment
advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM
CHARTER FUND on November 17, 1986, and have held such Class A shares at all
times subsequent to such date, may purchase Class A shares of the applicable AIM
Fund(s) at the net asset value of such shares.
The following persons may purchase shares of the AIM Funds through AIM
Distributors without payment of an initial sales charge: (a) A I M Management
Group Inc. ("AIM Management") and its affiliated companies; (b) any current or
retired officer, director, trustee or employee, or any member of the immediate
family (including spouse, children, parents and parents of spouse) of any such
person, of AIM Management or its affiliates or of certain mutual funds which are
advised or managed by AIM, or any trust established exclusively for the benefit
of such persons; (c) any employee benefit plan established for employees of AIM
Management or its affiliates; (d) any current or retired officer, director,
trustee or employee, or any member of the immediate family (including spouse,
children, parents and parents of spouse) of any such person, or of CIGNA
Corporation or of any of its affiliated companies, or of First Data Investor
Services Group (formerly The Shareholders Services Group, Inc.); (e) any
investment company sponsored by CIGNA Investments, Inc. or any of its affiliated
companies for the benefit of its directors' deferred compensation plans; (f)
discretionary advised clients of AIM or AIM Capital; (g) registered
representatives and employees of dealers who have entered into agreements with
AIM Distributors (or financial institutions that have arrangements with such
dealers with respect to the sale of shares of the AIM Funds) and any member of
the immediate family (including spouse, children, parents and parents of spouse)
of any such person, provided that purchases at net asset value are permitted by
the policies of such person's employer; and (h) certain broker-dealers,
investment advisers or bank trust departments that provide asset allocation,
similar specialized investment services or investment company transaction
services for their customers, that charge a minimum annual fee for such
services, and that have entered into an agreement with AIM Distributors with
respect to their use of the AIM Funds in connection with such services.
In addition, shares of any AIM Fund may be purchased at net asset value,
without payment of a sales charge, by pension, profit-sharing or other employee
benefit plans created pursuant to a plan qualified under Section 401 of the Code
or plans under Section 457 of the Code, or employee benefit plans created
pursuant to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the total amount invested in the
plan is at least $1,000,000, (2) the sponsor signs a $1,000,000 LOI, (3) such
shares are purchased by an employer-sponsored plan with at least 100 eligible
employees, or (4) all of the plan's transactions are executed through a single
financial institution or service organization who has entered into an agreement
with AIM Distributors with respect to their use of the AIM Funds in connection
with such accounts. Section 403(b) plans sponsored by public educational
institutions will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees.
Participants in such plans will be eligible for reduced sales charges based
solely on the aggregate value of their individual investments in the applicable
AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR
SUCH PLANS. AIM Distributors may pay investment dealers or other financial
service firms for share purchases of the Load Funds (as defined on page A-10
herein) sold at net asset value to an employee benefit plan in accordance with
this paragraph as follows: 1% of the first $2 million of such purchases, plus
0.80% of the next $1 million of such purchases, plus 0.50% of the next $17
million of such purchases, plus 0.25% of amounts in excess of $20 million of
such purchases and up to 0.10% of the net asset value of any AIM Limited
Maturity Treasury Shares sold at net asset value to an employee benefit plan in
accordance with this paragraph.
Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be
deposited at net asset value, without payment of a sales charge, in G/SET series
unit investment trusts, whose portfolios consist exclusively of Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States
Treasury issued notes or bonds bearing no current interest ("Treasury
Obligations"). Class A shares of such funds may also be purchased at net asset
value by other unit investment trusts approved by the Board of Directors of AIM
Equity Funds, Inc. Unit holders of such trusts may elect to invest cash
distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, including: (a) distributions of any
dividend income or other income received by such trusts; (b) distributions of
any net capital gains received in respect of Class A shares of AIM WEINGARTEN
FUND or AIM CONSTELLATION FUND and proceeds of the sale of Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such trusts;
and (c) proceeds from the maturity of the Treasury Obligations at the
termination dates of such trusts. Prior to the termination dates of such trusts,
a unit holder may invest the proceeds from the redemption or repurchase of his
units in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net
asset value, provided:
MCF-A 07/97
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<PAGE> 21
(a) that the investment in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND is effected within 30 days of such redemption or repurchase;
and (b) that the unit holder or his dealer provides AIM Distributors with a
letter which: (i) identifies the name, address and telephone number of the
dealer who sold to the unit holder the units to be redeemed or repurchased; and
(ii) states that the investment in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND is being funded exclusively by the proceeds from the
redemption or repurchase of units of such trusts.
FOR ANY FUND NAMED ON THE COVER PAGE OF THIS PROSPECTUS, AIM DISTRIBUTORS AND
ITS AGENTS RESERVE THE RIGHT AT ANY TIME (1) TO WITHDRAW ALL OR ANY PART OF THE
OFFERING MADE BY THIS PROSPECTUS; (2) TO REJECT ANY PURCHASE OR EXCHANGE ORDER
OR TO CANCEL ANY PURCHASE DUE TO NONPAYMENT OF THE PURCHASE PRICE; (3) TO
INCREASE, WAIVE OR LOWER THE MINIMUM INVESTMENT REQUIREMENTS; OR (4) TO MODIFY
ANY OF THE TERMS OR CONDITIONS OF PURCHASE OF SHARES OF SUCH FUND. For any fund
named on the cover page, AIM Distributors and its agents will use their best
efforts to provide notice of any such actions through correspondence with
broker-dealers and existing shareholders, supplements to the AIM Funds'
prospectuses, or other appropriate means, and will provide sixty (60) days'
notice in the case of termination or material modification to the exchange
privilege discussed under the caption "Exchange Privilege."
- --------------------------------------------------------------------------------
SPECIAL PLANS
Except as noted below, each AIM Fund provides the special plans described
below for the convenience of its shareholders. Once established, there is no
obligation to continue to invest through a plan, and a shareholder may terminate
a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. IT IS RECOMMENDED THAT A SHAREHOLDER CONSIDERING ANY OF THE
PLANS DESCRIBED HEREIN CONSULT A TAX ADVISOR BEFORE COMMENCING PARTICIPATION IN
SUCH A PLAN.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, a shareholder
who owns shares which are not subject to a contingent deferred sales charge, can
arrange for monthly, quarterly or annual checks in any amount (but not less than
$50) to be drawn against the balance of his account in the designated AIM Fund.
Shareholders who own shares subject to a contingent deferred sales charge, can
only arrange for monthly or quarterly withdrawals under a Systematic Withdrawal
Plan. Payment of this amount can be made on any day of the month the shareholder
specifies, except the thirtieth or thirty-first day of each month in which a
payment is to be made. A minimum account balance of $5,000 is required to
establish a Systematic Withdrawal Plan, but there is no requirement thereafter
to maintain any minimum investment. With respect to shares subject to a
contingent deferred sales charge (all classes) no contingent deferred sales
charge will be imposed on withdrawals made under a Systematic Withdrawal Plan,
provided that the amounts withdrawn under such a plan do not exceed on an annual
basis 12% of the account value at the time the shareholder elects to participate
in the Systematic Withdrawal Plan. Systematic Withdrawal Plans with respect to
shares subject to a contingent deferred sales charge that exceed on an annual
basis 12% of such account will be subject to a contingent deferred sales charge
on the amounts exceeding 12% of the account value at the time the shareholder
elects to participate in the Systematic Withdrawal Plan.
Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer
Agent and all dividends and distributions are reinvested in shares of the
applicable AIM Fund by the Transfer Agent. To provide funds for payments made
under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full
and fractional shares at their net asset value in effect at the time of each
such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the Multiple Class Funds, AIM Cash
Reserve Shares of AIM MONEY MARKET FUND and Class A shares of AIM ADVISOR CASH
MANAGEMENT FUND), it is disadvantageous to effect such purchases while a
Systematic Withdrawal Plan is in effect.
The Systematic Withdrawal Plan may be terminated at any time upon 10 days'
prior notice to AFS. Each AIM Fund bears its share of the cost of operating the
Systematic Withdrawal Plan. Each AIM Fund reserves the right to initiate a fee
for each withdrawal (not to exceed its cost), but there is no present intent to
do so.
AUTOMATIC INVESTMENT PLAN. Shareholders who wish to make monthly or quarterly
investments may establish an Automatic Investment Plan. Under this plan, on or
about the tenth and/or twenty-fifth day of the applicable month, a draft is
drawn on the shareholder's bank account in the amount specified by the
shareholder (minimum $50 per investment, per account). The proceeds of the draft
are invested in shares of the designated AIM Fund at the applicable offering
price determined on the date of the draft. An Automatic Investment Plan may be
discontinued upon 10 days' prior notice to the Transfer Agent or AIM
Distributors.
AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all
dividends and distributions declared by an AIM Fund paid in cash or invested at
net asset value, without payment of an initial sales charge, either in shares of
the same AIM Fund or invested in shares of another AIM Fund. For each of the
Multiple Class Funds, dividends and distributions attributable to Class A shares
MCF-A 07/97
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<PAGE> 22
may be reinvested in Class A shares of the same fund, in Class A shares of
another Multiple Class Fund or in shares of another AIM Fund which is not a
Multiple Class Fund; dividends and distributions attributable to Class B shares
may be reinvested in Class B shares of the same fund or in Class B shares of
another Multiple Class Fund; dividends and distributions attributable to Class C
shares may be reinvested in Class C shares of the same fund or in Class C shares
of another Multiple Class Fund; and dividends and distributions attributable to
AIM Cash Reserve Shares of AIM MONEY MARKET FUND may be reinvested in additional
shares of such fund, in Class A shares of another Multiple Class Fund or in
shares of another AIM Fund which is not a Multiple Class Fund. See "Dividends,
Distributions and Tax Matters -- Dividends and Distributions" for a description
of payment dates for these options. In order to qualify to have dividends and
distributions of one AIM Fund invested in shares of another AIM Fund, the
following conditions must be satisfied: (a) the shareholder must have an account
balance in the dividend paying fund of at least $5,000; (b) the account must be
held in the name of the shareholder (i.e., the account may not be held in
nominee name); and (c) the shareholder must have requested and completed an
authorization relating to the reinvestment of dividends into another AIM Fund.
An authorization may be given on the account application or on an authorization
form available from AIM Distributors. An AIM Fund will waive the $5,000 minimum
account value requirement if the shareholder has an account in the fund selected
to receive the dividends and distributions with a value of at least $500.
DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly (on or about the 10th or
25th day of the applicable month), from one of their accounts into one or more
AIM Funds, subject to the terms and conditions described under the caption
"Exchange Privilege -- Terms and Conditions of Exchanges." The account from
which exchanges are to be made must have a value of at least $5,000 when a
shareholder elects to begin this program, and the exchange minimum is $50 per
transaction. All of the accounts that are part of this program must have
identical registrations. The net asset value of shares purchased under this
program may vary, and may be more or less advantageous than if shares were not
exchanged automatically. There is no charge for entering the Dollar Cost
Averaging program. Sales charges may apply, as described under the caption
"Exchange Privilege."
PROTOTYPE RETIREMENT PLANS. The AIM Funds (except for AIM TAX-FREE
INTERMEDIATE SHARES, AIM TAX-EXEMPT CASH FUND, AIM MUNICIPAL BOND FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT) have made the following prototype
retirement plans available to corporations, individuals and employees of
non-profit organizations and public schools: combination money-
purchase/profit-sharing plans; 403(b) plans; IRA plans; SARSEP plans; and SEP
plans (collectively, "retirement accounts"). Information concerning these plans,
including the custodian's fees and the forms necessary to adopt such plans, can
be obtained by calling or writing the AIM Funds or AIM Distributors. Shares of
the AIM Funds are also available for investment through existing 401(k) plans
(for both individuals and employers) adopted under the Code. The plan custodian
currently imposes an annual $10 maintenance fee with respect to each retirement
account for which it serves as the custodian. This fee is generally charged in
December. Each AIM Fund and/or the custodian reserve the right to change this
maintenance fee and to initiate an establishment fee (not to exceed its cost).
MCF-A 07/97
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<PAGE> 23
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may
participate in an exchange privilege as described below. The exchange privilege
is also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. AIM Distributors acts as distributor for the AIM Funds,
which represent a range of different investment objectives and policies. As set
forth under the caption "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM
Funds, including the Class A shares of the Multiple Class Funds (except AIM
ADVISOR CASH MANAGEMENT FUND), listed below and referred to herein as the "Load
Funds," are sold at a public offering price that includes a maximum sales charge
of 5.50% or 4.75% of the public offering price of such shares; Class A shares
(or shares which normally involve the payment of initial sales charges) of
certain of the AIM Funds, listed below and referred to herein as the "Lower Load
Funds," are sold at a public offering price that includes a maximum sales charge
of 1.00% of the public offering price of such shares; and Class A shares or
shares of certain other funds, listed below and referred to herein as the "No
Load Funds," are sold at net asset value, without payment of a sales charge.
<TABLE>
<S> <C> <C>
LOAD FUNDS: LOWER LOAD FUNDS:
AIM ADVISOR FLEX FUND -- AIM GLOBAL GROWTH AIM LIMITED MATURITY TREASURY SHARE
CLASS A FUND -- CLASS A AIM TAX-FREE INTERMEDIATE
AIM ADVISOR INCOME FUND -- AIM GLOBAL INCOME SHARES -- CLASS A
CLASS A FUND -- CLASS A
AIM ADVISOR INTERNATIONAL AIM GLOBAL UTILITIES NO LOAD FUNDS:
VALUE FUND -- CLASS A FUND -- CLASS A AIM ADVISOR CASH MANAGEMENT FUND
AIM ADVISOR LARGE CAP AIM GROWTH FUND -- CLASS A -- CLASS A
VALUE FUND -- CLASS A AIM HIGH YIELD FUND -- CLASS A AIM MONEY MARKET FUND
AIM ADVISOR MULTIFLEX AIM INCOME FUND -- CLASS A -- AIM CASH RESERVE SHARES
FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT AIM TAX-EXEMPT CASH FUND -- CLASS A
AIM ADVISOR REAL ESTATE FUND -- CLASS A
FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM AGGRESSIVE GROWTH FUND -- CLASS A
FUND -- CLASS A AIM MONEY MARKET
AIM BALANCED FUND -- CLASS A FUND -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM MUNICIPAL BOND
AIM CAPITAL DEVELOPMENT FUND -- CLASS A
FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM CHARTER FUND -- CLASS A OF CONNECTICUT -- CLASS A
AIM CONSTELLATION AIM VALUE FUND -- CLASS A
FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
AIM GLOBAL AGGRESSIVE GROWTH
FUND -- CLASS A
</TABLE>
Shares of any AIM Fund may be exchanged for shares of any other AIM Fund on
the terms described on the chart below, except that (i) effective August 4, 1997
(except with respect to shares of AIM ADVISOR CASH MANAGEMENT FUND, AIM ADVISOR
FLEX FUND, AIM ADVISOR INCOME FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM
ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND and AIM ADVISOR REAL
ESTATE FUND), no shares of any Load Fund, Class C of a Multiple Class Fund,
Lower Load Fund or No Load Fund may be exchanged for shares of AIM ADVISOR CASH
MANAGEMENT FUND or AIM ADVISOR INCOME FUND; (ii) effective October 3, 1997 no
share of any Load Fund, Class C of a Multiple Class Fund, Lower Load Fund or No
Load Fund may be exchanged for shares of AIM ADVISOR CASH MANAGEMENT FUND or AIM
ADVISOR INCOME FUND; (iii) Load Fund share purchases of $1,000,000 or more which
are subject to a contingent deferred sales charge may not be exchanged for Lower
Load Funds or for AIM TAX-EXEMPT CASH FUND; (iv) LOWER LOAD FUND SHARE PURCHASES
OF $1,000,000 OR MORE AND AIM Cash Reserve Shares of AIM MONEY MARKET FUND and
AIM TAX-EXEMPT CASH FUND PURCHASES MAY BE EXCHANGED FOR LOAD FUND SHARES IN
AMOUNTS OF $1,000,000 OR MORE WHICH WILL THEN BE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE; HOWEVER, FOR PURPOSES OF CALCULATING THE CONTINGENT
DEFERRED SALES CHARGE ON THE LOAD FUND SHARES ACQUIRED, THE 18-MONTH PERIOD
SHALL BE COMPUTED FROM THE DATE OF SUCH EXCHANGE; (v) Class A shares and AIM
LIMITED MATURITY TREASURY SHARES may be exchanged for Class A shares or AIM
LIMITED MATURITY TREASURY SHARES, (vi) Class B shares may be exchanged only for
Class B shares; (vii) Class C shares may only be exchanged for Class C shares;
(viii) Class A shares of AIM ADVISOR CASH MANAGEMENT FUND may be exchanged for
Class A shares of any Load Fund, Lower Load Fund or No-Load Fund at net asset
value; (ix) Class C shares of AIM ADVISOR CASH MANAGEMENT FUND may be exchanged
for Class C shares of any Multiple Class Fund at net asset value; and (x) AIM
Cash Reserve Shares of AIM MONEY MARKET FUND may not be exchanged for Class A
shares of AIM MONEY MARKET FUND or for Class B or Class C shares.
MCF-A 07/97
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<PAGE> 24
Broker-dealers and institutions of record for Class A or Class C shares
purchased pursuant to an exchange from Class A or Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND will be compensated according to the sales commission or
concession that would apply if these Class A or Class C share purchases had been
purchased in a manner other than pursuant to an exchange.
DEPENDING UPON THE FUND FROM WHICH AND INTO WHICH AN EXCHANGE IS BEING MADE,
SHARES BEING ACQUIRED IN AN EXCHANGE MAY BE ACQUIRED AT THEIR OFFERING PRICE OR
AT THEIR NET ASSET VALUE (WITHOUT PAYMENT OF A SALES CHARGE) AS SET FORTH IN THE
TABLE BELOW FOR SHARES INITIALLY PURCHASED PRIOR TO MAY 1, 1994:
<TABLE>
<CAPTION>
MULTIPLE CLASS FUNDS:
LOWER LOAD NO LOAD ------------------------------
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B CLASS C
----- -------------- ----------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load
Funds.......... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund or any Fund or any Lower Load
Lower Load Fund. Fund; otherwise,
Offering Price.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
FOR SHARES INITIALLY PURCHASED ON OR AFTER MAY 1, 1994, THE FOREGOING TABLE IS REVISED AS FOLLOWS:
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load
Funds.......... Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable Not Applicable
acquired upon exchange of any
Load Fund. Otherwise, difference
in sales charge will apply.
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund. Fund or any Lower Load
Difference in sales charge will Fund; otherwise, Of-
apply if No Load shares were fering Price.
acquired upon exchange of Lower
Load Fund shares.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
Class C........ Not Applicable Not Applicable Not Applicable Not Applicable Net Asset Value
</TABLE>
An exchange is permitted only in the following circumstances: (a) if the funds
offer more than one class of shares, the exchange must be between the same class
of shares (e.g., Class A, Class B and Class C shares of a Multiple Class Fund
cannot be exchanged for each other), except that AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may be exchanged for Class A shares of another Multiple Class
Fund; (b) the dollar amount of the exchange must be at least equal to the
minimum investment applicable to the shares of the fund acquired through such
exchange; (c) the shares of the fund acquired through exchange must be qualified
for sale in the state in which the shareholder resides; (d) the exchange must be
made between accounts having identical registrations and addresses; (e) the full
amount of the purchase price for the shares being exchanged must have already
been received by the fund; (f) the account from which shares have been exchanged
must be coded as having a certified taxpayer identification number on file or,
in the alternative, an appropriate Internal Revenue Service ("IRS") Form W-8
(certificate of foreign status) or Form W-9 (certifying exempt status) must have
been received by the fund; (g) newly acquired shares (through either an initial
or subsequent investment) are held in an account for at least ten business days,
and all other shares are held in an account for at least one day, prior to the
exchange; and (h) certificates representing shares must be returned before
shares can be exchanged. There is no fee for exchanges among the AIM Funds.
THE CURRENT PROSPECTUS OF EACH OF THE AIM FUNDS AND CURRENT INFORMATION
CONCERNING THE OPERATION OF THE EXCHANGE PRIVILEGE ARE AVAILABLE THROUGH AIM
DISTRIBUTORS OR THROUGH ANY DEALER WHO HAS EXECUTED AN APPLICABLE AGREEMENT WITH
AIM DISTRIBUTORS. BEFORE EXCHANGING SHARES, INVESTORS SHOULD REVIEW THE
PROSPECTUSES OF THE FUNDS WHOSE SHARES WILL BE ACQUIRED THROUGH EXCHANGE.
EXCHANGES OF SHARES ARE CONSIDERED TO BE SALES FOR FEDERAL AND STATE INCOME TAX
PURPOSES AND MAY RESULT IN A TAXABLE GAIN OR LOSS TO A SHAREHOLDER.
MCF-A 07/97
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<PAGE> 25
THE EXCHANGE PRIVILEGE IS NOT AN OPTION OR RIGHT TO PURCHASE SHARES BUT IS
PERMITTED UNDER THE RESPECTIVE POLICIES OF THE PARTICIPATING FUNDS, AND MAY BE
MODIFIED OR DISCONTINUED BY ANY OF SUCH FUNDS OR BY AIM DISTRIBUTORS AT ANY
TIME, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WITHOUT NOTICE.
Shares of any AIM Fund (other than AIM MONEY MARKET FUND) to be exchanged are
redeemed at their net asset value as determined at NYSE Close on the day that an
exchange request in proper form (described below) is received. Exchange requests
received after NYSE Close will result in the redemption of shares at their net
asset value at NYSE Close on the next business day. See "Terms and Conditions of
Purchase of the AIM Funds -- Timing of Purchase, Exchange and Redemption Orders
(AIM MONEY MARKET FUND only)" for information regarding the timing of exchange
orders for AIM MONEY MARKET FUND. Normally, shares of an AIM Fund to be acquired
by exchange are purchased at their net asset value or applicable offering price,
as the case may be, determined on the date that such request is received, but
under unusual market conditions such purchases may be delayed for up to five
business days if it is determined that a fund would be materially disadvantaged
by an immediate transfer of the proceeds of the exchange. If a shareholder is
exchanging into a fund paying daily dividends (See "Dividends, Distributions and
Tax Matters -- Dividends and Distributions," below), and the release of the
exchange proceeds is delayed for the foregoing five-day period, such shareholder
will not begin to accrue dividends until the sixth business day after the
exchange. Shares purchased by check may not be exchanged until it is determined
that the check has cleared, which may take up to ten business days from the date
that the check is received. See "Terms and Conditions of Purchase of the AIM
Funds -- Timing of Purchase Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.
EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a
written request to AFS. The request should contain the account registration and
account number, the dollar amount or number of shares to be exchanged, and the
names of the funds from which and into which the exchange is to be made. The
request should comply with all of the requirements for redemption by mail,
except those required for redemption of IRAs. See "How to Redeem Shares."
EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange
by telephone. If a shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline that option on the account application.
AIM Distributors has made arrangements with certain dealers and investment
advisory firms to accept telephone instructions to exchange shares between any
of the AIM Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
funds, including the condition that any such dealer or investment advisor enter
into an agreement (which contains additional conditions with respect to
exchanges of shares) with AIM Distributors. To exchange shares by telephone, a
shareholder, dealer or investment advisor who has satisfied the foregoing
conditions must call AFS at (800) 959-4246. If a shareholder is unable to reach
AFS by telephone, he may also request exchanges by telegraph or use overnight
courier services to expedite exchanges by mail, which will be effective on the
business day received by the Transfer Agent as long as such request is received
prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request that
they reasonably believe to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions if they do not follow
reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
EXCHANGES OF CLASS B AND CLASS C SHARES. A contingent deferred sales charge
will not be imposed in connection with exchanges among Class B shares or among
Class C shares. For purposes of determining a shareholder's holding period of
Class B or Class C shares in the calculation of the applicable contingent
deferred sales charge, the period of time during which Class B or Class C shares
were held prior to an exchange will be added to the holding period of the
applicable Class B or Class C shares (except for Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) acquired in an exchange.
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares of the AIM Funds may be redeemed directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors. In
addition to the obligation of the fund(s) named on the cover page to redeem
shares, AIM Distributors also repurchases shares. Although a contingent deferred
sales charge may be applicable to certain redemptions, as described below, there
is no redemption fee imposed when shares are redeemed or repurchased; however,
dealers may charge service fees for handling repurchase transactions.
MULTIPLE DISTRIBUTION SYSTEM. Class B shares. Class B shares purchased under
the Multiple Distribution System may be redeemed on any business day of a
Multiple Class Fund at the net asset value per share next determined following
receipt of the redemption order, as described under the caption "Timing and
Pricing of Redemption Orders," less the applicable contingent deferred sales
charge shown in the table below. No deferred sales charge will be imposed (i) on
redemptions of Class B shares following six years from the date such shares were
purchased, (ii) on Class B shares acquired through reinvestments of dividends
and distributions attrib-
MCF-A 07/97
A-13
<PAGE> 26
utable to Class B shares or (iii) on amounts that represent capital appreciation
in the shareholder's account above the purchase price of the Class B shares.
<TABLE>
<CAPTION>
YEAR CONTINGENT DEFERRED
SINCE SALES CHARGE AS
PURCHASE % OF DOLLAR AMOUNT
MADE SUBJECT TO CHARGE
-------- -------------------
<S> <C>
First...................................................... 5%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 3%
Fifth...................................................... 2%
Sixth...................................................... 1%
Seventh and Following...................................... None
</TABLE>
In determining whether a contingent deferred sales charge is applicable, it
will be assumed that a redemption is made first, of any shares held in the
shareholder's account that are not subject to such charge; second, of shares
derived from reinvestment of dividends and distributions; third, of shares held
for more than six years from the date such shares were purchased; and fourth, of
shares held less than six years from the date such shares were purchased. The
applicable sales charge will be applied against the lesser of the current market
value of shares redeemed or their original cost.
Class C Shares. Class C shares purchased under the Multiple Distribution
System may be redeemed on any business day of a Multiple Class Fund at the net
asset value per share next determined following receipt of the redemption order,
as described under the caption "Timing and Pricing of Redemption Orders," less a
1% contingent deferred sales charge. No deferred sales charge will be imposed
(i) on redemptions of Class C shares following one year from the date such
shares were purchased; (ii) on Class C shares acquired through reinvestment of
dividends and distributions attributable to Class C shares; (iii) on amounts
that represent capital appreciation in the shareholder's account above the
purchase price of the Class C shares; (iv) on redemptions of additional
purchases of shares of AIM ADVISOR FLEX FUND, AIM ADVISOR INCOME FUND, AIM
ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, and AIM ADVISOR REAL ESTATE FUND, by shareholders of record on
April 30, 1995 of these funds. Shareholders whose broker/dealers maintain a
single omnibus account with the Transfer Agent on behalf of those shareholders,
perform sub-accounting functions with respect to those shareholders, and are
unable to segregate shareholders of record prior to April 30, 1995 from
shareholders whose accounts were opened after that date will be subject to a
CDSC on all purchases made after March 1, 1996; or (v) on Class C shares of AIM
ADVISOR CASH MANAGEMENT FUND except in certain cases when the shares were
purchased in an exchange. Redemptions of shares of AIM ADVISOR CASH MANAGEMENT
FUND are generally not subject to a contingent deferred sales charge; however, a
contingent deferred sales charge may be applicable to redemptions of shares of
AIM ADVISOR CASH MANAGEMENT FUND if the redeemed shares were exchanged from
another Class C share fund and the one year holding period in such fund has not
been completed.
Contingent deferred sales charges on Class B and Class C shares will be waived
on redemptions (1) following the death or post-purchase disability, as defined
in Section 72(m)(7) of the Code, of a shareholder or a settlor of a living trust
(provided AIM Distributors is notified of such death or post-purchase disability
at the time of the redemption request and is provided with satisfactory evidence
of such death or post-purchase disability), (2) in connection with certain
distributions from individual retirement accounts, custodial accounts maintained
pursuant to Code Section 403(b), deferred compensation plans qualified under
Code Section 457 and plans qualified under Code Section 401 (collectively,
"Retirement Plans"), (3) pursuant to a Systematic Withdrawal Plan, provided that
amounts withdrawn under such plan do not exceed on an annual basis 12% of the
value of the shareholder's investment in Class B or Class C shares at the time
the shareholder elects to participate in the Systematic Withdrawal Plan, (4)
effected pursuant to the right of a Multiple Class Fund to liquidate a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the designated minimum account size described in the
prospectus of such Multiple Class Fund, (5) effected by AIM of its investment in
Class B or Class C shares and (6) of Class C shares where such investor's dealer
of record, due to the nature of the investor's account, notifies AIM
Distributors prior to the time of investment that the dealer waives the payment
otherwise payable to the dealer described in the fifth paragraph under the
caption "Terms and Conditions of Purchase of the AIM Funds -- All Groups of AIM
Funds.".
Waiver category (1) above applies only to redemptions of Class B or Class C
shares held at the time of death or initial determination of post-purchase
disability.
Waiver category (2) above applies only to redemptions resulting from:
(i) required minimum distributions to plan participants or
beneficiaries who are age 70- 1/2 or older, and only with respect to that
portion of such distributions which does not exceed 12% annually of the
participant's or beneficiary's account value;
(ii) in kind transfers of assets where the participant or beneficiary
notifies AIM Distributors of such transfer no later than the time such
transfer occurs;
(iii) tax-free rollovers or transfers of assets to another Retirement
Plan invested in Class B or Class C shares of one or more Multiple Class
Funds;
MCF-A 07/97
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<PAGE> 27
(iv) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(v) distributions upon the death or disability (as defined in the
Code) of the participant or beneficiary.
CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for
purchases of Class B and Class C shares of a Multiple Class Fund and purchases
of shares of the No Load Funds and Lower Load Funds, A CONTINGENT DEFERRED SALES
CHARGE OF 1% APPLIES TO PURCHASES OF $1,000,000 OR MORE THAT ARE REDEEMED WITHIN
18 MONTHS OF THE DATE OF PURCHASE. For a description of the AIM Funds
participating in this program, see "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions." This charge will be 1% of the
lesser of the value of the shares redeemed (excluding reinvested dividends and
capital gain distributions) or the total original cost of such shares. In
determining whether a contingent deferred sales charge is payable, and the
amount of any such charge, shares not subject to the contingent deferred sales
charge are redeemed first (including shares purchased by reinvested dividends
and capital gains distributions and amounts representing increases from capital
appreciation), and then other shares are redeemed in the order of purchase. No
such charge will be imposed upon exchanges unless the shares acquired by
exchange are redeemed within 18 months of the date the shares were originally
purchased. For purposes of computing this 18-MONTH PERIOD (i) shares of any Load
Fund, Class A shares of AIM ADVISOR CASH MANAGEMENT FUND or AIM Cash Reserve
Shares of AIM MONEY MARKET FUND which were acquired through an exchange of
shares which previously were subject to the 1% contingent deferred sales charge
will be credited with the period of time such exchanged shares were held, and
(ii) shares of any Load Fund which are subject to the 1% contingent deferred
sales charge and which were acquired through an exchange of shares of a Lower
Load Fund or a No Load Fund which previously were not subject to the 1%
contingent deferred sales charge will not be credited with the period of time
such exchanged shares were held. The charge will be waived in the following
circumstances: (1) redemptions of shares by employee benefit plans ("Plans")
qualified under Sections 401 or 457 of the Code, or Plans created under Section
403(b) of the Code and sponsored by nonprofit organizations as defined under
Section 501(c)(3) of the Code, where shares are being redeemed in connection
with employee terminations or withdrawals, and (a) the total amount invested in
a Plan is at least $1,000,000, (b) the sponsor of a Plan signs a letter of
intent to invest at least $1,000,000 in one or more of the AIM Funds, or (c) the
shares being redeemed were purchased by an employer-sponsored Plan with at least
100 eligible employees; provided, however, that Plans created under Section
403(b) of the Code which are sponsored by public educational institutions shall
qualify under (a), (b) or (c) above on the basis of the value of each Plan
participant's aggregate investment in the AIM Funds, and not on the aggregate
investment made by the Plan or on the number of eligible employees; (2)
redemptions of shares following the death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust; (3) redemptions of shares purchased at net asset value by private
foundations or endowment funds where the initial amount invested was at least
$1,000,000; (4) redemptions of shares purchased by an investor in amounts of
$1,000,000 or more where such investor's dealer of record, due to the nature of
the investor's account, notifies AIM Distributors prior to the time of
investment that the dealer waives the payments otherwise payable to the dealer
as described in the third paragraph under the caption "Terms and Conditions of
Purchase of the AIM Funds -- All Groups of AIM Funds"; and (5) pursuant to a
Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do
not exceed on an annual basis 12% of the value of the shareholder's investment
in Class A shares at the time the shareholder elects to participate in the
Systematic Withdrawal Plan.
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59- 1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or wired to the pre-authorized bank
account as indicated on the account application; (b) there has been no change of
address of record on the account within the preceding 30 days; (c) the shares to
be redeemed are not in certificate form; (d) the person requesting the
redemption can provide proper identification information; and (e) the proceeds
of the redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM
MCF-A 07/97
A-15
<PAGE> 28
Distributors has made arrangements with certain dealers and investment advisors
to accept telephone instructions for the redemption of shares. AIM Distributors
reserves the right to impose conditions on these dealers and investment
advisors, including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with AIM
Distributors. The Transfer Agent and AIM Distributors will not be liable for any
loss, expense or cost arising out of any telephone redemption request effected
in accordance with the authorization set forth at that item of the account
application if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions if they do not follow reasonable procedures for verification of
telephone transactions. Such reasonable procedures may include recordings of
telephone transactions (maintained for six months), requests for confirmation of
the shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is
received prior to 11:30 a.m. Eastern Time, the redemption will be effective on
that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that
same business day. If the redemption order is received after 11:30 a.m. and
prior to NYSE Close, the redemption will be made at the next determined net
asset value and payment will generally be transmitted on the next business day.
REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND, AIM ADVISOR CASH MANAGEMENT
FUND and AIM Cash Reserve Shares of AIM MONEY MARKET FUND). After completing the
appropriate authorization form, shareholders may use checks to effect
redemptions from AIM TAX-EXEMPT CASH FUND, AIM ADVISOR CASH MANAGEMENT FUND and
the AIM Cash Reserve Shares of AIM MONEY MARKET FUND. This privilege does not
apply to retirement accounts or qualified plans. Checks may be drawn in any
amount of $250 or more. Checks drawn against insufficient shares in the account,
against shares held less than ten business days, or in amounts of less than the
applicable minimum will be returned to the payee. The payee of the check may
cash or deposit it in the same way as an ordinary bank check. When a check is
presented to the Transfer Agent for payment, the Transfer Agent will cause a
sufficient number of shares of such fund to be redeemed to cover the amount of
the check. Shareholders are entitled to dividends on the shares redeemed through
the day on which the check is presented to the Transfer Agent for payment.
TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds
(other than AIM MONEY MARKET FUND) are redeemed at their net asset value next
computed after a request for redemption in proper form (including signature
guarantees and other required documentation for written redemptions) is received
by the Transfer Agent, except that shares that are subject to a contingent
deferred sales charge, may be subject to the imposition of deferred sales
charges that will be deducted from the redemption proceeds. See "Multiple
Distribution System" and "Contingent Deferred Sales Charge Program for Large
Purchases." Orders for the redemption of shares received in proper form prior to
NYSE Close on any business day of an AIM Fund will be confirmed at the price
determined as of the close of that day. Orders received after NYSE Close will be
confirmed at the price determined on the next business day of an AIM Fund.
Redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or
NYSE Close on any business day of the Fund will be confirmed at the price next
determined. It is the responsibility of the dealer to ensure that all orders are
transmitted on a timely basis. Any resulting loss from the dealer's failure to
submit a request for redemption within the prescribed time frame will be borne
by that dealer. Telephone redemption requests must be made by NYSE Close on any
business day of an AIM Fund and will be confirmed at the price determined as of
the close of that day. No AIM Fund will accept requests which specify a
particular date for redemption or which specify any special conditions.
Payment of the proceeds of redeemed shares is normally mailed within seven
days following the redemption date. However, in the event of a redemption of
shares purchased by check, the investor may be required to wait up to ten
business days before the redemption proceeds are sent. See "Terms and Conditions
of Purchase of the AIM Funds -- Timing of Purchase Orders." A charge for special
handling (such as wiring of funds or expedited delivery services) may be made by
the Transfer Agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared, which
may take up to ten business days from the date that the check is received.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect the
investor, the AIM Funds, AIM Distributors, and their agents by verifying the
signature of each investor seeking to redeem, transfer, or exchange shares of an
AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent by wire to
other than the bank of record for the account; (4) redemptions requesting
proceeds to be sent to a new address or an address that has been changed within
the past 30 days; (5) requests to transfer the registration of shares to another
owner; (6) telephone exchange and telephone redemption authorization forms; (7)
changes in previously designated wiring instructions; and (8) written
redemptions or exchanges of shares previously reported as lost, whether or not
the redemption amount is under $50,000 or the proceeds are to be sent to the
address of record. These requirements may be waived or modified upon notice to
shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the Securities and
Exchange Commission ("SEC"), and further provided that such guarantor
institution is listed in one of the reference guides contained in the Transfer
Agent's current Signature Guarantee Standards and Procedures, such as
MCF-A 07/97
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<PAGE> 29
certain domestic banks, credit unions, securities dealers, or securities
exchanges. The Transfer Agent will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact the Client
Services Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES AND LIMITED MATURITY TREASURY SHARES
ONLY). Within 90 days of a redemption, a shareholder may invest all or part of
the redemption proceeds in Class A shares of any AIM Fund (except Class A shares
of AIM ADVISOR CASH MANAGEMENT FUND) and AIM Limited Maturity Treasury Shares at
the net asset value next computed after receipt by the Transfer Agent of the
funds to be reinvested; provided, however, if the redemption was made from AIM
Limited Maturity Treasury Shares or Class A shares of AIM TAX-FREE INTERMEDIATE
SHARES, the reinvested proceeds will be subject to the difference in sales
charge between the shares redeemed and the shares the proceeds are reinvested
in. The shareholder must ask the Transfer Agent for such privilege at the time
of reinvestment. A realized gain on the redemption is taxable, and reinvestment
may alter any capital gains payable. If there has been a loss on the redemption
and shares of the same fund are repurchased, all of the loss may not be tax
deductible, depending on the timing and amount reinvested. Under the Code, if
the redemption proceeds of fund shares on which a sales charge was paid are
reinvested in (or exchanged for) shares of another AIM Fund at a reduced sales
charge within 90 days of the payment of the sales charge, the shareholder's
basis in the fund shares redeemed may not include the amount of the sales charge
paid, thereby reducing the loss or increasing the gain recognized from the
redemption; however, the shareholder's basis in the fund shares purchased will
include the sales charge. Each AIM Fund may amend, suspend or cease offering
this privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation. This privilege may only be exercised once
each year by a shareholder with respect to each AIM Fund.
Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of Class A shares and who subsequently reinvest a portion or
all of the value of the redeemed shares in Class A shares of any AIM Fund within
90 days after such redemption may do so at net asset value if such privilege is
claimed at the time of reinvestment. Such reinvested proceeds will not be
subject to either a front-end sales charge at the time of reinvestment or an
additional contingent deferred sales charge upon subsequent redemption. In order
to exercise this reinvestment privilege, the shareholder must notify the
Transfer Agent of his or her intent to do so at the time of reinvestment. This
reinvestment privilege does not apply to Class B or Class C shares.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon Eastern Time and NYSE Close with
respect to AIM MONEY MARKET FUND), on each "business day" of a fund as
previously defined. In the event the NYSE closes early (i.e. before 4:00 p.m.
Eastern Time) on a particular day, the net asset value of an AIM Fund's share
will be determined as of the close of the NYSE on such day. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE.The net asset
value per share is calculated by subtracting a class' liabilities from its
assets and dividing the result by the total number of class shares outstanding.
The determination of net asset value per share is made in accordance with
generally accepted accounting principles. Among other items, liabilities include
accrued expenses and dividends payable, and total assets include portfolio
securities valued at their market value, as well as income accrued but not yet
received. 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 fund's officers and in accordance with methods which are specifically
authorized by its governing Board of Directors or Trustees. Short-term
obligations with maturities of 60 days or less, and the securities held by the
Money Market Funds, are valued at amortized cost as reflecting fair value. AIM
MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT and AIM TAX-FREE
INTERMEDIATE SHARES value variable rate securities that have an unconditional
demand or put feature exercisable within seven days or less at par, which
reflects the market value of such securities.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of an AIM Fund's shares are determined as of
such times. Foreign currency exchange rates are also generally determined prior
to the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which the
values of the securities are determined and the close of the NYSE which will not
be reflected in the computation of an AIM 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 or Trustees of the
applicable AIM Fund.
MCF-A 07/97
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<PAGE> 30
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Each AIM Fund's policy regarding the payment of dividends and distributions is
set forth below.
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
---- -------------- ------------- -------------
<S> <C> <C> <C>
AIM ADVISOR CASH MANAGEMENT FUND.......... declared daily; paid monthly annually annually
AIM ADVISOR FLEX FUND..................... declared and paid quarterly quarterly annually
AIM ADVISOR INCOME FUND................... declared and paid monthly monthly annually
AIM ADVISOR INTERNATIONAL VALUE FUND...... declared and paid annually annually annually
AIM ADVISOR LARGE CAP VALUE FUND.......... declared and paid quarterly quarterly annually
AIM ADVISOR MULTIFLEX FUND................ declared and paid quarterly quarterly annually
AIM ADVISOR REAL ESTATE FUND.............. declared and paid quarterly quarterly annually
AIM AGGRESSIVE GROWTH FUND................ declared and paid annually annually annually
AIM BALANCED FUND......................... declared and paid quarterly annually annually
AIM BLUE CHIP FUND........................ declared and paid annually annually annually
AIM CAPITAL DEVELOPMENT FUND.............. declared and paid annually annually annually
AIM CHARTER FUND.......................... declared and paid quarterly annually annually
AIM CONSTELLATION FUND.................... declared and paid annually annually annually
AIM GLOBAL AGGRESSIVE GROWTH FUND......... declared and paid annually annually annually
AIM GLOBAL GROWTH FUND.................... declared and paid annually annually annually
AIM GLOBAL INCOME FUND.................... declared daily; paid monthly annually annually
AIM GLOBAL UTILITIES FUND................. declared daily; paid monthly annually annually
AIM GROWTH FUND........................... declared and paid annually annually annually
AIM HIGH YIELD FUND....................... declared daily; paid monthly annually annually
AIM INCOME FUND........................... declared daily; paid monthly annually annually
AIM INTERMEDIATE GOVERNMENT FUND.......... declared daily; paid monthly annually annually
AIM INTERNATIONAL EQUITY FUND............. declared and paid annually annually annually
AIM LIMITED MATURITY TREASURY SHARES...... declared daily; paid monthly annually annually
AIM MONEY MARKET FUND..................... declared daily; paid monthly at least annually annually
AIM MUNICIPAL BOND FUND................... declared daily; paid monthly annually annually
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT... declared daily; paid monthly annually annually
AIM TAX-EXEMPT CASH FUND.................. declared daily; paid monthly at least annually annually
AIM TAX-FREE INTERMEDIATE SHARES.......... declared daily; paid monthly annually annually
AIM VALUE FUND............................ declared and paid annually annually annually
AIM WEINGARTEN FUND....................... declared and paid annually annually annually
</TABLE>
In determining the amount of capital gains, if any, available for
distribution, net capital gains are offset against available net capital losses,
if any, carried forward from previous fiscal periods.
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to a class are reinvested in additional
shares of such class, absent an election by a shareholder to receive cash or to
have such dividends and distributions reinvested in like shares of another
Multiple Class Fund, to the extent permitted. For funds that do not declare a
dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the ex-dividend date. For funds that declare
a dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the payable date. Shareholders may elect, by
written notice to the Transfer Agent, to receive such distributions, or the
dividend portion thereof, in cash, or to invest such dividends and distributions
in shares of another fund in the AIM Funds; provided that (i) dividends and
distributions attributable to Class B shares may only be reinvested in Class B
shares, (ii) dividends and distributions attributable to Class C shares may only
be reinvested in Class C shares (except Class C shares of AIM ADVISOR CASH
MANAGEMENT FUND) (iii) dividends and distributions attributable to Class A
shares or AIM Limited Maturity Treasury Shares may not be reinvested in Class A
shares of AIM ADVISOR CASH MANAGEMENT FUND or Class B or Class C shares, and
(iv) dividends and distributions attributable to the AIM Cash Reserve Shares of
AIM MONEY MARKET FUND may not be reinvested in the Class A shares of that Fund
or in any Class B or Class C shares. Investors who have not previously selected
such a reinvestment option on the account application form may contact the
Transfer Agent at any time to obtain a form to authorize such reinvestments in
another AIM Fund. Such reinvestments into the AIM Funds are not subject to sales
charges, and shares so purchased are automatically credited to the account of
the shareholder.
Dividends on Class B and Class C shares (except Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) are expected to be lower than those for Class A shares or
AIM Cash Reserve Shares because of higher distribution fees paid by Class B and
Class C shares (except Class C shares of AIM ADVISOR CASH MANAGEMENT FUND).
Dividends on all shares may also be affected by other class-specific expenses.
MCF-A 07/97
A-18
<PAGE> 31
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution election remains
in effect until the Transfer Agent receives a revised written election by the
shareholder.
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.
TAX MATTERS
Each AIM Fund has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Code. As long as a fund
qualifies for this tax treatment, it is not subject to federal income taxes on
net investment income and capital gains that are distributed to shareholders.
Each fund, for purposes of determining taxable income, distribution requirements
and other requirements of Subchapter M, is treated as a separate corporation.
Therefore, no fund may offset its gains against another fund's losses and each
fund must individually comply with all of the provisions of the Code which are
applicable to its operations.
TAX TREATMENT OF DISTRIBUTIONS -- GENERAL. Because each AIM Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders, it is not expected that any such fund will be
required to pay any federal income tax. Each AIM Fund also intends to meet the
distribution requirements of the Code to avoid the imposition of a
non-deductible 4% excise tax calculated as a percentage of certain undistributed
amounts of taxable ordinary income and capital gain net income. Nevertheless,
shareholders normally are subject to federal income taxes, and any applicable
state and local income taxes, on the dividends and distributions received by
them from a fund whether in the form of cash or additional shares of a fund,
except for tax-exempt dividends paid by AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND, and AIM TAX-FREE
INTERMEDIATE SHARES (the "Tax-Exempt Funds") which are exempt from federal tax.
Dividends paid by a fund (other than capital gain distributions) may qualify for
the federal 70% dividends received deduction for corporate shareholders to the
extent of the qualifying dividends received by the fund on domestic common or
preferred stock. It is not likely that dividends received from AIM ADVISOR CASH
MANAGEMENT FUND, AIM ADVISOR INCOME FUND, AIM ADVISOR INTERNATIONAL VALUE FUND,
AIM ADVISOR REAL ESTATE FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM LIMITED
MATURITY TREASURY SHARES, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND or AIM TAX-FREE
INTERMEDIATE SHARES will qualify for this dividends received deduction. Shortly
after the end of each year, shareholders will receive information regarding the
amount and federal income tax treatment of all distributions paid during the
year. Certain dividends declared in October, November or December of a calendar
year are taxable to shareholders as though received on December 31 of that year
if paid to shareholders during January of the following calendar year. No gain
or loss will be recognized by shareholders upon the automatic conversion of
Class B shares of a Multiple Class Fund into Class A shares of such Fund. With
respect to tax-exempt shareholders, distributions from the Funds will not be
subject to federal income taxation to the extent permitted under the applicable
tax-exemption.
For each redemption of a fund's shares by a non-exempt shareholder, the fund
or the securities dealer effecting the transaction is required to file an
information return with the IRS.
TO AVOID BEING SUBJECT TO FEDERAL INCOME TAX WITHHOLDING AT THE RATE OF 31% ON
DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, SHAREHOLDERS OF A FUND MUST
FURNISH THE FUND WITH THEIR TAXPAYER IDENTIFICATION NUMBER AND CERTIFY UNDER
PENALTIES OF PERJURY THAT THE NUMBER PROVIDED IS CORRECT AND THAT THEY ARE NOT
SUBJECT TO BACKUP WITHHOLDING FOR ANY REASON.
Under existing provisions of the Code, nonresident alien individuals, foreign
partnerships and foreign corporations may be subject to federal income tax
withholding at a 30% rate on ordinary income dividends and distributions (other
than exempt-interest dividends and capital gain dividends) and return of capital
distributions. Under applicable treaty law, residents of treaty countries may
qualify for a reduced rate of withholding or a withholding exemption.
DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE OR LOCAL TAX
LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN.
ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE STATEMENT OF ADDITIONAL
INFORMATION.
TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required
to include the "exempt-interest" portion of dividends paid by the Tax-Exempt
Funds in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns. Moreover,
exempt-interest dividends from the Tax-Exempt Funds may be subject to state
income taxes, may give rise to a federal alternative minimum tax liability, may
affect the amount of social security benefits subject to federal income tax, may
affect the deductibility of interest on certain indebtedness of the shareholder,
and may have other collateral federal income tax consequences. The Tax-Exempt
Funds may invest in Municipal Securities the interest on which will constitute
an item of tax preference and which therefore could give rise to a federal
alternative minimum tax liability for shareholders, and may invest up to 20% of
their net assets in such securities and
MCF-A 07/97
A-19
<PAGE> 32
other taxable securities. For additional information concerning the alternative
minimum tax and certain collateral tax consequences of the receipt of
exempt-interest dividends, see the Statements of Additional Information
applicable to the Tax-Exempt Funds.
The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but
will endeavor to avoid investments which would result in taxable dividends. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitute an item of tax preference, will be
determined annually. This percentage may differ from the actual percentages for
any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains, whether received in cash or additional shares, and regardless of
the length of time a particular shareholder may have held his shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.
AIM INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY
SHARES -- SPECIAL TAX INFORMATION. Certain states exempt from state income taxes
dividends paid by mutual funds out of interest on U.S. Treasury and certain
other U.S. Government obligations, and investors should consult with their own
tax advisors concerning the availability of such exemption.
AIM ADVISOR INTERNATIONAL VALUE FUND, AIM INTERNATIONAL EQUITY FUND, AIM
GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND
AND AIM GLOBAL UTILITIES FUND -- SPECIAL TAX INFORMATION. For taxable years in
which it is eligible to do so, each of these funds may elect to pass through to
shareholders credits for foreign taxes paid. If the fund makes such an election,
a shareholder who receives a distribution (1) will be required to include in
gross income his proportionate share of foreign taxes allocable to the
distribution and (2) may claim a credit or deduction for such share for his
taxable year in which the distribution is received, subject to the general
limitations imposed on the allowance of foreign tax credits and deductions.
Shareholders should also note that certain gains or losses attributable to
fluctuations in exchange rates or foreign currency forward contracts may
increase or decrease the amount of income of the fund available for distribution
to shareholders, and should note that if such losses exceed other income during
a taxable year, the fund would not be able to pay ordinary income dividends.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, serves as custodian for the
portfolio securities and cash of the AIM Funds other than AIM MUNICIPAL BOND
FUND, AIM LIMITED MATURITY TREASURY SHARES AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE INTERMEDIATE SHARES, for
which The Bank of New York, 90 Washington Street, 11th Floor, New York, New York
10286, serves as custodian. Texas Commerce Bank National Association, P.O. Box
2558, Houston, Texas 77252-8084, serves as Sub-Custodian for retail purchases of
the AIM Funds.
A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, a wholly
owned subsidiary of AIM, serves as each AIM Fund's transfer agent and dividend
payment agent.
LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and passes upon
the legality of the shares offered pursuant to this Prospectus.
SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should
be directed to an A I M Fund Services, Inc. Client Services Representative by
calling (800) 959-4246. The Transfer Agent may impose certain copying charges
for requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
OTHER INFORMATION. This Prospectus sets forth basic information that investors
should know about the fund(s) named on the cover page prior to investing.
Recipients of this Prospectus will be provided with a copy of the annual report
of the fund(s) to which this Prospectus relates, upon request and without
charge. If several members of a household own shares of the same fund, only one
annual or semi-annual report will be mailed to that address. To receive
additional copies, please call (800) 347-4246, or write to A I M Distributors,
Inc., P.O. Box 4739, Houston, Texas 77210-4739. A Statement of Additional
Information has been filed with the SEC and is available upon request and
without charge, by writing or calling AIM Distributors. The SEC maintains a Web
site at http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
the Fund. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration statement,
including items omitted from this Prospectus, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
MCF-A 07/97
A-20
<PAGE> 33
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number (TIN) which appears in
Section 1 of the Application complies with the following guidelines:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
<S> <C> <C> <C>
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary
Joint Individual First individual listed in the
"Account Registration" portion
of the Application
Unif. Gifts to Minor Corporation, Partnership, Corporation, Partnership,
Minors/Unif. Other Organization Other Organization
Transfers to Minors
Legal Guardian Ward, Minor or
Incompetent
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
</TABLE>
- --------------------------------------------------------------------------------
Applications without a certified TIN will not be accepted unless the applicant
is a nonresident alien, foreign corporation or foreign partnership and has
attached a completed IRS Form W-8.
BACKUP WITHHOLDING. Each AIM Fund, and other payers, must, according to IRS
regulations, withhold 31% of redemption payments and reportable dividends
(whether paid or accrued) in the case of any shareholder who fails to provide
the Fund with a TIN and a certification that he is not subject to backup
withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject to backup
withholding because the investor failed to report all of the interest and
dividends on such investor's tax return (for reportable interest and
dividends only), or
(4) the investor fails to certify to the Fund that the investor is not subject
to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting and such entities should check the box "Exempt from Backup
Withholding" on the Application. A complete listing of such exempt entities
appears in the Instructions for the Requester of Form W-9 (which can be obtained
from the IRS) and includes, among others, the following:
- - a corporation
- - an organization exempt from tax under Section 501(a), an individual retirement
plan (IRA), or a custodial account under Section 403(b)(7)
- - the United States or any of its agencies or instrumentalities
- - a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- - a foreign government or any of its political subdivisions, agencies or
instrumentalities
- - an international organization or any of its agencies or instrumentalities
- - a foreign central bank of issue
- - a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- - a futures commission merchant registered with the Commodity Futures Trading
Commission
- - a real estate investment trust
- - an entity registered at all times during the tax year under the Investment
Company Act of 1940
- - a common trust fund operated by a bank under Section 584(a)
- - a financial institution
- - a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- - a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
MCF-A 07/97
B-1
<PAGE> 34
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
appropriate withholding as described in the Prospectus under "Dividends,
Distributions and Tax Matters."
SPECIAL INFORMATION REGARDING TELEPHONE EXCHANGE PRIVILEGE. By signing the new
Account Application form, an investor appoints the Transfer Agent as his true
and lawful attorney-in-fact to surrender for redemption any and all unissued
shares held by the Transfer Agent in the designated account(s), or in any other
account with any of the AIM Funds, present or future, which has the identical
registration as the designated account(s), with full power of substitution in
the premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption proceeds
to be applied to purchase shares in any one or more of the AIM Funds, provided
that such fund is available for sale and provided that the registration and
mailing address of the shares to be purchased are identical to the registration
of the shares being redeemed. An investor acknowledges by signing the form that
he understands and agrees that the Transfer Agent and AIM Distributors may not
be liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction. The Transfer Agent
reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone exchange privilege at any time without notice.
SPECIAL INFORMATION REGARDING TELEPHONE REDEMPTION PRIVILEGE. By signing the
new Account Application form, an investor appoints the Transfer Agent as his
true and lawful attorney-in-fact to surrender for redemption any and all
unissued shares held by the Transfer Agent in the designated account(s), present
or future, with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption. An investor acknowledges by signing the
form that he understands and agrees that the Transfer Agent and AIM Distributors
may not be liable for any loss, expense or cost arising out of any telephone
redemption requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. The Transfer
Agent reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone redemption privilege at any time without notice. An investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any exchanges must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "Exchange Privilege -- Exchanges
by Mail").
MCF-A 07/97
B-2
<PAGE> 35
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS (--Registered Trademark--)
Investment Advisor
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Principal Underwriter
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Transfer Agent
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Accountants
KPMG Peat Marwick LLP
700 Louisiana
NationsBank Building
Houston, TX 77002
For more complete information about any other Fund in The AIM Family of Funds,
including charges and expenses, please call (800) 347-4246 or write to A I M
Distributors, Inc. and request a free prospectus. Please read the prospectus
carefully before you invest or send money.
<PAGE> 36
STATEMENT OF
ADDITIONAL INFORMATION
RETAIL CLASSES OF
AIM BLUE CHIP FUND
AIM CHARTER FUND
AIM WEINGARTEN FUND
AIM CONSTELLATION FUND
AIM AGGRESSIVE GROWTH FUND
AIM CAPITAL DEVELOPMENT FUND
(SERIES PORTFOLIOS OF
AIM EQUITY FUNDS, INC.)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IT SHOULD BE READ IN CONJUNCTION WITH
A PROSPECTUS OF THE ABOVE-NAMED FUNDS,
A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE
FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TX 77210-4739
OR BY CALLING (800) 347-4246.
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 4, 1997,
RELATING TO THE AIM AGGRESSIVE GROWTH FUND PROSPECTUS,
THE AIM CHARTER FUND, AIM WEINGARTEN FUND
AND AIM CONSTELLATION FUND PROSPECTUS,
THE AIM BLUE CHIP FUND PROSPECTUS AND
THE AIM CAPITAL DEVELOPMENT FUND PROSPECTUS
EACH DATED AUGUST 4, 1997
<PAGE> 37
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION ........................................................................ 1
GENERAL INFORMATION ABOUT THE FUNDS ................................................. 1
The Company and Its Shares ................................................. 1
PERFORMANCE ......................................................................... 2
Total Return Calculations .................................................. 2
Yield Quotations ........................................................... 3
Historical Portfolio Results ............................................... 3
PORTFOLIO TRANSACTIONS AND BROKERAGE ................................................ 5
General Brokerage Policy ................................................... 5
Section 28(e) Standards .................................................... 7
Brokerage Commissions Paid ................................................. 8
Portfolio Turnover ......................................................... 9
INVESTMENT OBJECTIVES AND POLICIES .................................................. 9
Foreign Securities ......................................................... 10
Foreign Exchange Transactions .............................................. 11
Rule 144A Securities ....................................................... 11
Lending of Portfolio Securities ............................................ 11
Repurchase Agreements ...................................................... 12
Special Situations ......................................................... 12
Short Sales ................................................................ 12
Warrants ................................................................... 13
Options .................................................................... 13
Futures Contracts .......................................................... 14
Stock Index Futures Contracts ..................................... 14
Foreign Currency Futures Contracts ................................ 15
Options on Futures Contracts ............................................... 15
Risks as to Futures Contracts and Related Options .......................... 15
Investment in Unseasoned Issuers ........................................... 16
INVESTMENT RESTRICTIONS ............................................................. 16
Blue Chip .................................................................. 17
Charter .................................................................... 18
Weingarten ................................................................. 19
Constellation .............................................................. 20
Aggressive Growth .......................................................... 21
Capital Development ........................................................ 22
Additional Restrictions .................................................... 23
MANAGEMENT .......................................................................... 23
Directors and Officers ..................................................... 23
Remuneration of Directors ......................................... 26
AIM Funds Retirement Plan for Eligible Directors/Trustees ......... 27
Deferred Compensation Agreements .................................. 28
Investment Advisory, Administrative Services and Sub-Advisory Agreements ... 29
</TABLE>
i
<PAGE> 38
<TABLE>
<S> <C>
DISTRIBUTION PLANS ................................................................. 33
The Class A and C Plan .................................................... 33
The Class B Plan ........................................................... 33
Both Plans ................................................................. 33
THE DISTRIBUTOR ..................................................................... 37
HOW TO PURCHASE AND REDEEM SHARES ................................................... 39
NET ASSET VALUE DETERMINATION ....................................................... 39
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS ............................................ 40
Reinvestment of Dividends and Distributions ................................ 40
Tax Matters ................................................................ 40
Qualification as a Regulated Investment Company ............................ 41
Excise Tax on Regulated Investment Companies ............................... 42
Fund Distributions ......................................................... 43
Sale or Redemption of Shares ............................................... 44
Foreign Shareholders ....................................................... 45
Effect of Future Legislation; Local Tax Considerations ..................... 45
MISCELLANEOUS INFORMATION ........................................................... 46
Shareholder Inquiries ...................................................... 46
Audit Reports .............................................................. 46
Legal Matters .............................................................. 46
Custodian and Transfer Agent ............................................... 46
Principal Holders of Securities ............................................ 47
Other Information .......................................................... 52
APPENDIX ............................................................................ 53
Description of Commercial Paper Ratings .................................... 53
Description of Corporate Bond Ratings ...................................... 53
FINANCIAL STATEMENTS ................................................................ FS
</TABLE>
ii
<PAGE> 39
INTRODUCTION
AIM Equity Funds, Inc. (the "Company") is a series mutual fund. The
rules and regulations of the United States Securities and Exchange Commission
(the "SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the fund being considered for
investment. This information for AIM Charter Fund ("Charter"), AIM Weingarten
Fund ("Weingarten") and AIM Constellation Fund ("Constellation") is included in
a Prospectus dated August 4, 1997 (the "Prospectus"), which relates to the
Retail Classes of the Funds (defined below). The information for the Retail
Class of AIM Aggressive Growth Fund ("Aggressive Growth") is contained in a
separate prospectus also dated August 4, 1997. The information for the Retail
Class of AIM Blue Chip Fund ("Blue Chip") is contained in a separate prospectus
dated August 4, 1997. The information for the Retail Class of AIM Capital
Development Fund ("Capital Development") is contained in a separate prospectus
dated August 4, 1997. Additional copies of the Prospectuses and this Statement
of Additional Information may be obtained without charge by writing the
principal distributor of the Funds' shares, A I M Distributors, Inc. ("AIM
Distributors"), P.O. Box 4739, Houston, TX 77210-4739 or by calling (800)
347-4246. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Prospectus; and, in order to avoid repetition, reference
will be made to sections of the Prospectus. Additionally, the Prospectus and
this Statement of Additional Information omit certain information contained in
the Registration Statement filed with the SEC. Copies of the Registration
Statement, including items omitted from the Prospectus and this Statement of
Additional Information, may be obtained from the SEC by paying the charges
described under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized in 1988 as a Maryland corporation, and is
registered with the SEC as a diversified open-end series management investment
company. The Company currently consists of six separate portfolios: Aggressive
Growth, Blue Chip, Capital Development, Charter, Constellation, and Weingarten
(each a "Fund" and collectively, the "Funds"). Charter and Weingarten each have
four separate classes: Class A, Class B and Class C and an Institutional Class.
Constellation has three classes of shares: Class A and Class C and an
Institutional Class. Aggressive Growth has Class A shares only. Blue Chip and
Capital Development each have three classes of shares: Class A, and Class B and
Class C shares. Class A shares (sold with a front-end sales charge) and Class B
and Class C shares (each sold with a contingent deferred sales charge) of the
Funds are also referred to as the Retail Classes. Prior to October 15, 1993,
Aggressive Growth was a portfolio of AIM Funds Group ("AFG"), a Massachusetts
business trust. Pursuant to an Agreement and Plan of Reorganization between AFG
and the Company, Aggressive Growth was redomesticated as a portfolio of the
Company. All historical financial and other information contained in this
Statement of Additional Information for periods prior to October 15, 1993,
relating to Aggressive Growth is that of AFG's Aggressive Growth. Blue Chip
acquired the investment portfolio of Baird Blue Chip Fund, Inc. (the "BBC
Fund"), a registered management investment company, on June 3, 1996, in a
corporate reorganization. All historical financial information contained in this
Statement of Additional Information for periods prior to June 3, 1996, relating
to Blue Chip is that of the BBC Fund. Capital Development acquired substantially
all of the assets of Baird Capital Development Fund, Inc., a registered
management investment company, on August 12, 1996 in a corporate reorganization.
This Statement of Additional Information relates solely to the Retail
Classes of the Funds.
The term "majority of the outstanding shares" of the Company, of a
particular Fund or of a particular class of a Fund means, respectively, the
vote of the lesser of (a) 67% or more of the shares of the Company,
1
<PAGE> 40
such Fund or such class present at a meeting of the Company's shareholders,
if the holders of more than 50% of the outstanding shares of the Company,
such Fund or such class are present or represented by proxy, or (b) more than
50% of the outstanding shares of the Company, such Fund or such class.
Shares of the Retail Class and the Institutional Class of each Fund
have equal rights and privileges. Each share of a particular class is entitled
to one vote, to participate equally in dividends and distributions declared by
the Company's Board of Directors with respect to the class of such Fund and,
upon liquidation of the Fund, to participate proportionately in the net assets
of the Fund allocable to such class remaining after satisfaction of outstanding
liabilities of the Fund allocable to such class. Fund shares are fully paid,
non-assessable and fully transferable when issued and have no preemptive rights
and have such conversion and exchange rights as set forth in the Prospectus and
this Statement of Additional Information. Fractional shares have
proportionately the same rights, including voting rights, as are provided for a
full share.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company.
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
applicable Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in such Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical investment in a particular Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that a Fund's performance is not constant over time, but changes from year to
year, and that average annual returns do not represent the actual year-to-year
performance of such Fund.
In addition to average annual returns, the Retail Class of each Fund
may quote unaveraged or cumulative total returns reflecting the simple change
in value of an investment over a stated period. Average annual and cumulative
total returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions, over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph or similar
illustration. Total returns may be quoted with or without taking the applicable
Fund's maximum applicable Class A front-end sales charge or Class B or Class C
contingent deferred sales charge into account. Excluding sales charges from a
total return calculation produces a higher total return figure.
2
<PAGE> 41
YIELD QUOTATIONS
The standard formula for calculating yield, as described in the
Prospectus, is as follows:
6
YIELD = 2[((a-b) divided by (c x d) + 1) power of -1]
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued rather
than recorded on the ex-dividend date. Interest earned under
this formula must generally be calculated based on the yield to
maturity of each obligation (or, if more appropriate, based on
yield to call date).
b = expense accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the
period.
d = the maximum offering price per share on the last day of the
period.
HISTORICAL PORTFOLIO RESULTS
Blue Chip, Charter, Weingarten, Aggressive Growth and Constellation's
total returns for Class A shares for the following periods ended October 31,
1996 (which include the maximum sales charge of 5.50% and reinvestment of all
dividends and distributions), and Capital Development's total returns for Class
A shares for the period June 17, 1996 (inception date for Class A shares)
through October 31, 1996 (which includes the maximum sales charge of 5.50% and
reinvestment of all dividends and distributions) were as follows:
<TABLE>
<CAPTION>
CLASS A AVERAGE ANNUAL RETURNS
------------------------------
ONE FIVE TEN FIFTEEN TWENTY
YEAR YEARS YEARS YEARS YEARS
---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
BLUE CHIP 18.95% 12.95% N/A N/A N/A
CAPITAL DEVELOPMENT N/A N/A N/A N/A N/A
CHARTER 10.28% 10.70% 13.64% 13.87% 16.76%
WEINGARTEN 8.49% 10.36% 13.88% 16.31% 19.86%
CONSTELLATION 5.14% 17.35% 18.40% 16.80% 19.38%
AGGRESSIVE GROWTH 8.46% 24.73% 17.84% N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS A CUMULATIVE RETURNS
--------------------------
SINCE ONE FIVE TEN FIFTEEN TWENTY
INCEPTION YEAR YEARS YEARS YEARS YEARS
--------- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BLUE CHIP N/A 18.95% 83.86% N/A N/A N/A
CAPITAL DEVELOPMENT 4.80% N/A N/A N/A N/A N/A
CHARTER N/A 10.28% 66.27% 259.11% 601.35% 2,116.69%
WEINGARTEN N/A 8.49% 63.73% 266.84% 864.21% 3,643.60%
CONSTELLATION N/A 5.14% 122.59% 441.18% 926.94% 3,356.76%
AGGRESSIVE GROWTH N/A 8.46% 201.86% 416.32% N/A N/A
</TABLE>
Blue Chip acquired the investment portfolio of the BBC Fund on June 3,
1996. The performance data set forth above for Blue Chip includes performance
data of the BBC Fund for periods prior to June 3, 1996. The performance data is
not necessarily indicative of the future performance of Blue Chip.
3
<PAGE> 42
During the 10-year period ended October 31, 1996, a hypothetical
$1,000 investment at the beginning of such period in Class A shares of Charter,
Weingarten, Constellation and Aggressive Growth would have been worth $3,591,
$3,668, $5,411 and $5,163, respectively, assuming all distributions were
reinvested.
During the 15-year period ended October 31, 1996, a hypothetical
$1,000 investment at the beginning of such period in Class A shares of Charter,
Weingarten and Constellation would have been worth $7,013, $9,642 and $10,269,
respectively, assuming all dividends were reinvested.
During the 20-year period ended October 31, 1996 a hypothetical $1,000
investment at the beginning of such period in Class A shares of Charter,
Constellation and Weingarten would have been worth $37,436, $34,568 and
$22,167, respectively, assuming all distributions were reinvested. This was a
period of widely fluctuating stock and bond prices and interest rates, and
should not necessarily be considered a representation of the income or capital
gain or loss that may be realized from an investment in any of the Funds today.
Charter and Weingarten's total returns for Class B shares for the
period June 26, 1995 (inception date for Class B shares of Charter and
Weingarten) through October 31, 1996 (which include the maximum contingent
deferred sales charge of 5% and reinvestment of all dividends and
distributions), and Blue Chip and Capital Development's total returns for Class
B shares for the period October 1, 1996 (inception date for Class B shares)
through October 31, 1996 (which include the maximum contingent deferred sales
charge of 5% and reinvestment of all dividends and distributions) were as
follows:
CLASS B AVERAGE ANNUAL RETURNS
------------------------------
<TABLE>
<CAPTION>
Since
Inception One Year
--------- --------
<S> <C> <C>
BLUE CHIP N/A N/A
CAPITAL DEVELOPMENT N/A N/A
CHARTER 15.68% 10.90%
WEINGARTEN 14.82% 8.95%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CUMULATIVE RETURNS
--------------------------
Since
Inception One Year
--------- --------
<S> <C> <C>
BLUE CHIP .29% N/A
CAPITAL DEVELOPMENT 1.98% N/A
CHARTER 21.72% 10.90%
WEINGARTEN 20.51% 8.95%
</TABLE>
Average annual total return is not available for Class B shares of
Blue Chip and Capital Development as the effective date of the Class B shares
was October 1, 1996.
Average annual total return is not available for Class C shares of
Blue Chip, Capital Development, Charter, Constellation or Weingarten, as the
effective date of Class C shares was August 2, 1997.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc. and other independent services
which monitor the performance of mutual funds. The Funds may also advertise
mutual fund performance rankings which have been assigned to each respective
Fund by such monitoring services.
4
<PAGE> 43
Each Fund's performance may also be compared in advertising and other
materials to the performance of comparative benchmarks such as the Consumer
Price Index ("CPI"), the Standard & Poor's 500 Stock Index, and
fixed-price investments such as bank certificates of deposit and/or savings
accounts.
The CPI, published by the U.S. Bureau of Labor Statistics, is a
statistical measure of changes, over time, in the prices of goods and services.
Standard & Poor's 500 Stock Index is a group of unmanaged securities widely
regarded by investors as representative of the stock market in general.
Comparisons assume the reinvestment of dividends. Fixed Price Investments, such
as bank certificates of deposits and savings accounts, are generally backed by
federal agencies for up to $100,000. Class A shares of Charter, Weingarten and
Constellation are not insured and their value will vary with market conditions.
In addition, each Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events. For
instance, Charter's Class A shares performance since its inception has been
accomplished through various years in which there have been recessions, a
presidential assassination attempt, a 20% prime rate, an 13% annual inflation
rate, and significant stock market declines. The performance of Class A shares
of Weingarten, Aggressive Growth and Constellation has been achieved through
years in which similar events occurred.
Each Fund's advertising may from time to time include discussions of
general economic conditions and interest rates. Each Fund's advertising may
also include references to the use of the Fund as part of an individual's
overall retirement investment program.
From time to time, Fund sales literature and/or advertisements may
disclose (i) top holdings included in the Fund's portfolio, (ii) certain
selling group members, and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. These topics
include, but are not limited to, literature addressing general information
about mutual funds, variable annuities, dollar-cost averaging, stocks, bonds,
money markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning and inflation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors of the
Company, A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and
sell securities for each Fund, for the selection of broker-dealers, for the
execution of each Fund's investment portfolio transactions, and for the
allocation of brokerage fees in connection with such transactions. AIM's
primary consideration in effecting a security transaction is to obtain the best
net price and the most favorable execution of the order. While AIM generally
seeks reasonably competitive commission rates, each Fund does not necessarily
pay the lowest commission or spread available.
A portion of the securities in which each Fund invests are traded in
over-the-counter markets, and in such transactions, a Fund deals directly with
the dealers who make markets in the securities involved, except in those
circumstances where better prices and executions are available elsewhere.
Portfolio transactions placed through dealers serving as primary market makers
are effected at net prices, generally without commissions as such, but which
include compensation in the form of mark up or mark down.
5
<PAGE> 44
AIM may from time to time determine target levels of commission
business for AIM to transact with various brokers on behalf of its clients
(including the Funds) over a certain time period. The target levels will be
determined based upon the following factors, among others: (a) the execution
services by the broker; (b) the research services provided by the broker; (c)
certain products and/or services provided to the Funds, the cost of which will
be included in Fund expenses reported to shareholders; and (d) the broker's
attitude toward an interest in mutual funds in general and in the Funds and
other AIM Funds in particular. No specific formula will be used in connection
with any of the foregoing considerations in determining the target levels.
However, if a broker has indicated a certain level of desired commissions in
return for certain research services provided by the broker, this factor will be
taken into consideration by AIM. Subject to the overall objective of obtaining
best price and execution for the Funds, AIM may also consider sales of shares of
the Funds and of the other mutual funds managed or advised by AIM and AIM
Capital as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds. In such cases, Fund trades may be executed directly
by selling dealers or by other broker-dealers with which selling dealers have
clearing arrangements. AIM will seek, whenever possible, to recapture for the
benefit of each Fund any commission, fee, brokerage or similar payment paid by
such Fund on portfolio transactions. Normally, the only fees which may be
recaptured are the soliciting dealer fees on the tender of an account's
portfolio securities in a tender or exchange offer.
None of the Funds is under any obligation to deal with any broker or
group of brokers in the execution of transactions in portfolio securities.
Brokers who provide supplemental investment research to AIM and AIM Capital may
receive orders for transactions by the Funds. Information so received will be
in addition to and not in lieu of the services required to be performed by AIM
and AIM Capital under their agreements with the Funds and the expenses of AIM
and AIM Capital will not necessarily be reduced as a result of the receipt of
such supplemental information. Certain research services furnished by
broker-dealers may be useful to AIM and AIM Capital in connection with their
services to other advisory clients, including the investment companies which
they advise. Also, each Fund may pay a higher price for securities or higher
commissions in recognition of research services furnished by broker-dealers.
Provisions of the Investment Company Act of 1940, as amended ("1940
Act") and rules and regulations thereunder have been construed to prohibit the
Company from purchasing securities or instruments from, or selling securities
or instruments to, any holder of 5% or more of the voting securities of any
investment company managed or advised by AIM. The Company has obtained an order
of exemption from the SEC which permits the Company to engage in certain
transactions with such 5% holder, if the Company complies with conditions and
procedures designed to ensure that such transactions are executed at fair
market value and present no conflicts of interest.
AIM, AIM Capital and their affiliates manage several other investment
accounts, some of which may have investment objectives similar to those of one
or more of the Funds. It is possible that, at times, identical securities will
be appropriate for investment by one or more of the Funds and by one or more of
such investment accounts. The position of each account, however, in the
securities of the same issue may vary and the length of time that each account
may choose to hold its investment in the securities of the same issue may
likewise vary. The timing and amount of purchase by each account will be
determined by its cash position. If the purchase or sale of securities
consistent with the investment policies of a Fund and one or more of these
accounts is considered at or about the same time, transactions in such
securities will be allocated among the Fund(s) and such accounts in a manner
deemed equitable by AIM. AIM may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Simultaneous transactions could, however, adversely affect
the ability of a Fund to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Under the 1940 Act, persons affiliated with the Company are prohibited
from dealing with the Funds as principal in any purchase or sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC.
The Board of Directors has adopted procedures pursuant to Rule 17a-7 under the
1940 Act relating to portfolio transactions among the Funds and other accounts
advised by AIM or AIM Capital and each of the Funds may from time to time enter
into transactions in accordance with such Rule and procedures.
6
<PAGE> 45
From time to time, a Fund may sell a security to, or purchase a
security from, an AIM Fund or another investment account advised by AIM or AIM
Capital when such transactions comply with applicable rules and regulations and
are deemed consistent with the investment objective(s) and policies of the
investment accounts involved. Procedures pursuant to Rule 17a-7 under the 1940
Act regarding transactions between investment accounts advised by AIM or AIM
Capital have been adopted by the Board of Directors/Trustees of the various AIM
Funds including the Company. Although such transactions may result in
custodian, tax or other related expenses, no brokerage commissions or other
direct transaction costs are generated by transactions among the investment
accounts advised by AIM or AIM Capital.
In some cases the procedure for allocating portfolio transactions
among the various investment accounts advised by AIM and AIM Capital could have
an adverse effect on the price or amount of securities available to a Fund. In
making such allocations, the main factors considered by AIM are the respective
investment objectives and policies of its advisory clients, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
judgments of the persons responsible for recommending the investment.
SECTION 28(e) STANDARDS
Under Section 28(e) of the Securities Exchange Act of 1934, AIM shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), AIM must make a good faith determination that the commissions paid are
"reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or [its]
overall responsibilities with respect to the accounts as to which [it]
exercises investment discretion," and that the services provided by a broker
provide AIM and AIM Capital with lawful and appropriate assistance in the
performance of their investment decision-making responsibilities. Accordingly,
the price to a Fund in any transaction may be less favorable than that
available from another broker-dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker-dealers utilized by AIM may furnish statistical, research and
other information or services which are deemed by AIM and AIM Capital to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement AIM's and AIM Capital's own research (and the research of
sub-advisors to other clients of AIM and AIM Capital), and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to AIM and AIM Capital and to the Company's directors with
respect to the performance, investment activities and fees and expenses of
other mutual funds. Such information may be communicated electronically, orally
or in written form. Research services may also include the providing of
equipment used to communicate research information, the arranging of meetings
with management of companies and the providing of access to consultants who
supply research information.
The outside research assistance is useful to AIM and AIM Capital since
the brokers utilized by AIM as a group tend to follow a broader universe of
securities and other matters than AIM's and AIM Capital's staff can follow. In
addition, this research provides AIM and AIM Capital with a diverse perspective
on financial markets. Research services which are provided to AIM and AIM
Capital by brokers are available for the benefit of all accounts managed or
advised by AIM and AIM Capital or by sub-advisors to other accounts managed or
advised by AIM and AIM Capital. In some cases, the research services are
available only from the broker providing such services. In other cases, the
research services may be obtainable from alternative sources in return for cash
payments. AIM is of the opinion that because the broker research supplements,
rather than replaces, its research, the receipt of such research does not tend
to decrease its expenses, but tends to improve the quality of its investment
advice. However, to the extent that AIM or AIM Capital would have
7
<PAGE> 46
purchased any such research services had such services not been provided by
brokers, the expenses of such services to AIM or AIM Capital could be
considered to have been reduced accordingly. Certain research services
furnished by broker-dealers may be useful to AIM or AIM Capital with clients
other than the Funds. Similarly, any research services received by AIM or AIM
Capital through the placement of portfolio transactions of other clients may be
of value to AIM or AIM Capital in fulfilling their obligations to the Funds.
AIM is of the opinion that this material is beneficial in supplementing AIM's
and AIM Capital's research and analysis; and, therefore, it may benefit the
Funds by improving the quality of the investment advice. The advisory fees paid
by the Funds are not reduced because AIM and AIM Capital receive such services.
Some broker-dealers may indicate that the provision of research services is
dependent upon the generation of certain specified levels of commissions and
underwriting concessions by AIM's and AIM Capital's clients, including the
Funds.
BROKERAGE COMMISSIONS PAID
For the fiscal years ended October 31, 1996, 1995 and 1994, Charter
paid brokerage commissions of $9,213,125, $14,960,600, and $4,188,695,
respectively. For the fiscal year ended October 31, 1996, AIM allocated certain
of Charter's brokerage transactions to certain broker-dealers that provided AIM
with certain research, statistical and other information. Such transactions
amounted to $435,792,811 and the related brokerage commissions were $475,824.
For the fiscal years ended October 31, 1996, 1995 and 1994, Weingarten
paid brokerage commissions of $21,795,437, $21,766,760, and $17,841,982,
respectively. For the fiscal year ended October 31, 1996, AIM allocated certain
of Weingarten's brokerage transactions to certain broker-dealers that provided
AIM with certain research, statistical and other information. Such transactions
amounted to $1,102,413,275 and the related brokerage commissions were
$1,330,688.
For the fiscal years ended October 31, 1996, 1995 and 1994,
Constellation paid brokerage commissions of $13,032,299, $15,359,510, and
$6,921,543 respectively. For the fiscal year ended October 31, 1996 AIM
allocated certain of Constellation's brokerage transactions to certain
broker-dealers that provided AIM with certain research, statistical and other
information. Such transactions amounted to $923,417,535 and the related
brokerage commissions were $1,267,557.
For the fiscal years ended October 31, 1996, 1995, and 1994 Aggressive
Growth paid brokerage commissions of $3,244,570, $9,917,185, and $1,180,323,
respectively. For the fiscal year ended October 31, 1996, AIM allocated certain
of Aggressive Growth's brokerage transactions to certain broker-dealers that
provided AIM with certain research, statistical and other information. Such
transactions amounted to $280,907,229 and the related brokerage commissions
were $549,006.
For the fiscal years ended September 30, 1996 and October 31, 1996,
Blue Chip paid brokerage commissions of $121,246 and $39,153, respectively. For
the fiscal year ended October 31, 1996, AIM allocated certain of Blue Chip's
brokerage transactions to certain broker-dealers that provide AIM with certain
research, statistical and other information. Such transactions amounted to
$8,234,550 and the related brokerage commissions were $9,592.
Brokerage commissions paid by the BBC Fund during the fiscal year
ended September 30, 1995, to brokers, other than its investment adviser Robert
W. Baird & Co. Incorporated ("Baird"), totaled $45,867. All of such brokers
provided research services to Baird. During such year, the BBC Fund did not pay
brokerage commissions to Baird. Brokerage commissions paid by the BBC Fund
during the fiscal year ended September 30, 1994 to brokers, other than Baird,
totaled $37,864. All of such brokers provided research services to Baird.
During such year, the BBC Fund did not pay Baird any brokerage commissions.
For the fiscal year ended October 31, 1996, Capital Development paid
brokerage commissions of $219,931. For the fiscal year ended October 31, 1996,
AIM allocated certain of Capital Development's
8
<PAGE> 47
brokerage transactions to certain broker-dealers that provide AIM with certain
research, statistical and other information. Such transactions amounted to
$3,951,579 and the related brokerage commissions were $8,944.
PORTFOLIO TURNOVER
The portfolio turnover rate of Aggressive Growth, Capital Development,
Charter, Constellation, Weingarten and Blue Chip is shown under "Financial
Highlights" in the applicable Prospectus. Higher portfolio turnover increases
transaction costs to the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion of investment policies supplements the
discussion of the investment objectives and policies set forth in the
Prospectus under the heading "Investment Program(s)."
Each of the Funds may invest, for temporary or defensive purposes, all
or substantially all of their assets in investment grade (high quality)
corporate bonds, commercial paper, or U.S. Government obligations. In addition,
a portion of each Fund's assets may be held, from time to time, in cash,
repurchase agreements or other short-term debt securities when such positions
are deemed advisable in light of economic or market conditions. For a
description of the various rating categories of corporate bonds and commercial
paper in which the Funds may invest, see the Appendix to this Statement of
Additional Information.
COMMON STOCKS -- The Funds will invest in common stocks. Common stocks
represent the residual ownership interest in the issuer and are entitled to the
income and increase in the value of the assets and business of the entity after
all of its obligations and preferred stocks are satisfied. Common stocks
generally have voting rights. Common stocks fluctuate in price in response to
many factors including historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCKS -- The Funds may invest in preferred stocks.
Preferred stock has a preference over common stock in liquidation (and
generally dividends as well) but is subordinated to the liabilities of the
issuer in all respects. As a general rule the market value of preferred stock
with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of convertible
preferred stock generally also reflects some element of conversion value.
Because preferred stock is junior to debt securities and other obligations of
the issuer, deterioration in the credit quality of the issuer will cause
greater changes in the value of a preferred stock than in a more senior debt
security with similar stated yield characteristics. Unlike interest payments on
debt securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
CONVERTIBLE SECURITIES -- The Funds may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible income securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. Although each
Fund will only purchase convertible securities that AIM considers to have
adequate protection parameters, including an adequate capacity to pay
9
<PAGE> 48
interest and repay principal in a timely manner, it invests without regard to
corporate bond ratings. Capital Development does not intend to invest more
than 5% of its net assets in convertible securities.
CORPORATE DEBT SECURITIES -- The Funds may invest in corporate debt
securities. Corporations issue debt securities of various types, including
bonds and debentures (which are long-term), notes (which may be short- or
long-term), bankers acceptances (indirectly secured borrowings to facilitate
commercial transactions) and commercial paper (short-term unsecured notes).
These securities typically provide for periodic payments of interest, at a rate
which may be fixed or adjustable, with payment of principal upon maturity and
are generally not secured by assets of the issuer or otherwise guaranteed. The
values of fixed rate income securities tend to vary inversely with changes in
interest rates, with longer-term securities generally being more volatile than
shorter-term securities. Corporate securities frequently are subject to call
provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a
security is called during a period of declining interest rates, the Fund may be
required to reinvest the proceeds in securities having a lower yield. In
addition, in the event that a security was purchased at a premium over the call
price, a Fund will experience a capital loss if the security is called.
Adjustable rate corporate debt securities may have interest rate caps and
floors.
Blue Chip will not invest in non-convertible corporate debt securities
rated below investment grade by Standard and Poor's Ratings Services ("S&P") and
Moody's Investors Service ("Moody's") or in unrated non-convertible corporate
debt securities believed by the Fund's investment adviser to be below investment
grade quality. Securities rated in the four highest long-term rating categories
by S&P and Moody's are considered to be "investment grade." S&P's fourth highest
long-term rating category is "BBB", with BBB being the lowest investment grade
rating. Moody's fourth highest long-term rating category is "Baa", with Baa3
being the lowest investment grade rating. Publications of S&P indicate that it
assigns securities to the "BBB" rating category when such securities are
"regarded as having an adequate capacity to pay interest and repay principal.
Such securities normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay," whereas securities rated AAA by S&P are regarded as
having "capacity to pay interest and repay principal [that] is extremely
strong." Publications of Moody's indicate that it assigns securities to the "Baa
rating category when such securities are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well," whereas securities rated Aaa by
Moody's "are judged to be of the best quality" and "carry the smallest degree of
investment risk."
U.S. GOVERNMENT SECURITIES -- The Funds may invest in securities
issued or guaranteed by the United States government or its agencies or
instrumentalities. These include Treasury securities (bills, notes, bonds and
other debt securities) which differ only in their interest rates, maturities
and times of issuance. U.S. Government agency and instrumentality securities
include securities which are supported by the full faith and credit of the
U.S., securities that are supported by the right of the agency to borrow from
the U.S. Treasury, securities that are supported by the discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality and securities that are supported only by the credit of such
agencies. While the U.S. Government may provide financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it always will do so. The U.S. government, its' agencies and
instrumentalities do not guarantee the market value of their securities and
consequently the values of such securities fluctuate.
FOREIGN SECURITIES
Each of Aggressive Growth, Blue Chip and Capital Development may
invest up to 25% of its total assets in foreign securities. Each of Charter,
Weingarten and Constellation may invest up to 20% of its total assets in
foreign securities. For purposes of computing such limitation American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and other
securities representing underlying securities of foreign
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<PAGE> 49
issuers are treated as foreign securities. These securities may not necessarily
be denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered form, are designed for
use in the United States securities markets, and EDRs, in bearer form, are
designed for use in European securities markets. ADRs and EDRs may be listed on
stock exchanges, or traded in OTC markets in the United States or Europe, as
the case may be. ADRs, like other securities traded in the United States, will
be subject to negotiated commission rates. Investments by the Fund in
securities of foreign corporations may involve considerations and risks that
are different in certain respects from an investment in securities of U.S.
companies. Such risks include possible imposition of withholding taxes on
interest or dividends, possible adoption of foreign governmental restrictions
on repatriation of income or capital invested, or other adverse political or
economic developments. Additionally, it may be more difficult to enforce the
rights of a security holder against a foreign corporation, and information
about the operations of foreign corporations may be more difficult to obtain
and evaluate.
FOREIGN EXCHANGE TRANSACTIONS
Purchases and sales of foreign securities are usually made with
foreign currencies, and consequently the Funds may from time to time hold cash
balances in the form of foreign currencies and multinational currency units.
Such foreign currencies and multinational currency units will usually be
acquired on a spot (i.e. cash) basis at the spot rate prevailing in foreign
exchange markets and will result in currency conversion costs to the Funds. The
Funds attempt to purchase and sell foreign currencies on as favorable a basis
as practicable; however, some price spread on foreign exchange transactions (to
cover service charges) may be incurred, particularly when the Funds change
investments from one country to another, or when U.S. dollars are used to
purchase foreign securities. Certain countries could adopt policies which would
prevent the Funds from transferring cash out of such countries, and the Funds
may be affected either favorably or unfavorably by fluctuations in relative
exchange rates while the Funds hold foreign currencies.
RULE 144A SECURITIES
The Funds may each purchase securities which, while privately placed,
are eligible for purchase and sale pursuant to Rule 144A under the Securities
Act of 1933 (the "1933 Act"). This Rule permits certain qualified institutional
buyers, such as a Fund, to trade in privately placed securities even though
such securities are not registered under the 1933 Act. AIM, under the
supervision of the Company's Board of Directors, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the
Fund's restriction of investing no more than 15% of its assets in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination AIM will consider the trading
markets for the specific security taking into account the unregistered nature
of a Rule 144A security. In addition, AIM could consider the (i) frequency of
trades and quotes, (ii) number of dealers and potential purchasers, (iii)
dealer undertakings to make a market, and (iv) nature of the security and of
market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities will also be monitored by AIM and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to
determine what, if any, action is required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Funds may each
make secured loans of portfolio securities amounting to not more than 33-1/3%
of its total assets. None of the Funds currently intend to engage in this
investment practice. Securities loans are made to banks, brokers and other
financial institutions pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times
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to the value of the securities lent marked to market on a daily basis. The
collateral received will consist of cash, U.S. Government securities, letters
of credit or such other collateral as may be permitted under the Fund's
investment program. While the securities are being lent, the Fund will continue
to receive the equivalent of the interest or dividends paid by the issuer on
the securities, as well as interest on the investment of the collateral or a
fee from the borrower. The Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. The Fund will not have the right to vote securities while
they are being lent, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral in
the event the value of the collateral decreased below the value of the
securities loaned or of delay in recovering the securities loaned or even loss
of rights in the collateral should the borrower of the securities fail
financially. Loans will only be made to persons deemed by AIM to be of good
standing and will not be made unless, in the judgment of AIM, the consideration
to be earned from such loans would justify the risk.
REPURCHASE AGREEMENTS
The Funds may each enter into repurchase agreements. A repurchase
agreement is an instrument under which a Fund acquires ownership of a debt
security and the seller (usually a broker or bank) agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the Fund's holding period. In the event of
bankruptcy or other default of a seller of a repurchase agreement, the Fund may
experience both delays in liquidating the underlying securities and losses,
including: (a) a possible decline in the value of the underlying security
during the period in which the Fund seeks to enforce its rights thereto; (b) a
possible subnormal level of income and lack of access to income during this
period; and (c) expenses of enforcing its rights. A repurchase agreement is
collateralized by the security acquired by the Fund and its value is marked to
market daily in order to minimize the Fund's risk. Repurchase agreements
usually are for short periods, such as one or two days, but may be entered into
for longer periods of time.
Charter may enter into repurchase agreements (at any time, up to 50%
of its net assets), using only U.S. Government securities, for the sole purpose
of increasing its yield on idle cash. Charter will not invest in a repurchase
agreement of more than seven days' duration if, as a result of that investment,
the amount of repurchase agreements of more than seven days' duration would
exceed 15% of the assets of Charter.
SPECIAL SITUATIONS
Although Constellation does not currently intend to do so, it may
invest in "special situations." A special situation arises when, in the opinion
of the Fund's management, the securities of a particular company will, within a
reasonably estimable period of time, be accorded market recognition at an
appreciated value solely by reason of a development applicable to that company,
and regardless of general business conditions or movements of the market as a
whole. Developments creating special situations might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material litigation,
technical breakthroughs, and new management or management policies. Although
large and well-known companies may be involved, special situations more often
involve comparatively small or unseasoned companies. Investments in unseasoned
companies and special situations often involve much greater risk than is
inherent in ordinary investment securities. Constellation will not, however,
purchase securities of any company with a record of less than three years'
continuous operation (including that of predecessors) if such purchase would
cause the Fund's investment in all such companies, taken at cost, to exceed 5%
of the value of the Fund's total assets.
SHORT SALES
Although Blue Chip, Weingarten, Constellation and Aggressive Growth
do not currently intend to do so, they and Capital Development may each enter
into short sales transactions. None of Blue Chip,
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Weingarten, Constellation, Aggressive Growth or Capital Development will make
short sales of securities nor maintain a short position unless at all times
when a short position is open, the Fund owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, securities of the same issue as, and equal in amount to,
the securities sold short. This is a technique known as selling short "against
the box." Such short sales will be used by each of Blue Chip, Weingarten,
Constellation, Aggressive Growth and Capital Development for the purpose of
deferring recognition of gain or loss for federal income tax purposes. In no
event may more than 10% of the value of the respective Fund's net assets (10%
of the value of total assets of Aggressive Growth) be deposited or pledged as
collateral for such sales at any time.
WARRANTS
The Funds may, from time to time, invest in warrants. Warrants are, in
effect, longer-term call options. They give the holder the right to purchase a
given number of shares of a particular company at specified prices within
certain periods of time. The purchaser of a warrant expects that the market
price of the security will exceed the purchase price of the warrant plus the
exercise price of the warrant, thus giving him a profit. Of course, since the
market price may never exceed the exercise price before the expiration date of
the warrant, the purchaser of the warrant risks the loss of the entire purchase
price of the warrant. Warrants generally trade in the open market and may be
sold rather than exercised. Warrants are sometimes sold in unit form with other
securities of an issuer. Units of warrants and common stock may be employed in
financing young, unseasoned companies. The purchase price of a warrant varies
with the exercise price of a warrant, the current market value of the
underlying security, the life of the warrant and various other investment
factors. The investment in warrants by the Funds, valued at the lower of cost
or market, may not exceed 5% of the value of their net assets and not more than
2% of such value may be warrants which are not listed on the New York or
American Stock Exchanges.
OPTIONS
Each of the Funds is authorized to write (sell) covered call options
on the securities in which it may invest and to enter into closing purchase
transactions with respect to such options. A call option is "covered" if
the Fund owns or has the right to acquire the underlying security subject to
the call. Writing a call option obligates a Fund to sell or deliver the
option's underlying security, in return for the strike price, upon exercise
of the option. By writing a call option, the Fund receives an option premium
from the purchaser of the call option. Writing covered call options is
generally a profitable strategy if prices remain the same or fall. Through
receipt of the option premium, the Fund would seek to mitigate the effects of
a price decline. By writing covered call options, however, the Fund gives up
the opportunity, while the option is in effect, to profit from any price
increase in the underlying security above the option exercise price. In
addition, the Fund's ability to sell the underlying security will be limited
while the option is in effect unless the Fund effects a closing purchase
transaction.
Charter, Capital Development, Blue Chip and Weingarten may purchase
put options. A put purchased by the Fund constitutes a hedge against a
decline in the price of a security owned by the Fund. It may be sold at a
profit or loss depending upon changes in the price of the underlying security.
It may be exercised at a profit provided that the amount of the decline in the
price of the underlying security below the exercise price during the option
period exceeds the option premium, or it may expire without value. A call
constitutes a hedge against an increase in the price of a security which the
Fund has sold short, it may be sold at a profit or loss depending upon
changes in the price of the underlying security, it may be exercised at a
profit provided that the amount of the increase in the price of the underlying
security over the exercise price during the option period exceeds the option
premium, or it may expire without value. The maximum loss exposure involved
in the purchase of an option is the cost of the option contract. Capital
Development and Blue Chip may engage in strategies employing combinations of
covered put and call options.
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The Funds do not intend to engage in such transactions for speculative
purposes and will engage in such transactions only for hedging purposes.
COMBINED OPTION POSITIONS
Each Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of
the Fund's overall position. For example, the Fund may purchase a put option
and write a covered call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. This technique, called a "straddle," enables the
Fund to offset the cost of purchasing a put option with the premium received
from writing the call option. However, by selling the call option, the Fund
gives up the ability for potentially unlimited profit from the put option.
Another possible combined position would involve writing a covered call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written covered call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
FUTURES CONTRACTS
Each of the Funds may purchase and sell futures contracts in order to
hedge the value of its portfolio against changes in market conditions. In cases
of purchases of futures contracts, an amount of cash and cash equivalents,
equal to the cost of the futures contracts (less any related margin deposits),
will be segregated with the Funds' custodian to collateralize the position and
ensure that the use of such futures contracts is unleveraged. Unlike when a
Fund purchases or sells a security, no price is paid or received by a Fund upon
the purchase or sale of a futures contract. Initially, a Fund will be required
to deposit with its custodian for the account of the broker a stated amount, as
called for by the particular contract, of cash or U.S. Treasury bills. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in securities transactions in
that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
"variation margin," to and from the broker will be made on a daily basis as the
price of the futures contract fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as
"marking-to-market." For example, when a Fund has purchased a stock index
futures contract and the price of the underlying stock index has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment with respect to that increase in value. Conversely,
where a Fund has purchased a stock index futures contract and the price of the
underlying stock index has declined, that position would be less valuable and
the Fund would be required to make a variation margin payment to the broker.
Variation margin payments would be made in a similar fashion when a Fund has
purchased an interest rate futures contract. At any time prior to expiration of
the futures contract, a Fund may elect to close the position by taking an
opposite position which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund and the Fund
realizes a loss or gain.
A description of the various types of futures contracts that may be
utilized by the Funds is as follows:
Stock Index Futures Contracts
A stock index assigns relative values to the common stocks included in
the index and the index fluctuates with changes in the market values of the
common stocks so included. A stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar (or, in the case of Aggressive Growth or
Capital Development, other currency) amount times the difference between the
stock index value at the close of the last trading day of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the underlying stocks in the index is made. Currently, stock index futures
contracts can be purchased or sold primarily with respect to broad based stock
indices such as the Standard & Poor's 500 Stock Index, the New York Stock
Exchange Composite Index, the American Stock Exchange Major Market Index, the
NASDAQ -- 100 Stock Index and the Value Line Stock Index. The stock indices
listed above consist of a spectrum of stocks not limited to any one industry
such as utility stocks. Utility stocks, at most, would be expected to comprise a
minority of the stocks comprising the portfolio of the index. The Funds will
only enter into stock index futures contracts in order to hedge the value of its
portfolio against changes in market conditions. When a Fund anticipates a
significant market or market sector advance, the purchase of a stock index
futures contract affords a hedge against not participating in such advance.
Conversely, in anticipation of or in a general market or market sector decline
that adversely affects the market values of a Fund's portfolio of securities,
the Fund may sell stock index futures contracts.
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Foreign Currency Futures Contracts
With respect to Aggressive Growth and Capital Development only,
futures contracts may also be used to hedge the risk of changes in the exchange
rate of foreign currencies.
OPTIONS ON FUTURES CONTRACTS
Blue Chip, Aggressive Growth and Capital Development may purchase
options on futures contracts. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon exercise to
assume an offsetting futures position (a short position if the option is a call
and a long position if the option is a put) at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract. If an option on a futures contract is exercised on the last
trading date prior to the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the exercise price of the
option and the closing price of the futures contract on the expiration date.
Blue Chip, Aggressive Growth and Capital Development will purchase put
options on futures contracts to hedge against the risk of falling prices for
their respective portfolio securities. Blue Chip, Aggressive Growth and Capital
Development will purchase call options on futures contracts as a hedge against
a rise in the price of securities which it intends to purchase. Options on
futures contracts may also be used to hedge the risks of changes in the
exchange rate of foreign currencies. The purchase of a put option on a futures
contract is similar to the purchase of protective put options on a portfolio
security or a foreign currency. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security or a foreign currency. Depending on the pricing of the
option compared to either the price of the futures contract upon which it is
based or the price of the underlying securities or currency, it may or may not
be less risky than ownership of the futures contract or underlying securities
or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
There are several risks in connection with the use of futures
contracts and related options as hedging devices. One risk arises because of
the imperfect correlation between movements in the price of hedging instruments
and movements in the price of the stock, debt security or foreign currency
which are the subject of the hedge. If the price of a hedging instrument moves
less than the price of the stock, debt security or foreign currency which is
the subject of the hedge, the hedge will not be fully effective. If the price
of a hedging instrument moves more than the price of the stock, debt security
or foreign currency, a Fund will experience either a loss or gain on the
hedging instrument which will not be completely offset by movements in the
price of the stock, debt security or foreign currency which is the subject of
the hedge. The use of options on futures contracts involves the additional risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option.
Successful use of hedging instruments by the Funds is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures and options markets and because of the
imperfect correlation between movements in the prices of hedging instruments
and the investments being hedged, even a correct forecast by AIM of general
market trends may not result in a completely successful hedging transaction.
It is also possible that where a Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in its portfolio may
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decline. If this occurred, a Fund would lose money on the futures contracts
and also experience a decline in the value of its portfolio securities.
Similar risks exist with respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an
exchange on which such contracts are traded. Although the Funds intend to
purchase or sell futures contracts or, in the case of Blue Chip,
Aggressive Growth and Capital Development, purchase options only on
exchanges or boards of trade where there appears to be an active market, there
is no assurance that a liquid market on an exchange or a board of trade will
exist for any particular contract at any particular time. If there is not a
liquid market, it may not be possible to close a futures position or purchase
an option at such time. In the event of adverse price movements under those
circumstances, the Fund would continue to be required to make daily cash
payments of maintenance margin on its futures positions. The extent to which a
Fund may engage in futures contracts or, in the case of Blue Chip, Aggressive
Growth and Capital Development, related options, will be limited by Internal
Revenue Code requirements for qualification as a regulated investment company
and a Fund's intent to continue to qualify as such. The result of a hedging
program cannot be foreseen and may cause a Fund to suffer losses which it would
not otherwise sustain.
Securities Issued on a When-Issued or Delayed Delivery Basis -
Investment in securities on a when-issued or delayed delivery basis may
increase a Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. A Fund will employ techniques designed to
reduce such risks. If a Fund purchases a when-issued security, the Fund's
custodian bank will segregate cash or other high grade securities (including
temporary investments and Municipal Securities) in an amount equal to the
when-issued commitment. If the market value of such securities declines,
additional cash or securities will be segregated on a daily basis so that the
market value of the segregated assets will equal the amount of the Fund's
when-issued commitments. To the extent cash and securities are segregated, they
will not be available for new investments or to meet redemptions. Securities
purchased on a delayed delivery basis may require a similar segregation of cash
or other high grade securities.
INVESTMENT IN UNSEASONED ISSUERS
Charter may purchase securities in unseasoned issuers. Securities in
such issuers may provide opportunities for long term capital growth. Greater
risks are associated with investments in securities of unseasoned issuers than
in the securities of more established companies because unseasoned issuers have
only a brief operating history and may have more limited markets and financial
resources. As a result, securities of unseasoned issuers tend to be more
volatile than securities of more established companies.
INVESTMENT RESTRICTIONS
The following fundamental policies and investment restrictions have
been adopted by each Fund as indicated and, except as noted, such policies
cannot be changed without the approval of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act.
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BLUE CHIP
Blue Chip may not:
(a) issue bonds, debentures or senior equity securities;
(b) concentrate its investments; that is, invest 25% or more
of the value of its assets in issuers which conduct their business
operations in the same industry;
(c) invest in real estate, except that this restriction does
not preclude investments in real estate investment trusts;
(d) write, purchase, or sell puts, calls, straddles, spreads
or combinations thereof (other than covered put and call options), or
sell securities short (except against the box collateralized by not
more than 10% of its net assets) or deal in commodities;
(e) make loans, except that the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt
securities, or purchasing short-term obligations, is not considered to
be a loan for purposes of this restriction, provided that the Fund may
lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(f) purchase securities on margin, except that the Fund may
obtain such short term credits as may be necessary for the clearance
of purchases or sales of securities;
(g) borrow money or pledge its assets except that, as a
temporary measure for extraordinary or emergency purposes and not for
investment purposes, the Fund may borrow from banks (including the
Fund's custodian bank) amounts of up to 10% of the value of its total
assets, and may pledge amounts of up to 20% of its total assets to
secure such borrowings; or
(h) act as an underwriter of securities of other issuers.
In addition, Blue Chip may not (a) purchase warrants, valued at the
lower of cost or market, in excess of 5% of the value of the Fund's net assets,
and no more than 2% of such value may be warrants which are not listed on the
New York or American Stock Exchanges; (b) purchase or retain the securities of
any issuer, if the officers and directors of the Company, its advisors or
distributor who own individually more than 1/2 of 1% of the securities of such
issuer, together own more than 5% of the securities of such issuer; (c) with
respect to 75% of the Fund's total assets, invest more than 5% of the total
assets of the Fund (valued at market) in securities of any one issuer (other
than obligations of the U.S. Government and its instrumentalities) or purchase
more than 10% of the outstanding securities of any one issuer or more than 10%
of any class of securities of an issuer; (d) deal in forward contracts; (e)
invest in interests in oil, gas or other mineral exploration or development
programs; or (f) purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets. These additional restrictions are not
fundamental, and may be changed by the Board of Directors of the Company
without shareholder approval.
To permit the sale of shares of Blue Chip in Texas, investments by
Blue Chip in warrants, valued at the lower of cost or market, may not exceed 5%
of the value of Blue Chip's net assets. Included within that
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amount, but not to exceed 2% of Blue Chip's net assets, may be warrants which
are not listed on the New York or American Stock Exchanges. This restriction
is not a fundamental policy.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
CHARTER
Charter may not:
(a) purchase the securities of any one issuer (except securities
issued or guaranteed by the U.S. Government) if, immediately after and as a
result of such purchase, (i) the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total assets,
or (ii) the Fund owns more than 10% of the outstanding voting securities of any
one class of securities of such issuer, except that the Fund may purchase
securities of other investment companies to the extent permitted by applicable
law or exemptive order;
(b) concentrate its investments; that is, invest 25% or more of the
value of its assets in any particular industry;
(c) purchase or sell real estate or other interests in real estate
(except that this restriction does not preclude investments in marketable
securities of companies engaged in real estate activities);
(d) buy or sell physical commodities or physical commodity contracts,
including physical commodities futures contracts, or deal in oil, gas, or other
mineral exploration or development programs;
(e) make loans (except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or entering
into a repurchase agreement, is not considered to be a loan for purposes of
this restriction), provided that the Fund may lend its portfolio securities
provided the value of such loaned securities does not exceed 33-1/3% of its
total assets;
(f) purchase securities on margin or sell short;
(g) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's custodian bank)
amounts of up to 10% of the value of its total assets, and may pledge amounts
of up to 20% of its total assets to secure such borrowings;
(h) invest in companies for the purpose of exercising control or
management, except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(i) act as an underwriter of securities of other issuers;
(j) purchase from or sell to any officer, director or employee of the
Fund, or its advisors or distributor, or to any of their officers or directors,
any securities other than shares of the capital stock of Charter; or
(k) purchase or retain the securities of any issuer if those officers
and directors of the Company, its advisors or distributor owning individually
more than 1/2 of 1% of the securities of such issuer, together own more than 5%
of the securities of such issuer.
To permit the sale of shares of Charter in Texas, investments by
Charter in warrants, valued at the lower of cost or market, may not exceed 5%
of the value of Charter's net assets. Included within that amount,
18
<PAGE> 57
but not to exceed 2% of Charter's net assets, may be warrants which are not
listed on the New York or American Stock Exchanges. In addition, Charter may not
(a) write covered call options in excess of 25% of the value of the Fund's net
assets, (b) purchase put options in excess of 25% of the value of the Fund's net
assets, (c) engage in the writing and sale of put options and the writing, sale
or purchase of uncovered call options, straddles, spreads or combinations
thereof; (d) issue senior securities, except to the extent permitted by
applicable law or exemptive order; or (e) purchase additional securities when
any borrowings from banks exceed 5% of the Fund's total assets. These
restrictions are not fundamental and may be changed by the Board of Directors of
the Company without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
WEINGARTEN
Weingarten may not:
(a) issue bonds, debentures or senior equity securities;
(b) underwrite securities of other companies or purchase restricted
securities ("letter stock");
(c) invest in real estate, except that the Fund may purchase
securities of real estate investment trusts;
(d) lend money, except in connection with the acquisition of a portion
of an issue of publicly distributed bonds, debentures or other corporate or
governmental obligations, provided that the Fund may lend its portfolio
securities provided the value of such loaned securities does not exceed 33-1/3%
of its total assets;
(e) purchase securities on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;
(f) purchase shares in order to control management of a company,
except that the Fund may purchase securities of other investment companies to
the extent permitted by applicable law or exemptive order;
(g) buy or sell physical commodities or physical commodity contracts,
including physical commodities futures contracts;
(h) invest 25% or more of the value of its total assets in securities
of issuers all of which conduct their principal business activities in the same
industry; or
(i) borrow money or pledge its assets, except that, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's custodian bank)
amounts of up to 10% of the value of its total assets, and may pledge amounts
of up to 20% of its total assets to secure such borrowings.
In addition, Weingarten may not (a) purchase warrants, valued at the
lower of cost or market, in excess of 5% of the value of the Fund's net assets,
and no more than 2% of such value may be warrants which are not listed on the
New York or American Stock Exchanges; (b) purchase or retain the securities of
any issuer, if the officers and directors of the Company, its advisors or
distributor who own individually more than 1/2 of 1% of the securities of such
issuer, together own more than 5% of the securities of such issuer; (c) invest
more than 5% of the total assets of the Fund (valued at market) in securities
of any one issuer (other than obligations of the U.S. Government and its
instrumentalities); (d) purchase more than 10% of the outstanding securities of
any one issuer or more than 10% of any class of securities of an issuer; (e)
deal in forward contracts; (f) invest in interests in oil, gas or other mineral
exploration or development programs;
19
<PAGE> 58
(g) write covered call options in excess of 25% of the value of the Fund's net
assets; (h) purchase put options in excess of 25% of the value of the Fund's net
assets; (i) engage in the writing and sale of put options and the writing,
sale or purchase of uncovered call options, straddles, spreads or combinations
thereof; or (j) purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets. These additional restrictions are not
fundamental, and may be changed by the Board of Directors of the Company
without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
CONSTELLATION
Constellation may not:
(a) invest for the purpose of exercising control over or management
of any company, except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order;
(b) engage in the underwriting of securities of other issuers;
(c) purchase and sell real estate or commodities or commodity
contracts;
(d) make loans, except by the purchase of a portion of an issue of
publicly distributed bonds, debentures or other obligations, provided that the
Fund may lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(e) invest in interests in oil, gas or other mineral exploration or
development programs; or
(f) invest 25% or more of the value of its total assets in securities
of issuers all of which conduct their principal business activities in the same
industry.
In addition, Constellation treats as fundamental its policy concerning
borrowing described under the caption "Investment Programs - Investment
Restrictions - Borrowing" in the Prospectus. In accordance with this policy,
the Fund may borrow funds from a bank (including its custodian bank) to
purchase or carry securities only if, immediately after such borrowing, the
value of the Fund's assets, including the amount borrowed, less its
liabilities, is equal to at least 300% of the amount borrowed, plus all
outstanding borrowings. For the purpose of determining this 300% asset coverage
requirement, the Fund's liabilities will not include the amount borrowed but
will include the market value, at the time of computation, of all securities
borrowed by the Fund in connection with short sales. The amount of borrowing
will also be limited by the applicable margin limitations imposed by the
Federal Reserve Board. If at any time the value of the Fund's assets should
fail to meet the 300% asset coverage requirement, the Fund will, within three
days, reduce its borrowings to the extent necessary. The Fund may be required
to eliminate partially or totally its outstanding borrowings at times when it
may not be desirable for it to do so.
The Board of Directors of the Company has also adopted the following
limitations which are not matters of fundamental policy of Constellation and
which may be changed without shareholder approval:
(a) the Fund may not purchase or retain the securities of any issuer,
if those officers and directors of the Company, its advisors or distributor
owning individually more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
20
<PAGE> 59
(b) the Fund may not purchase warrants, valued at the lower of cost or
market, in excess of 5% of the value of the Fund's net assets, and no more than
2% of such value may be warrants which are not listed on the New York or
American Stock Exchanges;
(c) the Fund may not issue senior securities, except to the extent
permitted by applicable law or exemptive order; or
(d) the Fund may not purchase additional securities when any
borrowings from banks exceed 5% of the Fund's total assets.
Except for the borrowing policy, if a percentage restriction is
adhered to at the time of investment, a later change in the percentage of such
investment held by a Fund resulting solely from changes in values or assets,
will not be considered to be a violation of the restriction.
AGGRESSIVE GROWTH
Aggressive Growth may not:
(a) with respect to 75% of the total assets of the Fund, purchase the
securities of any issuer if such purchase would cause more than 5% of the value
of its assets to be invested in the securities of such issuer (except U.S.
Government securities including securities issued by its agencies and
instrumentalities and except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order);
(b) concentrate 25% or more of its investments in a particular
industry;
(c) make short sales of securities (unless at all times when a short
position is open it either owns an amount of such securities or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's total assets
(taken at current value) is held for such sales at any one time) or purchase
securities on margin, but it may obtain such short-term credit as is necessary
for the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in stock index futures contracts and
options thereon;
(d) act as a securities underwriter under the 1933 Act;
(e) make loans, except (i) through the purchase of a portion of an
issue of bonds or other obligations of types commonly offered publicly and
purchased by financial institutions, and (ii) through the purchase of
short-term obligations (maturing within a year), including repurchase
agreements, provided that the Fund may lend its portfolio securities provided
the value of such loaned securities does not exceed 33-1/3% of its total
assets;
(f) borrow, except that the Fund may enter into stock index futures
contracts and that the right is reserved to borrow from banks, provided that no
borrowing may exceed one-third of the value of its total assets (including the
proceeds of such borrowing) and may secure such borrowings by pledging up to
one-third of the value of its total assets. (For the purposes of this
restriction, neither collateral arrangements with respect to margin for a stock
index futures contracts nor the segregation of securities in connection with
short sales are deemed to be a pledge of assets); or
(g) buy or sell commodities, commodity contracts or real estate.
Aggressive Growth does not intend (a) to invest for the purposes of
influencing management or exercising control; (b) to purchase interests in oil,
gas or other mineral exploration or development programs; (c) to purchase
securities which are subject to restrictions on disposition under the 1933 Act;
(d) to buy or sell mortgages; (e) to purchase or retain the securities of any
issuer if the officers or directors of the Company and its investment advisor
who own beneficially more than 1/2 of 1% of the securities of such issuer
together own more than 5%
21
<PAGE> 60
of the securities of such issuer; and (f) to purchase additional securities
when any borrowings from banks exceed 5% of the Fund's total assets. Aggressive
Growth may purchase securities directly from an issuer for its own portfolio and
may dispose of such securities. The investment policies stated in this paragraph
are not fundamental policies of the Funds and may be changed by the Board of
Directors of the Company without shareholder approval. Shareholders will be
notified before any material change in the investment policies stated above
become effective.
To permit the sale of shares of Aggressive Growth in Texas, Aggressive
Growth may not: (a) purchase warrants, valued at the lower of cost or market,
in excess of 5% of the value of the Fund's net assets, and no more than 2% of
such value may be warrants which are not listed on the New York or American
Stock Exchanges; (b) invest more than 15% of its average net assets at the time
of purchase of investments which are not readily marketable. These restrictions
are not fundamental policies and may be changed by the directors without
shareholder approval.
Except for the borrowing policy, if a percentage restriction is
adhered to at the time of investment, a later change in the percentage of such
investment held by a Fund resulting solely from changes in values or assets
will not be considered to be a violation of the restriction.
CAPITAL DEVELOPMENT
Capital Development may not:
(a) with respect to 75% of the total assets of the Fund, purchase the
securities of any one issuer (except securities issued or guaranteed by the
U.S. Government) if, immediately after and as a result of such purchase, (i)
the value of the holdings of the Fund in the securities of such issuer exceeds
5% of the value of the Fund's total assets, or (ii) the Fund owns more than 10%
of the outstanding voting securities of any one class of securities of such
issuer, except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(b) concentrate its investments; that is, invest 25% or more of the
value of its total assets in issuers who conduct their business operations in
the same industry;
(c) buy or sell commodities or commodity contracts or purchase or sell
real estate or other interests in real estate including real estate limited
partnership interests, except that this restriction does not preclude
investments in marketable securities of companies engaged in real estate
activities or in master limited partnership interests that are traded on a
national securities exchange;
(d) make loans, except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or purchasing
short-term obligations, is not considered to be a loan for purposes of this
restriction, provided that the Fund may lend its portfolio securities provided
the value of such loaned securities does not exceed 33-1/3% of its total
assets;
(e) purchase securities on margin, except that the Fund may obtain
such short term credits as may be necessary for the clearance of purchases or
sales of securities, or sell securities short (except against the box and
collateralized by not more than 10% of its net assets);
(f) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's custodian bank)
provided that no borrowing may exceed one-third of the value of its total
assets, including the proceeds of such borrowings, and may secure such
borrowings by pledging up to one-third of the value of its total assets;
(g) act as an underwriter of securities of other issuers; or
22
<PAGE> 61
(h) issue bonds, debentures, or senior equity securities.
In addition, Capital Development may not (a) purchase warrants, valued
at the lower of cost or market, in excess of 5% of the value of the Fund's net
assets, and no more than 2% of such value may be warrants which are not listed
on the New York or American Stock Exchanges; (b) purchase or retain the
securities of any issuer, if the officers and directors of the Company, its
advisors or distributor who own individually more than 1/2 of 1% of the
securities of such issuer, together own more than 5% of the securities of such
issuer; (c) deal in forward contracts (other than foreign exchange
transactions for hedging purposes); (d) invest in interests in oil, gas or
other mineral exploration or development programs; or (e) purchase additional
securities when any borrowings from banks exceed 5% of the Fund's total assets.
These additional restrictions are not fundamental, and may be changed by the
Board of Directors of the Company without shareholder approval.
To permit the sale of shares of Capital Development in Texas,
investments by the Fund in warrants, valued at the lower of cost or market, may
not exceed 5% of the value of the Fund's net assets. Included within that
amount, but not to exceed 2% of the Fund's net assets, may be warrants which
are not listed on the New York or American Stock Exchanges. This restriction is
not a fundamental policy.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
ADDITIONAL RESTRICTIONS
In order to permit the sale of the Funds' shares in certain states,
each Fund may from time to time make commitments more restrictive than the
restrictions described herein. These restrictions are not matters of
fundamental policy, and should a Fund determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, it will revoke
the commitment by terminating sales of its shares in the states involved.
In order to comply with an undertaking to the State of Texas, each
Fund has agreed that any restriction on investments in "oil, gas and other
mineral exploration or development programs" shall include mineral leases and
any restriction on investments in "real estate or other interests in real
estate" shall include real estate limited partnerships.
In order to comply with an undertaking to the State of Arkansas, Blue
Chip and Capital Development have agreed to limit investments in securities
which the Company is restricted from selling to the public without registration
under the 1933 Act to 10% of their respective total assets.
For purposes of the investment restrictions described above, the Funds
do not consider investments in financial futures to be investments in
commodities.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
indicated, the address of each director and officer is 11 Greenway Plaza,
23
<PAGE> 62
Suite 100, Houston, TX 77046-1173. All of the Company's executive officers
hold similar offices with some or all of the other AIM Funds.
*CHARLES T. BAUER, Director and Chairman (78)
Chairman of the Board of Directors, A I M Management Group Inc., A I M
Advisors, Inc., A I M Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc., A I M Institutional Fund Services, Inc. and Fund Management
Company; and Vice Chairman and Director, AMVESCAP PLC.
BRUCE L. CROCKETT, Director (53)
906 Frome Lane
McLean, VA 22102
Director, ACE Limited (insurance company). Formerly, Director,
President and Chief Executive Officer, COMSAT Corporation and Chairman, Board of
Governors of INTELSAT (international communications company).
OWEN DALY II, Director (72)
Six Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly,
Director, CF& I Steel Corp., Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the Board of Equitable
Bancorporation.
JACK FIELDS, Director (45)
2607 Old Humble Rd.
Humble, Texas 77396
Formerly, Member of the U.S. House of Representatives.
**CARL FRISCHLING, Director (60)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis & Frankel (law firm). Formerly,
Partner, Reid & Priest (law firm); and prior thereto, Partner, Spengler Carlson
Gubar Brodsky & Frischling (law firm).
*ROBERT H. GRAHAM, Director and President (50)
Director, President and Chief Operating Officer, A I M Management
Group Inc.; Director and President, A I M Advisors, Inc.; Director and Senior
Vice President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc., A I M Institutional Fund Services, Inc. and Fund
Management Company; and Director, AMVESCAP PLC.
- --------
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
** A director who is an "interested person" of the Company as defined in the
1940 Act.
24
<PAGE> 63
JOHN F. KROEGER, Director (72)
37 Pippins Way
Morristown, NJ 07960
Director, Flag Investors International Fund, Inc. Flag Investors
Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag
Investors Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc.,
Flag Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund,
Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Maryland
Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Alex. Brown Cash Reserve Fund, Inc. and North American Government
Bond Fund, Inc. (investment companies). Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (54)
6363 Woodway, Suite 825
Houston, TX 77057
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (74)
183 River Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic Corporation
(parent of seven telephone companies); and Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone
Company.
LOUIS S. SKLAR, Director (57)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
***JOHN J. ARTHUR, Senior Vice President and Treasurer (52)
Senior Vice President and Treasurer, A I M Advisors, Inc.; Vice
President and Treasurer, A I M Management Group Inc., A I M Capital Management,
Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc. and Fund Management Company.
GARY T. CRUM, Senior Vice President (49)
Director and President, A I M Capital Management, Inc.; Director and
Senior Vice President, A I M Management Group Inc. and A I M Advisors, Inc.;
and Director, A I M Distributors, Inc. and AMVESCAP PLC.
SCOTT G. LUCAS, Senior Vice President (37)
Director and Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Management Group Inc. and A I M Advisors, Inc.
- --------
*** Mr. Arthur and Ms. Relihan are married to each other.
25
<PAGE> 64
JONATHAN C. SCHOOLAR, Senior Vice President (35)
Director and Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
***CAROL F. RELIHAN, Senior Vice President and Secretary (42)
Senior Vice President, General Counsel and Secretary, A I M Advisors
Inc.; Vice President, General Counsel and Secretary, A I M Management Group
Inc.; Vice President and General Counsel, Fund Management Company; and Vice
President, A I M Capital Management, Inc., A I M Distributors, Inc.
A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (38)
Vice President and Fund Controller, A I M Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.
MELVILLE B. COX, Vice President (53)
Vice President and Chief Compliance Officer, A I M Advisors, Inc.,
A I M Capital Management, Inc., A I M Distributors, Inc., Fund Management
Company, A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.;
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance
Officer, Charles Schwab Investment Management, Inc.; and Vice President,
Integrated Resources Life Insurance Co. and Capitol Life Insurance Co.
The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit Committee
is responsible for meeting with the Company's auditors to review audit
procedures and results and to consider any matters arising from an audit to be
brought to the attention of the directors as a whole with respect to the
Company's fund accounting or its internal accounting controls, and considering
such matters as may from time to time be set forth in a charter adopted by the
Board of Directors and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The
Investment Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not interested
persons as long as the Company maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested directors, and considering such matters as may from time to
time be set forth in a charter adopted by the Board of Directors and such
committee.
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with
each meeting of the Board of Directors or any Committee attended. Each director
who is not also an officer of the Company is compensated
26
<PAGE> 65
for his or her services according to a fee schedule which recognizes the fact
that such director also serves as a director or trustee of other AIM Funds.
Each such director receives a fee, allocated among the AIM Funds for which he
or she serves as a director or trustee, which consists of an annual retainer
component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued
for each director of the Company:
<TABLE>
<CAPTION>
===============================================================================================================
RETIREMENT
AGGREGATE BENEFITS
COMPENSATION ACCRUED TOTAL
FROM THE BY ALL AIM COMPENSATION
DIRECTOR COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------
Bruce L. Crockett 17,587 3,655 68,000
- ---------------------------------------------------------------------------------------------------------------
Owen Daly II 19,846 18,662 68,000
- ---------------------------------------------------------------------------------------------------------------
Jack Fields(4) 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Carl Frischling 19,315 11,323 68,000
- ---------------------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- ---------------------------------------------------------------------------------------------------------------
John F. Kroeger 18,858 22,313 66,000
- ---------------------------------------------------------------------------------------------------------------
Lewis F. Pennock 17,250 5,067 67,000
- ---------------------------------------------------------------------------------------------------------------
Ian Robinson 17,620 15,381 68,000
- ---------------------------------------------------------------------------------------------------------------
Louis S. Sklar 19,477 6,632 66,500
===============================================================================================================
</TABLE>
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended October 31, 1996, including interest earned
thereon, was $69,742.
(2) During the fiscal year ended October 31, 1996, the total amount of
expenses allocated to the Company in respect of such retirement benefits
was $141,139. Data reflects compensation for the calendar year ended
December 31, 1996.
(3) Messrs. Bauer, Crockett, Daly, Frischling, Graham, Kroeger, Pennock,
Robinson and Sklar each serves as Director or Trustee of a total of 10 AIM
Funds. Data reflects compensation for the calendar year ended December 31,
1996.
(4) Mr. Fields was not serving as a Director during the fiscal year ended
October 31, 1996.
(5) See also page 29 regarding fees earned by Mr. Frischling's law firm.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any
of the AIM Funds, A I M Management Group Inc. or any of their affiliates) may
be entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the
27
<PAGE> 66
calendar quarter coincident with or following his date of retirement equal to
75% of the retainer paid or accrued by the Applicable AIM Funds for such
director during the twelve-month period immediately preceding the director's
retirement (including amounts deferred under a separate agreement between the
Applicable AIM Funds and the director) for the number of such director's years
of service (not in excess of 10 years of service) completed with respect to any
of the Applicable AIM Funds. Such benefit is payable to each eligible director
in quarterly installments. If an eligible director dies after attaining the
normal retirement date but before receipt of any benefits under the Plan
commences, the director's surviving spouse (if any) shall receive a quarterly
survivor's benefit equal to 50% of the amount payable to the deceased director
for no more than ten years beginning the first day of the calendar quarter
following the date of the director's death. Payments under the Plan are not
secured or funded by any Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming various compensation
and years of service classifications. The estimated credited years of service
for Messrs. Crockett, Daly, Fields, Frischling, Kroeger, Pennock, Robinson and
Sklar are 10, 10, 0, 20, 19, 15, 10 and 7 years, respectively.
<TABLE>
<CAPTION>
ESTIMATED BENEFITS UPON RETIREMENT
==============================================================================
Number of Annual Compensation
Years of Paid By All AIM Funds
Service With
the AIM Fund $80,000
- ------------------------------------------------------------------------------
<S> <C> <C>
10 $60,000
- ------------------------------------------------------------------------------
9 $54,000
- ------------------------------------------------------------------------------
8 $48,000
- ------------------------------------------------------------------------------
7 $42,000
- ------------------------------------------------------------------------------
6 $36,000
- ------------------------------------------------------------------------------
5 $30,000
==============================================================================
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of their deferral accounts shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Agreement) beginning on the date the
deferring director's retirement benefits commence under the Plan. The Company's
Board of Directors, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the deferring director's
termination of service as a director of the Company. If a deferring director
dies prior to the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
single lump sum payment as soon as practicable after such deferring director's
death. The Agreements are not funded and, with respect to the payments of
amounts held in the deferral accounts, the deferring directors have the status
of unsecured creditors of the Company and of each other AIM Fund from which
they are deferring compensation.
28
<PAGE> 67
The Company paid the law firm of Kramer, Levin, Naftalis & Frankel
$8,908, $14,974, $12,003 and $21,521 in legal fees for services provided to
Charter, Weingarten, Aggressive Growth and Constellation, respectively, during
the fiscal year ended October 31, 1996, and $428 in legal fees for services
provided to Blue Chip during the period June 3, 1996 through October 31, 1996,
and $415 in legal fees for services provided to Capital Development during the
period June 17, 1996 through October 31, 1996. Mr. Carl Frischling, a director
of the Company, is a partner in such firm.
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES AND SUB-ADVISORY AGREEMENTS
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046. AIM
Management, an indirect wholly owned subsidiary of AMVESCAP PLC. is a holding
company that has been engaged in the financial services business since 1976.
AMVESCAP and its subsidiaries are an independent investment management group
engaged in institutional investment management and retail mutual fund
businesses in the United States, Europe and the Pacific Region. Certain of the
directors and officers of AIM are also executive officers of the Company and
their affiliations are shown under "Directors and Officers". AIM Capital, a
wholly owned subsidiary of AIM, is engaged in the business of providing
investment advisory services to investment companies, corporations, institutions
and other accounts.
AIM was organized in 1976, and, together with its affiliates, advises
or manages 53 investment company portfolios. As of July 15, 1997, the total
assets of the investment company portfolios advised or managed by AIM and its
affiliates were approximately $76.0 billion.
AIM and the Company have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) to pre-clear personal
securities transactions subject to the Code of Ethics, (b) to file reports or
duplicate confirmations regarding such transactions, (c) to refrain from
personally engaging in (i) short-term trading of a security, (ii) transactions
involving a security within seven days of an AIM Fund transaction involving the
same security, and (iii) transactions involving securities being considered for
investment by an AIM Fund, and (d) abide by certain other provisions under the
Code of Ethics. The Code of Ethics also prohibits investment personnel and all
other AIM employees from purchasing securities in an initial public offering.
Personal trading reports are reviewed periodically by AIM, and the Board of
Directors reviews quarterly and annual reports (including information on any
substantial violations of the Code of Ethics). Sanctions for violations of the
Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Funds have entered into a Master Investment Advisory Agreement
dated as of February 28, 1997, as amended (the "Master Advisory Agreement") and
a Master Administrative Services Agreement dated as of February 28, 1997, as
amended (the "Master Administrative Services Agreement") with AIM. In addition,
AIM has entered into a Master Sub-Advisory Agreement dated as of February 28,
1997 (the "Master Sub-Advisory Agreement") with AIM Capital with respect to
Charter, Weingarten and Constellation. Prior to June 30, 1992, Aggressive
Growth's investment advisor was CIGNA Investments, Inc. ("CII") (such agreement
hereinafter referred to as the "CII Agreement").
Both the Master Advisory Agreement and the Master Sub-Advisory
Agreement provide that the Fund will pay or cause to be paid all expenses of
the Fund not assumed by AIM or AIM Capital, including, without limitation:
brokerage commissions, taxes, legal, auditing or governmental fees, the cost of
preparing share certificates, custodian, transfer and shareholder service agent
costs, expenses of issue, sale, redemption, and repurchase of shares, expenses
of registering and qualifying shares for sale, expenses relating to directors
and shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Company on
behalf of the Fund in connection with membership in investment company
organizations, the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders and all other
charges and costs of the Funds' operations unless otherwise explicitly
provided.
The Master Advisory Agreement and the Master Sub-Advisory Agreement
each provide that if, for any fiscal year, the total of all ordinary business
expenses of any Fund, including all investment advisory fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses,
such as litigation,
29
<PAGE> 68
exceed the applicable expense limitations imposed by state
securities regulations in any state in which such Fund's shares are qualified
for sale, as such limitations may be raised or lowered from time to time, the
aggregate of all such investment advisory fees with respect to such Fund shall
be reduced by the amount of such excess. The amount of any such reduction to be
borne by AIM shall be deducted from the monthly investment advisory fees
otherwise payable to AIM with respect to such Fund during such fiscal year. If
required pursuant to such state securities regulations, AIM will reimburse each
Fund, no later than the last day of the first month of the next succeeding
fiscal year, for any such annual operating expenses (after reduction of all
investment advisory fees in excess of such limitation).
The Master Advisory Agreement and the Master Sub-Advisory Agreement
became effective on February 28, 1997 and will continue in effect until
February 28, 1999 and from year to year thereafter only if such continuance
is specifically approved at least annually by (i) the Company's Board of
Directors or the vote of a "majority of the outstanding voting securities" of
the Funds (as defined in the 1940 Act), and (ii) the affirmative vote of a
majority of the directors who are not parties to the agreements or
"interested persons" of any such party (the "Non-Interested Directors")
by votes cast in person at a meeting called for such purpose. Each agreement
provides that the Funds, AIM (in the case of the Master Advisory Agreement)
or AIM Capital (in the case of the Master Sub-Advisory Agreement) may
terminate such agreement on 60 days' written notice without penalty. Each
agreement terminates automatically in the event of its assignment.
AIM may from time to time waive or reduce its fee. Fee waivers or
reductions, other than those set forth in the Master Advisory Agreement, may be
rescinded, however, at any time without further notice to investors, provided
however, that the discontinuance of each fee waiver described below will be
approved by the Board of Directors of AIM. AIM has agreed to waive fees for two
years to the extent necessary to keep the expense ratio for Class A shares of
Blue Chip at 1.31%. AIM has agreed to waive fees for one year to the extent
necessary to keep the expense ratio for Class A shares of Capital Development
at 1.34%.
AIM has initiated a voluntary reduction of advisory fees for Charter,
Constellation and Weingarten at net asset levels higher than those currently
incorporated in the advisory fee schedule. Accordingly, with respect to each of
Charter and Constellation, AIM receives a fee calculated at an annual rate of
1.0% of the first $30 million of such Fund's average daily net assets, plus
0.75% of such Fund's average daily net assets in excess of $30 million to and
including $150 million, plus 0.625% of such Fund's average daily net assets in
excess of $150 million. With respect to Weingarten, AIM's fee is calculated at
an 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 $350 million, plus 0.625% of the Fund's average daily
net assets in excess of $350 million. With respect to Aggressive Growth, AIM's
fee is calculated at an annual rate of 0.80% of the first $150 million of the
Fund's average daily net assets, plus 0.625% of the Fund's average daily net
assets in excess of $150 million. With respect to Blue Chip and Capital
Development, AIM is entitled to receive a fee calculated at an annual rate of
0.75% of the first $350 million of such Fund's average daily net assets, plus
0.625% of such Fund's average daily net assets in excess of $350 million. As
compensation for its services, AIM pays 50% of the advisory fees it receives
pursuant to the Master Advisory Agreement with respect to Charter, Weingarten
and Constellation to AIM Capital.
Each Fund paid to AIM the following advisory fees net of any expense
limitations (fee waivers) for the years ended October 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Blue Chip.............................. $ 256,773* N/A N/A
Capital Development.................... 280,248** N/A N/A
Charter................................ 16,529,891 $ 10,890,335 $ 10,447,924
Weingarten............................. 29,960,379 25,448,131 6,472,250
Constellation.......................... 57,614,412 31,042,229 19,926,116
Aggressive Growth...................... 16,492,564 6,974,263 1,903,277
</TABLE>
- -------------
30
<PAGE> 69
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $188,544, and for the period October 1,
1996 through October 31, 1996 it was $68,229.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
For the fiscal year ended October 31, 1996, 1995 and 1994, AIM waived
advisory fees for each Fund as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Blue Chip ..................... $ 26,433* N/A N/A
Capital Development ........... 144,946** N/A N/A
Charter ....................... 156,975 $ 0 $ 0
Weingarten .................... 1,458,804 843,494 981,836
Constellation ................. 1,869,383 761,655 298,484
Aggressive Growth ............. 0 788,943 0***
</TABLE>
- -------------
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $19,409, and for the period October 1, 1996
through October 31, 1996 it was $7,024.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
*** AIM reimbursed expenses of $133,000 during the year ended October 31,
1994.
Prior to June 3, 1996, the investment adviser to Blue Chip was Baird.
Baird was also the Fund's distributor. Baird is an indirect partially-owned
subsidiary of, and controlled by, The Northwestern Mutual Life Insurance
Company. The BBC Fund and Baird entered into an investment advisory agreement
pursuant to which Baird furnished continuous investment advisory services to
the BBC Fund. That investment advisory agreement was terminated in connection
with the reorganization of the BBC Fund. For the period October 1, 1995 through
June 3, 1996 and during the fiscal years ended September 30, 1995 and September
30, 1994, the BBC Fund paid Baird fees of $370,615, $469,802, and $454,724,
respectively.
AIM, in turn, paid the following sub-advisory fees to AIM Capital, as
sub-advisor for Charter, Constellation and Weingarten, for the years ended
October 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Charter................................ $ 8,264,946 $ 5,445,168 $ 5,223,962
Weingarten............................. 14,980,190 12,724,066 13,236,125
Constellation.......................... 28,807,206 15,521,115 9,963,058
</TABLE>
The Master Administrative Services Agreement provides that AIM may
perform or arrange for the performance of certain accounting and, shareholder
services and other administrative services to each Fund which are not required
to be performed by AIM under the Master Advisory Agreement. For such services,
AIM would be entitled to receive from each Fund reimbursement of its costs or
such reasonable compensation as may be approved by the Company's Board of
Directors. The Master Administrative Services Agreement became effective on
February 28, 1997 and will continue in effect until February 28, 1999 and from
year to year thereafter only if such continuance is specifically approved at
least annually by (i) the Company's Board of Directors or the vote of a
"majority of the outstanding voting securities" of the Funds (as defined in
the 1940 Act), and (ii) the affirmative vote of a majority of the
Non-Interested Directors by votes cast in person at a meeting called for such
purpose.
31
<PAGE> 70
In addition, the Transfer Agency and Service agreement for the Fund
provides that A I M Fund Services, Inc. ("AFS"), a registered transfer agent
and wholly-owned subsidiary of AIM, will perform certain shareholder services
for the Fund for a fee per account serviced. The Transfer Agency and Service
Agreement provides that AFS will receive a per account fee plus out-of-pocket
expenses to process orders for purchases, redemptions and exchanges of shares,
prepare and transmit payments for dividends and distributions declared by the
fund, maintain shareholder accounts and provide shareholders with information
regarding the Fund and their accounts. The Transfer Agency and Service
Agreement became effective on November 1, 1994.
The Funds paid AIM the following amounts as reimbursement of
administrative services costs for the years ended October 31, 1996, 1995 and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Blue Chip........................... $ 20,545* N/A N/A
Capital Development................. 19,841** N/A N/A
Charter............................. 114,489 $ 109,054 $ 980,837
Weingarten.......................... 132,643 182,595 3,161,130
Constellation....................... 212,800 173,257 2,196,752
Aggressive Growth................... 97,857 71,528 472,140
</TABLE>
- -------------
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $16,236 and for the period October 1, 1996
through October 31, 1996 it was $4,309.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
For the period from November 1, 1993 through October 31, 1994, AFS
received shareholder services fees from AIM with respect to Class A shares of
Charter, Weingarten, Aggressive Growth and Constellation in the amount of
$890,434, $3,015,921, $424,814 and $2,080,638, respectively, under the AFS
Administrative Services Agreement between AIM and AFS. The agreement was
terminated November 1, 1994.
AFS received transfer agency and shareholder services fees with
respect to Class A and Class B shares for the fiscal years ended October 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995*
---- ----
<S> <C> <C>
Blue Chip .......................... $ 20,982* N/A
Capital Development................... 75,666** N/A
Charter............................... 2,264,602 $ 1,568,721
Weingarten............................ 4,391,918 4,016,831
Constellation......................... 8,671,663 4,943,213
Aggressive Growth..................... 2,047,282 1,198,145
</TABLE>
- -------------
* For the period June 3, 1996 through October 31, 1996.
** For the period from June 17, 1996 through October 31, 1996.
Prior to June 3, 1996, FMI served as the administrator to the BBC
Fund. Pursuant to the administration agreement between FMI and the BBC Fund,
FMI prepared and maintained the books, accounts and other documents required by
the 1940 Act, determined the fund's net asset value, responded to shareholder
inquiries, prepared the fund's financial statements and excise tax returns,
prepared reports and filings with the Securities and Exchange Commission,
furnished statistical and research data, clerical, accounting and
32
<PAGE> 71
bookkeeping services and stationery and office supplies, and maintained the
fund's financial accounts and records and generally assisted in all aspects of
the fund's operations other than portfolio management. This administration
agreement terminated in connection with the corporate reorganization of the BBC
Fund. During the fiscal years ended September 30, 1995 and September 30, 1994,
the BBC Fund paid FMI fees of $46,743 and $45,724, respectively.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN. The Company has adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to the Class A and Class
C shares of the Funds (the "Class A and C Plan"). The Class A and C Plan
provides that the Class A shares pay 0.35% per annum of their daily average net
assets in the case of Blue Chip and Capital Development, 0.30% per annum of
their average daily net assets in the case of Charter, Weingarten and
Constellation and 0.25% per annum of the average net assets of Aggressive
Growth as compensation to AIM Distributors for the purpose of financing any
activity which is primarily intended to result in the sale of Class A shares.
Under the Class A and C Plan, Class C shares of Blue Chip, Capital Development,
Charter, Constellation and Weingarten pay compensation to AIM Distributors at
an annual rate of 1.00% of the average daily net assets attributable to Class C
shares. Of such amount, Blue Chip, Capital Development, Charter, Constellation
and Weingarten pay a service fee of 0.25% of the average daily net assets
attributable to Class C shares to selected dealers and other institutions which
furnish continuing personal shareholder services to their customers who
purchase and own Class C shares. Activities appropriate for financing under the
Class A and C Plan include, but are not limited to, the following: printing of
prospectuses and statements of additional information and reports for other than
existing shareholders; overhead; preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class A and C Plan.
THE CLASS B PLAN. The Company has also adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of
Blue Chip, Capital Development, Charter and Weingarten (the "Class B Plan", and
collectively with the Class A and C Plan, the "Plans"). Under the Class B Plan,
Blue Chip, Capital Development, Charter and Weingarten pay compensation to AIM
Distributors at an annual rate of 1.00% of the average daily net assets
attributable to Class B shares. Of such amount, Charter and Weingarten pay a
service fee of 0.25% of the average daily net assets attributable to Class B
shares to selected dealers and other institutions which furnish continuing
personal shareholder services to their customers who purchase and own Class B
shares. Amounts paid in accordance with the Class B Plan may be used to finance
any activity primarily intended to result in the sale of Class B shares,
including, but not limited to, printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs
of administering the Class B Plan. AIM Distributors may transfer and sell its
right under the Class B Plan in order to finance distribution expenditures in
respect of Class B shares.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may
enter into agreements ("Shareholder Service Agreements") with investment
dealers selected from time to time by AIM Distributors for the provision of
distribution assistance in connection with the sale of the Fund's shares to
such dealers' customers, and for the provision of continuing personal
shareholder services to customers who may from time to time directly or
beneficially own shares of the Funds. The distribution assistance and
continuing personal shareholder services to be rendered by dealers under the
Shareholder Service Agreements may include, but shall not be limited to, the
following: distributing sales literature; answering routine customer inquiries
concerning the Funds; assisting customers in changing dividend options, account
designations and addresses, and in enrolling in any of several special
investment plans offered in connection with the purchase of the Fund's shares;
assisting in the establishment and maintenance of customer accounts and records
and in the processing of purchase and redemption transactions; investing
dividends and any capital gains distributions automatically in the Fund's
shares; and providing such other information and services as the Funds or the
customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be
33
<PAGE> 72
made to banks which provide services to their customers who have purchased
shares. Services provided pursuant to Shareholder Service Agreements with banks
may include some or all of the following: answering shareholder inquiries
regarding the Funds and the Company; performing sub-accounting; establishing
and maintaining shareholder accounts and records; processing customer purchase
and redemption transactions; providing periodic statements showing a
shareholder's account balance and the integration of such statements with those
of other transactions and balances in the shareholder's other accounts serviced
by the bank; forwarding applicable prospectuses, proxy statements, reports and
notices to bank clients who hold shares of the Funds; and such other
administrative services as the Funds reasonably may request, to the extent
permitted by applicable statute, rule or regulation. Similar agreements may be
permitted under the Plans for institutions which provide recordkeeping for and
administrative services to 401(k) plans.
The Company may also enter into Variable Group Annuity Contractholder
Service Agreements ("Variable Contract Agreements") on behalf of Charter,
Weingarten and Constellation authorizing payments to selected insurance
companies offering variable annuity contracts to employers as funding vehicles
for retirement plans qualified under Section 401(a) of the Internal Revenue
Code. Services provided pursuant to such Variable Contract Agreements may
include some or all of the following: answering inquiries regarding the Fund
and the Company; performing sub-accounting; establishing and maintaining
Contractholder accounts and records; processing and bunching purchase and
redemption transactions; providing periodic statements of contract account
balances; forwarding such reports and notices to Contractholders relative to
the Fund as deemed necessary; generally, facilitating communications with
Contractholders concerning investments in a Fund on behalf of Plan
participants; and performing such other administrative services as deemed to be
necessary or desirable, to the extent permitted by applicable statute, rule or
regulation to provide such services.
Financial intermediaries and any other person entitled to receive
compensation for selling shares of the Funds may receive different compensation
for selling shares of one particular class over another.
Under a Shareholder Service Agreement, the Funds agree to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement generally will be calculated at the end of each payment
period for each business day of the Funds during such period at the annual rate
of 0.25% of the average daily net asset value of the Funds' shares purchased or
acquired through exchange. Fees calculated in this manner shall be paid
only to those selected dealers or other institutions who are dealers or
institutions of record at the close of business on the last business day of the
applicable payment period for the account in which the Funds' shares are held.
The Plans are subject to any applicable limitations imposed from time
to time by rules of the National Association of Securities Dealers, Inc.
AIM Distributors does not act as principal, but rather as agent for
the Funds, in making dealer incentive and shareholder servicing payments under
the Plans. These payments are an obligation of the Funds and not of AIM
Distributors.
For the period June 3, 1996 through September 30, 1996, with respect
to its Class A shares, Blue Chip paid AIM Distributors under the Plan $97,045,
or an amount equal to 0.35% of the Fund's average daily net assets.
For the fiscal year ended October 31, 1996, with respect to Class A
shares, Blue Chip (for the period October 1, 1996 through October 31, 1996),
Capital Development (for the period June 17, 1996 through October 31, 1996),
Charter, Weingarten, Aggressive Growth and Constellation paid AIM Distributors
under the Plan $34,010, $195,157, $6,952,782, $14,212,254, $6,492,025 and
$27,788,170, respectively, or an amount equal to 0.35% (annualized), 0.35%
(annualized), 0.30%, 0.30%, 0.25%, and 0.30%, respectively, of the Fund's Class
A shares average daily net assets.
34
<PAGE> 73
For the fiscal year ended October 31, 1996, with respect to Class B
shares, Blue Chip (for the period October 1, 1996 through October 31, 1996),
Capital Development (for the period October 1, 1996 through October 31, 1996),
Charter and Weingarten paid AIM Distributors under the Plan $3,166, $9,333,
$2,831,042, and $1,514,633 respectively, or an amount equal to 1.00%
(annualized), 1.00% (annualized), 1.00% (annualized) and 1.00% (annualized),
respectively, of the Fund's Class B shares average daily net assets.
An estimate by category of actual fees paid by the following Funds
under the Class A and C Plan during the year ended October 31, 1996 were
allocated as follows:
<TABLE>
<CAPTION>
OCT 1 - JUNE 3 - JUNE 17-
OCT 31 SEPT 30 OCT 31
AGGRESSIVE BLUE CHIP BLUE CHIP CAPITAL
GROWTH OCTOBER THRU SEPT. DEVELOPMENT CHARTER CONSTELLATION WEINGARTEN
----------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Advertising $ 189,780 $ 4,348 $ 13,198 $ 38,247 $ 732,176 $ 2,749,793 $ 1,330,208
Printing and mailing 28,966 870 2,031 6,039 113,027 421,968 205,032
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 65,924 1,740 5,077 13,084 251,060 944,929 454,071
Compensation to 841,131
Underwriters to partially
offset other marketing
expenses
Compensation to 6,207,355 27,052 76,739 137,787 5,856,519 23,671,480 11,381,812
Dealers including
finder's fees
Compensation to
Sales Personnel
Annual Report Total 6,492,025 34,010 97,045 195,157 6,952,782 27,788,170 14,212,254
</TABLE>
No fees were paid by the Funds for Class C shares as during the fiscal
year ended October 31, 1996 operations commenced on August 2, 1997.
35
<PAGE> 74
An estimate by category of actual fees paid by the following Funds
under the Class B Plan during the year ended October 31, 1996 were allocated
as follows:
<TABLE>
<CAPTION>
OCT 1 -
OCT 1 - OCT 31
OCT 31 CAPITAL
BLUE CHIP DEVELOPMENT CHARTER WEINGARTEN
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS B
Advertising $ 791 $ 2,352 $ 571,306 $ 229,414
Printing and mailing 0 0 86,994 34,911
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 0 0 196 78,799
Compensation to 2,375 6,981 2,126,052 1,137,408
Underwriters to partially
offset upfront dealer
commissions and other
marketing costs
Compensation to Dealers 0 0 46,494 34,101
Compensation to 0 0
Sales Personnel
Annual Report Total 3,166 9,333 2,831,042 1,514,633
</TABLE>
The Plans require AIM Distributors to provide the Board of Directors
at least quarterly with a written report of the amounts expended pursuant to
the Plans and the purposes for which such expenditures were made. The Board of
Directors reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Directors, including a
majority of the directors who are not "interested persons" (as defined in the
1940 Act) of the Company and who have no direct or indirect financial interest
in the operation of the Plans or in any agreements related to the Plans
("Qualified Directors"). In approving the Plans in accordance with the
requirements of Rule 12b-1, the directors considered various factors and
determined that there is a reasonable likelihood that the Plans would benefit
each class of the Fund and its respective shareholders.
The Plans do not obligate the Fund to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less
than the fee it receives, AIM Distributors will retain the full amount of the
fee.
Unless the Plans are terminated earlier in accordance with their
terms, the Class B Plan continues in effect until June 30, 1998, and
thereafter, both Plans continue as long as such continuance is specifically
approved at least annually by the Board of Directors, including a majority of
the Qualified Directors.
The Plans may be terminated by the vote of a majority of the Qualified
Directors, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
36
<PAGE> 75
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the directors, including a majority of the Qualified
Directors, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Directors is committed to the discretion of the
Qualified Directors. In the event the Class A and C Plan is amended in a manner
which the Board of Directors determines would materially increase the charges
paid under the Class A and C Plan, the Class B shares of the Fund will no longer
convert into Class A shares of the Fund unless the Class B shares, voting
separately, approve such amendment. If the Class B shareholders do not approve
such amendment, the Board of Directors will (i) create a new class of shares of
the Fund which is identical in all material respects to the Class A shares as
they existed prior to the implementation of the amendment, and (ii) ensure that
the existing Class B shares of the Fund will be exchanged or converted into such
new class of shares no later than the date the Class B shares were scheduled to
convert into Class A shares.
The principal differences between the Class A and C Plan and the Class
B Plan are: (i) the Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to .35% of average daily net assets of
Blue Chip and Capital Development Class A shares, .30% of average daily net
assets of Charter, Weingarten and Constellation's Class A shares and up to .25%
of average daily net assets of Aggressive Growth's Class A shares as compared to
1.00% of such assets of Blue Chip, Capital Development, Charter and Weingarten's
Class B shares; (ii) the Class B Plan obligates the Class B shares to continue
to make payments to AIM Distributors following termination of the Class B shares
Distribution Agreement with respect to Class B shares sold by or attributable to
the distribution efforts of AIM Distributors unless there has been a complete
termination of the Class B Plan (as defined in such Plan); and (iii) the Class B
Plan expressly authorizes AIM Distributors to assign, transfer or pledge its
rights to payments pursuant to the Class B Plan.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of
the Funds' shares is set forth in the Prospectus under the headings "How to
Purchase Shares" and "Terms and Conditions of Purchase of the AIM Funds." A
Master Distribution Agreement with AIM Distributors relating to the Class A
shares of the Funds and Class C shares of Blue Chip, Capital Development,
Charter, Constellation and Weingarten was approved by the Board of Directors on
June 11, 1997. A Master Distribution Agreement with AIM Distributors relating
to the Class B shares of Charter and Weingarten was also approved by the Board
of Directors on December 11, 1996. Both such Master Distribution Agreements are
hereinafter collectively, referred to as the "Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear
the expenses of printing from the final proof and distributing prospectuses and
statements of additional information of the Funds relating to public offerings
made by AIM Distributors pursuant to the Distribution Agreements (other than
those prospectuses and statements of additional information distributed to
existing shareholders of the Funds), and any promotional or sales literature
used by AIM Distributors or furnished by AIM Distributors to dealers in
connection with the public offering of the Funds' shares, including expenses of
advertising in connection with such public offerings. AIM Distributors has not
undertaken to sell any specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B shares of Charter,
Weingarten, Blue Chip and Capital Development at the time of such sales.
Payments with respect to Class B shares will equal 4.0% of the purchase price
of the Class B shares sold by the dealer or institution, and will consist of a
sales commission equal to 3.75% of the purchase price of the Class B shares
sold plus an advance of the first year service fee of 0.25% with respect to
such shares. The portion of the payments to AIM Distributors under the Class B
Plan which constitutes an asset-based sales charge (0.75%) is intended in part
to permit AIM Distributors to recoup a portion of such sales commissions plus
financing costs. AIM Distributors anticipates that it will require a number of
years to recoup from Class B Plan payments the sales commissions paid to
dealers and institutions in connection with sales of Class B shares.
37
<PAGE> 76
In the future, if multiple distributors serve Charter, Weingarten,
Blue Chip or Capital Development, each such distributor (or its assignee or
transferee) would receive a share of the payments under the Class B Plan based
on the portion of such Fund's Class B shares sold by or attributable to the
distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares.
After the first full year, AIM Distributors will make such payments quarterly to
dealers and institutions based on the average net asset value of Class C shares
which are attributable to shareholders for whom the dealers and institutions
are designated as dealers of record. The portion of the payments to AIM
Distributors under the Class C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) intended in part to permit AIM
Distributors to recoup a portion of such on-going sales commission plus
financing costs, if any.
The Company (on behalf of any class of the Funds) or AIM Distributors
may terminate the Distribution Agreements on sixty (60) days' written notice
without penalty. The Distribution Agreements will terminate in the event of
their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a
complete termination of the Class B Plan (as defined in such Plan) would
terminate all payments to AIM Distributors. Termination of the Class B Plan or
Distribution Agreement does not effect the obligations of Class B shareholders
to pay Contingent Deferred Sales Charges.
The following chart reflects the total sales charges paid in
connection with the sale of Class A shares of each Fund and the amount retained
by AIM Distributors for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip........... .............. $ 1,000,546 $ 144,343 N/A N/A N/A N/A
Capital Development ............... 6,850,693 926,213 N/A N/A N/A N/A
Charter ........................... 16,469,061 2,705,618 $ 9,068,400 $ 1,316,019 $10,252,200 $ 1,386,255
Weingarten ........................ 13,202,260 2,259,328 11,992,225 1,767,515 10,398,176 1,494,020
Constellation ..................... 105,245,937 19,558,836 88,958,038 13,097,651 42,593,206 6,482,169
Aggressive Growth* ............... 11,683,056 2,111,788 57,745,243 8,232,597 11,846,706 1,975,968
</TABLE>
The following chart reflects the contingent deferred sales charges
paid by Class A and Class B shareholders for the fiscal years ended October 31,
1996 and 1995.
<TABLE>
<CAPTION>
1996 1995*
---- -----
<S> <C> <C>
Blue Chip................................................ N/A N/A
Capital Development...................................... $ 733** N/A
Charter.................................................. $32,497 $55
Weingarten............................................... $34,185 $60
</TABLE>
- -------------
* For the period from June 26, 1995 (inception date of Class B shares)
through October 31, 1995.
** For the period from October 1, 1996 (inception date for Class B
shares) through October 31, 1996.
Shares of the BBC Fund were sold at a public offering price which
included a sales charge. The BBC Fund waived its sales charge in connection
with sales to specified types of investors and on purchases of $1,000,000 or
more, but imposed a contingent deferred sales charge upon the redemption of
certain shares so purchased, which contingent deferred sales charge was paid to
Baird. During the fiscal years ended September 30, 1995 and September 30, 1994,
Baird received approximately $126,853 and $109,000, respectively in front-end
sales commissions in connection with the sales of BBC Fund shares, all of which
it retained. During the fiscal years ended September 30, 1995 and September 30,
1994, Baird received $346 and $141 in deferred sales commissions in connection
with sales of BBC Fund shares, respectively, all of which it retained.
38
<PAGE> 77
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Funds may
be purchased appears in the Prospectus under the caption "How to Purchase
Shares."
The sales charge normally deducted on purchases of Class A shares of
the Funds is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of such shares.
Since there is little expense associated with unsolicited orders placed
directly with AIM Distributors by persons, who because of their relationship
with the Funds or with AIM and its affiliates, are familiar with the Funds, or
whose programs for purchase involve little expense (e.g., because of the size
of the transaction and shareholder records required), AIM Distributors believes
that it is appropriate and in the Funds' best interests that such persons be
permitted to purchase Class A shares of the Funds through AIM Distributors
without payment of a sales charge. The persons who may purchase Class A shares
of the Funds without a sales charge are shown in the Prospectus.
Complete information concerning the method of exchanging shares of the
Funds for shares of the other mutual funds managed or advised by AIM is set
forth in the Prospectus under the caption "Exchange Privilege."
Information concerning redemption of the Funds' shares is set forth in
the Prospectus under the caption "How to Redeem Shares." AIM intends to redeem
all shares of the Funds in cash. In addition to the Funds' obligation to
redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who
have executed Selected Dealer Agreements with AIM Distributors must phone
orders to the order desk of the Fund telephone: (713) 626-1919, Extension 5001
(in Houston) or (800) 347-4246 (elsewhere) and guarantee delivery of all
required documents in good order. A repurchase is effected at the net asset
value of the Fund next determined after such order is received. Such
arrangement is subject to timely receipt by A I M Fund Services, Inc. of all
required documents in good order. If such documents are not received within a
reasonable time after the order is placed, the order is subject to
cancellation. While there is no charge imposed by the Funds or by AIM
Distributors (other than any applicable CDSC) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the
transaction.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
(c) the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposition of portfolio securities or the
valuation of the net assets of the Fund not reasonably practicable.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the
net asset value of a share of each Fund is determined once daily as of the
close of trading of the New York Stock Exchange ("NYSE") (generally 4:00 p.m.
Eastern Time), on each business day of the Fund. In the event the NYSE closes
early (i.e., before 4:00 p.m. Eastern Time) on a particular day, the net asset
value of a Fund share is determined as of the close of the NYSE on such day.
For purposes of determining net asset value per share, futures and options
contract closing prices which are available fifteen (15) minutes after the
close of trading on the NYSE will generally be used. The net asset values per
share of the Retail Classes and the Institutional Class will differ because
different expenses are attributable to each class. The income or loss and the
expenses common to all classes of a Fund are allocated to each class on the
basis of the net assets of the Fund allocable to each such class, calculated as
of the close of business on the previous business day, as adjusted for the
current day's shareholder activity of each class. In addition to certain common
expenses which are allocated to all classes of a Fund, certain expenses, such
as those related to the distribution of shares of a class, are allocated only
to the class to which such expenses relate. The net asset value per share of a
class is determined by subtracting the liabilities (e.g., the expenses) of the
Fund allocated to the class from the assets of the Fund
39
<PAGE> 78
allocated to the class and dividing the result by the total number of shares
outstanding of such class. Determination of each Fund's net asset value per
share is made in accordance with generally accepted accounting principles.
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. 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. Option contracts are valued at the mean between the
closing bid and asked prices on the exchange where the contracts are
principally traded. Each security reported on the NASDAQ National Market System
is valued at the last sales price on the valuation date, or lacking a last
sale, at the mean between the last bid and asked price on that day; securities
for which market quotations are not readily available or are questionable are
valued at fair value as determined in good faith by or under the supervision of
the Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having sixty (60) days or less
to maturity are valued at amortized cost, which approximates market value. (See
also "How to Purchase Shares," "How to Redeem Shares" and "Determination of Net
Asset Value" in the Prospectus.)
Generally, trading in foreign securities, as well as corporate bonds,
U.S. Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in computing the net asset value of a Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. 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 NYSE 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.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the net asset value per share of a Fund may be significantly affected on
days when an investor can not exchange or redeem shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the same class of each Fund unless the
shareholder has requested in writing to receive such dividends and
distributions in cash or that they be invested in shares of another AIM Fund,
subject to the terms and conditions set forth in the Prospectus under the
caption "Special Plans - Automatic Dividend Investment Plan." If a
shareholder's account does not have any shares in it on a dividend or capital
gains distribution payment date, the dividend or distribution will be paid in
cash whether or not the shareholder has elected to have such dividends or
distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
40
<PAGE> 79
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, each Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess
of net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities)
and other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"), and (b) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less
than three months (the "Short-Short Gain Test"). However, foreign currency
gains, including those derived from options, futures and forward contracts,
will not be characterized as Short-Short Gain if they are directly related to
the regulated investment company's principal business of investing in stock or
securities (or options or futures thereon). Because of the Short-Short Gain
Test, a Fund may have to limit the sale of appreciated securities that it has
held for less than three months. However, the Short-Short Gain Test will not
prevent a Fund from disposing of investments at a loss, since the recognition
of a loss before the expiration of the three-month holding period is
disregarded. Interest (including original issue discount) received by a Fund at
maturity or upon the disposition of a security held for less than three months
will not be treated as gross income derived from the sale or other disposition
of a security within the meaning of the Short-Short Gain Test. However, any
other income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract or of foreign currency itself, will generally
be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (a) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (b) the
asset is otherwise held by the Fund as part of a "straddle", or (c) the asset
is stock and the Fund grants certain call options with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of is reduced only in the case described in clause (a) above. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
41
<PAGE> 80
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by certain of the Funds (such as
futures contracts and options on stock indexes and futures contracts) will be
subject to special tax treatment as "Section 1256 contracts." Section 1256
contracts are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date.
The net amount of such gain or loss for the entire taxable year from
transactions involving Section 1256 contracts (including gain or loss arising
as a consequence of the year-end deemed sale of Section 1256 contracts) is
treated as 60% long-term capital gain or loss and 40% short-term capital gain
or loss. A Fund may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts. The Internal
Revenue Service has held in several private rulings that gains arising from
Section 1256 contracts will be treated for purposes of the Short-Short Gain
Test as being derived from securities held for not less than three months if
the gains arise as a result of a constructive sale under Code Section 1256.
In addition to satisfying the requirement described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each
Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which
the companies, and securities of other issuers, the Fund has not invested more
than 5% of the value of the Fund's total assets in securities of such issuer
and as to which the Fund does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated
earnings and profits. Such distributions generally will be eligible for the
dividends received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable
year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(a) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year, and (b) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
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<PAGE> 81
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax.
However, investors should note that a Fund may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for federal
income tax purposes, but they will qualify for the 70% dividends received
deduction for corporations only to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if a Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carry forwards) at the 35% corporate tax rate. If a Fund elects to
retain its net capital gain, it is expected that the Fund also will elect to
have shareholders treated as if each received a distribution of its pro rata
share of such gain, with the result that each shareholder will be required to
report its pro rata share of such gain on its tax return as long-term capital
gain, will receive a refundable tax credit for its share of tax paid by the
Fund on the gain, and will increase the tax basis for its shares by an amount
equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends received deduction generally available
to corporations (other than corporations, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics and
other than for purposes of special taxes such as the accumulated earnings tax
and the personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend
(a) if it has been received with respect to any share of stock that the Fund
has held for less than 46 days (91 days in the case of certain preferred
stock), excluding for this purpose under the rules of Code Section
246(c)(3)and(4) (i) any day more than 45 days (or 90 days in the case of
certain preferred stock) after the date on which the stock becomes ex-dividend,
and (ii) any period during which the Fund has an option to sell, is under a
contractual obligation to sell, has made and not closed a short sale of, has
granted certain options to buy or has otherwise diminished its risk of loss by
holding other positions with respect to, such (or substantially identical)
stock; (b) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (c) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends received deduction for a corporate
shareholder may be disallowed or reduced (a) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund,
or (b) by application of Code Section 246(b) which in general limits the
dividends received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends received deduction and certain
other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. The corporate dividends received deduction is not itself an item of tax
preference that must be added back to taxable income or is otherwise disallowed
in determining a corporation's AMTI. However, corporate shareholders will
generally be required to take the full amount of any dividend received from the
Fund into account (without a dividend received deduction) in determining their
adjusted current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's
43
<PAGE> 82
adjusted current earnings over its AMTI (determined without regard to this item
and the AMTI net operating loss deduction)) that is includable in AMTI.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries which entitle any such Funds to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be
invested in various countries is not known.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
In addition, if the net asset value at the time a shareholder
purchases shares of a Fund reflects undistributed net investment income or
recognized capital gain net income, or unrealized appreciation in the value of
the assets of the Fund, distributions of such amounts will be taxable to the
shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Funds will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (a) who has
provided either an incorrect tax identification number or no number at all, (b)
who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly, or (c)
who has failed to certify to a Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within thirty (30) days before or after the
sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. For this purpose, the special holding period rules of
Code Section 246(c)(3) and (4) (discussed above in connection with the
dividends received deduction for corporations) generally will apply in
determining the holding period of shares. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate 11.6% lower than
the maximum rate applicable to ordinary income. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
44
<PAGE> 83
If a shareholder (a) incurs a sales load in acquiring shares of a
Fund, (b) disposes of such shares less then 91 days after they are acquired,
and (c) subsequently acquires shares of the Fund or another Fund at a reduced
sales load pursuant to a right to reinvest at such reduced sales load acquired
in connection with the acquisition of the shares disposed of, then the sales
load on the shares disposed of (to the extent of the reduction in the sales
load on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of, but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from a Fund is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, dividends and
return of capital distributions (other than distributions of long-term capital
gain) will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the distribution. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of a Fund, capital gain dividends and amounts
retained by a Fund that are designated as undistributed net capital gains.
If the income from a Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends and any gains realized upon the sale or
redemption of shares of the Fund will be subject to U.S. federal income tax at
the rates applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends and
capital gain dividends from regulated investment companies often differ from
the rules for U.S. federal income taxation described above. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Funds.
45
<PAGE> 84
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Directors will issue semi-annual reports of the
transactions of the Funds to the shareholders. Financial statements, audited by
independent auditors, will be issued annually. The firm of KPMG Peat Marwick
LLP, 700 Louisiana, NationsBank Building, Houston, Texas 77002, has served as
the auditors for Aggressive Growth, Blue Chip, Capital Development, Charter,
Constellation and Weingarten for the fiscal year ended October 31, 1996. Price
Waterhouse LLP served as the auditors for Baird Blue Chip Fund, Inc., the
predecessor of Blue Chip, for fiscal years ended September 30, 1995.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby is being passed upon by Ballard Spahr Andrews & Ingersoll, 1735 Market
Street, Philadelphia, Pennsylvania.
On October 25, 1996 a shareholder of Aggressive Growth filed a lawsuit
in United States District Court, Southern District of Texas, against the
Company, AIM, AIM Distributors, the directors and certain officers of
Aggressive Growth, and the portfolio managers of Aggressive Growth. The action
was instituted under Section 36(b) of the Investment Company Act of 1940 and
seeks to recover damages allegedly suffered by Aggressive Growth in connection
with fees paid for marketing and shareholder services after Aggressive Growth
was closed to new investors.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Funds. The custodian attends to the collection of principal and income,
pays and collects all monies for securities bought and sold by the Funds and
performs certain other ministerial duties. A I M Fund Services, Inc.,11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173 (the "Transfer Agent"),
acts as transfer and dividend disbursing agent for the Funds. These services do
not include any supervisory function over management or provide any protection
against any possible depreciation of assets. The Funds pay the Custodian and
the Transfer Agent such compensation as may be agreed upon from time to time.
Texas Commerce Bank National Association, 712 Main, Houston, Texas
77002, serves as Sub-Custodian for retail purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
entered into an agreement with the Company (and certain other AIM Funds), The
Shareholder Services Group, Inc. and Financial Data Services, Inc., pursuant to
which MLPF&S has agreed to perform certain shareholder sub-accounting services
for its customers who beneficially own shares of the Fund(s).
46
<PAGE> 85
PRINCIPAL HOLDERS OF SECURITIES
BLUE CHIP
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A shares of Blue Chip as
of June 1, 1997, and the amount of the outstanding shares held of record and
beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Robert W. Baird, Inc. 14.30%* -0-
Attn: Mutual Fund Operations
777 E. Wisconsin Ave.
Milwaukee, WI 53202
Merrill Lynch Pierce Fenner & Smith -0- 6.75%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 11.42%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
CHARTER
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding shares of the Retail Classes of
Charter as of June 1, 1997, and the Institutional Class of Charter as of
June 1, 1997, and the amount of the outstanding shares held of record and
beneficially owned by such holders are set forth below:
- ------------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
47
<PAGE> 86
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 12.15%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
Great-West Life and Annuity Insurance 7.86% -0-
401(k) Unit Valuations
Attn: Rod Switzer 2T2
8515 E. Orchard
Englewood, CO 80111
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 9.93%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
INSTITUTIONAL CLASS
- -------------------
Commonwealth of Massachusetts 92.56%** -0-
One Ashburton Place
12th Floor
Boston, MA 02108
</TABLE>
- -----------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a
class may be presumed to be in "control" of such class of shares, as
defined in the 1940 Act.
48
<PAGE> 87
WEINGARTEN
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding shares of the Retail Classes of
Weingarten as of June 1, 1997, and the Institutional Class of Weingarten
as of June 1, 1997, and the amount of the outstanding shares held of record
and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 18.48%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 12.03%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
INSTITUTIONAL CLASS
- -------------------
Commonwealth of Massachusetts 67.98%** -0-
One Ashburton Place
12th Floor
Boston, MA 02108
Union Planters NationsBank -0- 16.27%
P. O. Box 387
Memphis, TN 38147
City of Milwaukee Deferred Comp. 5.76% -0-
P. O. Box 2054
Milwaukee, IL 53201
</TABLE>
- -----------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a
class may be presumed to be in "control" of such class of shares, as
defined in the 1940 Act.
49
<PAGE> 88
CONSTELLATION
To the best of the knowledge of the Company, the names and
addresses of the holders of 5% or more of the outstanding shares of the Retail
Classes of Constellation as of June 1, 1997, and of the Institutional Class of
Constellation as of June 1, 1997, and the amount of the outstanding shares
held of record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 15.68%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
INSTITUTIONAL CLASS
- -------------------
City of New York Deferred 52.28%** -0-
Compensation Plan
40 Street, 3rd Floor
New York, NY 10006
Nationwide Ohio Variable Account 15.82% -0-
P.O. Box 182029
Columbus, Ohio 43218
Commonwealth of Massachusetts 12.50% -0-
One Ashburton Place
12th Floor
Boston, MA 02108
Nationwide GPVA 6.04% -0-
P.O. BOX 182029
COLUMBUS, OH 43218
</TABLE>
- ------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a
class may be presumed to be in "control" of such class of shares, as
defined in the 1940 Act.
50
<PAGE> 89
AGGRESSIVE GROWTH
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A shares of Aggressive
Growth as of June 1, 1997, and the amount of the outstanding shares held of
record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 20.67%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
CAPITAL DEVELOPMENT
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A shares of Capital
Development as of June 1, 1997, and the amount of the outstanding shares
held of record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith-0- 17.49%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
Robert W. Baird Inc. 8.23% -0-
Attn: Mutual Fund Operations
777 E. Wisconsin Avenue
Milwaukee, WI 53202
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith -0- 21.23%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
As of June 1, 1997, the directors/trustees and officers of the Company
as a group owned beneficially less than 1% of the outstanding shares of each of
any class of Blue Chip, Charter, Weingarten, Constellation, Aggressive Growth
and Capital Development.
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a
class may be presumed to be in "control" of such class of shares, as
defined in the 1940 Act.
51
<PAGE> 90
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Company
has filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Funds and
the securities offered hereby. The Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.
52
<PAGE> 91
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well-established, and the issuer has a strong position
within the industry. The reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's Commercial Paper is rated A-1 or A-2. A-1 indicates the
degree of safety regarding time of payment is very strong. A-2 indicates that
the capacity for timely payment is strong, but that the relative degree of
safety is not as overwhelming as for issues designated A-1.
MOODY'S
Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service. Among the factors considered by Moody's
in assigning ratings are the following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and customer
acceptance; (d) liquidity; (e) amount and quality of long-term debt; (f) trend
of earnings over a period of ten years; (g) financial strength of a parent
company and the relationships which exist with the issuer; and (h) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated Prime-1 or Prime-2.
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
MOODY'S
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as "high-grade bonds." They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
53
<PAGE> 92
FINANCIAL STATEMENTS
FS
<PAGE> 93
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Blue Chip Fund:
We have audited the accompanying statements of assets and liabilities of the AIM
Blue Chip Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule
of investments, as of October 31, 1996 and September 30, 1996, the related
statements of operations for the one-month period ended October 31, 1996 and the
year ended September 30, 1996, the statements of changes in net assets for the
one-month period ended October 31, 1996 and the year ended September 30, 1996
and the financial highlights for the one-month period ended October 31, 1996 and
the year ended September 30, 1996. 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 eight
year period ended September 30, 1995 and the period from December 31, 1986 (date
operations commenced) to September 30, 1987 were audited by other auditors whose
report thereon, dated October 25, 1995, 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 and September 30, 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
Blue Chip Fund as of October 31, 1996 and September 30, 1996, the results of its
operations for the one-month period ended October 31, 1996 and the year ended
September 30, 1996, the changes in its net assets for the one-month period ended
October 31, 1996 and the year ended September 30, 1996 and the financial
highlights for the one-month period ended October 31, 1996 and the year ended
September 30, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
November 22, 1996
FS-1
<PAGE> 94
Financials
SCHEDULE OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
COMMON STOCKS-81.74%
ADVERTISING/BROADCASTING-0.75%
20,000 Interpublic Group of Companies, Inc. $ 970,000
- ----------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE-2.52%
23,900 Boeing Co. (The) 2,279,463
- ----------------------------------------------------------------------------------------------
7,500 United Technologies Corp. 965,625
- ----------------------------------------------------------------------------------------------
3,245,088
- ----------------------------------------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.67%
16,000 General Motors Corp. 862,000
- ----------------------------------------------------------------------------------------------
BANKING-3.80%
31,000 Fifth Third Bancorp 1,941,375
- ----------------------------------------------------------------------------------------------
25,000 Norwest Bank Corp. 1,096,875
- ----------------------------------------------------------------------------------------------
29,200 State Street Boston Corp. 1,850,550
- ----------------------------------------------------------------------------------------------
4,888,800
- ----------------------------------------------------------------------------------------------
BANKING (MONEY CENTER)-0.81%
10,500 Citicorp 1,039,500
- ----------------------------------------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-0.37%
16,000 PepsiCo, Inc. 474,000
- ----------------------------------------------------------------------------------------------
BIOTECHNOLOGY-0.93%
26,000 Guidant Corp. 1,199,250
- ----------------------------------------------------------------------------------------------
BUSINESS SERVICES-4.24%
8,500 AccuStaff, Inc.(a) 227,375
- ----------------------------------------------------------------------------------------------
10,000 Dun & Bradstreet Corp. 578,750
- ----------------------------------------------------------------------------------------------
35,000 Equifax, Inc. 1,041,250
- ----------------------------------------------------------------------------------------------
55,450 Olsten Corp. 1,109,000
- ----------------------------------------------------------------------------------------------
33,600 Reuters Holdings PLC-Sponsored ADR (United Kingdom) 2,499,000
- ----------------------------------------------------------------------------------------------
5,455,375
- ----------------------------------------------------------------------------------------------
CHEMICALS-0.80%
18,000 PPG Industries, Inc. 1,026,000
- ----------------------------------------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.82%
28,000 IMC Global, Inc. 1,050,000
- ----------------------------------------------------------------------------------------------
COMPUTER MAINFRAMES-1.00%
10,000 International Business Machines Corp. 1,290,000
- ----------------------------------------------------------------------------------------------
COMPUTER MINI/PCS-1.55%
16,000 COMPAQ Computer Corp.(a) 1,114,000
- ----------------------------------------------------------------------------------------------
10,600 Dell Computer Corp.(a) 862,575
- ----------------------------------------------------------------------------------------------
1,976,575
- ----------------------------------------------------------------------------------------------
COMPUTER NETWORKING-1.65%
9,000 Ascend Communications, Inc.(a) 588,375
- ----------------------------------------------------------------------------------------------
16,500 Cisco Systems, Inc.(a) 1,020,937
- ----------------------------------------------------------------------------------------------
13,000 FORE Systems, Inc.(a) 516,750
- ----------------------------------------------------------------------------------------------
2,126,062
- ----------------------------------------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 95
Financials
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-5.86%
20,500 Computer Associates International, Inc. $ 1,212,062
- ----------------------------------------------------------------------------------------------
7,000 Computer Sciences Corp.(a) 519,750
- ----------------------------------------------------------------------------------------------
8,000 Electronic Data Systems Corp. 360,000
- ----------------------------------------------------------------------------------------------
51,100 Fiserv, Inc.(a) 1,960,962
- ----------------------------------------------------------------------------------------------
12,000 Microsoft, Corp.(a) 1,647,000
- ----------------------------------------------------------------------------------------------
31,950 Oracle Systems Corp.(a) 1,351,884
- ----------------------------------------------------------------------------------------------
7,000 PairGain Technologies, Inc.(a) 482,125
- ----------------------------------------------------------------------------------------------
7,533,783
- ----------------------------------------------------------------------------------------------
CONGLOMERATES-1.20%
16,600 Du Pont (E.I.) de Nemours & Co. 1,539,650
- ----------------------------------------------------------------------------------------------
COSMETICS & TOILETRIES-2.74%
18,000 Avon Products, Inc. 976,500
- ----------------------------------------------------------------------------------------------
34,000 Gillette Co. (The) 2,541,500
- ----------------------------------------------------------------------------------------------
3,518,000
- ----------------------------------------------------------------------------------------------
ELECTRIC POWER-3.05%
26,000 Allegheny Power System, Inc. 776,750
- ----------------------------------------------------------------------------------------------
27,500 Consolidated Edison Co. of New York, Inc. 804,375
- ----------------------------------------------------------------------------------------------
28,000 Entergy Corp. 784,000
- ----------------------------------------------------------------------------------------------
34,000 Houston Industries Inc. 777,750
- ----------------------------------------------------------------------------------------------
28,600 Illinova Corp. 779,350
- ----------------------------------------------------------------------------------------------
3,922,225
- ----------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-3.56%
22,000 Emerson Electric Co. 1,958,000
- ----------------------------------------------------------------------------------------------
27,000 General Electric Co. 2,612,250
- ----------------------------------------------------------------------------------------------
4,570,250
- ----------------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-1.61%
9,000 Federal Home Loan Mortgage Corp. 909,000
- ----------------------------------------------------------------------------------------------
14,000 Student Loan Marketing Association 1,158,500
- ----------------------------------------------------------------------------------------------
2,067,500
- ----------------------------------------------------------------------------------------------
FOOD/PROCESSING-1.95%
30,000 Archer-Daniels-Midland Co. 652,500
- ----------------------------------------------------------------------------------------------
52,200 Sara Lee Corp. 1,853,100
- ----------------------------------------------------------------------------------------------
2,505,600
- ----------------------------------------------------------------------------------------------
HOTELS/MOTELS-0.76%
32,000 Hilton Hotels Corp. 972,000
- ----------------------------------------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.28%
22,000 Conseco, Inc. 1,177,000
- ----------------------------------------------------------------------------------------------
20,000 Equitable Companies Inc. 470,000
- ----------------------------------------------------------------------------------------------
1,647,000
- ----------------------------------------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-5.04%
23,500 Allstate Corp. 1,318,938
- ----------------------------------------------------------------------------------------------
21,000 American International Group, Inc. 2,281,125
- ----------------------------------------------------------------------------------------------
6,800 CIGNA Corp. 887,400
- ----------------------------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 96
Financials
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE PROPERTY)-(Continued)
13,200 MGIC Investment Corp. $ 905,850
- ----------------------------------------------------------------------------------------------
20,000 Travelers Group, Inc. 1,085,000
- ----------------------------------------------------------------------------------------------
6,478,313
- ----------------------------------------------------------------------------------------------
LEISURE & RECREATION-0.74%
21,000 Harley-Davidson, Inc. 947,625
- ----------------------------------------------------------------------------------------------
MEDICAL (DRUGS)-5.40%
25,000 Abbott Laboratories 1,265,625
- ----------------------------------------------------------------------------------------------
51,200 Johnson & Johnson 2,521,600
- ----------------------------------------------------------------------------------------------
42,500 Merck & Co., Inc. 3,150,313
- ----------------------------------------------------------------------------------------------
6,937,538
- ----------------------------------------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-3.17%
32,000 Baxter International Inc. 1,332,000
- ----------------------------------------------------------------------------------------------
33,900 Medtronic, Inc. 2,182,313
- ----------------------------------------------------------------------------------------------
14,300 St. Jude Medical, Inc.(a) 564,850
- ----------------------------------------------------------------------------------------------
4,079,163
- ----------------------------------------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-1.39%
24,000 Columbia/HCA Healthcare Corp. 858,000
- ----------------------------------------------------------------------------------------------
32,000 Sybron International Corp.(a) 932,000
- ----------------------------------------------------------------------------------------------
1,790,000
- ----------------------------------------------------------------------------------------------
NATURAL GAS PIPELINE-0.29%
6,200 Columbia Gas System, Inc. 376,650
- ----------------------------------------------------------------------------------------------
OFFICE AUTOMATION-0.52%
17,000 Danka Business Systems PLC-ADR (United Kingdom) 673,625
- ----------------------------------------------------------------------------------------------
OIL & GAS (SERVICES)-2.70%
15,000 Halliburton Co. 849,375
- ----------------------------------------------------------------------------------------------
10,000 Royal Dutch Petroleum Co.-ADR-New York shares (Netherlands) 1,653,750
- ----------------------------------------------------------------------------------------------
9,500 Texaco, Inc. 965,438
- ----------------------------------------------------------------------------------------------
3,468,563
- ----------------------------------------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-1.36%
17,700 Schlumberger Ltd. 1,754,512
- ----------------------------------------------------------------------------------------------
PUBLISHING-0.70%
25,000 New York Times Co. 903,125
- ----------------------------------------------------------------------------------------------
RETAIL (FOOD & DRUG)-0.23%
6,600 Kroger Co.(a) 294,525
- ----------------------------------------------------------------------------------------------
RETAIL (STORES)-6.24%
21,500 Lowe's Companies, Inc. 868,062
- ----------------------------------------------------------------------------------------------
38,000 Pep Boys-Manny, Moe & Jack 1,330,000
- ----------------------------------------------------------------------------------------------
45,000 Staples, Inc.(a) 838,125
- ----------------------------------------------------------------------------------------------
35,000 Sysco Corp. 1,190,000
- ----------------------------------------------------------------------------------------------
43,000 Toys "R" Us, Inc.(a) 1,456,625
- ----------------------------------------------------------------------------------------------
50,000 Viking Office Products Inc.(a) 1,456,250
- ----------------------------------------------------------------------------------------------
33,000 Wal-Mart Stores, Inc. 878,625
- ----------------------------------------------------------------------------------------------
8,017,687
- ----------------------------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE> 97
Financials
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
SEMICONDUCTORS-2.45%
10,000 Altera Corp.(a) $ 620,000
- ----------------------------------------------------------------------------------------------
23,000 Intel Corp. 2,527,125
- ----------------------------------------------------------------------------------------------
3,147,125
- ----------------------------------------------------------------------------------------------
SHOES & RELATED APPAREL-0.78%
17,000 NIKE, Inc.-Class B 1,000,875
- ----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-2.77%
25,000 Lucent Technologies, Inc. 1,175,000
- ----------------------------------------------------------------------------------------------
20,400 MFS Communications Co., Inc.(a) 1,022,550
- ----------------------------------------------------------------------------------------------
56,000 WorldCom, Inc.(a) 1,365,000
- ----------------------------------------------------------------------------------------------
3,562,550
- ----------------------------------------------------------------------------------------------
TELEPHONE-1.88%
19,000 BellSouth Corp. 774,250
- ----------------------------------------------------------------------------------------------
18,000 Cincinnati Bell, Inc. 888,750
- ----------------------------------------------------------------------------------------------
15,400 SBC Communications, Inc. 748,825
- ----------------------------------------------------------------------------------------------
2,411,825
- ----------------------------------------------------------------------------------------------
TEXTILES-0.38%
7,000 Gucci Group NV-ADR-New York shares (Netherlands) 483,000
- ----------------------------------------------------------------------------------------------
TOBACCO-2.41%
20,000 Philip Morris Companies, Inc. 1,852,500
- ----------------------------------------------------------------------------------------------
43,100 RJR Nabisco Holdings Corp. 1,244,513
- ----------------------------------------------------------------------------------------------
3,097,013
- ----------------------------------------------------------------------------------------------
TRANSPORTATION-1.37%
70,000 Canadian Pacific, Ltd. (Canada) 1,767,500
- ----------------------------------------------------------------------------------------------
Total Common Stocks 105,069,872
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY BILLS-13.10%(b)
$17,210,000(c) 5.17%, 04/03/97 16,845,664
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS-5.40%(d)
939,177 Daiwa Securities America, Inc., 5.53%, 11/01/96(e) 939,177
- ----------------------------------------------------------------------------------------------
6,000,000 SBC Capital Markets, Inc., 5.55%, 11/01/96(f) 6,000,000
- ----------------------------------------------------------------------------------------------
Total Repurchase Agreements 6,939,177
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.24% 128,854,713
- ----------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.24)% (306,359)
- ----------------------------------------------------------------------------------------------
NET ASSETS-100.00% $ 128,548,354
==============================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount. In such cases the interest
rate shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(c) A portion of the principal was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to insure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$750,115,208. Collateralized by $733,115,000 U.S. Treasury obligations, 0%
to 10.375% due 11/15/96 to 08/15/23.
(f) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0%
to 9.125% due 11/30/96 to 10/31/01.
See Notes to Financial Statements.
FS-5
<PAGE> 98
Financials
SCHEDULE OF INVESTMENTS
September 30, 1996
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
COMMON STOCKS-89.03%
ADVERTISING/BROADCASTING-0.89%
20,000 Interpublic Group of Companies, Inc. $ 945,000
- ----------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE-2.97%
23,900 Boeing Co. (The) 2,258,550
- ----------------------------------------------------------------------------------------------
7,500 United Technologies Corp. 900,938
- ----------------------------------------------------------------------------------------------
3,159,488
- ----------------------------------------------------------------------------------------------
AIRLINES-0.88%
41,000 Southwest Airlines Co. 937,875
- ----------------------------------------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.72%
16,000 General Motors Corp. 768,000
- ----------------------------------------------------------------------------------------------
BANKING-4.23%
31,000 Fifth Third Bancorp 1,801,875
- ----------------------------------------------------------------------------------------------
25,000 Norwest Bank Corp. 1,021,875
- ----------------------------------------------------------------------------------------------
29,200 State Street Boston Corp. 1,675,350
- ----------------------------------------------------------------------------------------------
4,499,100
- ----------------------------------------------------------------------------------------------
BANKING (MONEY CENTER)-0.89%
10,500 Citicorp 951,563
- ----------------------------------------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-0.76%
28,500 PepsiCo, Inc. 805,125
- ----------------------------------------------------------------------------------------------
BIOTECHNOLOGY-1.04%
20,000 Guidant Corp. 1,105,000
- ----------------------------------------------------------------------------------------------
BUSINESS SERVICES-4.35%
35,000 Equifax, Inc. 923,125
- ----------------------------------------------------------------------------------------------
55,450 Olsten Corp. 1,379,319
- ----------------------------------------------------------------------------------------------
33,600 Reuters Holdings PLC-Sponsored ADR (United Kingdom) 2,326,800
- ----------------------------------------------------------------------------------------------
4,629,244
- ----------------------------------------------------------------------------------------------
CHEMICALS-1.34%
26,300 PPG Industries, Inc. 1,430,063
- ----------------------------------------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.74%
13,500 Air Products & Chemicals, Inc. 786,375
- ----------------------------------------------------------------------------------------------
COMPUTER MINI/PCS-0.78%
10,600 Dell Computer Corp.(a) 824,150
- ----------------------------------------------------------------------------------------------
COMPUTER NETWORKING-2.03%
9,000 Ascend Communications, Inc.(a) 595,125
- ----------------------------------------------------------------------------------------------
16,500 Cisco Systems, Inc.(a) 1,024,031
- ----------------------------------------------------------------------------------------------
13,000 FORE Systems, Inc.(a) 537,875
- ----------------------------------------------------------------------------------------------
2,157,031
- ----------------------------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE> 99
Financials
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-7.55%
18,000 Computer Associates International, Inc. $ 1,075,500
- ----------------------------------------------------------------------------------------------
7,000 Computer Sciences Corp.(a) 538,125
- ----------------------------------------------------------------------------------------------
16,000 Electronic Data Systems Corp. 982,000
- ----------------------------------------------------------------------------------------------
51,100 Fiserv, Inc.(a) 1,954,575
- ----------------------------------------------------------------------------------------------
12,000 Microsoft, Corp.(a) 1,582,500
- ----------------------------------------------------------------------------------------------
31,950 Oracle Systems Corp.(a) 1,359,872
- ----------------------------------------------------------------------------------------------
7,000 PairGain Technologies, Inc.(a) 546,875
- ----------------------------------------------------------------------------------------------
8,039,447
- ----------------------------------------------------------------------------------------------
CONGLOMERATES-1.38%
16,600 Du Pont (E.I.) de Nemours & Co. 1,464,950
- ----------------------------------------------------------------------------------------------
COSMETICS & TOILETRIES-4.47%
10,000 Avon Products, Inc. 496,250
- ----------------------------------------------------------------------------------------------
34,000 Gillette Co. (The) 2,452,250
- ----------------------------------------------------------------------------------------------
18,500 Procter & Gamble Co. 1,803,750
- ----------------------------------------------------------------------------------------------
4,752,250
- ----------------------------------------------------------------------------------------------
ELECTRIC POWER-3.56%
26,000 Allegheny Power System, Inc. 754,000
- ----------------------------------------------------------------------------------------------
27,500 Consolidated Edison Co. of New York, Inc. 763,125
- ----------------------------------------------------------------------------------------------
28,000 Entergy Corp. 756,000
- ----------------------------------------------------------------------------------------------
34,000 Houston Industries Inc. 752,250
- ----------------------------------------------------------------------------------------------
28,600 Illinova Corp. 757,900
- ----------------------------------------------------------------------------------------------
3,783,275
- ----------------------------------------------------------------------------------------------
ELECTRIC COMPONENTS/MISCELLANEOUS-4.17%
22,000 Emerson Electric Co. 1,982,750
- ----------------------------------------------------------------------------------------------
27,000 General Electric Co. 2,457,000
- ----------------------------------------------------------------------------------------------
4,439,750
- ----------------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-1.69%
10,000 Federal Home Loan Mortgage Corp. 978,750
- ----------------------------------------------------------------------------------------------
11,000 Student Loan Marketing Association 820,875
- ----------------------------------------------------------------------------------------------
1,799,625
- ----------------------------------------------------------------------------------------------
FOOD/PROCESSING-1.75%
52,200 Sara Lee Corp. 1,866,150
- ----------------------------------------------------------------------------------------------
HOTELS/MOTELS-0.85%
32,000 Hilton Hotels Corp. 908,000
- ----------------------------------------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.50%
22,000 Conseco, Inc. 1,083,500
- ----------------------------------------------------------------------------------------------
20,000 Equitable Companies Inc. 515,000
- ----------------------------------------------------------------------------------------------
1,598,500
- ----------------------------------------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-6.59%
21,000 American International Group, Inc. 2,115,750
- ----------------------------------------------------------------------------------------------
32,400 Chubb Corp. 1,490,400
- ----------------------------------------------------------------------------------------------
6,800 CIGNA Corp. 815,150
- ----------------------------------------------------------------------------------------------
5,200 General Re Corp. 737,100
- ----------------------------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE> 100
Financials
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
Insurance (Multi-Line Property)-continued
13,000 MGIC Investment Corp. $ 875,875
- ----------------------------------------------------------------------------------------------
20,000 Travelers Group, Inc. 982,500
- ----------------------------------------------------------------------------------------------
7,016,775
- ----------------------------------------------------------------------------------------------
LEISURE & RECREATION-0.85%
21,000 Harley-Davidson, Inc. 903,000
- ----------------------------------------------------------------------------------------------
MEDICAL (DRUGS)-6.43%
25,000 Abbott Laboratories 1,231,250
- ----------------------------------------------------------------------------------------------
51,200 Johnson & Johnson 2,624,000
- ----------------------------------------------------------------------------------------------
42,500 Merck & Co., Inc. 2,990,937
- ----------------------------------------------------------------------------------------------
6,846,187
- ----------------------------------------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-2.04%
33,900 Medtronic, Inc. 2,173,837
- ----------------------------------------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-1.61%
13,800 Columbia/HCA Healthcare Corp. 784,875
- ----------------------------------------------------------------------------------------------
32,000 Sybron International Corp.(a) 928,000
- ----------------------------------------------------------------------------------------------
1,712,875
- ----------------------------------------------------------------------------------------------
NATURAL GAS PIPELINE-0.33%
6,200 Columbia Gas System, Inc. 347,200
- ----------------------------------------------------------------------------------------------
OIL & GAS (SERVICES)-3.02%
15,000 Halliburton Co. 774,375
- ----------------------------------------------------------------------------------------------
10,000 Royal Dutch Petroleum Co.-ADR-New York shares (Netherlands) 1,561,250
- ----------------------------------------------------------------------------------------------
9,500 Texaco, Inc. 874,000
- ----------------------------------------------------------------------------------------------
3,209,625
- ----------------------------------------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-1.41%
17,700 Schlumberger Ltd. 1,495,650
- ----------------------------------------------------------------------------------------------
PUBLISHING-0.79%
25,000 New York Times Co. 843,750
- ----------------------------------------------------------------------------------------------
RESTAURANTS-0.76%
17,000 McDonald's Corp. 805,375
- ----------------------------------------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.12%
28,300 Albertson's, Inc. 1,192,137
- ----------------------------------------------------------------------------------------------
RETAIL (STORES)-5.63%
15,700 Lowe's Companies, Inc. 641,738
- ----------------------------------------------------------------------------------------------
30,000 Pep Boys-Manny, Moe & Jack 1,068,750
- ----------------------------------------------------------------------------------------------
45,000 Staples, Inc.(a) 998,437
- ----------------------------------------------------------------------------------------------
27,000 Sysco Corp. 907,875
- ----------------------------------------------------------------------------------------------
50,000 Viking Office Products, Inc.(a) 1,500,000
- ----------------------------------------------------------------------------------------------
33,000 Wal-Mart Stores, Inc. 870,375
- ----------------------------------------------------------------------------------------------
5,987,175
- ----------------------------------------------------------------------------------------------
</TABLE>
FS-8
<PAGE> 101
Financials
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
SEMICONDUCTORS-1.91%
10,000 Altera Corp.(a) $ 506,250
- ----------------------------------------------------------------------------------------------
10,500 Intel Corp. 1,002,094
- ----------------------------------------------------------------------------------------------
9,500 Texas Instruments, Inc. 523,688
- ----------------------------------------------------------------------------------------------
2,032,032
- ----------------------------------------------------------------------------------------------
SHOES & RELATED APPAREL-0.97%
8,500 NIKE, Inc.-Class B 1,032,750
- ----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-1.91%
25,000 Lucent Technologies, Inc. 1,146,875
- ----------------------------------------------------------------------------------------------
20,400 MFS Communications Co., Inc.(a) 889,950
- ----------------------------------------------------------------------------------------------
2,036,825
- ----------------------------------------------------------------------------------------------
TELEPHONE-2.25%
19,000 BellSouth Corp. 703,000
- ----------------------------------------------------------------------------------------------
18,000 Cincinnati Bell, Inc. 954,000
- ----------------------------------------------------------------------------------------------
15,400 SBC Communications, Inc. 741,125
- ----------------------------------------------------------------------------------------------
2,398,125
- ----------------------------------------------------------------------------------------------
TEXTILES-0.95%
14,000 Gucci Group NV-ADR-New York shares (Netherlands) 1,015,000
- ----------------------------------------------------------------------------------------------
TOBACCO-1.92%
13,500 Philip Morris Companies, Inc. 1,211,625
- ----------------------------------------------------------------------------------------------
32,000 RJR Nabisco Holdings Corp. 832,000
- ----------------------------------------------------------------------------------------------
2,043,625
- ----------------------------------------------------------------------------------------------
Total Common Stocks 94,741,904
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY BILLS-4.49%(b)
$ 4,910,000(c) 5.17%, 04/03/97 4,783,027
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS-5.42%(d)
766,387 Daiwa Securities America, Inc., 5.80%, 10/01/96(e) 766,387
- ----------------------------------------------------------------------------------------------
5,000,000 UBS Securities Inc., 5.90%, 10/01/96(f) 5,000,000
- ----------------------------------------------------------------------------------------------
Total Repurchase Agreements 5,766,387
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-98.94% 105,291,318
- ----------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.06% 1,123,392
- ----------------------------------------------------------------------------------------------
NET ASSETS-100.00% $ 106,414,710
==============================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) U.S. treasury bills are traded on a discount. In such cases the interest
rate shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(c) A portion of the principal was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(d) Collateral on repurchase agreements, include the Fund's pro-rata interest in
joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 09/30/96 with a maturing value of
$750,737,063. Collateralized by $696,875,000 U.S. Treasury obligations,
7.875% to 8.375% due 11/15/07 to 08/15/08.
(f) Joint repurchase agreement entered into 09/30/96 with a maturing value of
$300,049,167. Collateralized by $678,362,131 U.S. Government agency
obligations, 0% to 11.00% due 10/01/00 to 03/01/33.
See Notes to Financial Statements.
FS-9
<PAGE> 102
Financials
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
ASSETS:
Investments, at market value (cost: $101,592,848 and
$78,291,809) $128,854,713 $105,291,318
- --------------------------------------------------------------------------------------------
Receivables for:
Investments sold 1,528,029 --
- --------------------------------------------------------------------------------------------
Capital stock sold 1,934,587 1,144,249
- --------------------------------------------------------------------------------------------
Dividends and interest 65,749 144,747
- --------------------------------------------------------------------------------------------
Variation margin 115,600 --
- --------------------------------------------------------------------------------------------
Investment for deferred compensation plan 1,494 713
- --------------------------------------------------------------------------------------------
Other assets 46,398 48,053
- --------------------------------------------------------------------------------------------
Total assets 132,546,570 106,629,080
- --------------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,150,800 --
- --------------------------------------------------------------------------------------------
Capital stock reacquired 1,692,177 33,810
- --------------------------------------------------------------------------------------------
Deferred compensation 1,494 713
- --------------------------------------------------------------------------------------------
Accrued advisory fees 68,230 60,011
- --------------------------------------------------------------------------------------------
Accrued accounting services fees 4,309 16,263
- --------------------------------------------------------------------------------------------
Accrued directors' fees 595 1,580
- --------------------------------------------------------------------------------------------
Accrued distribution fees 37,233 76,346
- --------------------------------------------------------------------------------------------
Accrued transfer agent fees 9,908 10,150
- --------------------------------------------------------------------------------------------
Accrued operating expenses 33,470 15,497
- --------------------------------------------------------------------------------------------
Total liabilities 3,998,216 214,370
- --------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $128,548,354 $106,414,710
============================================================================================
NET ASSETS:
Class A $120,447,685 $106,414,710
- --------------------------------------------------------------------------------------------
Class B $ 8,100,669 --
- --------------------------------------------------------------------------------------------
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000 750,000,000
- --------------------------------------------------------------------------------------------
Outstanding 4,618,824 4,163,564
- --------------------------------------------------------------------------------------------
Class B:
Authorized 750,000,000 750,000,000
- --------------------------------------------------------------------------------------------
Outstanding 310,679 --
- --------------------------------------------------------------------------------------------
CLASS A:
Net asset value and redemption price per share $ 26.08 $ 25.56
- --------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value divided by 94.50%) $ 27.60 $ 27.05
- --------------------------------------------------------------------------------------------
CLASS B:
Net asset value and offering price per share $ 26.07 --
============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-10
<PAGE> 103
Financials
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ONE MONTH ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30,
1996 1996
----------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of $2,518 and $23,207 foreign withholding tax) $ 60,573 $ 1,208,166
- -----------------------------------------------------------------------------------------------------------
Interest 79,751 166,454
- -----------------------------------------------------------------------------------------------------------
Total investment income 140,324 1,374,620
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 75,253 578,569
- -----------------------------------------------------------------------------------------------------------
Custodian fees 2,838 19,467
- -----------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 34,010 190,772
- -----------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 3,166 --
- -----------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class A 5,591 57,849
- -----------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class B 1,601 --
- -----------------------------------------------------------------------------------------------------------
Accounting service fees 4,309 51,360
- -----------------------------------------------------------------------------------------------------------
Directors' fees 581 8,111
- -----------------------------------------------------------------------------------------------------------
Other 12,931 73,915
- -----------------------------------------------------------------------------------------------------------
Total expenses 140,280 980,043
- -----------------------------------------------------------------------------------------------------------
Less expenses assumed by advisor (7,024) (19,409)
- -----------------------------------------------------------------------------------------------------------
Net expenses 133,256 960,634
- -----------------------------------------------------------------------------------------------------------
Net investment income 7,068 413,986
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES AND
FUTURES CONTRACTS:
Net realized gain on sales of investment securities 1,953,887 17,138,864
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 262,356 (1,150,933)
- -----------------------------------------------------------------------------------------------------------
Futures contracts (7,768) (22,050)
- -----------------------------------------------------------------------------------------------------------
254,588 (1,172,983)
- -----------------------------------------------------------------------------------------------------------
Net gain on investment securities and futures contracts 2,208,475 15,965,881
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 2,215,543 $ 16,379,867
==========================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ONE MONTH ENDED YEAR ENDED SEPTEMBER 30,
OCTOBER 31, ---------------------------------------
1996 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 7,068 $ 413,986 $ 435,096
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 1,953,887 17,138,864 3,508,717
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and futures contracts 254,588 (1,172,983) 11,889,076
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,215,543 16,379,867 15,832,889
- -------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income -- (616,045) (358,084)
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains -- (8,878,928) (1,424,952)
- -------------------------------------------------------------------------------------------------------------------------
Capital stock transactions - net:
Class A 11,821,515 28,205,736 (2,840,672)
- -------------------------------------------------------------------------------------------------------------------------
Class B 8,096,586 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 22,133,644 35,090,630 11,209,181
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 106,414,710 71,324,080 60,114,899
- -------------------------------------------------------------------------------------------------------------------------
End of period $ 128,548,354 $ 106,414,710 $ 71,324,080
=========================================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 87,482,889 $ 67,564,788 $ 39,359,052
- -------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 209,005 201,937 403,996
- -------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities 13,624,413 11,670,526 3,410,590
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
futures contracts 27,232,047 26,977,459 28,150,442
- -------------------------------------------------------------------------------------------------------------------------
$ 128,548,354 $ 106,414,710 $ 71,324,080
=========================================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-11
<PAGE> 104
Financials
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip 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 Blue Chip Fund, AIM Aggressive Growth Fund, AIM Capital
Development Fund, AIM Charter Fund, AIM Constellation Fund, and AIM Weingarten
Fund. Prior to June 3, 1996, the Fund was the Baird Blue Chip Fund, Inc. which
was incorporated under the laws of Wisconsin. Pursuant to an Agreement and Plan
of Reorganization between the Company and the Baird Blue Chip Fund, Inc., the
Fund was reorganized as a portfolio of the Company effective June 3, 1996. As a
result of the reorganization, the Fund's fiscal year was changed from September
30 to October 31. The Fund currently offers two different classes of shares: the
Class A shares and the Class B shares. Class B shares commenced operations on
October 1, 1996. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The Fund's investment objective is long-term growth of
capital. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund.
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--A security listed or traded on an exchange is valued at
its last 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. 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 quotations are not
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the 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. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. 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 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.
FS-12
<PAGE> 105
Financials
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES-continued
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are recorded 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.
E. 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.
F. 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 that a change in the value of contracts may not correlate with
changes in the value of the securities being hedged.
G. Expenses--Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g., advisory fees, are allocated between them.
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 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $350 million. AIM has agreed to
waive advisory fees for two years to the extent necessary to keep the annual
expense ratio for Class A shares at 1.31% for such period. During the one month
ended October 31, 1996 and the period from June 3, 1996 through September 30,
1996, AIM voluntarily waived advisory fees in the amounts of $7,024 and $19,409,
respectively. Prior to June 3, 1996, the Baird Blue Chip Fund, Inc., ("BBC") had
a management agreement with Robert W. Baird & Co. Incorporated ("RWB") to serve
as investment advisor and manager. Under the terms of the agreement, the BBC
paid RWB an advisory fee at the annual rate of 0.74% of the daily net assets of
the BBC.
At a special meeting held on March 15, 1996, the shareholders of the BBC
approved a transaction whereby the assets (net of liabilities) of the BBC would
be sold to AIM Blue Chip Fund, a newly-created portfolio of AIM Equity Funds,
Inc., pursuant to the Agreement and Plan of Reorganization dated December 20,
1995, as amended, between the BBC and AIM Equity Funds, Inc. (the "Agreement and
Plan of Reorganization"). The requisite vote for approval was a majority of the
shares of the BBC outstanding on the record date (January 25, 1996). Of the
3,085,577 shares outstanding on the record date, 1,925,583 shares (or 62.4% of
the total outstanding shares) were present at the meeting in person or by proxy,
1,773,720 shares (or 57.5% of the total outstanding shares) voted for approval
of the Agreement and Plan of Reorganization and the reorganization transaction,
and 151,863 shares either voted against or abstained from voting on the matter.
The transaction occurred on June 3, 1996.
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 one month ended October 31, 1996 and
the period from June 3, 1996 through September 30, 1996, AIM was reimbursed
$4,309 and $16,236, respectively, for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the one month ended October 31,
1996 and the period from June 3, 1996 through September 30, 1996, AFS was paid
$4,759 and $16,223, respectively, for such services.
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 shares and Class B shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares
FS-13
<PAGE> 106
Financials
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES-continued
(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 an annual rate of 0.35% 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 assignees, its rights to all or a 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 payable to AIM
Distributors related to the Class B shares. During the one month ended October
31, 1996, the Class A shares and the Class B shares paid AIM Distributors
$34,010 and $3,166, respectively, as compensation pursuant to the Plans. During
the period from June 3, 1996 through September 30, 1996, the Class A shares paid
by AIM Distributors $97,045 as compensation pursuant to the Class A Plan. Prior
to June 3, 1996, the BBC had adopted a distribution plan (the "Plan"), pursuant
to Rule 12b-1 under the Investment Company Act of 1940. The Plan provided that
the BBC may incur certain costs which may not exceed the lesser of a monthly
payment amount equal to 0.45% per year of the BBC's daily net assets or the
actual distribution costs incurred by RWB during the year. During the period
October 1, 1995 through June 3, 1996, BBC paid RWB $93,727 as compensation under
the Plan.
AIM Distributors received commissions of $42,859 and $101,484 from sales of
shares of the Class A's capital stock transactions during the one month ended
October 31, 1996 and the period from June 3, 1996 through September 30, 1996,
respectively. Such commissions are not an expense of the Fund. They are deducted
from, and are not included in, the proceeds from sales of capital stock. During
the one month ended October 31, 1996 and the period from June 3, 1996 through
September 30, 1996, AIM Distributors did not receive contingent deferred sales
charges imposed on redemption of Fund Shares. Certain officers and directors of
the Company are officers and directors of AIM, AFS and AIM Distributors. During
the period October 1, 1995 through June 3, 1996, the BBC was advised that RWB
received $51,342 from investors representing commissions on sales of BBC shares
and no brokerage fees on the execution of purchases and sales of portfolio
securities were paid by the BBC.
During the one month ended October 31, 1996 and the period from June 3, 1996
through September 30, 1996, the Fund paid legal fees of $66 and $362,
respectively, 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank d/b/a Chemical 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. During the one month ended October 31, 1996 and the period from
July 19, 1996 through September 30, 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.
FS-14
<PAGE> 107
Financials
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the one month ended October 31, 1996 were $18,525,377
and $10,284,796, respectively, and during the year ended September 30, 1996 were
$54,111,108 and $43,365,584, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis is as follows:
<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
1996 1996
------------ --------------
<S> <C> <C>
Aggregate unrealized appreciation of investment securities $27,860,837 $ 27,738,465
- ----------------------------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (650,839) (738,956)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $27,209,998 $ 26,999,509
======================================================================================================================
</TABLE>
Costs of investments for tax purposes for the one month ended October 31,
1996 and the period from June 3, 1996 through September 30, 1996 are
$101,644,715 and $78,291,809, respectively.
NOTE 5-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 6-CAPITAL STOCK
Changes in capital stock outstanding during the one month ended October 31, 1996
and the years ended September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
---------------------- ------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sold:
Class A 620,358 $16,142,093 1,504,902 $ 36,636,393 235,753 $ 4,808,974
- -------------------------------------------------- ---------------------- ------------------------ ----------------------
Class B* 313,256 8,163,778 -- -- -- --
- -------------------------------------------------- ---------------------- ------------------------ ----------------------
Issued as reinvestment of dividends:
Class A -- -- 178,537 4,200,245 43,313 809,149
- -------------------------------------------------- ---------------------- ------------------------ ----------------------
Reacquired:
Class A (165,098) (4,320,578) (513,296) (12,630,902) (414,147) (8,458,795)
- -------------------------------------------------- ---------------------- ------------------------ ----------------------
Class B* (2,577) (67,192) -- -- -- --
- -------------------------------------------------- ---------------------- ------------------------ ----------------------
765,939 $19,918,101 1,170,143 $ 28,205,736 (135,081) $(2,840,672)
================================================== ====================== ======================== ======================
</TABLE>
* Class B shares commenced operations on October 1, 1996.
NOTE 7-OPEN FUTURES CONTRACTS
On October 31, 1996, $473,000, principal amount of U.S. Treasury bills were
pledged as collateral to cover margin requirements for open futures contracts.
On September 30, 1996, $195,000, principal amount of U.S. Treasury bills were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF APPRECIATION/
CONTRACT CONTRACTS MONTH/COMMITMENT (DEPRECIATION)
------------- --------- ------------------ --------------
<S> <C> <C> <C> <C>
Open futures contracts at October 31, 1996: S&P 500 Index 34 March 97/Buy $ (29,818)
Open futures contracts at September 30, 1996: S&P 500 Index 14 March 97/Buy (22,050)
</TABLE>
FS-15
<PAGE> 108
Financials
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding of the Class A shares during the one month ended October 31, 1996
and each of the years in the nine-year period ended September 30, 1996 and for a
share of capital stock outstanding of the Class B shares during the period
October 1, 1996 (date operations commenced) through October 31, 1996.
<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
----------- -----------------------------------------------------------
CLASS A: 1996 1996(a) 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.56 $ 23.83 $ 19.22 $ 18.89 $ 18.24
- ------------------------------------------ --------- ---------- --------- --------- ---------
Income from investment operations:
Net investment income (0.00) 0.33 0.14 0.15 0.19
- ------------------------------------------ --------- ---------- --------- --------- ---------
Net realized and unrealized gains
(losses) on investments 0.52 4.61 5.05 1.24 0.63
- ------------------------------------------ --------- ---------- --------- --------- ---------
Total from investment operations 0.52 4.94 5.19 1.39 0.82
- ------------------------------------------ --------- ---------- --------- --------- ---------
Less distributions:
Dividends from net investment income -- (0.21) (0.12) (0.21) (0.17)
- ------------------------------------------ --------- ---------- --------- --------- ---------
Distributions from net realized gains -- (3.00) (0.46) (0.85) --
- ------------------------------------------ --------- ---------- --------- --------- ---------
Total distributions -- (3.21) (0.58) (1.06) (0.17)
- ------------------------------------------ --------- ---------- --------- --------- ---------
Net asset value, end of period 26.08 25.56 23.83 19.22 18.89
========================================== ========= ========== ========= ========= =========
Total return(b) 2.04% 22.39% 27.84% 7.69% 4.54%
========================================== ========= ========== ========= ========= =========
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 120,448 $ 106,415 $ 71,324 $ 60,115 $ 65,112
========================================== ========= ========== ========= ========= =========
Ratio of expenses to average net assets 1.30%(c) 1.26%(d) 1.3% 1.4% 1.3%
========================================== ========= ========== ========= ========= =========
Ratio of net investment income to average
net assets 0.12%(c) 0.53%(d) 0.7% 0.8% 1.0%
========================================== ========= ========== ========= ========= =========
Portfolio turnover rate 10% 58% 17% 13% 25%
========================================== ========= ========== ========= ========= =========
Average Brokerage Commission Rate $ 0.0665 N/A N/A N/A N/A
========================================== ========= ========== ========= ========= =========
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------------------
CLASS A: 1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.77 $ 13.60 $ 13.82 $ 11.48 $ 13.10
- ------------------------------------------ --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.20 0.23 0.25 0.24 0.12
- ------------------------------------------ --------- --------- --------- --------- ---------
Net realized and unrealized gains
(losses) on investments 1.48 3.19 (0.20) 2.25 (1.68)
- ------------------------------------------ --------- --------- --------- --------- ---------
Total from investment operations 1.68 3.42 0.05 2.49 (1.56)
- ------------------------------------------ --------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income (0.21) (0.25) (0.27) (0.15) (0.02)
- ------------------------------------------ --------- --------- --------- --------- ---------
Distributions from net realized gains -- -- -- -- (0.04)
- ------------------------------------------ --------- --------- --------- --------- ---------
Total distributions (0.21) (0.25) (0.27) (0.15) (0.06)
- ------------------------------------------ --------- --------- --------- --------- ---------
Net asset value, end of period 18.24 16.77 13.60 13.82 11.48
========================================== ========= ========= ========= ========= =========
Total return(b) 10.10% 25.52% 0.34% 21.98% (11.81)%
========================================== ========= ========= ========= ========= =========
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 61,601 $ 46,958 $ 31,706 $ 21,170 $ 18,681
========================================== ========= ========= ========= ========= =========
Ratio of expenses to average net assets 1.4% 1.5% 1.6% 1.7% 2.2%
========================================== ========= ========= ========= ========= =========
Ratio of net investment income to average
net assets 1.2% 1.6% 2.0% 1.9% 3.3%
========================================== ========= ========= ========= ========= =========
Portfolio turnover rate 5% 9% 12% 15% 15%
========================================== ========= ========= ========= ========= =========
Average Brokerage Commission Rate N/A N/A N/A N/A N/A
========================================== ========= ========= ========= ========= =========
</TABLE>
(a) The Fund changed investment advisors on June 3, 1996.
(b) Does not deduct sales charges and periods for less than one year are not
annualized.
(c) Ratios are based on average net assets of $114,411,384. Ratios of expenses
and net investment income to average net assets prior to fee waivers are
1.37% and 0.05%, respectively.
(d) Ratios are based on average net assets of $77,923,118. Ratios of expenses
and net investment income to average net assets prior to fee waivers are
1.28% and 0.50%, respectively.
<TABLE>
<CAPTION>
OCTOBER 31,
CLASS B: 1996
-----------
<S> <C>
Net asset value, beginning of period $ 25.56
- --------------------------------------------- ---------
Income from investment operations:
Net investment income (0.01)
- --------------------------------------------- ---------
Net realized and unrealized gains (losses)
on investments 0.52
- --------------------------------------------- ---------
Total from investment operations 0.51
- --------------------------------------------- ---------
Net asset value, end of period 26.07
============================================= =========
Total return(a) 2.00%
============================================= =========
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 8,101
============================================= =========
Ratio of expenses to average net assets 2.01% (b)
============================================= =========
Ratio of net investment income (loss) to
average net assets (0.58) (b)
============================================= =========
Portfolio turnover rate 10%
============================================= =========
Average Brokerage Commission Rate $ 0.0665
============================================= =========
</TABLE>
(a) Does not deduct sales charges and periods for less
than one year are not annualized.
(b) Ratios are annualized and based on average net assets
of $3,728,067. Ratios of expenses and net investment
income (loss) to average net assets prior to fee
waivers are 2.08% (annualized) and (0.65)%
(annualized), respectively.
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.
FS-16
<PAGE> 109
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
FS-17
<PAGE> 110
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>
FS-18
<PAGE> 111
<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>
FS-19
<PAGE> 112
<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>
FS-20
<PAGE> 113
<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.
FS-21
<PAGE> 114
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.
FS-22
<PAGE> 115
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.
FS-23
<PAGE> 116
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.
FS-24
<PAGE> 117
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
FS-25
<PAGE> 118
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>
FS-26
<PAGE> 119
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.
FS-27
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Weingarten Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Weingarten 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 financial highlights for
each of the years in the eight year period then ended, the
ten months ended October 31, 1988, and the year ended
December 31, 1987. These financial statements and
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on
these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with 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
Weingarten 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 eight year period then ended, the ten months ended
October 31, 1988, and the year ended December 31, 1987, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 6, 1996
FS-28
<PAGE> 121
SCHEDULE OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-87.88%
ADVERTISING/BROADCASTING-0.50%
Interpublic Group of Companies,
Inc. 550,000 $ 26,675,000
- ----------------------------------------------------------------
AEROSPACE/DEFENSE-1.24%
Boeing Co. (The) 275,000 26,228,125
- ----------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 850,000 20,081,250
- ----------------------------------------------------------------
United Technologies Corp. 150,000 19,312,500
- ----------------------------------------------------------------
65,621,875
- ----------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.28%
Chrysler Corp. 450,000 15,131,250
- ----------------------------------------------------------------
BANKING-0.79%
Chase Manhattan Corp. 200,000 17,150,000
- ----------------------------------------------------------------
Citicorp 250,000 24,750,000
- ----------------------------------------------------------------
41,900,000
- ----------------------------------------------------------------
BEVERAGES-0.42%
PepsiCo Inc. 750,000 22,218,750
- ----------------------------------------------------------------
BIOTECHNOLOGY-1.09%
AMGEN Inc.(a) 250,000 15,328,125
- ----------------------------------------------------------------
Guidant Corp. 920,600 42,462,675
- ----------------------------------------------------------------
57,790,800
- ----------------------------------------------------------------
BUILDING MATERIALS-0.49%
Georgia-Pacific Corp. 350,000 26,250,000
- ----------------------------------------------------------------
BUSINESS SERVICES-2.08%
AccuStaff, Inc.(a) 511,000 13,669,250
- ----------------------------------------------------------------
CUC International Inc.(a) 750,000 18,375,000
- ----------------------------------------------------------------
Diebold, Inc. 343,100 19,728,250
- ----------------------------------------------------------------
Equifax Inc. 700,000 20,825,000
- ----------------------------------------------------------------
Healthcare COMPARE Corp.(a) 525,000 23,100,000
- ----------------------------------------------------------------
Interim Services Inc.(a) 58,500 2,340,000
- ----------------------------------------------------------------
Olsten Corp. 619,800 12,396,000
- ----------------------------------------------------------------
110,433,500
- ----------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.33%
Morton International, Inc. 450,000 17,718,750
- ----------------------------------------------------------------
COMPUTER MINI/PCS-2.89%
COMPAQ Computer Corp.(a) 550,000 38,293,750
- ----------------------------------------------------------------
Dell Computer Corp.(a) 395,100 32,151,263
- ----------------------------------------------------------------
Gateway 2000 Inc.(a) 850,000 40,003,125
- ----------------------------------------------------------------
Sun Microsystems Inc.(a) 700,000 42,700,000
- ----------------------------------------------------------------
153,148,138
- ----------------------------------------------------------------
COMPUTER NETWORKING-4.44%
Ascend Communications, Inc.(a) 350,000 22,881,250
- ----------------------------------------------------------------
Cabletron Systems, Inc.(a) 650,000 40,543,750
- ----------------------------------------------------------------
Cascade Communications Corp.(a) 550,000 39,943,750
- ----------------------------------------------------------------
Cisco Systems, Inc.(a) 925,000 57,234,375
- ----------------------------------------------------------------
FORE Systems, Inc.(a) 525,000 20,868,750
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER NETWORKING-(CONTINUED)
3Com Corp.(a) 800,000 $ 54,100,000
- ----------------------------------------------------------------
235,571,875
- ----------------------------------------------------------------
COMPUTER PERIPHERALS-0.88%
Storage Technology Corp.(a) 1,091,500 46,525,188
- ----------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-8.86%
BMC Software, Inc.(a) 500,000 41,500,000
- ----------------------------------------------------------------
Cadence Design Systems, Inc.(a) 829,000 30,258,500
- ----------------------------------------------------------------
Ceridian Corp.(a) 400,000 19,850,000
- ----------------------------------------------------------------
Computer Associates
International, Inc. 675,000 39,909,375
- ----------------------------------------------------------------
Computer Sciences Corp.(a) 214,400 15,919,200
- ----------------------------------------------------------------
Compuware Corp.(a) 700,000 36,925,000
- ----------------------------------------------------------------
Electronic Data Systems Corp. 1,000,000 45,000,000
- ----------------------------------------------------------------
Electronics For Imaging, Inc.(a) 31,800 2,289,600
- ----------------------------------------------------------------
First Data Corp. 250,000 19,937,500
- ----------------------------------------------------------------
Fiserv, Inc.(a) 850,000 32,618,750
- ----------------------------------------------------------------
HBO & Co. 600,000 36,075,000
- ----------------------------------------------------------------
Microsoft Corp.(a) 200,000 27,450,000
- ----------------------------------------------------------------
Oracle Corp.(a) 450,000 19,040,625
- ----------------------------------------------------------------
Parametric Technology Co.(a) 554,800 27,115,850
- ----------------------------------------------------------------
Sterling Commerce, Inc.(a) 750,000 21,093,750
- ----------------------------------------------------------------
Synopsys, Inc.(a) 342,700 15,421,500
- ----------------------------------------------------------------
Wallace Computer Services, Inc. 1,350,000 39,656,250
- ----------------------------------------------------------------
470,060,900
- ----------------------------------------------------------------
CONGLOMERATES-2.88%
AlliedSignal Inc. 300,000 19,650,000
- ----------------------------------------------------------------
Loews Corp. 750,000 61,968,750
- ----------------------------------------------------------------
Textron Inc. 160,000 14,200,000
- ----------------------------------------------------------------
Tyco International Ltd. 875,000 43,421,875
- ----------------------------------------------------------------
U.S. Industries Inc.(a) 500,000 13,500,000
- ----------------------------------------------------------------
152,740,625
- ----------------------------------------------------------------
CONTAINERS-0.31%
Sealed Air Corp.(a) 425,000 16,521,875
- ----------------------------------------------------------------
COSMETICS & TOILETRIES-1.00%
Avon Products, Inc. 375,000 20,343,750
- ----------------------------------------------------------------
Gillette Co. (The) 237,100 17,723,225
- ----------------------------------------------------------------
Procter & Gamble Co. 150,000 14,850,000
- ----------------------------------------------------------------
52,916,975
- ----------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-1.21%
Amphenol Corp.(a) 95,000 1,888,125
- ----------------------------------------------------------------
Checkpoint Systems, Inc.(a) 1,500,000 33,562,500
- ----------------------------------------------------------------
Thermo Instrument Systems,
Inc.(a) 450,000 13,612,500
- ----------------------------------------------------------------
Waters Corp.(a) 487,300 15,106,300
- ----------------------------------------------------------------
64,169,425
- ----------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-1.59%
Bear Stearns Companies Inc. 535,720 12,656,385
- ----------------------------------------------------------------
Charles Schwab Corp. 342,100 8,552,500
- ----------------------------------------------------------------
</TABLE>
FS-29
<PAGE> 122
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (ASSET MANAGEMENT)-(CONTINUED)
Franklin Resources, Inc. 271,000 $ 19,105,500
- ----------------------------------------------------------------
PaineWebber Group Inc. 850,000 19,975,000
- ----------------------------------------------------------------
Price (T. Rowe) Associates 248,800 8,490,300
- ----------------------------------------------------------------
Salomon Inc. 350,000 15,793,750
- ----------------------------------------------------------------
84,573,435
- ----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-5.20%
Beneficial Corp. 250,000 14,625,000
- ----------------------------------------------------------------
Federal Home Loan Mortgage Corp. 508,200 51,328,200
- ----------------------------------------------------------------
Federal National Mortgage
Association 1,358,600 53,155,225
- ----------------------------------------------------------------
Finova Group, Inc. 250,000 15,437,500
- ----------------------------------------------------------------
Green Tree Financial Corp. 608,900 24,127,663
- ----------------------------------------------------------------
Household International, Inc. 175,000 15,487,500
- ----------------------------------------------------------------
Student Loan Marketing
Association 1,000,000 82,750,000
- ----------------------------------------------------------------
SunAmerica, Inc. 500,000 18,750,000
- ----------------------------------------------------------------
275,661,088
- ----------------------------------------------------------------
FOOD/PROCESSING-1.60%
ConAgra, Inc. 407,700 20,334,038
- ----------------------------------------------------------------
Dean Foods Co. 725,000 21,025,000
- ----------------------------------------------------------------
Lancaster Colony Corp. 394,233 14,783,738
- ----------------------------------------------------------------
Sysco Corp. 850,000 28,900,000
- ----------------------------------------------------------------
85,042,776
- ----------------------------------------------------------------
FUNERAL SERVICES-0.32%
Service Corp. International 600,000 17,100,000
- ----------------------------------------------------------------
GAMING-0.34%
International Game Technology 850,000 17,956,250
- ----------------------------------------------------------------
HOTELS/MOTELS-1.17%
Hilton Hotels Corp. 660,000 20,047,500
- ----------------------------------------------------------------
Host Marriott Corp.(a) 1,800,000 27,675,000
- ----------------------------------------------------------------
Marriott International, Inc. 250,000 14,218,750
- ----------------------------------------------------------------
61,941,250
- ----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.66%
Conseco, Inc. 1,100,000 58,850,000
- ----------------------------------------------------------------
Equitable Companies, Inc. 700,000 16,450,000
- ----------------------------------------------------------------
Provident Companies, Inc. 350,000 12,993,750
- ----------------------------------------------------------------
88,293,750
- ----------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-4.90%
Allstate Corp. 451,300 25,329,213
- ----------------------------------------------------------------
American International Group,
Inc. 225,000 24,440,625
- ----------------------------------------------------------------
CIGNA Corp. 325,000 42,412,500
- ----------------------------------------------------------------
Everest Re Holdings, Inc. 912,000 23,256,000
- ----------------------------------------------------------------
ITT Hartford Group, Inc. 325,000 20,475,000
- ----------------------------------------------------------------
MGIC Investment Corp. 310,700 21,321,788
- ----------------------------------------------------------------
Old Republic International Corp. 383,700 9,496,575
- ----------------------------------------------------------------
PMI Group, Inc. (The) 706,100 40,335,963
- ----------------------------------------------------------------
TIG Holdings, Inc. 332,000 9,586,500
- ----------------------------------------------------------------
Travelers Group, Inc. 800,000 43,400,000
- ----------------------------------------------------------------
260,054,164
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LEISURE & RECREATION-1.16%
Carnival Corporation-Class A 850,000 $ 25,606,250
- ----------------------------------------------------------------
Coleman Co., Inc. (The)(a) 405,300 5,370,225
- ----------------------------------------------------------------
Eastman Kodak Co. 130,300 10,391,425
- ----------------------------------------------------------------
Harley-Davidson, Inc. 450,000 20,306,250
- ----------------------------------------------------------------
61,674,150
- ----------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.64%
Thermo Electron Corp.(a) 930,000 33,945,000
- ----------------------------------------------------------------
MEDICAL (DRUGS)-5.62%
Abbott Laboratories 525,000 26,578,125
- ----------------------------------------------------------------
American Home Products Corp. 400,000 24,500,000
- ----------------------------------------------------------------
AmeriSource Health Corp.(a) 380,000 16,102,500
- ----------------------------------------------------------------
Bristol-Myers Squibb Co. 325,000 34,368,750
- ----------------------------------------------------------------
Cardinal Health, Inc. 175,000 13,737,500
- ----------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 300,000 8,737,500
- ----------------------------------------------------------------
ICN Pharmaceuticals, Inc. 1,150,000 21,850,000
- ----------------------------------------------------------------
Merck & Co., Inc. 600,000 44,475,000
- ----------------------------------------------------------------
Pharmacia & Upjohn, Inc. 450,000 16,200,000
- ----------------------------------------------------------------
Rhone-Poulenc Rorer, Inc. 554,900 37,247,663
- ----------------------------------------------------------------
Schering-Plough Corp. 608,100 38,918,400
- ----------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 461,200 15,392,550
- ----------------------------------------------------------------
298,107,988
- ----------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-3.60%
Columbia/HCA Healthcare Corp. 1,050,000 37,537,500
- ----------------------------------------------------------------
Health Care and Retirement
Corp.(a) 222,350 5,475,369
- ----------------------------------------------------------------
HEALTHSOUTH Corp.(a) 1,100,000 41,250,000
- ----------------------------------------------------------------
Living Centers of America,
Inc.(a) 256,000 5,984,000
- ----------------------------------------------------------------
MedPartners, Inc.(a) 2,110,000 44,573,750
- ----------------------------------------------------------------
Oxford Health Plans, Inc.(a) 300,000 13,650,000
- ----------------------------------------------------------------
Quorum Health Group, Inc.(a) 750,000 20,250,000
- ----------------------------------------------------------------
Tenet Healthcare Corp.(a) 1,072,900 22,396,788
- ----------------------------------------------------------------
191,117,407
- ----------------------------------------------------------------
MEDICAL
INSTRUMENTS/PRODUCTS-3.53%
Baxter International Inc. 550,000 22,893,750
- ----------------------------------------------------------------
Becton, Dickinson & Co. 650,000 28,275,000
- ----------------------------------------------------------------
Boston Scientific Corp.(a) 250,077 13,597,937
- ----------------------------------------------------------------
Medtronic, Inc. 500,000 32,187,500
- ----------------------------------------------------------------
St. Jude Medical, Inc. 446,700 17,644,650
- ----------------------------------------------------------------
Stryker Corp 750,000 22,312,500
- ----------------------------------------------------------------
Sybron International Corp.(a) 1,050,000 30,581,250
- ----------------------------------------------------------------
U.S. Surgical Corp. 478,500 20,037,188
- ----------------------------------------------------------------
187,529,775
- ----------------------------------------------------------------
NATURAL GAS PIPELINE-0.66%
Columbia Gas System, Inc. 362,000 21,991,500
- ----------------------------------------------------------------
Williams Cos., Inc (The) 250,000 13,062,500
- ----------------------------------------------------------------
35,054,000
- ----------------------------------------------------------------
OFFICE AUTOMATION-0.04%
Xerox Corp. 49,100 2,277,013
- ----------------------------------------------------------------
OFFICE PRODUCTS-0.78%
Avery Dennison Corp. 225,000 14,821,875
- ----------------------------------------------------------------
</TABLE>
FS-30
<PAGE> 123
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OFFICE PRODUCTS-(CONTINUED)
Reynolds & Reynolds Co.-Class A 1,000,000 $ 26,375,000
- ----------------------------------------------------------------
41,196,875
- ----------------------------------------------------------------
OIL & GAS (SERVICES)-2.00%
Louisiana Land & Exploration Co. 374,900 21,322,438
- ----------------------------------------------------------------
NorAm Energy Corp. 2,000,000 30,750,000
- ----------------------------------------------------------------
Reading & Bates Corp.(a) 775,000 22,281,250
- ----------------------------------------------------------------
Transocean Offshore Inc. 505,800 31,991,850
- ----------------------------------------------------------------
106,345,538
- ----------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-2.58%
Baker Hughes Inc. 600,000 21,375,000
- ----------------------------------------------------------------
Coastal Corp. 295,000 12,685,000
- ----------------------------------------------------------------
Cooper Cameron Corp.(a) 95,300 6,087,288
- ----------------------------------------------------------------
Dresser Industries, Inc. 450,000 14,793,750
- ----------------------------------------------------------------
Halliburton Co. 400,000 22,650,000
- ----------------------------------------------------------------
Rowan Companies, Inc.(a) 1,200,000 26,850,000
- ----------------------------------------------------------------
Schlumberger Ltd. 150,000 14,868,750
- ----------------------------------------------------------------
Tidewater Inc. 400,000 17,500,000
- ----------------------------------------------------------------
136,809,788
- ----------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.62%
Kimberly-Clark Corp. 350,000 32,637,500
- ----------------------------------------------------------------
PUBLISHING-0.38%
New York Times Co. 400,000 14,450,000
- ----------------------------------------------------------------
Times Mirror Co. (The) 122,400 5,661,000
- ----------------------------------------------------------------
20,111,000
- ----------------------------------------------------------------
RESTAURANTS-0.38%
Applebee's International, Inc. 828,000 20,182,500
- ----------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.59%
American Stores Co. 925,000 38,271,875
- ----------------------------------------------------------------
Kroger Co.(The)(a) 244,400 10,906,350
- ----------------------------------------------------------------
Safeway Inc.(a) 817,800 35,063,175
- ----------------------------------------------------------------
84,241,400
- ----------------------------------------------------------------
RETAIL (STORES)-6.84%
AutoZone, Inc.(a) 450,000 11,531,250
- ----------------------------------------------------------------
Consolidated Stores Corp.(a) 742,600 28,682,925
- ----------------------------------------------------------------
Dayton-Hudson Corp. 1,033,100 35,771,088
- ----------------------------------------------------------------
Federated Department Stores,
Inc.(a) 500,000 16,500,000
- ----------------------------------------------------------------
Gap Inc. (The) 750,000 21,750,000
- ----------------------------------------------------------------
Home Depot, Inc. 550,000 30,112,500
- ----------------------------------------------------------------
Lowe's Companies, Inc. 1,117,200 45,106,950
- ----------------------------------------------------------------
Micro Warehouse, Inc.(a) 97,600 2,244,800
- ----------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 2,200,000 77,000,000
- ----------------------------------------------------------------
Price/Costco Inc.(a) 538,700 10,706,663
- ----------------------------------------------------------------
Staples, Inc.(a) 2,000,025 37,250,466
- ----------------------------------------------------------------
Toys "R" Us, Inc.(a) 1,300,000 44,037,500
- ----------------------------------------------------------------
Viking Office Products Inc.(a) 58,600 1,706,725
- ----------------------------------------------------------------
362,400,867
- ----------------------------------------------------------------
SEMICONDUCTORS-2.32%
Altera Corp.(a) 400,000 24,800,000
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SEMICONDUCTORS-(CONTINUED)
Intel Corp. 750,000 $ 82,406,250
- ----------------------------------------------------------------
Texas Instruments, Inc. 325,000 15,640,625
- ----------------------------------------------------------------
122,846,875
- ----------------------------------------------------------------
SHOES & RELATED APPAREL-0.55%
NIKE, Inc.-Class B 500,000 29,437,500
- ----------------------------------------------------------------
TELECOMMUNICATIONS-4.66%
ADC Telecommunications, Inc.(a) 941,000 64,340,875
- ----------------------------------------------------------------
Andrew Corp.(a) 400,000 19,500,000
- ----------------------------------------------------------------
Frontier Corp. 469,300 13,609,700
- ----------------------------------------------------------------
Lucent Technologies, Inc. 1,000,000 47,000,000
- ----------------------------------------------------------------
MFS Communications Company,
Inc.(a) 781,600 39,177,700
- ----------------------------------------------------------------
PairGain Technologies, Inc.(a) 275,000 18,940,625
- ----------------------------------------------------------------
Tellabs, Inc.(a) 400,000 34,050,000
- ----------------------------------------------------------------
360 Communications Co.(a) 463,333 10,482,909
- ----------------------------------------------------------------
247,101,809
- ----------------------------------------------------------------
TELEPHONE-0.72%
Cincinnati Bell, Inc. 775,000 38,265,625
- ----------------------------------------------------------------
TEXTILES-0.54%
Fruit of the Loom, Inc.(a) 319,500 11,621,813
- ----------------------------------------------------------------
Liz Claiborne, Inc. 400,000 16,900,000
- ----------------------------------------------------------------
28,521,813
- ----------------------------------------------------------------
TOBACCO-2.20%
Philip Morris Companies, Inc. 575,000 53,259,375
- ----------------------------------------------------------------
RJR Nabisco Holdings Corp. 856,200 24,722,775
- ----------------------------------------------------------------
Universal Corp. 146,700 3,997,575
- ----------------------------------------------------------------
UST, Inc. 1,200,000 34,650,000
- ----------------------------------------------------------------
116,629,725
- ----------------------------------------------------------------
Total Domestic Common
Stocks 4,662,451,787
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS & NOTES-0.56%
RESTAURANTS-0.56%
Boston Chicken, Inc.,
Conv. Notes,
8.00%(b), 06/01/15 $ 78,540,000 25,427,325
- ----------------------------------------------------------------
Boston Chicken, Inc.,
Conv. Sub. Deb.,
4.50%, 02/01/04 3,245,000 4,259,063
- ----------------------------------------------------------------
Total Convertible
Corporate Bonds &
Notes 29,686,388
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS-10.88%
BRAZIL-0.42%
Telecomunicacoes Brasileiras
S/A-ADR (Telecommunications) 300,000 22,350,000
- ----------------------------------------------------------------
CANADA-1.33%
Canadian Pacific, Ltd.
(Transportation-Miscellaneous) 650,000 16,412,500
- ----------------------------------------------------------------
Newbridge Networks Corp.(a)
(Computer Networking) 1,200,000 37,950,000
- ----------------------------------------------------------------
</TABLE>
FS-31
<PAGE> 124
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Northern Telecom Ltd.
(Telecommunications) 250,000 $ 16,281,250
- ----------------------------------------------------------------
70,643,750
- ----------------------------------------------------------------
FRANCE-0.25%
Roussel-Uclaf (Medical-Drugs) 50,000 13,232,273
- ----------------------------------------------------------------
GERMANY-0.42%
Adidas A.G.(Shoes & Related
Apparel) 160,900 13,790,821
- ----------------------------------------------------------------
Veba A.G. (Electric Services) 158,000 8,426,875
- ----------------------------------------------------------------
22,217,696
- ----------------------------------------------------------------
HONG KONG-0.85%
HSBC Holdings PLC(a)
(Banking) 820,000 16,702,878
- ----------------------------------------------------------------
Sun Hung Kai Properties Ltd.
(Real Estate) 2,505,000 28,509,350
- ----------------------------------------------------------------
45,212,228
- ----------------------------------------------------------------
IRELAND-0.30%
Elan Corp. PLC-ADR(a)
(Medical-Drugs) 580,000 16,095,000
- ----------------------------------------------------------------
ISRAEL-0.71%
ECI Telecommunications Ltd.
Designs
(Computer Networking) 824,700 16,494,000
- ----------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR
(Medical-Drugs) 500,000 20,937,500
- ----------------------------------------------------------------
37,431,500
- ----------------------------------------------------------------
ITALY-1.17%
Fila Holding S.p.A.-ADR
(Retail-Stores) 504,100 36,295,200
- ----------------------------------------------------------------
Telecom Italia Mobile S.p.A.
(Telecommunications) 6,000,000 12,371,786
- ----------------------------------------------------------------
Telecom Italia S.p.A.
(Telecommunications) 6,000,000 13,415,952
- ----------------------------------------------------------------
62,082,938
- ----------------------------------------------------------------
JAPAN-1.41%
Canon, Inc.
(Office Automation) 1,045,000 20,008,783
- ----------------------------------------------------------------
Honda Motor Co.
(Automobile-Manufacturers) 608,000 14,525,141
- ----------------------------------------------------------------
Sony Corp.
(Electronic
Components/Miscellaneous) 321,900 19,310,324
- ----------------------------------------------------------------
TDK Corp.
(Electronic
Components/Miscellaneous) 356,000 20,886,917
- ----------------------------------------------------------------
74,731,165
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MALAYSIA-0.20%
Malayan Banking Berhad
(Banking) 1,074,000 $ 10,627,350
- ----------------------------------------------------------------
NETHERLANDS-0.33%
Gucci Group NV-New York Shares
(Textiles) 250,000 17,250,000
- ----------------------------------------------------------------
SWEDEN-1.18%
ASTRA AB-A Shares
(Medical-Drugs) 340,000 15,615,067
- ----------------------------------------------------------------
Telefonaktiebolaget L.M.
Ericsson-ADR
(Telecommunications) 1,700,000 46,962,500
- ----------------------------------------------------------------
62,577,567
- ----------------------------------------------------------------
SWITZERLAND-0.90%
Ciba-Geigy AG
(Chemicals) 20,000 24,636,075
- ----------------------------------------------------------------
Sandoz AG
(Chemicals) 20,000 23,117,088
- ----------------------------------------------------------------
47,753,163
- ----------------------------------------------------------------
UNITED KINGDOM-1.41%
Danka Business Systems PLC-ADR
(Office Automation) 376,600 14,922,775
- ----------------------------------------------------------------
Granada Group PLC
(Leisure & Recreation) 1,000,000 14,379,882
- ----------------------------------------------------------------
Smithkline Beecham PLC-ADR
(Medical-Drugs) 700,000 43,837,500
- ----------------------------------------------------------------
Stolt-Nielsen S.A.
(Transportation-Miscellaneous) 121,500 1,898,437
- ----------------------------------------------------------------
75,038,594
- ----------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 577,243,224
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS-2.44%(C)
Daiwa Securities America Inc.,
5.53%, 11/01/96(d) $ 326,080 326,080
- ----------------------------------------------------------------
SBC Capital Markets, Inc.
5.55%, 11/01/96(e) 129,000,000 129,000,000
- ----------------------------------------------------------------
Total Repurchase Agreements 129,326,080
- ----------------------------------------------------------------
TOTAL INVESTMENTS-101.76% 5,398,707,479
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(1.76)% (93,272,392)
- ----------------------------------------------------------------
TOTAL NET ASSETS-100.00% $5,305,435,087
================================================================
</TABLE>
Abbreviations:
ADR-American Depository Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Zero coupon bond. The interest rate shown represents the rate of the
original issue discount.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d) Joint repurchase agreement entered into on 10/31/96 with maturing value of
$750,115,208 Collateralized by $733,115,000 U.S. Treasury obligations, 0% to
10.375% due 11/15/96 to 08/15/23.
(e) Joint repurchase agreement entered into on 10/31/96 with maturing value of
$700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0%
to 9.125% due 11/30/96 to 10/31/01.
See Notes to Financial Statements.
FS-32
<PAGE> 125
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$4,364,479,746) $5,398,707,479
- ---------------------------------------------------------
Foreign currencies, at market value
(cost $253,890) 253,726
- ---------------------------------------------------------
Receivables for:
Investments sold 11,950,581
- ---------------------------------------------------------
Options written 1,337,955
- ---------------------------------------------------------
Capital stock sold 5,563,124
- ---------------------------------------------------------
Dividends and interest 3,124,499
- ---------------------------------------------------------
Investment for deferred compensation
plan 59,575
- ---------------------------------------------------------
Other assets 110,155
- ---------------------------------------------------------
Total assets 5,421,107,094
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 76,633,560
- ---------------------------------------------------------
Options written 25,795,994
- ---------------------------------------------------------
Capital stock reacquired 7,180,052
- ---------------------------------------------------------
Deferred compensation 59,575
- ---------------------------------------------------------
Accrued advisory fees 2,735,952
- ---------------------------------------------------------
Accrued administrative service fees 12,099
- ---------------------------------------------------------
Accrued distribution fees 1,499,021
- ---------------------------------------------------------
Accrued transfer agent fees 878,973
- ---------------------------------------------------------
Accrued operating expenses 876,781
- ---------------------------------------------------------
Total liabilities 115,672,007
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $5,305,435,087
=========================================================
NET ASSETS:
Class A $4,977,492,845
=========================================================
Class B $ 267,459,433
=========================================================
Institutional Class $ 60,482,809
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER
SHARE:
CLASS A:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 246,580,037
=========================================================
CLASS B:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 13,389,126
=========================================================
INSTITUTIONAL CLASS:
Authorized 200,000,000
- ---------------------------------------------------------
Outstanding 2,955,876
=========================================================
CLASS A:
Net asset value and redemption price
per share $ 20.19
- ---------------------------------------------------------
Offering price per share:
(Net asset value of
$20.19 divided by 94.50%) $ 21.37
=========================================================
CLASS B:
Net asset value and offering price per
share $ 19.98
=========================================================
INSTITUTIONAL CLASS:
Net asset value, offering and
redemption price per share $ 20.46
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $1,308,115 foreign
withholding tax) $ 55,329,053
- ---------------------------------------------------------
Interest 15,225,042
- ---------------------------------------------------------
Total investment income 70,554,095
- ---------------------------------------------------------
EXPENSES:
Advisory fees 31,419,183
- ---------------------------------------------------------
Administrative service fees 132,643
- ---------------------------------------------------------
Custodian fees 402,058
- ---------------------------------------------------------
Directors' fees 31,363
- ---------------------------------------------------------
Distribution fees-Class A 14,212,254
- ---------------------------------------------------------
Distribution fees-Class B 1,514,633
- ---------------------------------------------------------
Transfer agent fees-Class A 8,434,506
- ---------------------------------------------------------
Transfer agent fees-Class B 452,997
- ---------------------------------------------------------
Transfer agent fees-Institutional Class 4,292
- ---------------------------------------------------------
Other 1,337,876
- ---------------------------------------------------------
Total expenses 57,941,805
- ---------------------------------------------------------
Less: Fees waived by advisor (1,458,804)
- ---------------------------------------------------------
Expenses paid indirectly (76,493)
- ---------------------------------------------------------
Net expenses 56,406,508
- ---------------------------------------------------------
Net investment income 14,147,587
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTION
CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 593,755,723
- ---------------------------------------------------------
Foreign currencies 946,540
- ---------------------------------------------------------
Futures contracts (7,874,291)
- ---------------------------------------------------------
Options contracts 3,720,144
- ---------------------------------------------------------
590,548,116
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 81,966,541
- ---------------------------------------------------------
Foreign currencies 366,935
- ---------------------------------------------------------
Options contracts (3,194,922)
- ---------------------------------------------------------
79,138,554
- ---------------------------------------------------------
Net gain on investment securities,
foreign currencies, futures and option
contracts 669,686,670
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 683,834,257
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-33
<PAGE> 126
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 (loss) $ 14,147,587 $ (1,259,456)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities, foreign currencies, futures and
options contracts 590,548,116 620,641,509
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities, foreign currencies, and
options contracts 79,138,554 411,202,260
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 683,834,257 1,030,584,313
- ---------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A -- (14,842,521)
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class -- (290,923)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on investment securities:
Class A (606,609,217) (387,332,253)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (7,814,517) --
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class (7,332,667) (4,072,920)
- ---------------------------------------------------------------------------------------------------------------------------
Net equalization credits:
Class A 2,368,957 204,025
- ---------------------------------------------------------------------------------------------------------------------------
Class B 992,175 297,921
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class 65,590 71,195
- ---------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 362,344,237 (17,628,236)
- ---------------------------------------------------------------------------------------------------------------------------
Class B 210,825,508 41,458,876
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class 5,462,015 6,504,480
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 644,136,338 654,953,957
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 4,661,298,749 4,006,344,792
- ---------------------------------------------------------------------------------------------------------------------------
End of period $5,305,435,087 $4,661,298,749
===========================================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $3,649,184,459 $3,070,552,699
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 44,516,626 25,028,873
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment securities, foreign
currencies, futures and options contracts 580,711,311 613,833,040
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign currencies, and option
contracts 1,031,022,691 951,884,137
- ---------------------------------------------------------------------------------------------------------------------------
$5,305,435,087 $4,661,298,749
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-34
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten Fund (the "Fund") is a series 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 Weingarten Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund,
AIM Capital Development Fund, AIM Charter Fund and AIM Constellation Fund. The
Fund currently offers three different classes of shares: the Class A shares,
Class B shares and the Institutional Class. Matters affecting each portfolio or
class will be voted on exclusively by such shareholders. The assets, liabilities
and operations of each portfolio are accounted for separately. The Fund's
investment objective is to seek growth of capital principally through investment
in common stocks of seasoned and better capitalized companies. Information
presented in these financial statements pertains only to the Fund.
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. Securities for which market quotations are not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the 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. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a 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.
D. 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 or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contract 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 contract is closed, the Fund records 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 that a change in the value of the
contract may not correlate with changes in the securities being hedged.
E. Covered Call Options--The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent
FS-35
<PAGE> 128
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The current market
value of a written option is the mean between the last bid and asked prices
on that day. If a written call option expires on the stipulated expiration
date, or if the Fund enters into a closing purchase transaction, the Fund
realizes a gain (or a loss if the closing purchase transaction exceeds the
premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised,
the Fund realizes a gain or a loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at such
earlier time at which the Fund effects a closing purchase transaction by
purchasing (at a price which may be higher than that received when the call
option was written) a call option identical to the one originally written.
The Fund will not write a covered call option if, immediately thereafter,
the aggregate value of the securities underlying all such options,
determined as of the dates such options were written, would exceed 25% of
the net assets of the Fund.
F. 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 specific identification of 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
$1,913,444 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.
G. 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.
H. Expenses--Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to all
classes, eg. advisory fees, are allocated among them.
I. Equalization--The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and the 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 undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares.
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"). The terms of the master investment advisory agreement
provide that the Fund shall pay an advisory fee to AIM at an 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
$350 million, plus 0.625% of the Fund's average daily net assets in excess of
$350 million. AIM is currently voluntarily waiving a portion of its advisory
fees payable 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. 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 $350 million, plus 0.625% of the Fund's average daily net assets
in excess of $350 million to and including $2 billion, plus 0.60% of the Fund's
average daily net assets in excess of $2 billion to and including $3 billion,
plus 0.575% of the Fund's average daily net assets in excess of $3 billion to
and including $4 billion, plus 0.55% of the Fund's average daily net assets in
excess of $4 billion. The waiver of fees is entirely voluntary but approval is
required by the Board of Directors of the Company for any decision by AIM to
discontinue the waiver. During the year ended October 31, 1996, AIM waived fees
of $1,458,804. 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 $132,643 for such services.
The Fund, pursuant to a transfer agency and service 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 shares and Class B shares. During the
year ended October 31, 1996, AFS was reimbursed $4,391,818 for such services.
During the year ended October 31, 1996, the Fund, pursuant to a transfer
agency and service agreement, paid A I M Institutional Fund Services, Inc.
("AIFS") $4,292 for shareholder and transfer agency services with respect to the
Institutional Class.
The Fund received reductions in transfer agency fees of $70,737 from dividends
received on balances in cash management bank
FS-36
<PAGE> 129
accounts. In addition, the Fund incurred expenses of $5,756 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 $76,493
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 to implement a program
which 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 designated 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
Distributors related to the Class B shares. During the year ended October 31,
1996, the Class A shares and the Class B shares paid AIM Distributors
$14,212,254 and $1,514,633, respectively, as compensation under the Plans.
AIM Distributors received commissions of $2,259,328 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 $34,185 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 $14,974
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-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended October 31, 1996 was $7,636,727,517 and
$7,477,919,832, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of October 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $1,085,136,998
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (61,959,672)
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities $1,023,177,326
===========================================================
</TABLE>
Cost of investments for tax purposes is $4,375,530,153.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-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 $68,400,000. 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 6-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
---------------------------
NUMBER
OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of year -0- --
- --------------------------------------------------------------
Written 139,095 $ 55,345,942
- --------------------------------------------------------------
Closed (61,183) (25,179,074)
- --------------------------------------------------------------
Exercised (16,555) (4,365,829)
- --------------------------------------------------------------
Expired (12,549) (3,199,967)
- --------------------------------------------------------------
End of year 48,808 $ 22,601,072
- --------------------------------------------------------------
</TABLE>
FS-37
<PAGE> 130
Open call option contracts written at October 31, 1996 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1996 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Baxter International Inc. Dec 40 77 $ 22,868 $ 19,250 $ 3,618
Beneficial Corp. Jan 55 1,250 635,605 632,813 2,792
Boston Scientific Corp. Jan 50 2,500 1,824,939 1,625,000 199,939
Cascade Communications Corp. Jan 80 2,750 1,535,823 1,546,875 (11,052)
Chase Manhattan Corp. Jan 75 2,000 1,641,945 2,375,000 (733,055)
Electronics For Imaging, Inc. Jan 80 318 242,126 174,900 67,226
Federal Home Loan Mortgage Corp. Jan 90 2,332 1,885,359 2,915,000 (1,029,641)
Federal National Mortgage Association Dec 30 6,086 3,170,699 5,705,625 (2,534,926)
First Data Corp. Dec 85 2,500 554,981 296,875 258,106
HBO & Co. Feb 60 3,000 1,337,955 2,400,000 (1,062,045)
HBO & Co. Feb 70 3,000 1,649,987 1,218,750 431,237
PaineWebber Group Inc. Jan 25 8,500 930,718 850,000 80,718
Parametric Technology Co. Dec 50 1,580 622,066 424,625 197,441
Procter & Gamble Co. Dec 90 1,500 874,771 1,500,000 (625,229)
Storage Technology Corp. Dec 40 4,915 2,451,088 2,058,156 392,932
Sun Microsystems Inc. Nov 60 4,000 2,383,920 1,162,500 1,221,420
Williams Cos., Inc. (The) Dec 50 2,500 836,222 890,625 (54,403)
- ---------------------------------------------------------------------------------------------------------------------------------
48,808 $22,601,072 $25,795,994 $ (3,194,922)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in the capital stock outstanding during 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 34,550,539 $648,183,624 32,034,901 $559,325,258
- ----------------------------------------------------------------------------------------------------------------------------
Class B* 12,381,545 231,706,372 2,180,033 43,415,613
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 516,716 9,877,153 559,557 10,092,219
- ----------------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 32,395,132 557,844,149 24,460,017 361,036,594
- ----------------------------------------------------------------------------------------------------------------------------
Class B* 425,933 7,326,082 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 338,803 5,871,449 199,304 2,950,819
- ----------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (44,929,759) (843,683,536) (54,445,065) (937,990,088)
- ----------------------------------------------------------------------------------------------------------------------------
Class B* (1,500,861) (28,206,946) (97,524) (1,956,737)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (552,275) (10,286,587) (363,327) (6,538,558)
- ----------------------------------------------------------------------------------------------------------------------------
33,625,773 $578,631,760 4,527,896 $30,335,120
============================================================================================================================
</TABLE>
* Class B shares commenced sales on June 26, 1995.
FS-38
<PAGE> 131
Financials
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the eight-year period ended October 31, 1996, the ten
months ended October 31, 1988 and the year ended December 31, 1987 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.(a)
CLASS A:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.33 $ 17.82 $ 17.62 $ 16.68 $ 15.76 $ 11.15 $ 12.32
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income 0.06 -- 0.07 0.10 0.10 0.11 0.09
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net gains (losses) on securities (both
realized and unrealized) 2.51 4.36 0.57 0.93 0.98 4.80 (0.56)
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total from investment operations 2.57 4.36 0.64 1.03 1.08 4.91 (0.47)
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment income -- (0.07) (0.11) (0.09) (0.07) (0.09) (0.06)
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Distributions from net realized capital
gains (2.71) (1.78) (0.33) -- (0.09) (0.21) (0.64)
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total distributions (2.71) (1.85) (0.44) (0.09) (0.16) (0.30) (0.70)
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 20.19 $ 20.33 $ 17.82 $ 17.62 $ 16.68 $ 15.76 $ 11.15
======================================== ========== ========== ========== ========== ========== ========== ========
Total return(c) 14.81% 28.20% 3.76% 6.17% 6.85% 44.88% (4.03)%
======================================== ========== ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,977,493 $4,564,730 $3,965,858 $4,999,983 $5,198,835 $2,534,331 $632,522
======================================== ========== ========== ========== ========== ========== ========== ========
Ratio of expenses to average net
assets(d) 1.12%(f)(g) 1.17% 1.21% 1.13% 1.13% 1.18% 1.25%
======================================== ========== ========== ========== ========== ========== ========== ========
Ratio of net investment income to
average net assets(e) 0.33%(f) (0.02)% 0.45% 0.62% 0.60% 0.72% 0.75%
======================================== ========== ========== ========== ========== ========== ========== ========
Portfolio turnover rate 159% 139% 136% 109% 37% 46% 79%
======================================== ========== ========== ========== ========== ========== ========== ========
Average broker commission rate(i) $ 0.0615 N/A N/A N/A N/A N/A N/A
======================================== ========== ========== ========== ========== ========== ========== ========
Borrowings for the period:
Amount of debt outstanding at end of
period (000s omitted) -- -- -- -- -- -- --
======================================== ========== ========== ========== ========== ========== ========== ========
Average amount of debt outstanding
during the period (000s omitted)(j) -- $ 593 -- -- -- -- $ 485
======================================== ========== ========== ========== ========== ========== ========== ========
Average number of shares outstanding
during the period (000s omitted)(j) 248,189 229,272 249,351 314,490 246,273 102,353 44,770
======================================== ========== ========== ========== ========== ========== ========== ========
Average amount of debt per share during
the period -- $ 0.0026 -- -- -- -- $ 0.011
======================================== ========== ========== ========== ========== ========== ========== ========
<CAPTION>
DECEMBER 31,
------------
1989 1988(b) 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.23 $ 8.36 $ 8.82
- ---------------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 0.10 0.07 0.07
- ---------------------------------------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 3.10 0.80 0.83
- ---------------------------------------- -------- -------- --------
Total from investment operations 3.20 0.87 0.90
- ---------------------------------------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.11) -- (0.09)
- ---------------------------------------- -------- -------- --------
Distributions from net realized capital
gains -- -- (1.27)
- ---------------------------------------- -------- -------- --------
Total distributions (0.11) -- (1.36)
- ---------------------------------------- -------- -------- --------
Net asset value, end of period $ 12.32 $ 9.23 $ 8.36
- ---------------------------------------- -------- -------- --------
Total return(c) 35.13% 10.41% 9.75%
- ---------------------------------------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $393,320 $297,284 $286,453
======================================== ======== ======== ========
Ratio of expenses to average net
assets(d) 1.19% 1.08%(h) 0.95%
======================================== ======== ======== ========
Ratio of net investment income to
average net assets(e) 0.96% 0.90%(h) 0.66%
======================================== ======== ======== ========
Portfolio turnover rate 87% 93% 108%
======================================== ======== ======== ========
Average broker commission rate(i) N/A N/A N/A
======================================== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at end of
period (000s omitted) $ 3,781 -- $ 355
======================================== ======== ======== ========
Average amount of debt outstanding
during the period (000s omitted)(j) $ 1,083 $ 229 $ 509
======================================== ======== ======== ========
Average number of shares outstanding
during the period (000s omitted)(j) 31,275 33,031 25,825
======================================== ======== ======== ========
Average amount of debt per share during
the period $ 0.035 $ 0.007 $ 0.020
======================================== ======== ======== ========
</TABLE>
(a) Per share information has been restated to reflect a 2 for 1 stock split,
effected in the form of a dividend, on September 29, 1987.
(b) The Fund changed investment advisors on September 30, 1988.
(c) Does not deduct sales charges and, for periods less than one year, total
returns are not annualized.
(d) Ratios of expenses prior to waiver of advisory fees are 1.15%, 1.19%, 1.24%,
1.17%, and 1.15% for the years 1996-1992, respectively.
(e) Ratios of net investment income (loss) prior to waiver of advisory fees are
0.30%, (0.04)%, 0.42%, 0.58%, and 0.58% for the years 1996-1992,
respectively.
(f) After waiver of advisory fees. Ratios are based on average net assets of
$4,737,418,087.
(g) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average net assets would have remained the same.
(h) Annualized.
(i) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
(j) Averages computed on a daily basis.
FS-39
<PAGE> 132
Financials
CLASS B:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net asset value, beginning of period $ 20.28 $ 18.56
- -------------------------------------------------------------------------------------------------- --------- ---------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.03)
- -------------------------------------------------------------------------------------------------- --------- ---------
Net gains (losses) on securities (both realized and unrealized) 2.46 1.75
- -------------------------------------------------------------------------------------------------- --------- ---------
Total from investment operations 2.41 1.72
- -------------------------------------------------------------------------------------------------- --------- ---------
Less distributions:
Distributions from net realized capital gains (2.71) --
- -------------------------------------------------------------------------------------------------- --------- ---------
Net asset value, end of period $ 19.98 $ 20.28
================================================================================================== ========= =========
Total return(b) 13.95% 9.27%
================================================================================================== ========= =========
Ratios/supplemental data:
Net assets, end of period (000's omitted) $ 267,459 $ 42,238
================================================================================================== ========= =========
Ratio of expenses to average net assets 1.95%(c)(d) 1.91%(e)
================================================================================================== ========= =========
Ratio of net investment income (loss) to average net assets (0.50)%(c) (0.76)%(e)
================================================================================================== ========= =========
Portfolio turnover rate 159% 139%
================================================================================================== ========= =========
Average broker commission rate(f) $ 0.0615 N/A
================================================================================================== ========= =========
Borrowings for the period:
Amount of debt outstanding at end of
period (000s omitted) -- --
================================================================================================== ========= =========
Average amount of debt outstanding during the
period (000s omitted)(g) -- $ 3
================================================================================================== ========= =========
Average number of shares outstanding during the
period (000s omitted)(g) 7,956 1,036
================================================================================================== ========= =========
Average amount of debt per share during the period -- $ 0.0029
================================================================================================== ========= =========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After waiver of advisory fees. Ratios are based on average net assets of
$151,463,325. Ratios of expenses and net investment income (loss) to average
net assets prior to waiver of advisory fees were 1.98% and (0.53)%.
(d) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average net assets would have remained the same.
(e) Annualized. After waiver of advisory fees. Annualized ratios of expenses and
net investment income (loss) to average net assets prior to waiver of
advisory fees were 1.94% and (0.79)%, respectively.
(f) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
(g) Averages computed on a daily basis.
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.
FS-40
<PAGE> 133
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Constellation Fund:
We have audited the accompanying statement of assets and
liabilities of the AIM Constellation Fund (a portfolio of
AIM Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1996, and 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 eight-year period
then ended, the ten months ended October 31, 1988, and the
year ended December 31, 1987. These financial statements
and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an
opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with 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
Constellation Fund as of October 31, 1996, and 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 eight-year period then ended, the ten
months ended October 31, 1988, and the year ended December
31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 6, 1996
FS-41
<PAGE> 134
SCHEDULE OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-84.91%
ADVERTISING/BROADCASTING-1.58%
American Radio Systems
Corp.(a)(b) 650,000 $ 19,825,000
- -----------------------------------------------------------------
CanWest Global Communications
Corp. 2,250,000 23,906,250
- -----------------------------------------------------------------
Chancellor Corp.-Class A(a)(b) 500,000 16,125,000
- -----------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 750,000 54,750,000
- -----------------------------------------------------------------
Infinity Broadcasting
Corp.-Class A(a) 787,500 22,837,500
- -----------------------------------------------------------------
Jacor Communications, Inc.(a) 1,000,000 28,000,000
- -----------------------------------------------------------------
Paxson Communications Corp.(a) 1,000,000 8,875,000
- -----------------------------------------------------------------
True North Communications, Inc. 325,700 7,735,375
- -----------------------------------------------------------------
182,054,125
- -----------------------------------------------------------------
AUTOMOBILE/TRUCKS PARTS &
TIRES-0.12%
Mark IV Industries, Inc. 656,250 14,191,406
- -----------------------------------------------------------------
BANKING-0.55%
Bank of Boston Corp. 1,000,000 64,000,000
- -----------------------------------------------------------------
BIOTECHNOLOGY-0.73%
AMGEN Inc.(a) 1,000,000 61,312,500
- -----------------------------------------------------------------
Guidant Corp. 500,000 23,062,500
- -----------------------------------------------------------------
84,375,000
- -----------------------------------------------------------------
BUSINESS SERVICES-0.90%
AccuStaff, Inc.(a) 500,000 13,375,000
- -----------------------------------------------------------------
APAC Teleservices, Inc.(a) 200,000 9,225,000
- -----------------------------------------------------------------
Career Horizons, Inc.(a) 350,000 14,218,750
- -----------------------------------------------------------------
Corrections Corporation of
America 100,100 2,602,600
- -----------------------------------------------------------------
CUC International, Inc.(a) 900,000 22,050,000
- -----------------------------------------------------------------
Equifax, Inc. 500,000 14,875,000
- -----------------------------------------------------------------
HealthCare COMPARE Corp.(a) 493,900 21,731,600
- -----------------------------------------------------------------
Paychex, Inc. 100,000 5,700,000
- -----------------------------------------------------------------
103,777,950
- -----------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.52%
Airgas, Inc.(a) 1,857,400 42,023,675
- -----------------------------------------------------------------
IMC Global, Inc. 500,000 18,750,000
- -----------------------------------------------------------------
60,773,675
- -----------------------------------------------------------------
COMPUTER MINI/PCS-2.77%
Compaq Computer Corp.(a) 1,350,000 93,993,750
- -----------------------------------------------------------------
Dell Computer Corp.(a) 900,000 73,237,500
- -----------------------------------------------------------------
Rational Software Corp.(a) 1,050,000 40,293,750
- -----------------------------------------------------------------
Sun Microsystems, Inc.(a) 1,850,000 112,850,000
- -----------------------------------------------------------------
320,375,000
- -----------------------------------------------------------------
COMPUTER NETWORKING-5.83%
ACT Networks, Inc.(a)(b) 500,000 17,125,000
- -----------------------------------------------------------------
Ascend Communications, Inc.(a) 1,486,800 97,199,550
- -----------------------------------------------------------------
Auspex Systems, Inc.(a) 311,700 3,194,925
- -----------------------------------------------------------------
Cabletron Systems, Inc.(a) 1,000,000 62,375,000
- -----------------------------------------------------------------
Cascade Communications Corp.(a) 1,500,000 108,937,500
- -----------------------------------------------------------------
Cisco Systems, Inc.(a) 2,500,000 154,687,500
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER NETWORKING-(CONTINUED)
FORE Systems, Inc.(a) 1,650,000 $ 65,587,500
- -----------------------------------------------------------------
Shiva Corp.(a) 212,400 8,708,400
- -----------------------------------------------------------------
Sync Research, Inc.(a)(b) 500,000 6,625,000
- -----------------------------------------------------------------
3Com Corp.(a) 2,000,000 135,250,000
- -----------------------------------------------------------------
Xircom, Inc.(a) 662,200 13,409,550
- -----------------------------------------------------------------
673,099,925
- -----------------------------------------------------------------
COMPUTER PERIPHERALS-1.39%
Adaptec, Inc.(a) 500,000 30,437,500
- -----------------------------------------------------------------
American Power Conversion
Corp.(a) 563,300 12,040,537
- -----------------------------------------------------------------
Microchip Technology, Inc.(a) 1,000,050 36,251,812
- -----------------------------------------------------------------
U.S. Robotics Corp.(a) 1,300,000 81,737,500
- -----------------------------------------------------------------
160,467,349
- -----------------------------------------------------------------
COMPUTER
SOFTWARE/SERVICES-12.85%
Affiliated Computer Services,
Inc.(a) 245,600 13,508,000
- -----------------------------------------------------------------
BISYS Group, Inc. (The)(a) 463,200 17,254,200
- -----------------------------------------------------------------
BMC Software, Inc.(a) 1,000,000 83,000,000
- -----------------------------------------------------------------
Cadence Design Systems, Inc.(a) 500,000 18,250,000
- -----------------------------------------------------------------
Ceridian Corp.(a) 1,000,000 49,625,000
- -----------------------------------------------------------------
Computer Associates
International, Inc. 1,875,000 110,859,375
- -----------------------------------------------------------------
Computer Sciences Corp.(a) 700,000 51,975,000
- -----------------------------------------------------------------
Compuware Corp.(a) 1,000,000 52,750,000
- -----------------------------------------------------------------
CSG Systems International,
Inc.(a) 510,000 8,542,500
- -----------------------------------------------------------------
DST Systems, Inc.(a) 1,000,000 30,750,000
- -----------------------------------------------------------------
Electronic Arts, Inc.(a) 850,000 31,875,000
- -----------------------------------------------------------------
First Data Corp. 600,000 47,850,000
- -----------------------------------------------------------------
HBO & Co. 1,000,000 60,125,000
- -----------------------------------------------------------------
HPR, Inc.(a) 500,000 7,000,000
- -----------------------------------------------------------------
IDX Systems Corp.(a) 306,900 9,053,550
- -----------------------------------------------------------------
Integrated Systems, Inc.(a) 428,700 11,574,900
- -----------------------------------------------------------------
Intuit, Inc.(a) 750,000 20,250,000
- -----------------------------------------------------------------
McAfee Associates, Inc.(a) 1,524,200 69,351,100
- -----------------------------------------------------------------
Metromail Corp. 500,000 9,187,500
- -----------------------------------------------------------------
Microsoft Corp.(a) 2,000,000 274,500,000
- -----------------------------------------------------------------
National Data Corp. 600,000 24,675,000
- -----------------------------------------------------------------
Network General Corp.(a)(b) 2,185,000 52,713,125
- -----------------------------------------------------------------
Oracle Corp.(a) 2,499,950 105,779,134
- -----------------------------------------------------------------
Parametric Technology Corp.(a) 2,400,000 117,300,000
- -----------------------------------------------------------------
Physician Computer Network,
Inc.(a) 1,500,000 13,406,250
- -----------------------------------------------------------------
Pure Atria Corp.(a) 57,700 1,572,325
- -----------------------------------------------------------------
Sterling Commerce, Inc.(a) 1,696,300 47,708,438
- -----------------------------------------------------------------
Sterling Software, Inc.(a) 500,000 16,250,000
- -----------------------------------------------------------------
Structural Dynamics Research
Corp.(a) 1,100,000 19,525,000
- -----------------------------------------------------------------
SunGard Data Systems Inc.(a) 530,000 22,657,500
- -----------------------------------------------------------------
Synopsys, Inc.(a) 1,500,000 67,500,000
- -----------------------------------------------------------------
Tecnomatix Technologies Ltd.(a) 329,500 5,725,063
- -----------------------------------------------------------------
Transition Systems, Inc.(a) 33,300 316,350
- -----------------------------------------------------------------
</TABLE>
FS-42
<PAGE> 135
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
Wind River Systems(a) 300,000 $ 12,750,000
- -----------------------------------------------------------------
1,485,159,310
- -----------------------------------------------------------------
CONGLOMERATES-0.63%
Corning, Inc. 1,000,000 38,750,000
- -----------------------------------------------------------------
Tyco International Ltd. 411,982 20,444,606
- -----------------------------------------------------------------
U.S. Industries, Inc.(a) 500,000 13,500,000
- -----------------------------------------------------------------
72,694,606
- -----------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-1.04%
AMETEK, Inc. 200,000 3,975,000
- -----------------------------------------------------------------
Berg Electronics Corp.(a) 500,000 14,125,000
- -----------------------------------------------------------------
BMC Industries, Inc. 500,000 14,812,500
- -----------------------------------------------------------------
Checkpoint Systems, Inc.(a) 450,000 10,068,750
- -----------------------------------------------------------------
Methode Electronics, Inc.-Class
A 450,000 8,775,000
- -----------------------------------------------------------------
Molex, Inc.-Class A 234,375 7,587,890
- -----------------------------------------------------------------
SCI Systems, Inc.(a) 500,000 24,875,000
- -----------------------------------------------------------------
Symbol Technologies, Inc.(a) 600,000 26,925,000
- -----------------------------------------------------------------
Thermo Instrument Systems,
Inc.(a) 300,000 9,075,000
- -----------------------------------------------------------------
120,219,140
- -----------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.11%
Imperial Credit Industries,
Inc.(a) 700,000 12,687,500
- -----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-4.20%
Aames Financial Corp. 309,100 13,793,587
- -----------------------------------------------------------------
Beneficial Corp. 400,000 23,400,000
- -----------------------------------------------------------------
Capital One Financial Corp. 1,500,000 46,687,500
- -----------------------------------------------------------------
Cityscape Financial Corp.(a) 474,300 12,213,225
- -----------------------------------------------------------------
Concord EFS, Inc.(a) 97,100 2,815,900
- -----------------------------------------------------------------
Credit Acceptance Corp.(a) 1,128,800 30,477,600
- -----------------------------------------------------------------
First USA, Inc. 400,000 23,000,000
- -----------------------------------------------------------------
Green Tree Financial Corp. 2,150,000 85,193,750
- -----------------------------------------------------------------
Household International, Inc. 650,000 57,525,000
- -----------------------------------------------------------------
MBNA Corp. 1,500,000 56,625,000
- -----------------------------------------------------------------
Money Store, Inc. (The) 1,250,000 32,187,500
- -----------------------------------------------------------------
Olympic Financial Ltd.(a) 1,431,200 22,720,300
- -----------------------------------------------------------------
PMT Services, Inc.(a) 553,500 11,070,000
- -----------------------------------------------------------------
Southern Pacific Funding
Corp.(a) 116,100 3,657,150
- -----------------------------------------------------------------
Student Loan Marketing
Association 450,000 37,237,500
- -----------------------------------------------------------------
SunAmerica, Inc. 700,000 26,250,000
- -----------------------------------------------------------------
484,854,012
- -----------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-0.17%
Washington Mutual, Inc. 458,400 19,367,400
- -----------------------------------------------------------------
FOOD/PROCESSING-0.25%
Richfood Holdings, Inc. 1,182,100 28,518,163
- -----------------------------------------------------------------
FUNERAL SERVICES-0.96%
Service Corp. International 3,000,000 85,500,000
- -----------------------------------------------------------------
Stewart Enterprises, Inc.-Class
A 750,000 25,687,500
- -----------------------------------------------------------------
111,187,500
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FURNITURE-0.26%
Leggett & Platt, Inc. 1,000,000 $ 29,875,000
- -----------------------------------------------------------------
GAMING-0.75%
GTECH Holdings Corp.(a) 750,000 22,125,000
- -----------------------------------------------------------------
International Game Technology 1,875,000 39,609,375
- -----------------------------------------------------------------
Trump Hotels & Casino Resorts,
Inc.(a)(b) 1,540,800 24,460,200
- -----------------------------------------------------------------
86,194,575
- -----------------------------------------------------------------
HOMEBUILDING-0.06%
Oakwood Homes Corp. 250,000 6,625,000
- -----------------------------------------------------------------
HOTELS/MOTELS-1.40%
Doubletree Corp.(a) 652,800 26,479,200
- -----------------------------------------------------------------
HFS, Inc.(a) 1,200,000 87,900,000
- -----------------------------------------------------------------
Promus Hotel Corp.(a) 650,000 20,637,500
- -----------------------------------------------------------------
Sun International Hotels Ltd.(a) 560,300 26,474,175
- -----------------------------------------------------------------
161,490,875
- -----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.64%
Compdent Corp.(a)(b) 700,000 24,062,500
- -----------------------------------------------------------------
Conseco, Inc. 500,000 26,750,000
- -----------------------------------------------------------------
RISCORP, Inc.-Class A(a) 172,300 861,500
- -----------------------------------------------------------------
United Companies Financial Corp. 750,000 22,406,250
- -----------------------------------------------------------------
74,080,250
- -----------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-1.02%
CapMAC Holdings Inc.(b) 850,000 28,368,750
- -----------------------------------------------------------------
MGIC Investment Corp. 1,250,000 85,781,250
- -----------------------------------------------------------------
Progressive Corp. 44,900 3,086,875
- -----------------------------------------------------------------
117,236,875
- -----------------------------------------------------------------
LEISURE & RECREATION-0.98%
Callaway Golf Co. 1,250,000 38,281,250
- -----------------------------------------------------------------
Harley-Davidson, Inc. 1,000,000 45,125,000
- -----------------------------------------------------------------
Mattel, Inc. 625,000 18,046,875
- -----------------------------------------------------------------
Speedway Motorsports, Inc.(a) 511,200 11,693,700
- -----------------------------------------------------------------
113,146,825
- -----------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.35%
Pentair, Inc. 500,000 12,625,000
- -----------------------------------------------------------------
Thermo Electron Corp.(a) 750,000 27,375,000
- -----------------------------------------------------------------
40,000,000
- -----------------------------------------------------------------
MEDICAL (DRUGS)-1.51%
Cardinal Health, Inc. 1,400,000 109,900,000
- -----------------------------------------------------------------
Curative Technologies, Inc.(a) 265,000 6,028,750
- -----------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 250,000 8,625,000
- -----------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 750,000 21,843,750
- -----------------------------------------------------------------
Jones Medical Industries, Inc. 402,350 17,502,225
- -----------------------------------------------------------------
Parexel International Corp.(a) 217,100 10,637,900
- -----------------------------------------------------------------
174,537,625
- -----------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-7.66%
American HomePatient Inc.(a)(b) 750,000 17,812,500
- -----------------------------------------------------------------
American Medical Response,
Inc.(a) 300,000 9,000,000
- -----------------------------------------------------------------
American Oncology Resources,
Inc.(a) 336,900 2,695,200
- -----------------------------------------------------------------
Apria Healthcare Group,
Inc.(a)(b) 1,750,000 33,468,750
- -----------------------------------------------------------------
ClinTrials Research Inc.(a) 243,300 9,032,513
- -----------------------------------------------------------------
</TABLE>
FS-43
<PAGE> 136
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Columbia/HCA Healthcare Corp. 2,625,000 $ 93,843,750
- -----------------------------------------------------------------
Genesis Health Ventures, Inc.(a) 1,000,000 22,875,000
- -----------------------------------------------------------------
Health Care and Retirement
Corp.(a) 2,250,000 55,406,250
- -----------------------------------------------------------------
Health Management Associates,
Inc.-Class A(a) 2,999,987 65,999,714
- -----------------------------------------------------------------
HEALTHSOUTH Corp.(a) 3,071,000 115,162,500
- -----------------------------------------------------------------
Lincare Holdings, Inc.(a) 1,000,000 37,500,000
- -----------------------------------------------------------------
Manor Care, Inc. 1,000,000 39,250,000
- -----------------------------------------------------------------
MedPartners, Inc.(a) 800,000 16,900,000
- -----------------------------------------------------------------
OccuSystems, Inc.(a) 430,000 11,771,250
- -----------------------------------------------------------------
OrNda HealthCorp(a) 2,000,000 54,500,000
- -----------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 524,200 7,535,375
- -----------------------------------------------------------------
Oxford Health Plans, Inc.(a) 1,498,600 68,186,300
- -----------------------------------------------------------------
PhyCor, Inc.(a) 1,050,000 32,550,000
- -----------------------------------------------------------------
Physicians Resource Group,
Inc.(a) 500,000 13,500,000
- -----------------------------------------------------------------
Quorum Health Group, Inc.(a) 600,000 16,200,000
- -----------------------------------------------------------------
Tenet Healthcare Corp.(a) 2,250,000 46,968,750
- -----------------------------------------------------------------
Total Renal Care Holdings,
Inc.(a) 550,000 21,450,000
- -----------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 1,350,000 33,750,000
- -----------------------------------------------------------------
Vencor, Inc.(a) 2,000,000 59,250,000
- -----------------------------------------------------------------
884,607,852
- -----------------------------------------------------------------
MEDICAL
INSTRUMENTS/PRODUCTS-4.32%
Advanced Technology
Laboratories, Inc.(a) 650,000 19,825,000
- -----------------------------------------------------------------
Boston Scientific Corp.(a) 1,014,552 55,166,265
- -----------------------------------------------------------------
CardioThoracic Systems, Inc.(a) 250,000 4,750,000
- -----------------------------------------------------------------
Dentsply International, Inc. 550,000 23,168,750
- -----------------------------------------------------------------
Gulf South Medical Supply,
Inc.(a)(b) 1,160,400 25,528,800
- -----------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 1,000,000 39,250,000
- -----------------------------------------------------------------
Invacare Corp. 885,200 24,785,600
- -----------------------------------------------------------------
Medtronic, Inc. 500,000 32,187,500
- -----------------------------------------------------------------
Nellcor Puritan Bennett, Inc.(a) 500,000 9,750,000
- -----------------------------------------------------------------
Omnicare, Inc. 2,000,000 54,500,000
- -----------------------------------------------------------------
Physician Sales & Service,
Inc.(a) 750,000 15,937,500
- -----------------------------------------------------------------
Quintiles Transnational Corp.(a) 500,000 32,875,000
- -----------------------------------------------------------------
Spine-Tech, Inc.(a) 57,600 1,454,400
- -----------------------------------------------------------------
St. Jude Medical, Inc.(a) 780,200 30,817,900
- -----------------------------------------------------------------
Steris Corp.(a) 825,000 31,143,750
- -----------------------------------------------------------------
Sybron International Corp.(a) 2,000,000 58,250,000
- -----------------------------------------------------------------
Target Therapeutics, Inc.(a) 225,000 8,325,000
- -----------------------------------------------------------------
US Surgical Corp. 750,000 31,406,250
- -----------------------------------------------------------------
499,121,715
- -----------------------------------------------------------------
OFFICE PRODUCTS-0.52%
Avery Dennison Corp. 300,000 19,762,500
- -----------------------------------------------------------------
Reynolds & Reynolds Co.-Class A 1,517,100 40,013,513
- -----------------------------------------------------------------
59,776,013
- -----------------------------------------------------------------
OIL & GAS (DRILLING)-0.35%
Reading & Bates Corp.(a) 1,400,000 40,250,000
- -----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.52%
Burlington Resources, Inc. 750,000 37,781,250
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-(CONTINUED)
Transocean Offshore Inc. 350,000 $ 22,137,500
- -----------------------------------------------------------------
59,918,750
- -----------------------------------------------------------------
OIL & GAS (SERVICES)-0.52%
Camco International, Inc. 613,700 23,780,875
- -----------------------------------------------------------------
Global Marine, Inc.(a) 2,000,000 36,750,000
- -----------------------------------------------------------------
60,530,875
- -----------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-2.18%
Baker Hughes, Inc. 1,000,000 35,625,000
- -----------------------------------------------------------------
Cooper Cameron Corp.(a) 27,500 1,756,563
- -----------------------------------------------------------------
Diamond Offshore Drilling,
Inc.(a) 1,000,000 60,875,000
- -----------------------------------------------------------------
ENSCO International, Inc.(a) 750,000 32,437,500
- -----------------------------------------------------------------
Marine Drilling Co., Inc.(a) 2,000,000 27,750,000
- -----------------------------------------------------------------
Pride Petroleum Services,
Inc.(a) 518,700 9,077,250
- -----------------------------------------------------------------
Rowan Co., Inc.(a) 1,300,000 29,087,500
- -----------------------------------------------------------------
Smith International, Inc.(a) 750,000 28,500,000
- -----------------------------------------------------------------
Varco International, Inc.(a) 1,326,100 26,190,475
- -----------------------------------------------------------------
251,299,288
- -----------------------------------------------------------------
POLLUTION CONTROL-0.51%
United Waste Systems, Inc.(a) 592,200 20,356,875
- -----------------------------------------------------------------
US Filter Corp.(a) 206,000 7,107,000
- -----------------------------------------------------------------
USA Waste Services, Inc.(a) 1,000,000 32,000,000
- -----------------------------------------------------------------
59,463,875
- -----------------------------------------------------------------
PUBLISHING-0.28%
Gartner Group, Inc.(a) 608,200 18,702,150
- -----------------------------------------------------------------
Times Mirror Co. (The) 300,000 13,875,000
- -----------------------------------------------------------------
32,577,150
- -----------------------------------------------------------------
RESTAURANTS-1.30%
Apple South, Inc. 500,000 5,875,000
- -----------------------------------------------------------------
Applebee's International, Inc. 843,600 20,562,750
- -----------------------------------------------------------------
Brinker International, Inc.(a) 1,400,000 23,800,000
- -----------------------------------------------------------------
Cracker Barrel Old Country
Store, Inc. 500,000 10,187,500
- -----------------------------------------------------------------
Lone Star Steakhouse & Saloon,
Inc.(a) 1,250,000 32,031,250
- -----------------------------------------------------------------
Outback Steakhouse, Inc.(a) 750,000 17,390,625
- -----------------------------------------------------------------
Planet Hollywood International,
Inc.-Class A(a) 750,000 15,562,500
- -----------------------------------------------------------------
Starbucks Corp.(a) 750,000 24,375,000
- -----------------------------------------------------------------
149,784,625
- -----------------------------------------------------------------
RETAIL (FOOD & DRUG)-3.13%
American Stores Co. 1,000,000 41,375,000
- -----------------------------------------------------------------
Eckerd Corp.(a) 1,262,800 35,042,700
- -----------------------------------------------------------------
Kroger Co. (The)(a) 1,200,000 53,550,000
- -----------------------------------------------------------------
Revco D.S., Inc.(a) 1,000,000 30,125,000
- -----------------------------------------------------------------
Safeway, Inc.(a) 2,000,000 85,750,000
- -----------------------------------------------------------------
Thrifty PayLess Holdings,
Inc.(a) 1,513,800 32,357,475
- -----------------------------------------------------------------
Vons Companies, Inc. (The) 1,500,000 83,062,500
- -----------------------------------------------------------------
361,262,675
- -----------------------------------------------------------------
RETAIL (STORES)-10.61%
AutoZone, Inc.(a) 1,500,000 38,437,500
- -----------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 1,000,000 25,250,000
- -----------------------------------------------------------------
Boise Cascade Office Products
Corp.(a) 293,100 5,568,900
- -----------------------------------------------------------------
</TABLE>
FS-44
<PAGE> 137
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (STORES)-(CONTINUED)
CDW Computer Centers, Inc.(a) 650,000 $ 40,909,373
- -----------------------------------------------------------------
Claire's Stores, Inc. 400,000 6,800,000
- -----------------------------------------------------------------
CompUSA, Inc.(a) 1,000,000 46,250,000
- -----------------------------------------------------------------
Consolidated Stores Corp.(a) 1,600,000 61,800,000
- -----------------------------------------------------------------
Corporate Express, Inc.(a) 1,090,000 35,561,250
- -----------------------------------------------------------------
Dayton Hudson Corp. 1,500,000 51,937,500
- -----------------------------------------------------------------
Dillard Department Stores, Inc. 500,000 15,875,000
- -----------------------------------------------------------------
Dollar General Corp. 1,087,093 30,166,830
- -----------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 600,000 22,650,000
- -----------------------------------------------------------------
Finish Line, Inc. (The) Class
A(a) 422,700 17,964,750
- -----------------------------------------------------------------
Gap, Inc. (The) 1,000,000 29,000,000
- -----------------------------------------------------------------
Global DirectMail Corp.(a) 700,000 34,475,000
- -----------------------------------------------------------------
Gymboree Corp.(a)(b) 1,447,000 45,218,750
- -----------------------------------------------------------------
Home Depot, Inc. 100,000 5,475,000
- -----------------------------------------------------------------
Jones Apparel Group, Inc.(a) 600,000 18,750,000
- -----------------------------------------------------------------
Kohl's Corp.(a) 838,600 30,189,600
- -----------------------------------------------------------------
Lowe's Co., Inc. 1,000,000 40,375,000
- -----------------------------------------------------------------
Men's Wearhouse, Inc.
(The)(a)(b) 1,075,050 22,172,906
- -----------------------------------------------------------------
Meyer (Fred), Inc.(a) 700,000 24,587,500
- -----------------------------------------------------------------
Micro Warehouse, Inc.(a) 1,250,000 28,750,000
- -----------------------------------------------------------------
Neiman Marcus Group, Inc.
(The)(a) 300,000 9,787,500
- -----------------------------------------------------------------
Oakley, Inc.(a) 2,000,000 29,750,000
- -----------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 1,250,000 43,750,000
- -----------------------------------------------------------------
Petco Animal Supplies,
Inc.(a)(b) 675,000 15,862,500
- -----------------------------------------------------------------
PETsMART, Inc.(a) 2,000,000 54,000,000
- -----------------------------------------------------------------
Ross Stores, Inc. 437,200 18,143,800
- -----------------------------------------------------------------
Saks Holdings, Inc.(a) 272,900 9,551,500
- -----------------------------------------------------------------
Sports Authority, Inc. (The)(a) 1,500,000 36,375,000
- -----------------------------------------------------------------
Staples, Inc.(a) 4,000,000 74,500,000
- -----------------------------------------------------------------
Sunglass Hut International,
Inc.(a) 628,900 5,581,489
- -----------------------------------------------------------------
Tech Data Corp.(a) 1,500,000 38,625,000
- -----------------------------------------------------------------
Tiffany & Co. 758,900 28,079,300
- -----------------------------------------------------------------
TJX Companies, Inc. 750,000 30,000,000
- -----------------------------------------------------------------
Toys "R" Us, Inc.(a) 2,000,000 67,750,000
- -----------------------------------------------------------------
Viking Office Products, Inc.(a) 2,500,000 72,812,500
- -----------------------------------------------------------------
Williams-Sonoma, Inc.(a) 500,000 13,750,000
- -----------------------------------------------------------------
1,226,483,448
- -----------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.08%
Input/Output, Inc.(a) 300,000 8,925,000
- -----------------------------------------------------------------
SEMICONDUCTORS-2.68%
Altera Corp.(a) 750,000 46,500,000
- -----------------------------------------------------------------
Intel Corp. 2,200,000 241,725,000
- -----------------------------------------------------------------
Solectron Corp.(a) 300,000 16,050,000
- -----------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 150,000 4,781,250
- -----------------------------------------------------------------
309,056,250
- -----------------------------------------------------------------
SHOES & RELATED APPAREL-1.08%
Nike, Inc.-Class B 1,000,000 58,875,000
- -----------------------------------------------------------------
Nine West Group, Inc.(a) 1,100,000 54,862,500
- -----------------------------------------------------------------
Wolverine World Wide, Inc. 450,000 11,137,500
- -----------------------------------------------------------------
124,875,000
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS-5.33%
ACC Corp. 358,350 $ 15,229,875
- -----------------------------------------------------------------
ADC Telecommunications, Inc.(a) 1,500,000 102,562,500
- -----------------------------------------------------------------
Allen Group, Inc. 596,700 9,472,613
- -----------------------------------------------------------------
Andrew Corp.(a) 1,750,000 85,312,500
- -----------------------------------------------------------------
Aspect Telecommunications
Corp.(a) 550,000 32,725,000
- -----------------------------------------------------------------
Billing Information Concepts(a) 400,000 10,450,000
- -----------------------------------------------------------------
Frontier Corp. 1,000,000 29,000,000
- -----------------------------------------------------------------
MCI Communications Corp. 2,000,000 50,250,000
- -----------------------------------------------------------------
PairGain Technologies, Inc.(a) 1,366,100 94,090,138
- -----------------------------------------------------------------
PictureTel Corp.(a) 500,000 13,500,000
- -----------------------------------------------------------------
Premiere Technologies, Inc.(a) 50,300 817,375
- -----------------------------------------------------------------
Premisys Communications, Inc.(a) 500,000 25,000,000
- -----------------------------------------------------------------
QUALCOMM, Inc.(a) 600,000 23,850,000
- -----------------------------------------------------------------
Tellabs, Inc.(a) 800,000 68,100,000
- -----------------------------------------------------------------
U.S. Long Distance Corp.(a) 343,300 2,875,138
- -----------------------------------------------------------------
United States Satellite
Broadcasting
Company, Inc.(a) 412,100 6,645,112
- -----------------------------------------------------------------
Western Wireless Corp.-Class
A(a)(b) 550,000 9,075,000
- -----------------------------------------------------------------
WorldCom, Inc.(a) 1,500,000 36,562,500
- -----------------------------------------------------------------
615,517,751
- -----------------------------------------------------------------
TELEPHONE-0.23%
Century Telephone Enterprises,
Inc. 55,700 1,789,363
- -----------------------------------------------------------------
Cincinnati Bell, Inc. 500,000 24,687,500
- -----------------------------------------------------------------
26,476,863
- -----------------------------------------------------------------
TEXTILES-1.78%
Designer Holdings Ltd.(a) 250,000 4,781,250
- -----------------------------------------------------------------
Liz Claiborne, Inc. 1,250,000 52,812,500
- -----------------------------------------------------------------
Nautica Enterprises, Inc.(a) 1,200,000 36,900,000
- -----------------------------------------------------------------
Russell Corp. 1,000,000 28,375,000
- -----------------------------------------------------------------
Tommy Hilfiger Corp.(a) 1,000,000 52,000,000
- -----------------------------------------------------------------
Unifi, Inc. 978,600 30,458,926
- -----------------------------------------------------------------
205,327,676
- -----------------------------------------------------------------
TRANSPORTATION
(MISCELLANEOUS)-0.16%
AirNet Systems, Inc.(a) 560,000 7,280,000
- -----------------------------------------------------------------
Rural/Metro Corp.(a) 300,000 10,950,000
- -----------------------------------------------------------------
18,230,000
- -----------------------------------------------------------------
TRUCKING-0.10%
USFreightways Corp. 550,000 12,031,250
- -----------------------------------------------------------------
Total Domestic Common Stocks 9,806,505,142
- -----------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-3.85%
CANADA-0.73%
Agrium, Inc. (Chemicals) 891,100 11,918,463
- -----------------------------------------------------------------
Newbridge Networks Corp.
(Computer Networking)(a) 1,500,000 47,437,500
- -----------------------------------------------------------------
Potash Corp. of Saskatchewan
Inc. (Metals-Miscellaneous) 350,000 24,806,250
- -----------------------------------------------------------------
84,162,213
- -----------------------------------------------------------------
FRANCE-0.12%
Roussel-Uclaf (Medical-Drugs) 50,580 13,385,768
- -----------------------------------------------------------------
</TABLE>
FS-45
<PAGE> 138
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
IRELAND-0.50%
CBT Group PLC-ADR (Computer
Software/Services)(a) 49,400 $ 2,717,000
- -----------------------------------------------------------------
Elan Corp. PLC-ADR
(Medical-Drugs)(a) 2,000,000 55,500,000
- -----------------------------------------------------------------
58,217,000
- -----------------------------------------------------------------
ISRAEL-0.30%
ECI Telecommunications Ltd.
Designs (Computer
Networking)(a) 1,250,000 25,000,000
- -----------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Medical-Drugs) 225,000 9,421,875
- -----------------------------------------------------------------
34,421,875
- -----------------------------------------------------------------
ITALY-0.30%
Fila Holding S.p.A.-ADR
(Retail/Stores) 425,000 30,600,000
- -----------------------------------------------------------------
Telecom Italia Mobile S.p.A.
(Telecommunications) 1,074,000 2,214,550
- -----------------------------------------------------------------
Telecom Italia S.p.A.
(Telecommunications) 1,074,000 2,401,456
- -----------------------------------------------------------------
35,216,006
- -----------------------------------------------------------------
NETHERLANDS-0.54%
Baan Co. N.V. (Computer
Software/Services)(a) 800,000 29,600,000
- -----------------------------------------------------------------
Gucci Group NV-ADR (Textiles) 385,000 26,565,000
- -----------------------------------------------------------------
Ver Ned Uitgever Bezit
(Publishing) 328,500 5,963,223
- -----------------------------------------------------------------
62,128,223
- -----------------------------------------------------------------
SWEDEN-0.54%
Telefonaktiebolaget LM
Ericsson-ADR
(Telecommunications) 2,250,000 62,156,250
- -----------------------------------------------------------------
SWITZERLAND-0.05%
Ciba-Geigy AG (Chemicals) 5,000 6,159,018
- -----------------------------------------------------------------
UNITED KINGDOM-0.77%
Burton Group PLC (Retail-Stores) 2,700,000 6,558,838
- -----------------------------------------------------------------
Danka Business Systems PLC-ADR
(Office Automation) 1,937,500 76,773,438
- -----------------------------------------------------------------
Granada Group PLC (Leisure &
Recreation) 390,000 5,608,154
- -----------------------------------------------------------------
88,940,430
- -----------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 444,786,783
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONVERTIBLE CORPORATE
BONDS-0.07%
FINANCE (CONSUMER CREDIT)-0.07%
Cityscape Financial Corp., Conv.
Sub. Deb.
6.00%, 05/01/06
(Acquired 08/06/96-08/29/96;
Cost $10,090,613)(c) $ 7,815,000 $ 8,252,260
- -----------------------------------------------------------------
Total Convertible Corporate Bonds 8,252,260
- -----------------------------------------------------------------
REPURCHASE AGREEMENTS-5.65%(d)
Daiwa Securities America Inc.,
5.53%, 11/01/96(e) 38,201,444 38,201,444
- -----------------------------------------------------------------
SBC Capital Markets Inc.,
5.55%, 11/01/96(f) 179,000,000 179,000,000
- -----------------------------------------------------------------
Smith Barney Shearson Inc.,
5.60%, 11/01/96(g) 173,000,000 173,000,000
- -----------------------------------------------------------------
UBS Securities Inc., 5.60%,
11/01/96(h) 262,043,993 262,003,237
- -----------------------------------------------------------------
Total Repurchase Agreements 652,204,681
- -----------------------------------------------------------------
U.S. TREASURY SECURITIES-5.42%
U.S. TREASURY BILLS-5.42%(i)
5.18%, 12/26/96(j) 208,115,000 206,624,896
- -----------------------------------------------------------------
5.05%, 01/02/97(j) 387,710,000 384,542,409
- -----------------------------------------------------------------
4.53%, 02/06/97 35,000,000 34,536,950
- -----------------------------------------------------------------
Total U.S. Treasury
Securities 625,704,255
- -----------------------------------------------------------------
TOTAL INVESTMENTS-99.90% 11,537,453,121
- -----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.10% 11,087,841
- -----------------------------------------------------------------
NET ASSETS-100.00% $ 11,548,540,962
=================================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities as of October
31, 1996 was $358,443,781 which represented 3.10% of the Fund's net assets.
(c) 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 this security has been determined in
accordance with procedures established by the Board of Directors. The market
value of this security at October 31, 1996 was $8,252,260, which represents
0.07% of net assets.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$750,115,208. Collaterized by $733,115,000 U.S. Treasury obligations, 0% to
10.375% due 11/15/96 to 08/15/23.
(f) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$700,107,917. Collaterized by $691,506,000 U.S. Treasury obligations 0% to
9.125% due 11/30/96 to 10/31/01.
(g) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$200,031,111. Collaterized by $254,910,124 U.S. Treasury obligations, 0% to
9.50% due 11/15/96 to 09/01/34.
(h) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$300,046,667. Collaterized by $609,995,215 U.S. Government agency
obligations 0% to 11.00% due 05/01/09 to 03/01/33.
(i) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(j) A portion of the principal balance was pledged as collateral to cover margin
requirements for open future contracts. See Note 6.
Abbreviations:
ADR-American Depository Receipt
Conv.-Convertible
Deb.-Debentures
Sub.-Subordinated
See Notes to Financial Statements.
FS-46
<PAGE> 139
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$8,806,097,768) $11,537,453,121
- ---------------------------------------------------------
Foreign currencies, at market value
(cost $26,216) 26,258
- ---------------------------------------------------------
Receivables for:
Investments sold 15,784,521
- ---------------------------------------------------------
Capital stock sold 46,649,903
- ---------------------------------------------------------
Dividends and interest 2,142,548
- ---------------------------------------------------------
Variation margin 6,284,875
- ---------------------------------------------------------
Investment for deferred compensation
plan 63,878
- ---------------------------------------------------------
Other assets 58,196
- ---------------------------------------------------------
Total assets 11,608,463,300
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 30,867,907
- ---------------------------------------------------------
Capital stock reacquired 16,227,770
- ---------------------------------------------------------
Deferred compensation 63,878
- ---------------------------------------------------------
Accrued advisory fees 6,018,167
- ---------------------------------------------------------
Accrued administrative services fees 19,531
- ---------------------------------------------------------
Accrued directors' fees 4,297
- ---------------------------------------------------------
Accrued distribution fees 2,890,747
- ---------------------------------------------------------
Accrued transfer agent fees 2,020,918
- ---------------------------------------------------------
Accrued operating expenses 1,809,123
- ---------------------------------------------------------
Total liabilities 59,922,338
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $11,548,540,962
=========================================================
NET ASSETS:
Class A $11,255,506,428
=========================================================
Institutional Class $ 293,034,534
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER
SHARE:
Class A:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 441,753,223
=========================================================
Institutional Class:
Authorized 200,000,000
- ---------------------------------------------------------
Outstanding 11,265,330
=========================================================
CLASS A:
Net asset value and redemption price
per share $ 25.48
=========================================================
Offering price per share:
(Net asset value of $25.48 divided by
94.50%) $ 26.96
=========================================================
INSTITUTIONAL CLASS:
Net asset value, offering and
redemption price per share $ 26.01
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $366,503 foreign
withholding tax) $ 21,861,327
- ---------------------------------------------------------
Interest 60,273,163
- ---------------------------------------------------------
Total investment income 82,134,490
- ---------------------------------------------------------
EXPENSES:
Advisory fees 59,483,795
- ---------------------------------------------------------
Administrative service fees 212,800
- ---------------------------------------------------------
Custodian fees 611,167
- ---------------------------------------------------------
Directors' fees 54,355
- ---------------------------------------------------------
Distribution fees-Class A 27,788,170
- ---------------------------------------------------------
Transfer agent fees-Class A 17,524,711
- ---------------------------------------------------------
Transfer agent fees-Institutional Class 16,972
- ---------------------------------------------------------
Other 3,499,379
- ---------------------------------------------------------
Total expenses 109,191,349
- ---------------------------------------------------------
Less: Fees waived by advisor (1,869,383)
- ---------------------------------------------------------
Expenses paid indirectly (144,866)
- ---------------------------------------------------------
Net expenses 107,177,100
- ---------------------------------------------------------
Net investment income (loss) (25,042,610)
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN
CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 347,014,327
- ---------------------------------------------------------
Foreign currencies (475,360)
- ---------------------------------------------------------
Futures contracts 47,580,962
- ---------------------------------------------------------
394,119,929
- ---------------------------------------------------------
Unrealized appreciation of:
Investment securities 651,403,520
- ---------------------------------------------------------
Foreign currencies 146,156
- ---------------------------------------------------------
Futures contracts 21,195,970
- ---------------------------------------------------------
672,745,646
- ---------------------------------------------------------
Net gain on investment securities,
foreign currencies and futures
contracts 1,066,865,575
- ---------------------------------------------------------
Net increase in net assets resulting
from operations $1,041,822,965
- ---------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-47
<PAGE> 140
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 (loss) $ (25,042,610) $ (16,016,980)
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies and futures contracts 394,119,929 237,427,697
- --------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and futures contracts 672,745,646 1,307,034,097
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,041,822,965 1,528,444,814
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on investment securities:
Class A (233,242,373) (107,823,749)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (4,789,469) (1,218,145)
- --------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 3,470,281,071 1,878,176,040
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 135,200,711 75,813,810
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 4,409,272,905 3,373,392,770
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 7,139,268,057 3,765,875,287
- --------------------------------------------------------------------------------------------------------------------------
End of period $11,548,540,962 $7,139,268,057
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 8,408,805,783 $4,828,771,443
- --------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (124,538) (54,010)
- --------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment securities, foreign currencies
and futures contracts 388,200,602 231,637,155
- --------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign currencies and futures
contracts 2,751,659,115 2,078,913,469
- --------------------------------------------------------------------------------------------------------------------------
$11,548,540,962 $7,139,268,057
==========================================================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation 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 diversified portfolios:
AIM Constellation Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM
Capital Development Fund, AIM Charter Fund and AIM Weingarten Fund. The Fund
currently offers two different classes of shares: the Class A 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 seek capital appreciation.
The following is a summary of the 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--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. 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. If a mean is not available, as is the case in some foreign
markets, the closing bid will be used absent a last sales price. 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 quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the 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
FS-48
<PAGE> 141
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 would 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 market 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 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,
$475,360 was reclassified from undistributed net realized gains to
undistributed net investment income (loss) as a result of differing book/tax
treatments on foreign currency transactions. In addition, $25,447,442 was
reclassified from undistributed net investment income (loss) to paid-in
capital as a result of a net operating tax loss. Net assets of the Fund were
unaffected by the reclassifications discussed above.
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 both
classes, e.g. advisory fees, are allocated between them.
E. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
F. 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.
G. 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 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 voluntary 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. During the year ended October
31, 1996, AIM waived fees of $1,869,383. The waiver is entirely voluntary but
approval is required by the Board of Directors for any decision by AIM to
discontinue the waiver. 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 $212,800 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Class A shares. During the year ended October 31, 1996, AFS was
paid $8,671,663 for such services. During the year ended October 31, 1996, the
Fund paid A I M Institutional Fund Services, Inc. ("AIFS") with respect to the
Institutional Class $16,972 for shareholder and transfer agency services.
The Fund received reductions in transfer agency fees of $132,361 from
dividends received on balances in cash management bank accounts. In addition,
the Fund incurred
FS-49
<PAGE> 142
expenses of $12,505 from pricing services which are paid through directed
brokerage commissions. The effect of the above arrangements resulted in a
reduction of Fund's total expenses of $144,866 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 shares and a master distribution agreement with Fund Management Company
("FMC") to serve as the distributor for the Institutional Class. The Company has
adopted a Plan pursuant to Rule 12b-l under the 1940 Act (the "Plan"), with
respect to the Class A shares, whereby the Fund pays AIM Distributors an annual
rate of 0.30% of the Class A shares average daily net assets as compensation for
services related to the sales and distribution of the Class A shares. The Plan
provides that payments to dealers and financial institutions that provide
continuing personal shareholder services to their customers who purchase and own
shares of the Class A shares, in amounts of up to 0.25% of the average net
assets of the Class A shares attributable to the customers of such dealers or
financial institutions, may be characterized as a service fee. The Plan also
provides that payments in excess of service fees are characterized as an asset-
based sales charge under the Plan. The Plan also imposes a cap on the total
amount of sales charges, including asset-based sales charges, that may be paid
by the Company with respect to the Fund's Class A shares. During the year ended
October 31, 1996, the Class A shares paid AIM Distributors $27,788,170 as
compensation under the Plan.
AIM Distributors received commissions of $19,558,836 from Class A capital
stock transactions 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 capital stock. 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 $21,521 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-DIRECTOR'S FEES
Director's 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 $83,000,000. 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
$7,936,731,509 and $5,239,321,023, 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 $3,001,882,643
- -------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (273,922,974)
- -------------------------------------------------------
Net unrealized appreciation of
investment securities $2,727,959,669
=======================================================
</TABLE>
Cost of investments for tax purposes is $8,809,493,452.
NOTE 6-FUTURES CONTRACT
On October 31, 1996, $25,487,000 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
<S> <C>
S&P 500 Index/1,835 contracts/Dec.
96/Buy $ 20,302,845
=======================================================
</TABLE>
NOTE 7-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 282,903,859 $ 6,791,107,589 214,014,863 $ 4,411,919,689
- ---------------------------------------------------------------------------------
Institutional
Class 7,711,696 189,568,037 5,036,915 105,368,663
- ---------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 10,007,849 218,670,843 6,006,043 99,940,399
- ---------------------------------------------------------------------------------
Institutional
Class 200,095 4,444,113 60,580 1,019,563
- ---------------------------------------------------------------------------------
Reacquired:
Class A (146,642,433) (3,539,497,361) (128,002,913) (2,633,684,048)
- ---------------------------------------------------------------------------------
Institutional
Class (2,422,264) (58,811,439) (1,476,157) (30,574,416)
- ---------------------------------------------------------------------------------
151,758,802 $ 3,605,481,782 95,639,331 $ 1,953,989,850
=================================================================================
</TABLE>
NOTE 8-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.
FS-50
<PAGE> 143
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the eight-year period ended October 31,
1996, the ten months ended October 31, 1988, and the year ended December 31,
1987.(a)
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
----------- ---------- ---------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 23.69 $ 18.31 $ 17.04 $ 13.25 $ 11.72 $ 6.59 $ 9.40
- -------------------------------- ----------- ---------- ---------- ---------- -------- -------- -------
Income from investment
operations:
Net investment income (loss) (0.06) (0.05) (0.02) (0.04) (0.04) (0.03) (0.03)
- -------------------------------- ----------- ---------- ---------- ---------- -------- -------- -------
Net gains (losses) on
securities (both realized
and unrealized) 2.60 5.95 1.29 3.83 1.76 5.16 (1.23)
- -------------------------------- ----------- ---------- ---------- ---------- -------- -------- -------
Total from investment
operations 2.54 5.90 1.27 3.79 1.72 5.13 (1.26)
- -------------------------------- ----------- ---------- ---------- ---------- -------- -------- -------
Less distributions:
Dividends from net
investment income -- -- -- -- -- -- (0.01)
- -------------------------------- ----------- ---------- ---------- ---------- -------- -------- -------
Distributions from capital
gains (0.75) (0.52) -- -- (0.19) -- (1.54)
- -------------------------------- ----------- ---------- ---------- ---------- -------- -------- -------
Total distributions (0.75) (0.52) -- -- (0.19) -- (1.55)
- -------------------------------- ----------- ---------- ---------- ---------- -------- -------- -------
Net asset value, end of period $ 25.48 $ 23.69 $ 18.31 $ 17.04 $ 13.25 $ 11.72 $ 6.59
================================ =========== ========== ========== ========== ======== ======== =======
Total return(c) 11.26% 33.43% 7.45% 28.60% 14.82% 77.85% (16.17)%
================================ =========== ========== ========== ========== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s
omitted) $11,255,506 $7,000,350 $3,726,029 $2,756,497 $966,472 $342,835 $83,304
================================ =========== ========== ========== ========== ======== ======== =======
Ratio of expenses to average net
assets(d) 1.14%(e)(f) 1.16% 1.20% 1.22% 1.21% 1.35% 1.37%
================================ =========== ========== ========== ========== ======== ======== =======
Ratio of net investment income
(loss) to average net
assets(g) (0.27)%(e) (0.32)% (0.15)% (0.31)% (0.42)% (0.41)% (0.44)%
================================ =========== ========== ========== ========== ======== ======== =======
Portfolio turnover rate 58% 45% 79% 70% 62% 109% 192%
================================ =========== ========== ========== ========== ======== ======== =======
Average broker commission
rate(i) $ 0.0596 N/A N/A N/A N/A N/A N/A
================================ =========== ========== ========== ========== ======== ======== =======
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) -- -- -- -- -- -- --
================================ =========== ========== ========== ========== ======== ======== =======
Average amount of debt
outstanding during the period
(000s omitted)(j) -- -- -- -- -- -- $ 2,344
================================ =========== ========== ========== ========== ======== ======== =======
Average amount of shares
outstanding during the period
(000s omitted)(j) 381,030 244,731 182,897 124,101 55,902 21,205 11,397
================================ =========== ========== ========== ========== ======== ======== =======
Average amount of debt per share
during the period -- -- -- -- -- -- $ 0.21
================================ =========== ========== ========== ========== ======== ======== =======
<CAPTION>
DECEMBER 31,
1989 1988(b) 1987
------- ------- ------------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 7.34 $ 6.35 $ 10.58
- -------------------------------- ------- ------- --------
Income from investment
operations:
Net investment income (loss) 0.01 (0.03) (0.05)
- -------------------------------- ------- ------- --------
Net gains (losses) on
securities (both realized
and unrealized) 2.46 1.02 0.36
- -------------------------------- ------- ------- --------
Total from investment
operations 2.47 0.99 0.31
- -------------------------------- ------- ------- --------
Less distributions:
Dividends from net
investment income -- -- --
- -------------------------------- ------- ------- --------
Distributions from capital
gains (0.41) -- (4.54)
- -------------------------------- ------- ------- --------
Total distributions (0.41) -- (4.54)
- -------------------------------- ------- ------- --------
Net asset value, end of period $ 9.40 $ 7.34 $ 6.35
================================ ======= ======= ========
Total return(c) 35.50% 15.59% 2.85%
================================ ======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s
omitted) $74,731 $78,272 $ 71,418
================================ ======= ======= ========
Ratio of expenses to average net
assets(d) 1.36% 1.30%(h) 1.11%
================================ ======= ======= ========
Ratio of net investment income
(loss) to average net
assets(g) 0.07% (0.57) (0.41)%
================================ ======= ======= ========
Portfolio turnover rate 149% 131% 135%
================================ ======= ======= ========
Average broker commission
rate(i) N/A N/A N/A
================================ ======= ======= ========
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) $ 9,610 $ 5,266 $ 109
================================ ======= ======= ========
Average amount of debt
outstanding during the period
(000s omitted)(j) $ 2,609 $ 2,148 $ 2,366
================================ ======= ======= ========
Average amount of shares
outstanding during the period
(000s omitted)(j) 10,050 10,845 9,668
================================ ======= ======= ========
Average amount of debt per share
during the period $ 0.26 $ 0.20 $ 0.24
================================ ======= ======= ========
(a) Per share information has been restated to reflect a 2 for 1 stock split, effected in the form of a dividend, on June 19,
1987.
(b) The Fund changed investment advisors on September 30, 1988.
(c) Does not deduct sales charges and for periods less than one year, total returns are not annualized.
(d) Ratios of expenses prior to waiver of advisory fees are 1.16%, 1.18% and 1.21% for the years 1996-1994, respectively.
(e) Ratios are based on average net assets of $9,262,723,318.
(f) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would
have remained the same.
(g) Ratios of net investment income (loss) prior to waiver of advisory fees are (0.29)%, (0.34)% and (0.16)% for the years
1996-1994, respectively.
(h) Annualized.
(i) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996.
(j) Averages computed on a daily basis.
</TABLE>
FS-51
<PAGE> 144
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Aggressive Growth Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Aggressive Growth 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 and the ten month
period ended October 31, 1993. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with 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
Aggressive Growth 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 and the ten month period ended October 31,
1993, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 6, 1996
FS-52
<PAGE> 145
SCHEDULE OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONVERTIBLE BONDS-0.53%
BUILDING MATERIALS-0.09%
Eagle Hardware & Garden, Inc.,
Conv. Sub. Deb.,
6.25%, 03/15/01 $ 1,665,000 $ 2,697,300
- -----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.44%
Cityscape Financial Corp.,
Conv. Sub. Deb.,
6.00%, 05/01/06(a)
(Acquired 08/06/96; Cost
$1,326,624) 960,000 1,013,713
- -----------------------------------------------------------------
RAC Financial Group, Inc.,
Conv. Sub. Notes,
7.25%, 08/15/03(a)
(Acquired 09/06/96-09/30/96;
Cost $7,894,726) 6,160,000 10,964,800
- -----------------------------------------------------------------
11,978,513
- -----------------------------------------------------------------
Total Convertible Bonds 14,675,813
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
COMMON STOCKS-92.35%
ADVERTISING/BROADCASTING-2.58%
American Radio Systems Corp.(b) 150,000 4,575,000
- -----------------------------------------------------------------
Chancellor Corp.-Class A(b) 250,000 8,062,500
- -----------------------------------------------------------------
Clear Channel Communications,
Inc.(b) 200,000 14,600,000
- -----------------------------------------------------------------
Evergreen Media Corp.-Class A(b) 250,000 6,750,000
- -----------------------------------------------------------------
Heftel Broadcasting Corp.(b) 275,000 9,968,750
- -----------------------------------------------------------------
Heritage Media Corp.(b) 300,000 4,575,000
- -----------------------------------------------------------------
Jacor Communications, Inc.(b) 400,000 11,200,000
- -----------------------------------------------------------------
Meredith Corp. 100,000 5,025,000
- -----------------------------------------------------------------
Paxson Communications Corp.(b) 335,000 2,973,125
- -----------------------------------------------------------------
SFX Broadcasting, Inc.-Class A(b) 75,000 3,225,000
- -----------------------------------------------------------------
70,954,375
- -----------------------------------------------------------------
AEROSPACE/DEFENSE-0.28%
BE Aerospace, Inc.(b) 355,000 7,721,250
- -----------------------------------------------------------------
AUTOMOBILE/TRUCKS PARTS &
TIRES-0.21%
Borg-Warner Automotive, Inc. 150,000 5,756,250
- -----------------------------------------------------------------
BANKING-0.22%
Cole Taylor Financial Group, Inc. 200,000 6,012,500
- -----------------------------------------------------------------
BUILDING MATERIALS-0.10%
Danaher Corp. 70,000 2,861,250
- -----------------------------------------------------------------
BUSINESS SERVICES-2.88%
APAC Teleservices, Inc.(b) 100,000 4,612,500
- -----------------------------------------------------------------
Cambridge Technology Partners,
Inc.(b) 225,000 7,425,000
- -----------------------------------------------------------------
Career Horizons, Inc.(b) 200,000 8,125,000
- -----------------------------------------------------------------
Claremont Technology Group,
Inc.(b) 101,300 3,089,650
- -----------------------------------------------------------------
Data Processing Resources
Corp.(b) 86,500 1,740,812
- -----------------------------------------------------------------
IntelliQuest Information Group,
Inc.(b)(c) 375,000 8,250,000
- -----------------------------------------------------------------
Leasing Solutions, Inc.(b) 146,600 4,617,900
- -----------------------------------------------------------------
Pharmaceutical Product
Development, Inc.(b) 377,700 7,223,512
- -----------------------------------------------------------------
RemedyTemp, Inc.-Class A(b) 165,000 3,300,000
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BUSINESS SERVICES-(CONTINUED)
Robert Half International,
Inc.(b) 300,000 $ 12,037,500
- -----------------------------------------------------------------
Romac International, Inc.(b) 200,000 5,750,000
- -----------------------------------------------------------------
RTW, Inc.(b) 275,000 4,262,500
- -----------------------------------------------------------------
Sterling Healthcare Group(b) 100,000 1,762,500
- -----------------------------------------------------------------
Superior Consultant Holdings
Corp.(b) 60,000 1,470,000
- -----------------------------------------------------------------
Vincam Group, Inc. (The)(b) 100,000 3,175,000
- -----------------------------------------------------------------
Whittman-Hart, Inc.(b) 50,000 2,375,000
- -----------------------------------------------------------------
79,216,874
- -----------------------------------------------------------------
CHEMICALS-0.18%
Agrium, Inc. (Canada) 363,800 4,865,825
- -----------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.58%
Airgas, Inc.(b) 711,000 16,086,375
- -----------------------------------------------------------------
COMPUTER MINI/PCS-0.49%
Rational Software Corp.(b) 350,000 13,431,250
- -----------------------------------------------------------------
COMPUTER NETWORKING-4.45%
ACT Networks, Inc.(b) 376,200 12,884,850
- -----------------------------------------------------------------
Ascend Communications, Inc.(b) 337,200 22,044,450
- -----------------------------------------------------------------
Auspex Systems, Inc.(b) 300,000 3,075,000
- -----------------------------------------------------------------
Cascade Communications Corp.(b) 480,000 34,860,000
- -----------------------------------------------------------------
Coherent Communications Systems
Corp.(b) 267,200 5,177,000
- -----------------------------------------------------------------
Digital Systems International,
Inc.(b) 40,500 551,812
- -----------------------------------------------------------------
DSP Communications, Inc.(b) 125,000 4,750,000
- -----------------------------------------------------------------
FORE Systems, Inc.(b) 408,800 16,249,800
- -----------------------------------------------------------------
Ortel Corp.(b) 100,000 2,075,000
- -----------------------------------------------------------------
Shiva Corp.(b) 100,000 4,100,000
- -----------------------------------------------------------------
Sync Research, Inc.(b) 200,000 2,650,000
- -----------------------------------------------------------------
VideoServer, Inc.(b) 200,000 9,475,000
- -----------------------------------------------------------------
Xircom, Inc.(b) 217,000 4,394,250
- -----------------------------------------------------------------
122,287,162
- -----------------------------------------------------------------
COMPUTER PERIPHERALS-0.97%
American Power Conversion
Corp.(b) 140,800 3,009,600
- -----------------------------------------------------------------
MicroTouch Systems, Inc.(b) 200,000 3,625,000
- -----------------------------------------------------------------
U.S. Robotics Corp.(b) 319,600 20,094,850
- -----------------------------------------------------------------
26,729,450
- -----------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-14.97%
Affiliated Computer Services,
Inc.(b) 300,000 16,500,000
- -----------------------------------------------------------------
Amisys Managed Care Systems(b) 215,000 3,278,750
- -----------------------------------------------------------------
Analysts International Corp. 200,000 5,000,000
- -----------------------------------------------------------------
ANSYS, Inc.(b) 318,500 3,901,625
- -----------------------------------------------------------------
Applied Microsystems Corp.(b)(c) 200,000 2,175,000
- -----------------------------------------------------------------
Applix, Inc.(b) 198,500 4,813,625
- -----------------------------------------------------------------
Avant! Corp.(b) 150,684 4,558,191
- -----------------------------------------------------------------
BDM International Inc.(b) 14,700 738,675
- -----------------------------------------------------------------
Bell & Howell Co.(b) 250,000 6,687,500
- -----------------------------------------------------------------
BISYS Group, Inc. (The)(b) 150,000 5,587,500
- -----------------------------------------------------------------
</TABLE>
FS-53
<PAGE> 146
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
CBT Group PLC-ADR(b) (Ireland) 153,900 $ 8,464,500
- -----------------------------------------------------------------
Cellular Technical Services
Co.(b) 350,000 5,643,750
- -----------------------------------------------------------------
CFI Proservices, Inc.(b)(c) 165,000 3,217,500
- -----------------------------------------------------------------
Citrix Systems, Inc.(b) 200,000 11,050,000
- -----------------------------------------------------------------
Clarify, Inc.(b) 10,400 501,800
- -----------------------------------------------------------------
Computer Data Systems, Inc. 6,700 180,900
- -----------------------------------------------------------------
Computer Task Group, Inc. 100,000 3,775,000
- -----------------------------------------------------------------
Cooper & Chyan Technology,
Inc.(b) 450,000 13,781,250
- -----------------------------------------------------------------
CSG Systems International,
Inc.(b) 185,200 3,102,100
- -----------------------------------------------------------------
CyberMedia, Inc.(b) 17,600 391,600
- -----------------------------------------------------------------
Dendrite International, Inc.(b) 250,000 6,656,250
- -----------------------------------------------------------------
Documentum, Inc.(b) 100,000 3,725,000
- -----------------------------------------------------------------
Engineering Animation, Inc.(b)(c) 310,100 7,597,450
- -----------------------------------------------------------------
Forte Software, Inc.(b) 100,000 3,775,000
- -----------------------------------------------------------------
GT Interactive Software Corp.(b) 143,900 2,752,087
- -----------------------------------------------------------------
HBO & Co. 200,000 12,025,000
- -----------------------------------------------------------------
HPR, Inc.(b) 500,000 7,000,000
- -----------------------------------------------------------------
IDX Systems Corp.(b) 65,600 1,935,200
- -----------------------------------------------------------------
Indus Group, Inc.(b) 250,000 5,062,500
- -----------------------------------------------------------------
Integrated Systems, Inc.(b) 390,000 10,530,000
- -----------------------------------------------------------------
Jack Henry & Associates 195,000 7,873,125
- -----------------------------------------------------------------
JDA Software Group, Inc.(b) 100,000 3,437,500
- -----------------------------------------------------------------
McAfee Associates, Inc.(b) 250,000 11,375,000
- -----------------------------------------------------------------
Medic Computer Systems, Inc.(b) 350,000 9,887,500
- -----------------------------------------------------------------
National Data Corp. 200,000 8,225,000
- -----------------------------------------------------------------
Network General Corp.(b) 600,000 14,475,000
- -----------------------------------------------------------------
OpenVision Technologies, Inc.(b) 300,000 3,225,000
- -----------------------------------------------------------------
Optika Imaging Systems, Inc.(b) 70,000 472,500
- -----------------------------------------------------------------
OrCAD, Inc.(b)(c) 320,000 3,280,000
- -----------------------------------------------------------------
Par Technology Corp.(b) 350,000 4,812,500
- -----------------------------------------------------------------
Peerless Systems Corp.(b) 200,000 2,125,000
- -----------------------------------------------------------------
PeopleSoft, Inc.(b) 100,000 8,975,000
- -----------------------------------------------------------------
Physician Computer Network,
Inc.(b) 600,000 5,362,500
- -----------------------------------------------------------------
Pure Atria Corp.(b) 595,307 16,222,116
- -----------------------------------------------------------------
Radius, Inc.(b) 151 208
- -----------------------------------------------------------------
Renaissance Solutions, Inc.(b) 250,000 10,062,500
- -----------------------------------------------------------------
S3 Inc.(b) 500,000 9,437,500
- -----------------------------------------------------------------
Sapient Corp.(b) 20,100 929,625
- -----------------------------------------------------------------
Saville Systems Ireland PLC-ADR
(Ireland)(b) 300,000 12,937,500
- -----------------------------------------------------------------
Scopus Technology, Inc.(b) 56,200 2,163,700
- -----------------------------------------------------------------
Segue Software, Inc.(b)(c) 100,000 1,337,500
- -----------------------------------------------------------------
SQA, Inc.(b) 180,400 4,938,450
- -----------------------------------------------------------------
Sterling Commerce, Inc.(b) 159,260 4,479,187
- -----------------------------------------------------------------
Sterling Software, Inc.(b) 100,000 3,250,000
- -----------------------------------------------------------------
SunGard Data Systems Inc.(b) 300,000 12,825,000
- -----------------------------------------------------------------
Sykes Enterprises, Inc.(b) 60,900 2,831,850
- -----------------------------------------------------------------
Synopsys, Inc.(b) 6,700 301,500
- -----------------------------------------------------------------
Systemsoft Corp.(b) 200,000 5,650,000
- -----------------------------------------------------------------
Technology Solutions Co.(b) 337,500 13,120,312
- -----------------------------------------------------------------
Transition Systems, Inc.(b) 19,600 186,200
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
Unify Corp.(b)(c) 500,000 $ 4,687,500
- -----------------------------------------------------------------
Vanstar Corp.(b) 300,000 7,125,000
- -----------------------------------------------------------------
Veritas Software Corp.(b) 360,000 18,180,000
- -----------------------------------------------------------------
Viasoft, Inc.(b) 175,000 8,618,750
- -----------------------------------------------------------------
Visio Corp.(b) 150,000 6,918,750
- -----------------------------------------------------------------
Wind River Systems(b) 250,000 10,625,000
- -----------------------------------------------------------------
Xylan Corp.(b) 175,000 7,000,000
- -----------------------------------------------------------------
411,761,526
- -----------------------------------------------------------------
CONSUMER NON-DURABLES-0.59%
Central Garden and Pet Co.(b) 275,000 6,496,875
- -----------------------------------------------------------------
Herbalife International, Inc. 152,000 3,021,000
- -----------------------------------------------------------------
USA Detergents, Inc.(b) 200,000 6,600,000
- -----------------------------------------------------------------
16,117,875
- -----------------------------------------------------------------
CONTAINERS-0.03%
Apogee Enterprises, Inc. 25,000 962,500
- -----------------------------------------------------------------
COSMETICS & TOILETRIES-0.69%
Helen of Troy Ltd.(b) 346,200 6,318,150
- -----------------------------------------------------------------
Nature's Sunshine Products, Inc. 250,000 5,531,250
- -----------------------------------------------------------------
NBTY, Inc.(b) 450,000 7,031,250
- -----------------------------------------------------------------
18,880,650
- -----------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-2.90%
AMETEK, Inc. 200,000 3,975,000
- -----------------------------------------------------------------
BMC Industries, Inc. 500,000 14,812,500
- -----------------------------------------------------------------
Checkpoint Systems, Inc.(b) 100,000 2,237,500
- -----------------------------------------------------------------
Harman International Industries,
Inc. 126,000 6,473,250
- -----------------------------------------------------------------
Methode Electronics, Inc.-Class A 187,500 3,656,250
- -----------------------------------------------------------------
Perceptron, Inc.(b) 300,000 7,425,000
- -----------------------------------------------------------------
Sawtek Inc.(b) 81,900 2,477,475
- -----------------------------------------------------------------
SCI Systems, Inc.(b) 125,000 6,218,750
- -----------------------------------------------------------------
Sipex Corp.(b)(c) 480,000 12,660,000
- -----------------------------------------------------------------
Symbol Technologies, Inc.(b) 200,000 8,975,000
- -----------------------------------------------------------------
Technitrol, Inc. 6,700 221,937
- -----------------------------------------------------------------
ThermoQuest Corp.(b) 200,000 2,625,000
- -----------------------------------------------------------------
Ultrak, Inc.(b) 300,000 7,912,500
- -----------------------------------------------------------------
79,670,162
- -----------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.20%
Imperial Credit Industries,
Inc.(b) 300,000 5,437,500
- -----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-3.90%
Aames Financial Corp. 185,000 8,255,625
- -----------------------------------------------------------------
AmeriCredit Corp.(b) 100,000 1,900,000
- -----------------------------------------------------------------
Amresco, Inc.(b) 330,000 6,971,250
- -----------------------------------------------------------------
Cityscape Financial Corp.(b) 90,700 2,335,525
- -----------------------------------------------------------------
CMAC Investment Corp. 150,000 10,368,750
- -----------------------------------------------------------------
Concord EFS, Inc.(b) 500,000 14,500,000
- -----------------------------------------------------------------
Consumer Portfolio Services,
Inc.(b) 105,000 1,286,250
- -----------------------------------------------------------------
Credit Acceptance Corp.(b) 282,400 7,624,800
- -----------------------------------------------------------------
First Alliance Corp.(b) 110,000 2,997,500
- -----------------------------------------------------------------
IMC Mortgage Co.(b) 100,000 3,750,000
- -----------------------------------------------------------------
</TABLE>
FS-54
<PAGE> 147
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (CONSUMER
CREDIT)-(CONTINUED)
Metris Companies Inc.(b) 50,000 $ 1,187,500
- -----------------------------------------------------------------
Money Store, Inc. (The) 716,600 18,452,450
- -----------------------------------------------------------------
Olympic Financial Ltd.(b) 486,200 7,718,425
- -----------------------------------------------------------------
PMT Services, Inc.(b) 235,600 4,712,000
- -----------------------------------------------------------------
RAC Financial Group, Inc.(b) 161,000 9,660,000
- -----------------------------------------------------------------
Southern Pacific Funding Corp.(b) 147,800 4,655,700
- -----------------------------------------------------------------
WFS Financial, Inc.(b) 44,550 935,550
- -----------------------------------------------------------------
107,311,325
- -----------------------------------------------------------------
FINANCE (LEASING COMPANIES)-0.09%
Oxford Resources Corp.-Class A(b) 100,000 2,550,000
- -----------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-0.50%
Bay View Capital Corp. 200,000 7,900,000
- -----------------------------------------------------------------
TCF Financial Corp. 150,000 5,812,500
- -----------------------------------------------------------------
13,712,500
- -----------------------------------------------------------------
FOOD/PROCESSING-0.63%
Delta & Pine Land Co. 150,000 5,400,000
- -----------------------------------------------------------------
Richfood Holdings, Inc. 489,700 11,814,012
- -----------------------------------------------------------------
17,214,012
- -----------------------------------------------------------------
FUNERAL SERVICES-0.78%
Equity Corporation
International(b) 369,900 8,507,700
- -----------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 375,000 12,843,750
- -----------------------------------------------------------------
21,351,450
- -----------------------------------------------------------------
FURNITURE-0.30%
Ethan Allen Interiors, Inc. 234,400 8,379,800
- -----------------------------------------------------------------
GAMING-0.21%
Primadonna Resorts, Inc.(b) 350,000 5,643,750
- -----------------------------------------------------------------
HOMEBUILDING-0.32%
American Homestar Corp.(b) 150,000 3,187,500
- -----------------------------------------------------------------
Coachmen Industries, Inc. 200,000 5,600,000
- -----------------------------------------------------------------
8,787,500
- -----------------------------------------------------------------
HOTELS/MOTELS-0.37%
Prime Hospitality Corp.(b) 450,000 6,862,500
- -----------------------------------------------------------------
Suburban Lodges of America,
Inc.(b) 80,000 1,670,000
- -----------------------------------------------------------------
Wyndham Hotel Corp.(b) 83,300 1,582,700
- -----------------------------------------------------------------
10,115,200
- -----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.79%
Compdent Corp.(b) 200,000 6,875,000
- -----------------------------------------------------------------
CRA Managed Care, Inc.(b) 100,000 5,075,000
- -----------------------------------------------------------------
First Commonwealth, Inc.(b) 162,500 3,412,500
- -----------------------------------------------------------------
United Companies Financial Corp. 210,000 6,273,750
- -----------------------------------------------------------------
21,636,250
- -----------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-0.70%
CapMAC Holdings, Inc. 250,000 8,343,750
- -----------------------------------------------------------------
HCC Insurance Holdings, Inc. 250,000 6,375,000
- -----------------------------------------------------------------
Vesta Insurance Group, Inc. 178,500 4,574,063
- -----------------------------------------------------------------
19,292,813
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LEISURE & RECREATION-1.17%
Cannondale Corp.(b)(c) 400,000 $ 7,700,000
- -----------------------------------------------------------------
Lewis Galoob Toys, Inc.(b) 200,000 5,375,000
- -----------------------------------------------------------------
Penske Motorsports, Inc.(b) 100,000 3,425,000
- -----------------------------------------------------------------
Platinum Entertainment, Inc.(b) 200,000 2,050,000
- -----------------------------------------------------------------
West Marine, Inc.(b) 250,000 8,812,500
- -----------------------------------------------------------------
WMS Industries, Inc.(b) 200,000 4,900,000
- -----------------------------------------------------------------
32,262,500
- -----------------------------------------------------------------
MACHINE TOOLS-0.17%
Precision Castparts Corp. 100,000 4,675,000
- -----------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.08%
Greenwich Air Services,
Inc.-Class B(b) 125,000 2,109,375
- -----------------------------------------------------------------
MEDICAL (DRUGS)-2.15%
Arbor Drugs, Inc. 200,000 4,525,000
- -----------------------------------------------------------------
Biovail Corp. International(b)
(Canada) 250,000 7,312,500
- -----------------------------------------------------------------
Cardinal Health, Inc. 225,000 17,662,500
- -----------------------------------------------------------------
Curative Technologies, Inc.(b) 200,000 4,550,000
- -----------------------------------------------------------------
Dura Pharmaceuticals, Inc.(b) 200,000 6,900,000
- -----------------------------------------------------------------
Express Scripts, Inc.-Class A(b) 200,000 5,825,000
- -----------------------------------------------------------------
Medicis Pharmaceutical Corp.(b) 150,000 7,537,500
- -----------------------------------------------------------------
Parexel International Corp.(b) 100,000 4,900,000
- -----------------------------------------------------------------
59,212,500
- -----------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-10.87%
ABR Information Services, Inc.(b) 150,000 10,387,500
- -----------------------------------------------------------------
American HomePatient, Inc.(b) 337,350 8,012,062
- -----------------------------------------------------------------
American Medical Response,
Inc.(b) 250,000 7,500,000
- -----------------------------------------------------------------
American Oncology Resources,
Inc.(b) 71,900 575,200
- -----------------------------------------------------------------
Apria Healthcare Group, Inc.(b) 250,000 4,781,250
- -----------------------------------------------------------------
Arbor Health Care Co.(b)(c) 450,000 9,843,750
- -----------------------------------------------------------------
Atria Communities, Inc.(b) 250,000 3,156,250
- -----------------------------------------------------------------
ClinTrials Research Inc.(b) 62,500 2,320,313
- -----------------------------------------------------------------
EmCare Holdings, Inc.(b) 300,000 7,500,000
- -----------------------------------------------------------------
Enterprise Systems, Inc.(b) 125,000 2,015,625
- -----------------------------------------------------------------
Envoy Corp.(b) 350,000 12,862,500
- -----------------------------------------------------------------
FPA Medical Management, Inc.(b) 200,000 3,725,000
- -----------------------------------------------------------------
Genesis Health Ventures, Inc.(b) 250,000 5,718,750
- -----------------------------------------------------------------
Health Care and Retirement
Corp.(b) 525,000 12,928,125
- -----------------------------------------------------------------
Health Management Associates,
Inc.-Class A(b) 737,662 16,228,564
- -----------------------------------------------------------------
HEALTHSOUTH Corp. (b) 675,530 25,332,375
- -----------------------------------------------------------------
Hologic, Inc.(b) 183,000 4,163,250
- -----------------------------------------------------------------
Lincare Holdings, Inc.(b) 200,000 7,500,000
- -----------------------------------------------------------------
MedPartners, Inc.(b) 150,000 3,168,750
- -----------------------------------------------------------------
Multicare Co., Inc.(b) 375,000 6,750,000
- -----------------------------------------------------------------
Myriad Genetics, Inc.(b) 100,000 2,475,000
- -----------------------------------------------------------------
NCS HealthCare, Inc.-Class
A(b)(c) 200,000 6,075,000
- -----------------------------------------------------------------
OccuSystems, Inc.(b) 287,200 7,862,100
- -----------------------------------------------------------------
OrNda HealthCorp.(b) 400,000 10,900,000
- -----------------------------------------------------------------
Orthodontic Centers of America,
Inc.(b) 625,000 8,984,375
- -----------------------------------------------------------------
Oxford Health Plans, Inc.(b) 300,000 13,650,000
- -----------------------------------------------------------------
</TABLE>
FS-55
<PAGE> 148
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Pediatrix Medical Group, Inc.(b) 220,000 $ 8,662,500
- -----------------------------------------------------------------
PhyCor, Inc.(b) 187,500 5,812,500
- -----------------------------------------------------------------
Physicians Resource Group,
Inc.(b) 303,200 8,186,400
- -----------------------------------------------------------------
Quorum Health Group, Inc.(b) 300,000 8,100,000
- -----------------------------------------------------------------
Renal Care Group, Inc.(b) 200,000 7,400,000
- -----------------------------------------------------------------
Renal Treatment Centers, Inc.(b) 200,000 5,350,000
- -----------------------------------------------------------------
RoTech Medical Corp.(b) 650,000 10,400,000
- -----------------------------------------------------------------
Sunrise Assisted Living, Inc.(b) 94,800 2,180,400
- -----------------------------------------------------------------
Total Renal Care Holdings,
Inc.(b) 150,000 5,850,000
- -----------------------------------------------------------------
Universal Health Services,
Inc.-Class B(b) 400,000 10,000,000
- -----------------------------------------------------------------
UroCor, Inc.(b) 142,800 1,677,900
- -----------------------------------------------------------------
Vencor, Inc.(b) 400,000 11,850,000
- -----------------------------------------------------------------
Veterinary Centers of America,
Inc.(b) 500,000 9,187,500
- -----------------------------------------------------------------
299,072,939
- -----------------------------------------------------------------
MEDICAL
INSTRUMENTS/PRODUCTS-4.35%
Advanced Technology Laboratories,
Inc.(b) 150,000 4,575,000
- -----------------------------------------------------------------
Boston Scientific Corp.(b) 47,115 2,561,878
- -----------------------------------------------------------------
Capstone Pharmacy Services,
Inc.(b) 350,000 4,090,625
- -----------------------------------------------------------------
CardioThoracic Systems, Inc.(b) 125,000 2,375,000
- -----------------------------------------------------------------
Dentsply International, Inc. 300,000 12,637,500
- -----------------------------------------------------------------
ESC Medical Systems Ltd.(b)
(Israel) 47,850 1,321,856
- -----------------------------------------------------------------
General Surgical Innovations,
Inc.(b) 301,900 2,188,775
- -----------------------------------------------------------------
Gulf South Medical Supply,
Inc.(b) 317,200 6,978,400
- -----------------------------------------------------------------
Henry Schein, Inc.(b) 200,000 7,950,000
- -----------------------------------------------------------------
IRIDEX Corp.(b)(c) 150,000 1,200,000
- -----------------------------------------------------------------
Lunar Corp.(b) 100,000 3,112,500
- -----------------------------------------------------------------
Mentor Corp. 200,000 4,425,000
- -----------------------------------------------------------------
MiniMed, Inc.(b) 150,000 3,937,500
- -----------------------------------------------------------------
National Dentex Corp.(b)(c) 185,000 3,491,875
- -----------------------------------------------------------------
Omnicare, Inc. 400,000 10,900,000
- -----------------------------------------------------------------
Patterson Dental Co.(b) 400,000 11,200,000
- -----------------------------------------------------------------
Physician Sales & Service,
Inc.(b) 200,000 4,250,000
- -----------------------------------------------------------------
ResMed, Inc.(b) 275,000 4,606,250
- -----------------------------------------------------------------
Suburban Ostomy Supply Co.,
Inc.(b)(c) 556,900 6,787,219
- -----------------------------------------------------------------
Sybron International Corp.(b) 600,000 17,475,000
- -----------------------------------------------------------------
Target Therapeutics, Inc.(b) 100,000 3,700,000
- -----------------------------------------------------------------
119,764,378
- -----------------------------------------------------------------
METALS-0.39%
Oregon Metallurgical Corp.(b) 150,000 4,725,000
- -----------------------------------------------------------------
Rental Service Corp.(b) 103,600 2,382,800
- -----------------------------------------------------------------
Shaw Group, Inc.(b) 150,000 3,693,750
- -----------------------------------------------------------------
10,801,550
- -----------------------------------------------------------------
OFFICE AUTOMATION-0.34%
Danka Business Systems PLC-ADR
(United Kingdom) 237,900 9,426,788
- -----------------------------------------------------------------
OFFICE PRODUCTS-0.55%
Daisytek International
Corp.(b)(c) 394,700 15,097,275
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-0.75%
Benton Oil & Gas Co.(b) 325,000 $ 7,962,500
- -----------------------------------------------------------------
Devon Energy Corp. 300,000 10,462,500
- -----------------------------------------------------------------
Forasol-Foramer N.V.(b) (France) 125,000 2,156,250
- -----------------------------------------------------------------
20,581,250
- -----------------------------------------------------------------
OIL & GAS (SERVICES)-1.15%
Camco International, Inc. 225,000 8,718,750
- -----------------------------------------------------------------
Energy Ventures, Inc.(b) 261,000 11,484,000
- -----------------------------------------------------------------
SEACOR Holdings Inc.(b) 100,000 5,400,000
- -----------------------------------------------------------------
Veritas DGC, Inc.(b) 300,000 6,150,000
- -----------------------------------------------------------------
31,752,750
- -----------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.41%
Marine Drilling Co., Inc.(b) 458,300 6,358,913
- -----------------------------------------------------------------
Varco International, Inc.(b) 250,000 4,937,500
- -----------------------------------------------------------------
11,296,413
- -----------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.14%
Schweitzer-Mauduit International,
Inc. 125,000 3,843,750
- -----------------------------------------------------------------
POLLUTION CONTROL-2.19%
ATC Environmental, Inc.(b) 300,000 3,262,500
- -----------------------------------------------------------------
GTS Duratek, Inc.(b) 150,000 1,743,750
- -----------------------------------------------------------------
United Waste Systems, Inc.(b) 398,700 13,705,313
- -----------------------------------------------------------------
US Filter Corp.(b) 450,000 15,525,000
- -----------------------------------------------------------------
USA Waste Services, Inc.(b) 810,000 25,920,000
- -----------------------------------------------------------------
60,156,563
- -----------------------------------------------------------------
PUBLISHING-0.53%
Gartner Group, Inc.(b) 253,600 7,798,200
- -----------------------------------------------------------------
World Color Press, Inc.(b) 300,000 6,712,500
- -----------------------------------------------------------------
14,510,700
- -----------------------------------------------------------------
RESTAURANTS-1.97%
Apple South, Inc. 499,962 5,874,554
- -----------------------------------------------------------------
Foodmaker, Inc.(b) 600,000 5,850,000
- -----------------------------------------------------------------
Landry's Seafood Restaurants,
Inc.(b) 275,000 5,637,500
- -----------------------------------------------------------------
Lone Star Steakhouse & Saloon,
Inc.(b) 175,000 4,484,375
- -----------------------------------------------------------------
Papa John's International,
Inc.(b) 150,000 7,462,500
- -----------------------------------------------------------------
Planet Hollywood International,
Inc.-Class A(b) 200,000 4,150,000
- -----------------------------------------------------------------
Showbiz Pizza Time, Inc.(b) 274,600 5,080,100
- -----------------------------------------------------------------
Sonic Corp.(b) 400,000 9,100,000
- -----------------------------------------------------------------
Starbucks Corp.(b) 200,000 6,500,000
- -----------------------------------------------------------------
54,139,029
- -----------------------------------------------------------------
RETAIL (FOOD & DRUG)-0.26%
Quality Food Centers, Inc.(b) 200,000 7,300,000
- -----------------------------------------------------------------
RETAIL (STORES)-11.45%
Barnett, Inc.(b) 82,200 1,941,975
- -----------------------------------------------------------------
Bed Bath & Beyond, Inc.(b) 200,000 5,050,000
- -----------------------------------------------------------------
Blyth Industries, Inc.(b) 329,700 12,817,088
- -----------------------------------------------------------------
Buckle, Inc. (The)(b) 170,000 4,335,000
- -----------------------------------------------------------------
CDW Computer Centers, Inc.(b) 150,000 9,440,625
- -----------------------------------------------------------------
Claire's Stores, Inc. 250,000 4,250,000
- -----------------------------------------------------------------
</TABLE>
FS-56
<PAGE> 149
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (STORES)-(CONTINUED)
Compucom Systems, Inc.(b) 800,000 $ 7,800,000
- -----------------------------------------------------------------
CompUSA, Inc.(b) 250,000 11,562,500
- -----------------------------------------------------------------
Corporate Express, Inc.(b) 200,000 6,525,000
- -----------------------------------------------------------------
Dollar Tree Stores, Inc.(b) 175,000 6,606,250
- -----------------------------------------------------------------
Duty Free International, Inc. 400,000 6,400,000
- -----------------------------------------------------------------
Eagle Hardware & Garden, Inc.(b) 300,000 8,587,500
- -----------------------------------------------------------------
Fila Holding S.p.A.-ADR (Italy) 115,000 8,280,000
- -----------------------------------------------------------------
Finish Line, Inc. (The)-Class
A(b) 161,400 6,859,500
- -----------------------------------------------------------------
Gadzooks, Inc.(b) 200,050 5,801,450
- -----------------------------------------------------------------
Gargoyles, Inc.(b) 100,000 1,325,000
- -----------------------------------------------------------------
Global DirectMail Corp.(b) 250,000 12,312,500
- -----------------------------------------------------------------
Gymboree Corp.(b) 391,000 12,218,750
- -----------------------------------------------------------------
Inacom Corp.(b) 200,000 6,325,000
- -----------------------------------------------------------------
Just for Feet, Inc.(b) 300,000 7,762,500
- -----------------------------------------------------------------
Loehmann's Holdings, Inc.(b)(c) 500,000 13,437,500
- -----------------------------------------------------------------
Marks Bros. Jewelers, Inc.(b)(c) 275,000 6,393,750
- -----------------------------------------------------------------
Men's Wearhouse, Inc. (The)(b) 321,000 6,620,625
- -----------------------------------------------------------------
Meyer (Fred), Inc.(b) 200,000 7,025,000
- -----------------------------------------------------------------
Micro Warehouse, Inc.(b) 500,000 11,500,000
- -----------------------------------------------------------------
MSC Industrial Direct Co.,
Inc.-Class A(b) 200,000 7,400,000
- -----------------------------------------------------------------
Neiman Marcus Group, Inc.
(The)(b) 150,000 4,893,750
- -----------------------------------------------------------------
99 Cents Only Stores(b) 100,000 1,475,000
- -----------------------------------------------------------------
O'Reilly Automotive, Inc.(b) 200,000 7,075,000
- -----------------------------------------------------------------
Oakley, Inc.(b) 700,000 10,412,500
- -----------------------------------------------------------------
Performance Food Group Co.(b)(c) 458,750 7,053,281
- -----------------------------------------------------------------
Petco Animal Supplies, Inc.(b) 427,500 10,046,250
- -----------------------------------------------------------------
Pier 1 Imports, Inc. 525,000 7,350,000
- -----------------------------------------------------------------
Rexall Sundown, Inc.(b) 150,000 4,068,750
- -----------------------------------------------------------------
Sports Authority, Inc. (The)(b) 492,500 11,943,125
- -----------------------------------------------------------------
Stein Mart, Inc.(b) 200,000 3,575,000
- -----------------------------------------------------------------
Sunglass Hut International,
Inc.(b) 132,200 1,173,275
- -----------------------------------------------------------------
Tech Data Corp.(b) 800,000 20,600,000
- -----------------------------------------------------------------
Wet Seal, Inc.-Class A(b) 265,000 8,347,500
- -----------------------------------------------------------------
Williams-Sonoma, Inc.(b) 250,000 6,875,000
- -----------------------------------------------------------------
Wilmar Industries, Inc.(b) 150,000 3,225,000
- -----------------------------------------------------------------
Zale Corp.(b) 425,000 8,234,375
- -----------------------------------------------------------------
314,925,319
- -----------------------------------------------------------------
SCHOOLS-0.08%
Children's Comprehensive
Services, Inc.(b) 150,000 2,212,500
- -----------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.71%
Dynatech Corp.(b) 71,800 3,549,613
- -----------------------------------------------------------------
Input/Output, Inc.(b) 400,000 11,900,000
- -----------------------------------------------------------------
Thermo Optek Corp.(b) 350,000 4,200,000
- -----------------------------------------------------------------
19,649,613
- -----------------------------------------------------------------
SECURITY & SAFETY SERVICES-0.08%
Cornell Corrections, Inc.(b) 200,000 2,100,000
- -----------------------------------------------------------------
SEMICONDUCTORS-1.83%
Actel Corp.(b) 166,700 2,979,763
- -----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SEMICONDUCTORS-(CONTINUED)
Chips & Technologies, Inc.(b) 400,000 $ 7,950,000
- -----------------------------------------------------------------
Computer Products, Inc.(b) 550,000 10,862,500
- -----------------------------------------------------------------
HADCO Corp.(b) 230,000 6,986,250
- -----------------------------------------------------------------
Sanmina Corp.(b) 250,000 11,437,500
- -----------------------------------------------------------------
Vitesse Semiconductor Corp.(b) 75,000 2,390,625
- -----------------------------------------------------------------
VLSI Technology, Inc.(b) 450,000 7,762,500
- -----------------------------------------------------------------
50,369,138
- -----------------------------------------------------------------
SHOES & RELATED APPAREL-0.70%
Vans, Inc.(b) 600,000 9,975,000
- -----------------------------------------------------------------
Wolverine World Wide, Inc. 375,000 9,281,250
- -----------------------------------------------------------------
19,256,250
- -----------------------------------------------------------------
TELECOMMUNICATIONS-6.18%
ADC Telecommunications, Inc.(b) 300,000 20,512,500
- -----------------------------------------------------------------
Allen Group, Inc. 132,000 2,095,500
- -----------------------------------------------------------------
Andrew Corp.(b) 450,000 21,937,500
- -----------------------------------------------------------------
Anicom, Inc.(b) 400,000 3,600,000
- -----------------------------------------------------------------
Aspect Telecommunications
Corp.(b) 125,000 7,437,500
- -----------------------------------------------------------------
Billing Information Concepts(b) 350,000 9,143,750
- -----------------------------------------------------------------
Brightpoint, Inc.(b)(c) 499,950 12,498,750
- -----------------------------------------------------------------
LCI International, Inc.(b) 300,000 9,562,500
- -----------------------------------------------------------------
P-COM, Inc.(b) 100,000 2,200,000
- -----------------------------------------------------------------
PairGain Technologies, Inc.(b) 386,500 26,620,187
- -----------------------------------------------------------------
Precision Response Corp.(b) 50,000 1,787,500
- -----------------------------------------------------------------
Premiere Technologies, Inc.(b) 50,200 815,750
- -----------------------------------------------------------------
Premisys Communications, Inc.(b) 200,000 10,000,000
- -----------------------------------------------------------------
Proxim, Inc.(b) 100,000 2,275,000
- -----------------------------------------------------------------
Tellabs, Inc.(b) 100,000 8,512,500
- -----------------------------------------------------------------
Teltrend, Inc.(b) 300,000 9,900,000
- -----------------------------------------------------------------
TESSCO Technologies, Inc.(b)(c) 300,000 11,850,000
- -----------------------------------------------------------------
Tollgrade Communications, Inc.(b) 99,000 2,574,000
- -----------------------------------------------------------------
U.S. Long Distance Corp.(b) 307,500 2,575,313
- -----------------------------------------------------------------
United States Satellite
Broadcasting Co., Inc.(b) 123,600 1,993,050
- -----------------------------------------------------------------
Xpedite Systems, Inc.(b) 100,000 2,050,000
- -----------------------------------------------------------------
169,941,300
- -----------------------------------------------------------------
TEXTILES-2.43%
Designer Holdings Ltd.(b) 350,000 6,693,750
- -----------------------------------------------------------------
Mohawk Industries, Inc.(b) 350,000 8,487,500
- -----------------------------------------------------------------
Nautica Enterprises, Inc.(b) 450,000 13,837,500
- -----------------------------------------------------------------
Springs Industries, Inc.-Class A 150,000 6,768,750
- -----------------------------------------------------------------
St. John Knits, Inc. 250,000 11,437,500
- -----------------------------------------------------------------
Tommy Hilfiger Corp.(b) 250,000 13,000,000
- -----------------------------------------------------------------
WestPoint Stevens, Inc.(b) 250,000 6,656,250
- -----------------------------------------------------------------
66,881,250
- -----------------------------------------------------------------
TRANSPORTATION-0.51%
Hub Group, Inc.(b)(c) 400,000 8,900,000
- -----------------------------------------------------------------
Rural/Metro Corp.(b) 100,000 3,650,000
- -----------------------------------------------------------------
</TABLE>
FS-57
<PAGE> 150
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TRANSPORTATION-(CONTINUED)
Trico Marine Services, Inc.(b) 40,800 $ 1,438,200
- -----------------------------------------------------------------
13,988,200
- -----------------------------------------------------------------
Total Common Stocks 2,540,073,704
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-1.98%
U.S. TREASURY BILLS(d)
5.046%, 01/02/97(e) $ 55,000,000 54,550,650
- -----------------------------------------------------------------
Total U.S. Treasury
Securities 54,550,650
- -----------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-5.39%(f)
Daiwa Securities America, Inc.,
5.53% 11/01/96(g) $ 222,124 $ 222,124
- -----------------------------------------------------------------
Dresdner Securities (USA), Inc.,
5.54% 11/01/96(h) 47,000,000 47,000,000
- -----------------------------------------------------------------
SBC Capital Markets, Inc., 5.55%
11/01/96(i) 101,000,000 101,000,000
- -----------------------------------------------------------------
Total Repurchase Agreements 148,222,124
- -----------------------------------------------------------------
TOTAL INVESTMENTS-100.25% 2,757,522,291
- -----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(0.25%) (6,958,348)
- -----------------------------------------------------------------
NET ASSETS-100.00% $ 2,750,563,943
=================================================================
</TABLE>
Investment Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debentures
Sub. - Subordinated
Notes to Schedule of Investments:
(a) 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
$11,978,513 which represented 0.44% of the Fund's net assets.
(b) Non-income producing security.
(c) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities as of October
31, 1996 was $153,533,350 which represented 5.58% of the Fund's net assets.
(d) U.S. Treasury bills are traded on discount basis. In such cases the interest
rate shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(e) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 6.
(f) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102 percent of the sales price of
the repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(g) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$750,115,208. Collateralized by $733,115,000 U.S. Treasury obligations, 0%
to 10.375% due 11/15/96 to 08/15/23.
(h) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$200,030,778. Collateralized by $198,651,000 U.S. Treasury obligations,
4.75% to 9.25% due 11/30/97 to 06/30/99.
(i) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0%
to 9.125% due 11/30/96 to 10/31/01.
See Notes to Financial Statements.
FS-58
<PAGE> 151
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,102,644,643) $2,757,522,291
- ---------------------------------------------------------
Cash 391,114
- ---------------------------------------------------------
Receivables for:
Investments sold 13,844,684
- ---------------------------------------------------------
Capital stock sold 13,253,569
- ---------------------------------------------------------
Dividends and interest 222,317
- ---------------------------------------------------------
Variation margin 568,550
- ---------------------------------------------------------
Investment for deferred compensation
plan 23,229
- ---------------------------------------------------------
Other assets 130,315
- ---------------------------------------------------------
Total assets 2,785,956,069
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 25,232,620
- ---------------------------------------------------------
Capital stock reacquired 7,170,183
- ---------------------------------------------------------
Deferred compensation 23,229
- ---------------------------------------------------------
Accrued advisory fees 1,548,580
- ---------------------------------------------------------
Accrued administrative service fees 8,365
- ---------------------------------------------------------
Accrued distribution fees 608,714
- ---------------------------------------------------------
Accrued directors fees 1,339
- ---------------------------------------------------------
Accrued transfer agent fees 509,702
- ---------------------------------------------------------
Accrued operating expenses 289,394
- ---------------------------------------------------------
Total liabilities 35,392,126
- ---------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $2,750,563,943
- ---------------------------------------------------------
Capital stock, $.001 par value per
share:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 61,224,358
- ---------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 44.93
- ---------------------------------------------------------
OFFERING PRICE PER SHARE:
(Net asset value of $44.93 divided by
94.50%) $ 47.54
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 6,964,425
- --------------------------------------------------------
Dividends (net of $26,363 foreign
withholding tax) 1,998,154
- --------------------------------------------------------
Total investment income 8,962,579
- --------------------------------------------------------
EXPENSES:
Advisory fees 16,492,564
- --------------------------------------------------------
Custodian fees 244,961
- --------------------------------------------------------
Directors' fees 21,529
- --------------------------------------------------------
Distribution fees 6,492,025
- --------------------------------------------------------
Administrative services fees 97,857
- --------------------------------------------------------
Transfer agent fees 4,108,892
- --------------------------------------------------------
Other 1,248,996
- --------------------------------------------------------
Total expenses 28,706,824
- --------------------------------------------------------
Less: Expenses paid indirectly (40,269)
- --------------------------------------------------------
Net expenses 28,666,555
- --------------------------------------------------------
Net investment income (loss) (19,703,976)
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FUTURES
CONTRACTS AND FOREIGN CURRENCIES:
Net realized gain on sales of:
Investment securities 124,457,350
- --------------------------------------------------------
Futures contracts 17,081,337
- --------------------------------------------------------
141,538,687
- --------------------------------------------------------
Unrealized appreciation (depreciation)
of:
Investment securities 214,736,369
- --------------------------------------------------------
Futures contracts (3,538,650)
- --------------------------------------------------------
Foreign currencies (42)
- --------------------------------------------------------
211,197,677
- --------------------------------------------------------
Net gain on investment securities,
futures contracts and foreign
currencies 352,736,364
- --------------------------------------------------------
Net increase in net assets resulting from
operations $333,032,388
- --------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-59
<PAGE> 152
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 (loss) $ (19,703,976) $ (2,318,274)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities, futures contracts and foreign
currencies 141,538,687 52,290,438
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities, futures contracts and foreign
currencies 211,197,677 314,756,271
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 333,032,388 364,728,435
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on investment securities (54,512,548) --
- ---------------------------------------------------------------------------------------------------------------------------
Net increase from capital stock transactions 226,490,173 1,193,587,768
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 505,010,013 1,558,316,203
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,245,553,930 687,237,727
- ---------------------------------------------------------------------------------------------------------------------------
End of period $2,750,563,943 $2,245,553,930
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,957,915,109 $1,748,790,238
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (44,163) (16,714)
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment securities, futures contracts
and foreign currencies 133,729,499 49,014,585
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, futures contracts and foreign
currencies 658,963,498 447,765,821
- ---------------------------------------------------------------------------------------------------------------------------
$2,750,563,943 $2,245,553,930
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth 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 diversified
portfolios: AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten
Fund. Matters affecting each portfolio or class will be voted on exclusively by
the shareholders of such portfolio or class. The Fund has temporarily
discontinued public sales of its shares to new investors. The Fund is a
diversified portfolio which seeks to achieve long-term growth of capital by
investing primarily in common stocks, convertible bonds, convertible preferred
stocks and warrants of companies which in the opinion of the Fund's investment
advisor are expected to achieve earnings growth over time at a rate in excess of
15% per year. The assets, liabilities and operations of each portfolio are
accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--Except as provided in the next sentence, a security
listed or traded on an exchange is valued at its last 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
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
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
FS-60
<PAGE> 153
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 recorded 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,
$2,311,225 was reclassified from paid-in capital to undistributed net
realized gains as a result of differing book/tax treatments. In addition,
$19,676,527 was reclassified from undistributed net investment income (loss)
to paid-in capital as a result of a net operating tax loss. Net assets of the
Fund were unaffected by the reclassifications discussed above.
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. 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 that a change in the value of contracts may not correlate with changes in
the value of the securities being hedged.
E. Foreign Currency Transactions--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
F. 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.
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 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $150 million.
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 $97,857 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the year ended October 31, 1996,
AFS was paid $2,047,282 for such services.
The Fund received reductions in transfer agency fees of $37,293 from dividends
received on balances in cash management accounts. In addition, the Fund incurred
expenses of $2,976 from pricing services which are paid through directed
brokerage commissions. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $40,269 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
Fund. The Company has adopted a plan pursuant to rule 12b-1 under the 1940 Act
(the "Plan"), whereby the Fund pays to AIM Distributors an annual rate of 0.25%
of the Fund's average daily net assets as compensation for services related to
the sales and distribution of the Fund's shares. The Plan provides that payments
to dealers and financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions, may be characterized as
a service fee. Any amounts not paid as a service fee under the Plan would
constitute an assets-based sales charge. The Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund's shares. During the year ended
October 31, 1996, the Fund paid AIM Distributors $6,492,025 as compensation
under the Plan.
AIM Distributors received commissions of $2,111,788 from sales of shares of
the Fund's capital stock 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 capital stock. During the year ended
October 31, 1996, AIM Distributors received $31,306 in contingent
FS-61
<PAGE> 154
deferred sales charges imposed on redemptions of the Fund's capital stock.
Certain officers and directors of the Company are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 1996, the Fund paid legal fees of $12,003
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-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 $14,900,000. 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 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended October 31, 1996 were $2,207,324,806
and $1,964,387,494, respectively.
The amount of unrealized appreciation (depreciation) of investment securities as
of October 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $740,464,004
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (86,292,810)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $654,171,194
==========================================================
Cost of investment for tax purposes is
$2,103,351,097.
</TABLE>
NOTE 5-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 6-FUTURES CONTRACTS
On October 31, 1996, $2,306,000 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
-------------
<S> <C>
S&P 500 Index/166 Contracts/Dec 96/Buy $4,085,850
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during 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 30,538,437 $ 1,334,476,880 53,971,580 $1,912,251,434
- --------------------------------------------------------------------
Issued as
reinvestment
of
dividends 1,291,013 49,897,557 -- --
- --------------------------------------------------------------------
Reacquired (26,568,998) (1,157,884,264) (22,228,120) (718,663,666)
- --------------------------------------------------------------------
5,260,452 $ 226,490,173 31,743,460 $1,193,587,768
====================================================================
</TABLE>
FS-62
<PAGE> 155
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the three-year period ended October 31,
1996, the ten month period ended October 31, 1993 and each of the years in the
six-year period ended December 31, 1992.
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
--------------------------------------------------- ------------------------------
1996 1995 1994 1993 1992(a) 1991 1990
---------- ---------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06 $ 11.85 $ 13.30
- ------------------------------------ ---------- ---------- -------- -------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (0.32) (0.04) (0.05) (0.02) (0.03) (0.04) 0.08
---------- ---------- -------- -------- ------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) 6.09 11.80 4.57 5.35 3.41 7.29 (0.95)
---------- ---------- -------- -------- ------- ------- -------
Total from investment
operations 5.77 11.76 4.52 5.33 3.38 7.25 (0.87)
---------- ---------- -------- -------- ------- ------- -------
Less distributions:
Dividends from net investment
income -- -- -- -- -- -- (0.09)
---------- ---------- -------- -------- ------- ------- -------
Distributions from capital gains (0.97) -- -- -- (0.92) (3.04) (0.49)
---------- ---------- -------- -------- ------- ------- -------
Total distributions (0.97) -- -- -- (0.92) (3.04) (0.58)
---------- ---------- -------- -------- ------- ------- -------
Net asset value, end of period $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06 $ 11.85
========== ========== ======== ======== ======= ======= =======
Total return(b) 14.77% 41.45% 18.96% 28.78% 21.34% 63.90% (6.50)%
========== ========== ======== ======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $2,750,564 $2,245,554 $687,238 $217,256 $38,238 $16,218 $ 9,234
========== ========== ======== ======== ======= ======= =======
Ratio of expenses to average
net assets(c) 1.11 (e)(f) 1.08% 1.07% 1.00%(g) 1.25% 1.25% 1.25%
========== ========== ======== ======== ======= ======= =======
Ratio of net investment income (loss)
to average net assets(d) (0.76)%(e) (0.19)% (0.26)% (0.24)%(g) (0.59)% (0.31)% 0.62%
========== ========== ======== ======== ======= ======= =======
Portfolio turnover rate 79% 52% 75% 61% 164% 165% 137%
========== ========== ======== ======== ======= ======= =======
Average broker commission rate(h) $ 0.0545 N/A N/A N/A N/A N/A N/A
========== ========== ======== ======== ======= ======= =======
<CAPTION>
1989 1988 1987
------- ------- -------
<S> <C<C> <C> <C>
Net asset value, beginning of period $ 11.07 $ 9.86 $ 12.10
- ------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income (loss) 0.03 0.05 --
------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) 2.28 1.21 (1.38)
------- ------- -------
Total from investment
operations 2.31 1.26 (1.38)
------- ------- -------
Less distributions:
Dividends from net investment
income (0.03) (0.05) --
------- ------- -------
Distributions from capital gains (0.05) -- (0.86)
------- ------- -------
Total distributions (0.08) (0.05) (0.86)
------- ------- -------
Net asset value, end of period $ 13.30 $ 11.07 $ 9.86
======= ======= =======
Total return(b) 20.89% 12.77% (11.52)%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $11,712 $12,793 $13,991
======= ======= =======
Ratio of expenses to average
net assets(c) 1.25% 1.22% 1.20%
======= ======= =======
Ratio of net investment income (loss)
to average net assets(d) 0.24% 0.38% 0.01%
======= ======= =======
Portfolio turnover rate 69% 56% 118%
======= ======= =======
Average broker commission rate(h) N/A N/A N/A
======= ======= =======
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(c) Ratios of expenses to average net assets prior to reduction of advisory fees
and expense reimbursements were 1.15%, 1.09%, 1.17% (annualized), 1.65%,
1.83%, 1.99%, 1.80%, 1.56% and 1.29% for 1995-87, respectively.
(d) Ratios of net investment income (loss) to average net assets prior to
reduction of advisory fees and expense reimbursements were (0.26)%, (0.28)%,
(0.41)% (annualized), (0.99)%, (0.89)%, (0.11)%, (0.31)%, 0.04% and (0.08)%
for 1995-87, respectively.
(e) Ratios are based on average net assets of $2,596,810,191.
(f) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have been 1.10%.
(g) Annualized.
(h) 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.
NOTE 10-LEGAL PROCEEDINGS
A claim, Saltzberg v. AIM Equity Funds, Inc., et al., was filed in Southern
District Court in Texas in October 1996 against AIM and certain other
subsidiaries of AIM Management. The claim was instituted under section 36(b) of
the Investment Company Act of 1940 and seeks to recover damages allegedly
suffered by the Fund in connection with fees paid for marketing and shareholder
services after the Fund was closed to new investors. AIM Management is
investigating whether there is any basis at all for this claim and intends to
defend it vigorously.
FS-63
<PAGE> 156
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
AIM Capital Development Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Capital Development Fund (a series portfolio of AIM Equity Funds, Inc.),
including the schedule of investments, as of October 31, 1996, the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the period June 17, 1996 (date operations commenced)
through October 31, 1996. 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 audit.
We conducted our audit 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 audit provides 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 the
AIM Capital Development Fund as of October 31, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for the
period June 17, 1996 (date operations commenced) through October 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 6, 1996
FS-64
<PAGE> 157
SCHEDULE OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-87.58%
ADVERTISING/BROADCASTING-3.57%
Alliance Communications Corp.-Class
B(a) 60,000 $ 525,000
- ----------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 71,200 1,290,500
- ----------------------------------------------------------------
Eagle River Interactive, Inc.(a) 27,000 253,125
- ----------------------------------------------------------------
Evergreen Media Corp.-Class A(a) 1,800 48,600
- ----------------------------------------------------------------
Film Roman, Inc.(a) 70,800 544,275
- ----------------------------------------------------------------
Heritage Media Corp.(a) 8,400 128,100
- ----------------------------------------------------------------
Lamar Advertising Co.(a) 33,900 932,250
- ----------------------------------------------------------------
Metro Networks, Inc.(a) 61,600 1,247,400
- ----------------------------------------------------------------
SFX Broadcasting, Inc.-Class A(a) 1,200 51,600
- ----------------------------------------------------------------
Snyder Communications, Inc.(a) 73,400 1,431,300
- ----------------------------------------------------------------
Universal Outdoor Holdings, Inc.(a) 50,000 1,468,750
- ----------------------------------------------------------------
Univision Communications, Inc.(a) 54,500 1,839,375
- ----------------------------------------------------------------
9,760,275
- ----------------------------------------------------------------
AEROSPACE/DEFENSE-0.63%
Gulfstream Aerospace Corp.(a) 69,200 1,634,850
- ----------------------------------------------------------------
Tracor, Inc.(a) 3,900 88,725
- ----------------------------------------------------------------
1,723,575
- ----------------------------------------------------------------
AIRLINES-0.57%
Aviation Sales Co.(a) 20,000 390,000
- ----------------------------------------------------------------
Eagle USA Airfreight, Inc.(a) 2,400 65,400
- ----------------------------------------------------------------
Sabre Group Holdings Inc.(a) 36,500 1,113,250
- ----------------------------------------------------------------
1,568,650
- ----------------------------------------------------------------
APPLIANCES-0.20%
Service Experts, Inc.(a) 21,800 555,900
- ----------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.38%
Cross-Continent Auto Retailers,
Inc.(a) 28,500 730,313
- ----------------------------------------------------------------
Rush Enterprises, Inc.(a) 25,000 309,375
- ----------------------------------------------------------------
1,039,688
- ----------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.97%
United Auto Group, Inc.(a) 77,400 2,660,625
- ----------------------------------------------------------------
BANKING-1.02%
AmSouth Bancorporation 6,000 278,250
- ----------------------------------------------------------------
Banknorth Group, Inc. 16,000 552,000
- ----------------------------------------------------------------
Cullen/Frost Bankers, Inc. 8,000 240,500
- ----------------------------------------------------------------
Hibernia Corp. 20,000 222,500
- ----------------------------------------------------------------
Marshall & Ilsley Corp. 46,500 1,493,813
- ----------------------------------------------------------------
2,787,063
- ----------------------------------------------------------------
BEVERAGES-0.35%
Diedrich Coffee, Inc.(a) 94,700 970,675
- ----------------------------------------------------------------
BUILDING MATERIALS-0.50%
Juno Lighting, Inc. 65,000 1,011,562
- ----------------------------------------------------------------
LSI Industries, Inc. 35,000 350,000
- ----------------------------------------------------------------
1,361,562
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BUILDING MATERIALS (TOOLS)-0.16%
Regal-Beloit Corp. 24,200 $ 429,550
- ----------------------------------------------------------------
BUSINESS SERVICES-4.33%
Abacus Direct Corp.(a) 57,800 1,517,250
- ----------------------------------------------------------------
Alliance Capital Management L.P. 3,000 83,625
- ----------------------------------------------------------------
American List Corp. 25,000 687,500
- ----------------------------------------------------------------
Claremont Technology Group, Inc.(a) 13,000 396,500
- ----------------------------------------------------------------
Copart, Inc.(a) 3,900 71,663
- ----------------------------------------------------------------
CUC International, Inc.(a) 46,500 1,139,250
- ----------------------------------------------------------------
Donnelley Enterprise Solutions
Inc.(a) 50,400 1,260,000
- ----------------------------------------------------------------
HealthPlan Services Corp.(a) 32,500 589,063
- ----------------------------------------------------------------
International Telecommunication
Data Systems, Inc.(a) 40,000 650,000
- ----------------------------------------------------------------
Lason Holdings, Inc.(a) 41,400 734,850
- ----------------------------------------------------------------
Mecon, Inc.(a) 19,500 375,375
- ----------------------------------------------------------------
MedQuist, Inc.(a) 3,300 58,575
- ----------------------------------------------------------------
MemberWorks, Inc.(a) 48,100 697,450
- ----------------------------------------------------------------
Metzler Group, Inc.(a) 70,600 1,645,862
- ----------------------------------------------------------------
National Processing, Inc.(a) 25,000 475,000
- ----------------------------------------------------------------
On Assignment, Inc.(a) 5,000 153,750
- ----------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 17,000 416,500
- ----------------------------------------------------------------
XLConnect Solutions, Inc.(a) 31,000 906,750
- ----------------------------------------------------------------
11,858,963
- ----------------------------------------------------------------
CHEMICALS-0.22%
Arcadian Corp. 25,000 615,625
- ----------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.12%
IMC Global, Inc. 8,600 322,500
- ----------------------------------------------------------------
COMPUTER MAINFRAMES-0.37%
Amdahl Corp.(a) 100,000 1,025,000
- ----------------------------------------------------------------
COMPUTER MINI/PCS-0.05%
Dell Computer Corp.(a) 900 73,237
- ----------------------------------------------------------------
Gateway 2000, Inc.(a) 1,200 56,475
- ----------------------------------------------------------------
129,712
- ----------------------------------------------------------------
COMPUTER NETWORKING-3.31%
ACT Networks, Inc.(a) 16,000 548,000
- ----------------------------------------------------------------
Ascend Communications, Inc.(a) 32,000 2,092,000
- ----------------------------------------------------------------
Auspex Systems, Inc.(a) 8,600 88,150
- ----------------------------------------------------------------
Bay Networks, Inc.(a) 8,000 162,000
- ----------------------------------------------------------------
Belden, Inc. 45,000 1,293,750
- ----------------------------------------------------------------
Black Box Corp.(a) 13,600 459,000
- ----------------------------------------------------------------
Cabletron Systems, Inc.(a) 15,500 966,812
- ----------------------------------------------------------------
Cheyenne Software, Inc.(a) 15,000 455,625
- ----------------------------------------------------------------
Coherent Communications Systems
Corp.(a) 5,000 96,875
- ----------------------------------------------------------------
DSP Communications, Inc.(a) 1,200 45,600
- ----------------------------------------------------------------
FORE Systems, Inc.(a) 28,000 1,113,000
- ----------------------------------------------------------------
Harmonic Lightwaves, Inc.(a) 10,200 172,125
- ----------------------------------------------------------------
InterVoice, Inc.(a) 20,000 260,000
- ----------------------------------------------------------------
</TABLE>
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<PAGE> 158
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER NETWORKING-(CONTINUED)
Optical Data Systems, Inc.(a) 20,000 $ 292,500
- ----------------------------------------------------------------
3Com Corp.(a) 15,000 1,014,375
- ----------------------------------------------------------------
9,059,812
- ----------------------------------------------------------------
COMPUTER PERIPHERALS-1.67%
FileNet Corp.(a) 20,000 567,500
- ----------------------------------------------------------------
Microchip Technology, Inc.(a) 2,100 76,125
- ----------------------------------------------------------------
Printronix, Inc.(a) 87,500 1,082,812
- ----------------------------------------------------------------
Raster Graphics, Inc.(a) 50,000 418,750
- ----------------------------------------------------------------
Read-Rite Corp.(a) 20,000 355,000
- ----------------------------------------------------------------
U.S. Robotics Corp.(a) 33,000 2,074,875
- ----------------------------------------------------------------
4,575,062
- ----------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-14.02%
Adobe Systems, Inc. 2,700 93,488
- ----------------------------------------------------------------
ANSYS, Inc.(a) 80,000 980,000
- ----------------------------------------------------------------
Aurum Software, Inc.(a) 24,300 771,525
- ----------------------------------------------------------------
Bell & Howell Co.(a) 21,200 567,100
- ----------------------------------------------------------------
BMC Software, Inc.(a) 13,500 1,120,500
- ----------------------------------------------------------------
Broderbund Software, Inc.(a) 20,000 562,500
- ----------------------------------------------------------------
Business Objects S.A.-ADR(a)
(France) 50,000 743,750
- ----------------------------------------------------------------
C/NET, Inc.(a) 24,500 392,000
- ----------------------------------------------------------------
Cadence Design Systems, Inc.(a) 5,200 189,800
- ----------------------------------------------------------------
CCC Information Services Group(a) 149,000 2,793,750
- ----------------------------------------------------------------
Check Point Software Technologies
Ltd.(a) 25,000 687,500
- ----------------------------------------------------------------
Citrix Systems, Inc.(a) 7,000 386,750
- ----------------------------------------------------------------
Computer Learning Centers, Inc.(a) 2,100 56,175
- ----------------------------------------------------------------
Computervision Corp.(a) 6,300 56,700
- ----------------------------------------------------------------
Compuware Corp.(a) 15,000 791,250
- ----------------------------------------------------------------
Cooper & Chyan Technology, Inc.(a) 1,200 36,750
- ----------------------------------------------------------------
CSG Systems International, Inc.(a) 2,400 40,200
- ----------------------------------------------------------------
CyberMedia, Inc.(a) 23,400 520,650
- ----------------------------------------------------------------
Dassault Systemes S.A.-ADR(a)
(France) 20,000 867,500
- ----------------------------------------------------------------
DataWorks Corp.(a) 2,700 72,900
- ----------------------------------------------------------------
Dendrite International, Inc.(a) 21,000 559,125
- ----------------------------------------------------------------
Document Sciences Corp.(a) 55,000 701,250
- ----------------------------------------------------------------
DST Systems, Inc.(a) 34,000 1,045,500
- ----------------------------------------------------------------
Electronic Arts, Inc.(a) 1,500 56,250
- ----------------------------------------------------------------
FactSet Research Systems, Inc.(a) 9,600 230,400
- ----------------------------------------------------------------
Farallon Communications(a) 15,000 191,250
- ----------------------------------------------------------------
GT Interactive Software Corp.(a) 5,000 95,625
- ----------------------------------------------------------------
Hyperion Software Corp.(a) 90,000 1,833,750
- ----------------------------------------------------------------
Infinity Financial Technology,
Inc.(a) 35,000 573,125
- ----------------------------------------------------------------
Information Resources, Inc.(a) 10,400 131,300
- ----------------------------------------------------------------
Informix Corp.(a) 80,000 1,775,000
- ----------------------------------------------------------------
Intuit, Inc.(a) 15,000 405,000
- ----------------------------------------------------------------
JDA Software Group, Inc.(a) 15,000 515,625
- ----------------------------------------------------------------
Learning Company, Inc. (The)(a) 20,000 406,250
- ----------------------------------------------------------------
Macromedia, Inc.(a) 25,000 415,625
- ----------------------------------------------------------------
May & Speh, Inc.(a) 3,000 49,875
- ----------------------------------------------------------------
Memco Software Ltd.(a) (Israel) 67,700 1,235,525
- ----------------------------------------------------------------
Mercury Interactive Corp.(a) 35,000 446,250
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
Metromail Corp.(a) 85,000 $ 1,561,875
- ----------------------------------------------------------------
Midway Games Inc.(a) 40,000 800,000
- ----------------------------------------------------------------
National Instruments Corp.(a) 15,000 427,500
- ----------------------------------------------------------------
Network General Corp.(a) 28,000 675,500
- ----------------------------------------------------------------
Object Design, Inc.(a) 20,000 228,750
- ----------------------------------------------------------------
OneWave, Inc.(a) 25,000 350,000
- ----------------------------------------------------------------
OpenVision Technologies, Inc.(a) 14,500 155,875
- ----------------------------------------------------------------
Parametric Technology Corp.(a) 2,000 97,750
- ----------------------------------------------------------------
PHAMIS, Inc.(a) 20,000 300,000
- ----------------------------------------------------------------
Physician Computer Network, Inc.(a) 25,100 224,331
- ----------------------------------------------------------------
Platinum Technology, Inc.(a) 25,000 359,375
- ----------------------------------------------------------------
Quality Systems, Inc.(a) 25,000 192,188
- ----------------------------------------------------------------
S3 Inc.(a) 5,000 94,375
- ----------------------------------------------------------------
Saville Systems Ireland PLC-ADR(a)
(Ireland) 29,000 1,250,625
- ----------------------------------------------------------------
SEI Corp. 61,000 1,235,250
- ----------------------------------------------------------------
SELECT Software Tools-ADR(a)
(United Kingdom) 29,100 640,200
- ----------------------------------------------------------------
Shared Medical Systems Corp. 8,000 386,000
- ----------------------------------------------------------------
Siebel Systems, Inc.(a) 21,000 1,144,500
- ----------------------------------------------------------------
Spectrum Holobyte, Inc.(a) 7,500 42,188
- ----------------------------------------------------------------
Structural Dynamics Research
Corp.(a) 3,000 53,250
- ----------------------------------------------------------------
SunGard Data Systems Inc.(a) 58,500 2,500,875
- ----------------------------------------------------------------
Symantec Corp.(a) 5,100 55,462
- ----------------------------------------------------------------
Technology Modeling Associates,
Inc.(a) 53,500 571,780
- ----------------------------------------------------------------
TRO Learning, Inc.(a) 2,400 42,600
- ----------------------------------------------------------------
Trusted Information Systems,
Inc.(a) 75,000 1,012,500
- ----------------------------------------------------------------
USCS International, Inc.(a) 15,000 270,000
- ----------------------------------------------------------------
VeriFone, Inc.(a) 1,500 50,437
- ----------------------------------------------------------------
Versant Object Technology Corp.(a) 20,000 390,000
- ----------------------------------------------------------------
Viewlogic Systems, Inc.(a) 7,000 66,062
- ----------------------------------------------------------------
Wallace Computer Services, Inc. 10,000 293,750
- ----------------------------------------------------------------
Xylan Corp.(a) 12,000 480,000
- ----------------------------------------------------------------
38,350,511
- ----------------------------------------------------------------
CONGLOMERATES-0.18%
Amway Asia Pacific Ltd. (Hong Kong) 13,900 498,662
- ----------------------------------------------------------------
CONSUMER NON-DURABLES-0.48%
Central Garden and Pet Co.(a) 1,800 42,525
- ----------------------------------------------------------------
First Years (The), Inc. 20,000 310,000
- ----------------------------------------------------------------
TAG Heuer International SA-ADR(a)
(Luxembourg) 33,700 539,200
- ----------------------------------------------------------------
USA Detergents, Inc.(a) 13,000 429,000
- ----------------------------------------------------------------
1,320,725
- ----------------------------------------------------------------
COSMETICS & TOILETRIES-1.38%
Carson, Inc.(a) 68,600 1,114,750
- ----------------------------------------------------------------
Estee Lauder Companies-Class A 14,500 623,500
- ----------------------------------------------------------------
French Fragrances, Inc.(a) 50,000 443,750
- ----------------------------------------------------------------
General Nutrition Companies,
Inc.(a) 75,000 1,368,750
- ----------------------------------------------------------------
Tambrands, Inc. 5,000 213,125
- ----------------------------------------------------------------
3,763,875
- ----------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONIC COMPONENTS/
MISCELLANEOUS-0.30%
Oak Industries, Inc.(a) 1,500 $ 38,062
- ----------------------------------------------------------------
SRS Labs, Inc.(a) 50,000 787,500
- ----------------------------------------------------------------
825,562
- ----------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.44%
Hambrecht & Quist Group(a) 28,000 556,500
- ----------------------------------------------------------------
Investors Financial Services Corp. 10,000 258,750
- ----------------------------------------------------------------
Lehman Brothers Holdings, Inc. 10,000 251,250
- ----------------------------------------------------------------
Schwab (Charles) Corp. 6,000 150,000
- ----------------------------------------------------------------
1,216,500
- ----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-1.12%
CMAC Investment Corp. 6,500 449,313
- ----------------------------------------------------------------
Federal National Mortgage
Association(b) 52,000 2,034,500
- ----------------------------------------------------------------
Green Tree Financial Corp. 3,600 142,650
- ----------------------------------------------------------------
Medaphis Corp.(a) 5,000 44,375
- ----------------------------------------------------------------
Metris Companies Inc.(a) 11,600 275,500
- ----------------------------------------------------------------
SunAmerica, Inc. 1,800 67,500
- ----------------------------------------------------------------
T. Rowe Price Associates 1,800 61,425
- ----------------------------------------------------------------
3,075,263
- ----------------------------------------------------------------
FOOD/PROCESSING-0.97%
Delta & Pine Land Co. 43,000 1,548,000
- ----------------------------------------------------------------
Lancaster Colony Corp. 20,000 750,000
- ----------------------------------------------------------------
Universal Foods Corp. 10,000 353,750
- ----------------------------------------------------------------
2,651,750
- ----------------------------------------------------------------
FUNERAL SERVICES-0.37%
Carriage Services, Inc.(a) 45,100 1,020,388
- ----------------------------------------------------------------
FURNITURE-0.39%
Kimball International, Inc. 30,000 1,080,000
- ----------------------------------------------------------------
GAMING-0.65%
GTECH Holdings Corp.(a) 35,000 1,032,500
- ----------------------------------------------------------------
International Game Technology 10,000 211,250
- ----------------------------------------------------------------
Station Casinos, Inc.(a) 20,000 222,500
- ----------------------------------------------------------------
Trump Hotels & Casino Resorts,
Inc.(a) 20,000 317,500
- ----------------------------------------------------------------
1,783,750
- ----------------------------------------------------------------
GAS DISTRIBUTION-0.02%
Southwestern Energy Co. 3,300 49,088
- ----------------------------------------------------------------
HOMEBUILDING-0.14%
Clayton Homes, Inc. 15,000 253,125
- ----------------------------------------------------------------
Shelter Components Corp. 10,000 131,250
- ----------------------------------------------------------------
384,375
- ----------------------------------------------------------------
HOTELS/MOTELS-0.29%
U.S. Franchise Systems, Inc.(a) 31,500 456,750
- ----------------------------------------------------------------
Wyndham Hotel Corp.(a) 18,000 342,000
- ----------------------------------------------------------------
798,750
- ----------------------------------------------------------------
INSURANCE (BROKER)-0.09%
Poe & Brown, Inc. 10,000 258,125
- ----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.48%
American Travelers Corp.(a) 2,100 72,188
- ----------------------------------------------------------------
John Alden Financial Corp. 30,000 558,750
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (LIFE & HEALTH)-(CONTINUED)
UNUM Corp. 5,200 $ 326,950
- ----------------------------------------------------------------
Western National Corp. 19,900 358,200
- ----------------------------------------------------------------
1,316,088
- ----------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-2.77%
ACE, Ltd. 4,000 219,000
- ----------------------------------------------------------------
AMBAC, Inc. 2,900 181,250
- ----------------------------------------------------------------
American Re Corp. 900 57,937
- ----------------------------------------------------------------
Amerin Corp.(a) 55,000 1,086,250
- ----------------------------------------------------------------
CapMAC Holdings, Inc. 20,000 667,500
- ----------------------------------------------------------------
Exel Ltd. 1,200 45,600
- ----------------------------------------------------------------
HCC Insurance Holdings, Inc. 7,500 191,250
- ----------------------------------------------------------------
Horace Mann Educators Corp. 8,000 274,000
- ----------------------------------------------------------------
MBIA, Inc. 2,100 186,112
- ----------------------------------------------------------------
MGIC Investment Corp. 11,400 782,325
- ----------------------------------------------------------------
Mercury General Corp. 900 43,875
- ----------------------------------------------------------------
Mid Ocean Ltd. 1,800 84,600
- ----------------------------------------------------------------
Progressive Corp. 30,000 2,062,500
- ----------------------------------------------------------------
RenaissanceRe Holdings Ltd. 1,500 43,688
- ----------------------------------------------------------------
TIG Holdings, Inc. 20,000 577,500
- ----------------------------------------------------------------
Transatlantic Holdings, Inc. 3,000 216,000
- ----------------------------------------------------------------
UnionAmerica Holdings PLC-ADR
(United Kingdom) 19,500 363,188
- ----------------------------------------------------------------
Vesta Insurance Group, Inc. 5,000 128,125
- ----------------------------------------------------------------
W. R. Berkley Corp. 7,000 364,000
- ----------------------------------------------------------------
7,574,700
- ----------------------------------------------------------------
LEISURE & RECREATION-2.68%
Gaylord Entertainment Co.-Class A 60,000 1,185,000
- ----------------------------------------------------------------
Golden Bear Golf, Inc.(a) 20,700 372,600
- ----------------------------------------------------------------
Harley-Davidson, Inc. 40,000 1,805,000
- ----------------------------------------------------------------
K2, Inc. 18,000 414,000
- ----------------------------------------------------------------
King World Productions, Inc.(a) 1,800 64,800
- ----------------------------------------------------------------
North Face (The), Inc.(a) 49,000 992,250
- ----------------------------------------------------------------
Platinum Entertainment, Inc.(a) 15,000 153,750
- ----------------------------------------------------------------
Steinway Musical Instruments(a) 20,000 355,000
- ----------------------------------------------------------------
Toy Biz, Inc.(a) 95,000 1,686,250
- ----------------------------------------------------------------
Travis Boats & Motors, Inc.(a) 30,000 322,500
- ----------------------------------------------------------------
7,351,150
- ----------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-1.55%
American Residential Services,
Inc.(a) 80,800 1,535,200
- ----------------------------------------------------------------
Greenwich Air Services, Inc.-Class
B(a) 30,000 506,250
- ----------------------------------------------------------------
Pall Corp. 70,000 1,793,750
- ----------------------------------------------------------------
Pfeiffer Vacuum Technology
AG-ADR(a) (Germany) 25,000 400,000
- ----------------------------------------------------------------
4,235,200
- ----------------------------------------------------------------
MEDICAL (DRUGS)-1.84%
Allergan, Inc. 1,200 36,600
- ----------------------------------------------------------------
AmeriSource Health Corp.(a) 25,000 1,059,375
- ----------------------------------------------------------------
Applied Analytical Industries,
Inc.(a) 39,300 854,775
- ----------------------------------------------------------------
BioChem Pharma, Inc.(a) (Canada) 7,800 332,475
- ----------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 20,000 690,000
- ----------------------------------------------------------------
</TABLE>
FS-67
<PAGE> 160
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (DRUGS)-(CONTINUED)
Elan Corp. PLC-ADR(a) (Ireland) 8,000 $ 222,000
- ----------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 5,500 160,188
- ----------------------------------------------------------------
Gilead Sciences, Inc.(a) 8,000 187,000
- ----------------------------------------------------------------
Liposome Company, Inc.(a) 15,000 256,875
- ----------------------------------------------------------------
North American Vaccine, Inc.(a) 37,500 834,375
- ----------------------------------------------------------------
R.P. Scherer Corp.(a) 5,000 231,875
- ----------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 5,000 166,875
- ----------------------------------------------------------------
5,032,413
- ----------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-2.97%
Advance Paradigm, Inc.(a) 100,000 812,500
- ----------------------------------------------------------------
Alternative Living Services,
Inc.(a) 65,000 934,375
- ----------------------------------------------------------------
FPA Medical Management, Inc.(a) 22,000 409,750
- ----------------------------------------------------------------
Health Management Associates,
Inc.-Class A(a) 2,100 46,200
- ----------------------------------------------------------------
HealthCor Holdings, Inc.(a) 55,000 522,500
- ----------------------------------------------------------------
HEALTHSOUTH Corp.(a) 1,200 45,000
- ----------------------------------------------------------------
Horizon Mental Health Management,
Inc.(a) 7,000 187,250
- ----------------------------------------------------------------
Intensiva Healthcare Corp.(a) 70,000 490,000
- ----------------------------------------------------------------
Manor Care, Inc. 6,000 235,500
- ----------------------------------------------------------------
Mariner Health Group, Inc.(a) 7,400 62,900
- ----------------------------------------------------------------
Medical Resources, Inc.(a) 50,000 431,250
- ----------------------------------------------------------------
MedPartners, Inc.(a) 5,715 120,729
- ----------------------------------------------------------------
NovaCare, Inc.(a) 9,300 76,725
- ----------------------------------------------------------------
Oxford Health Plans, Inc.(a) 13,500 614,250
- ----------------------------------------------------------------
PacifiCare Health Systems,
Inc.-Class B(a) 8,000 562,000
- ----------------------------------------------------------------
Paracelsus Healthcare Corp.(a) 100,000 437,500
- ----------------------------------------------------------------
Physician Corp. of America(a) 10,000 110,625
- ----------------------------------------------------------------
Sierra Health Services, Inc.(a) 5,100 145,988
- ----------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 35,000 805,000
- ----------------------------------------------------------------
TresCom International, Inc.(a) 5,000 63,750
- ----------------------------------------------------------------
Vencor, Inc.(a) 3,000 88,875
- ----------------------------------------------------------------
Veterinary Centers of America,
Inc.(a) 50,000 918,750
- ----------------------------------------------------------------
8,121,417
- ----------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-5.66%
Biomet, Inc. 90,000 1,451,250
- ----------------------------------------------------------------
Dentsply International, Inc. 35,000 1,474,375
- ----------------------------------------------------------------
Gulf South Medical Supply, Inc.(a) 11,000 242,000
- ----------------------------------------------------------------
Haemonetics(a) 30,000 536,250
- ----------------------------------------------------------------
Heartstream, Inc.(a) 60,000 690,000
- ----------------------------------------------------------------
ICU Medical, Inc.(a) 25,000 221,875
- ----------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 14,000 549,500
- ----------------------------------------------------------------
Maxxim Medical, Inc.(a) 10,000 138,750
- ----------------------------------------------------------------
MiniMed, Inc.(a) 27,500 721,875
- ----------------------------------------------------------------
Nitinol Medical Technologies,
Inc.(a) 62,000 651,000
- ----------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 30,000 825,000
- ----------------------------------------------------------------
St. Jude Medical, Inc.(a) 30,000 1,185,000
- ----------------------------------------------------------------
Suburban Ostomy Supply Co., Inc.(a) 100,000 1,218,750
- ----------------------------------------------------------------
Sybron International Corp.(a) 80,000 2,330,000
- ----------------------------------------------------------------
TECNOL Medical Products, Inc.(a) 60,000 765,000
- ----------------------------------------------------------------
Trex Medical Corp.(a) 25,000 440,625
- ----------------------------------------------------------------
US Surgical Corp. 3,000 125,625
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL INSTRUMENTS/PRODUCTS-(CONTINUED)
Ventritex, Inc.(a) 5,000 $ 114,063
- ----------------------------------------------------------------
Xomed Surgical Products, Inc.(a) 70,000 1,811,250
- ----------------------------------------------------------------
15,492,188
- ----------------------------------------------------------------
METALS (MISCELLANEOUS)-0.53%
Potash Corp. of Saskatchewan Inc.
(Canada) 12,500 885,938
- ----------------------------------------------------------------
Rental Service Corp.(a) 24,200 556,600
- ----------------------------------------------------------------
1,442,538
- ----------------------------------------------------------------
NATURAL GAS PIPELINES-0.33%
NGC Corp. 50,000 900,000
- ----------------------------------------------------------------
OFFICE AUTOMATION-0.14%
Danka Business Systems PLC-ADR
(United Kingdom) 10,000 396,250
- ----------------------------------------------------------------
OFFICE PRODUCTS-0.92%
Daisytek International Corp.(a) 30,000 1,147,500
- ----------------------------------------------------------------
Deluxe Corp. 40,000 1,305,000
- ----------------------------------------------------------------
OfficeMax, Inc.(a) 4,500 60,750
- ----------------------------------------------------------------
2,513,250
- ----------------------------------------------------------------
OIL & GAS (DRILLING)-0.62%
Atwood Oceanics, Inc.(a) 17,000 943,500
- ----------------------------------------------------------------
Reading & Bates Corp.(a) 26,000 747,500
- ----------------------------------------------------------------
1,691,000
- ----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-2.95%
Anadarko Petroleum Corp. 4,000 254,500
- ----------------------------------------------------------------
Apache Corp. 6,500 230,750
- ----------------------------------------------------------------
Burlington Resources, Inc. 25,000 1,259,375
- ----------------------------------------------------------------
Cabot Oil and Gas Corp.-Class A 66,000 1,023,000
- ----------------------------------------------------------------
Cross Timbers Oil Co. 2,100 49,613
- ----------------------------------------------------------------
Devon Energy Corp. 10,000 348,750
- ----------------------------------------------------------------
Houston Exploration Co. (The)(a) 75,000 1,284,375
- ----------------------------------------------------------------
Newfield Exploration Co.(a) 2,500 118,125
- ----------------------------------------------------------------
Noble Affiliates, Inc. 6,000 261,000
- ----------------------------------------------------------------
Nuevo Energy Co.(a) 8,900 443,888
- ----------------------------------------------------------------
Petroleum Securities Australia
Ltd.-ADR(a) (Australia) 18,000 366,750
- ----------------------------------------------------------------
Pogo Producing Co. 21,500 954,062
- ----------------------------------------------------------------
Ranger Oil Ltd. (Canada) 6,000 45,000
- ----------------------------------------------------------------
Rutherford-Moran Oil Corp.(a) 25,000 743,750
- ----------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 8,400 119,700
- ----------------------------------------------------------------
Snyder Oil Corp. 4,800 73,200
- ----------------------------------------------------------------
Transocean Offshore Inc. 8,000 506,000
- ----------------------------------------------------------------
8,081,838
- ----------------------------------------------------------------
OIL & GAS (SERVICES)-1.28%
Camco International, Inc. 8,000 310,000
- ----------------------------------------------------------------
Energy Ventures, Inc.(a) 18,000 792,000
- ----------------------------------------------------------------
GeoScience Corp.(a) 25,000 268,750
- ----------------------------------------------------------------
Oceaneering International, Inc.(a) 20,000 360,000
- ----------------------------------------------------------------
Petroleum Geo-Services ASA-ADR(a)
(Norway) 18,300 626,775
- ----------------------------------------------------------------
SEACOR Holdings Inc.(a) 12,000 648,000
- ----------------------------------------------------------------
3-D Geophysical, Inc.(a) 25,000 206,250
- ----------------------------------------------------------------
</TABLE>
FS-68
<PAGE> 161
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (SERVICES)-(CONTINUED)
Veritas DGC, Inc.(a) 13,900 $ 284,950
- ----------------------------------------------------------------
3,496,725
- ----------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-3.06%
Baker Hughes, Inc. 16,500 587,812
- ----------------------------------------------------------------
BJ Services Co.(a) 3,000 134,625
- ----------------------------------------------------------------
Cooper Cameron Corp.(a) 10,500 670,688
- ----------------------------------------------------------------
ENSCO International, Inc.(a) 33,000 1,427,250
- ----------------------------------------------------------------
Falcon Drilling Company, Inc.(a) 15,000 530,625
- ----------------------------------------------------------------
GulfMark International, Inc.(a) 11,000 610,500
- ----------------------------------------------------------------
National-Oilwell, Inc.(a) 25,000 581,250
- ----------------------------------------------------------------
Noble Drilling Corp.(a) 25,400 473,075
- ----------------------------------------------------------------
Petroleum Helicopters, Inc. 10,000 175,000
- ----------------------------------------------------------------
Pride Petroleum Services, Inc.(a) 39,000 682,500
- ----------------------------------------------------------------
Smith International, Inc.(a) 20,000 760,000
- ----------------------------------------------------------------
Tidewater, Inc. 6,000 262,500
- ----------------------------------------------------------------
Tuboscope Vetco International
Corp.(a) 60,000 915,000
- ----------------------------------------------------------------
Weatherford Enterra, Inc.(a) 19,000 551,000
- ----------------------------------------------------------------
8,361,825
- ----------------------------------------------------------------
PAPER & FOREST PRODUCTS-1.27%
American Pad & Paper Co.(a) 105,000 1,968,750
- ----------------------------------------------------------------
Thermo Fibergen Inc.(a) 45,000 568,125
- ----------------------------------------------------------------
Wausau Paper Mills Co. 48,125 926,406
- ----------------------------------------------------------------
3,463,281
- ----------------------------------------------------------------
POLLUTION CONTROL-0.02%
Tetra Technologies, Inc.(a) 2,400 50,100
- ----------------------------------------------------------------
PUBLISHING-0.16%
Desktop Data, Inc.(a) 2,000 47,500
- ----------------------------------------------------------------
Harte-Hanks Communications, Inc. 1,800 46,575
- ----------------------------------------------------------------
Readers Digest Association,
Inc.-Class A 1,200 42,750
- ----------------------------------------------------------------
Scholastic Corp.(a) 2,600 190,450
- ----------------------------------------------------------------
World Color Press, Inc.(a) 4,800 107,400
- ----------------------------------------------------------------
434,675
- ----------------------------------------------------------------
RAILROADS-0.26%
Kansas City Southern Industries,
Inc. 15,000 705,000
- ----------------------------------------------------------------
REAL ESTATE-0.19%
Insignia Financial Group,
Inc.-Class A(a) 24,000 519,000
- ----------------------------------------------------------------
RESTAURANTS-2.09%
Apple South, Inc. 35,000 411,250
- ----------------------------------------------------------------
Boston Chicken, Inc.(a) 18,000 654,750
- ----------------------------------------------------------------
Brinker International, Inc.(a) 25,000 425,000
- ----------------------------------------------------------------
Cracker Barrel Old Country Store,
Inc. 8,000 163,000
- ----------------------------------------------------------------
IHOP Corp.(a) 5,000 110,000
- ----------------------------------------------------------------
Landry's Seafood Restaurants,
Inc.(a) 1,800 36,900
- ----------------------------------------------------------------
Logan's Roadhouse, Inc.(a) 20,000 365,000
- ----------------------------------------------------------------
Longhorn Steaks, Inc.(a) 10,000 160,000
- ----------------------------------------------------------------
New York Bagel Enterprises(a) 110,000 921,250
- ----------------------------------------------------------------
Outback Steakhouse, Inc.(a) 10,000 231,875
- ----------------------------------------------------------------
Ryan's Family Steak Houses, Inc.(a) 150,000 1,106,250
- ----------------------------------------------------------------
Showbiz Pizza Time, Inc.(a) 34,800 643,800
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RESTAURANTS-(CONTINUED)
Taco Cabana-Class A(a) 50,000 $ 293,750
- ----------------------------------------------------------------
Wendy's International, Inc. 9,800 202,125
- ----------------------------------------------------------------
5,724,950
- ----------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.95%
Casey's General Stores, Inc. 72,000 1,296,000
- ----------------------------------------------------------------
Dominick's Supermarkets, Inc.(a) 45,000 894,375
- ----------------------------------------------------------------
Eckerd Corp. (The)(a) 25,000 693,750
- ----------------------------------------------------------------
Einstein/Noah Bagel Corp.(a) 20,100 675,862
- ----------------------------------------------------------------
Revco D.S., Inc.(a) 25,000 753,125
- ----------------------------------------------------------------
Starbucks Corp.(a) 1,800 58,500
- ----------------------------------------------------------------
Wild Oats Markets Inc.(a) 45,000 956,250
- ----------------------------------------------------------------
5,327,862
- ----------------------------------------------------------------
RETAIL (STORES)-7.72%
Abercrombie & Fitch Co.-Class A(a) 35,000 770,000
- ----------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 15,000 262,500
- ----------------------------------------------------------------
Bed, Bath & Beyond, Inc.(a) 3,000 75,750
- ----------------------------------------------------------------
Best Buy Co., Inc.(a) 35,000 573,125
- ----------------------------------------------------------------
Borders Group, Inc.(a) 1,200 37,800
- ----------------------------------------------------------------
Brookstone, Inc.(a) 10,000 111,250
- ----------------------------------------------------------------
CompUSA, Inc.(a) 13,200 610,500
- ----------------------------------------------------------------
Consolidated Stores Corp.(a) 900 34,762
- ----------------------------------------------------------------
Corporate Express, Inc.(a) 13,000 424,125
- ----------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 13,000 490,750
- ----------------------------------------------------------------
Duty Free International, Inc. 8,900 142,400
- ----------------------------------------------------------------
Family Dollar Stores, Inc. 115,000 1,955,000
- ----------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 37,000 1,572,500
- ----------------------------------------------------------------
Gadzooks, Inc.(a) 24,000 696,000
- ----------------------------------------------------------------
Garden Ridge Corp.(a) 70,000 673,750
- ----------------------------------------------------------------
Gargoyles, Inc.(a) 25,000 331,250
- ----------------------------------------------------------------
Gymboree Corp.(a) 3,000 93,750
- ----------------------------------------------------------------
Hot Topic, Inc.(a) 46,500 1,116,000
- ----------------------------------------------------------------
Kohl's Corp.(a) 3,000 108,000
- ----------------------------------------------------------------
Little Switzerland, Inc.(a) 70,000 341,250
- ----------------------------------------------------------------
Loehmann's Holdings, Inc.(a) 3,900 104,813
- ----------------------------------------------------------------
Mac Frugals Bargains Close-Outs,
Inc.(a) 60,000 1,462,500
- ----------------------------------------------------------------
Marks Bros. Jewelers, Inc.(a) 1,800 41,850
- ----------------------------------------------------------------
Melville Corp.(a) 10,000 372,500
- ----------------------------------------------------------------
Mossimo, Inc.(a) 5,000 108,125
- ----------------------------------------------------------------
Neiman Marcus Group, Inc. (The)(a) 16,000 522,000
- ----------------------------------------------------------------
Oakley, Inc.(a) 30,000 446,250
- ----------------------------------------------------------------
Office Depot, Inc.(a) 12,000 235,500
- ----------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 1,200 42,000
- ----------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 7,000 164,500
- ----------------------------------------------------------------
Pier 1 Imports, Inc. 54,000 756,000
- ----------------------------------------------------------------
Price/Costco, Inc.(a) 10,000 198,750
- ----------------------------------------------------------------
Proffitt's, Inc.(a) 4,200 169,575
- ----------------------------------------------------------------
Sports & Recreation, Inc.(a) 50,000 431,250
- ----------------------------------------------------------------
Sports Authority, Inc. (The)(a) 35,000 848,750
- ----------------------------------------------------------------
Stage Stores, Inc.(a) 134,700 2,458,275
- ----------------------------------------------------------------
Staples, Inc.(a) 3,600 67,050
- ----------------------------------------------------------------
</TABLE>
FS-69
<PAGE> 162
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (STORES)-(CONTINUED)
Sunglass Hut International, Inc.(a) 65,000 $ 576,875
- ----------------------------------------------------------------
Talbots, Inc. 25,000 712,500
- ----------------------------------------------------------------
Tiffany & Co. 11,800 436,600
- ----------------------------------------------------------------
U.S. Office Products Co.(a) 10,000 290,000
- ----------------------------------------------------------------
Whole Foods Market, Inc.(a) 6,800 174,250
- ----------------------------------------------------------------
Williams-Sonoma, Inc.(a) 1,800 49,500
- ----------------------------------------------------------------
Zale Corp.(a) 2,400 46,500
- ----------------------------------------------------------------
21,136,375
- ----------------------------------------------------------------
SCHOOLS-0.02%
Sylvan Learning Systems, Inc.(a) 1,200 50,700
- ----------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.61%
Fisher Scientific International 30,000 1,346,250
- ----------------------------------------------------------------
Input/Output, Inc.(a) 11,000 327,250
- ----------------------------------------------------------------
1,673,500
- ----------------------------------------------------------------
SEMICONDUCTORS-0.44%
Analog Devices, Inc.(a) 6,800 176,800
- ----------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 2,400 84,000
- ----------------------------------------------------------------
SDL, Inc.(a) 35,000 595,000
- ----------------------------------------------------------------
Xilinx, Inc.(a) 10,700 350,425
- ----------------------------------------------------------------
1,206,225
- ----------------------------------------------------------------
SHOES & RELATED APPAREL-0.04%
Kenneth Cole Productions, Inc.(a) 4,500 74,250
- ----------------------------------------------------------------
Nine West Group, Inc.(a) 900 44,887
- ----------------------------------------------------------------
119,137
- ----------------------------------------------------------------
TELECOMMUNICATIONS-3.61%
ADC Telecommunications, Inc.(a) 900 61,537
- ----------------------------------------------------------------
Advanced Fibre Communications, Inc.(a) 17,200 982,550
- ----------------------------------------------------------------
American Portable Telecom, Inc.(a) 60,000 457,500
- ----------------------------------------------------------------
Andrew Corp.(a) 900 43,875
- ----------------------------------------------------------------
Billing Information Concepts(a) 15,000 391,875
- ----------------------------------------------------------------
General Instrument Corp.(a) 23,000 462,875
- ----------------------------------------------------------------
LCC International, Inc.-Class A(a) 85,200 1,246,050
- ----------------------------------------------------------------
Metromedia International Group,
Inc.(a) 50,000 493,750
- ----------------------------------------------------------------
Mobile Telecommunication
Technologies Corp.(a) 4,200 55,650
- ----------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS-(CONTINUED)
Octel Communications Corp.(a) 30,000 $ 476,250
- ----------------------------------------------------------------
Omnipoint Corp.(a) 20,000 545,000
- ----------------------------------------------------------------
P-COM, Inc.(a) 30,000 660,000
- ----------------------------------------------------------------
RMH Teleservices, Inc.(a) 55,000 405,625
- ----------------------------------------------------------------
Tellabs, Inc.(a) 8,500 723,563
- ----------------------------------------------------------------
Teltrend, Inc.(a) 41,000 1,353,000
- ----------------------------------------------------------------
360 Communications Co.(a) 3,000 67,875
- ----------------------------------------------------------------
Tollgrade Communications, Inc.(a) 35,000 910,000
- ----------------------------------------------------------------
Transaction Network Services, Inc.(a) 30,000 408,750
- ----------------------------------------------------------------
U.S. Long Distance Corp.(a) 15,000 125,625
- ----------------------------------------------------------------
9,871,350
- ----------------------------------------------------------------
TEXTILES-0.69%
Ashworth, Inc.(a) 15,000 97,500
- ----------------------------------------------------------------
G & K Services, Inc.-Class A 28,500 826,500
- ----------------------------------------------------------------
Guess ?, Inc.(a) 75,000 956,250
- ----------------------------------------------------------------
1,880,250
- ----------------------------------------------------------------
TOBACCO-0.27%
Consolidated Cigar Holdings, Inc.(a) 27,000 735,750
- ----------------------------------------------------------------
TRANSPORTATION (MISCELLANEOUS)-1.20%
AirNet Systems, Inc.(a) 6,000 78,000
- ----------------------------------------------------------------
Hvide Marine, Inc.-Class A(a) 120,000 1,785,000
- ----------------------------------------------------------------
Trico Marine Services, Inc.(a) 40,000 1,410,000
- ----------------------------------------------------------------
3,273,000
- ----------------------------------------------------------------
Total Common Stocks 239,699,298
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS-10.12%(c)
Daiwa Securities America Inc.,
5.53%, 11/01/96(d) $ 694,693 694,693
- ----------------------------------------------------------------
SBC Capital Markets Inc., 5.55%,
11/01/96(e) 27,000,000 27,000,000
- ----------------------------------------------------------------
Total Repurchase Agreements 27,694,693
- ----------------------------------------------------------------
TOTAL INVESTMENTS-97.70% 267,393,991
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.30% 6,293,618
- ----------------------------------------------------------------
NET ASSETS-100.00% $ 273,687,609
================================================================
</TABLE>
Abbreviations:
ADR -- American Depository Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Deposited in escrow with custodian as collateral for securities sold short.
See Note 7.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sale price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$750,115,208. Collateralized by $733,115,000 U.S. Treasury obligations, 0%
to 10.375% due 11/15/96 to 08/15/23.
(e) Joint repurchase agreement entered into 10/31/96 with a maturing value of
$700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0%
to 9.125% due 11/30/96 to 10/31/01.
See Notes to Financial Statements.
FS-70
<PAGE> 163
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$233,856,598) $ 267,393,991
- ---------------------------------------------------------
Receivables for:
Investments sold 139,372
- ---------------------------------------------------------
Investments sold short 1,917,412
- ---------------------------------------------------------
Capital stock sold 12,253,790
- ---------------------------------------------------------
Dividends and interest 55,565
- ---------------------------------------------------------
Investment for deferred compensation
plan 1,508
- ---------------------------------------------------------
Other assets 43,850
- ---------------------------------------------------------
Total assets 281,805,488
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 5,401,638
- ---------------------------------------------------------
Capital stock reacquired 378,040
- ---------------------------------------------------------
Deferred compensation 1,508
- ---------------------------------------------------------
Market value of securities sold short
(proceeds from sales $1,917,412) 2,034,500
- ---------------------------------------------------------
Accrued advisory fees 74,799
- ---------------------------------------------------------
Accrued administrative service fees 5,535
- ---------------------------------------------------------
Accrued directors' fees 630
- ---------------------------------------------------------
Accrued distribution fees 78,807
- ---------------------------------------------------------
Accrued transfer agent fees 44,095
- ---------------------------------------------------------
Accrued operating expenses 98,327
- ---------------------------------------------------------
Total liabilities 8,117,879
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $ 273,687,609
=========================================================
NET ASSETS:
Class A $ 251,252,680
=========================================================
Class B $ 22,434,929
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER
SHARE:
Class A:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 22,659,779
=========================================================
Class B:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 2,024,023
=========================================================
CLASS A:
Net asset value and redemption price
per share $ 11.09
=========================================================
Offering price per share:
(Net assets value of $11.09
divided by 94.50%) $ 11.74
=========================================================
CLASS B:
Net asset value and offering price
per share $ 11.08
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period June 17, 1996 (date operations
commenced) through October 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $584 foreign
withholding tax) $ 180,536
- --------------------------------------------------------
Interest 419,404
- --------------------------------------------------------
Total investment income 599,940
- --------------------------------------------------------
EXPENSES:
Advisory fees 425,194
- --------------------------------------------------------
Administrative service fees 19,841
- --------------------------------------------------------
Custodian fees 28,363
- --------------------------------------------------------
Directors' fees 3,657
- --------------------------------------------------------
Distribution fees-Class A 195,157
- --------------------------------------------------------
Distribution fees-Class B 9,333
- --------------------------------------------------------
Transfer agent fees-Class A 132,291
- --------------------------------------------------------
Transfer agent fees-Class B 2,247
- --------------------------------------------------------
Dividends on short sales 9,405
- --------------------------------------------------------
Other 88,065
- --------------------------------------------------------
Total expenses 913,553
- --------------------------------------------------------
Less: Fees waived by advisor (144,946)
- --------------------------------------------------------
Expenses paid indirectly (1,037)
- --------------------------------------------------------
Net expenses 767,570
- --------------------------------------------------------
Net investment income (loss) (167,630)
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (5,381,138)
- --------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities 33,537,393
- --------------------------------------------------------
Securities sold short (117,088)
- --------------------------------------------------------
33,420,305
- --------------------------------------------------------
Net gain on investment securities 28,039,167
- --------------------------------------------------------
Net increase in net assets resulting from
operations $ 27,871,537
========================================================
</TABLE>
See Notes to Financial Statements.
FS-71
<PAGE> 164
STATEMENT OF CHANGES IN NET ASSETS
For the period June 17, 1996 (date operations commenced) through October 31,
1996
<TABLE>
<S> <C>
OPERATIONS:
Net investment income (loss) $ (167,630)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (5,381,138)
- ---------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 33,420,305
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 27,871,537
- ---------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 222,946,738
- ---------------------------------------------------------------------------------------------------------------------
Class B 22,869,334
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets 273,687,609
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ---------------------------------------------------------------------------------------------------------------------
End of period $ 273,687,609
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 245,649,966
- ---------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (1,524)
- ---------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of investment securities (5,381,138)
- ---------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 33,420,305
- ---------------------------------------------------------------------------------------------------------------------
$ 273,687,609
=====================================================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development 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 diversified
portfolios: AIM Capital Development Fund, AIM Aggressive Growth Fund, AIM Blue
Chip Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. The
Fund currently offers two different classes of shares: the Class A shares and
the Class B shares. Class A shares commenced operations on June 17, 1996 and
Class B shares commenced sales on October 1, 1996. Class A shares are sold with
a front-end sales charge. Class B shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term capital appreciation.
The following is a summary of the 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--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. 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. If a mean is not available, as is the case in some foreign
markets, the closing bid will be used absent a last sales price. 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 quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the 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.
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 specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income, dividend expense on short
sales and distributions to shareholders are recorded on the ex-dividend date.
On October 31, 1996,
FS-72
<PAGE> 165
$166,106 was reclassified from undistributed net investment income (loss) to
paid-in capital as a result of a net operating tax loss. Net assets of the
Fund were unaffected by the reclassification.
C. Accounting for Securities Sold Short--When the Fund sells common stock short,
an amount equal to the proceeds of the sales is recorded as an asset. This
asset is offset by a liability (representing the borrowed security) recorded
on the books of the Fund at the market value of the common stock determined
each day in accordance with the procedures for security valuations discussed
in "A" above. The Fund's risk is that the value of the security will increase
rather than decline and thus an unrealized loss will be recorded. When the
Fund closes out a short position by delivering the stock sold short, the Fund
will realize a gain or loss and the liability related to such short position
will be eliminated. The Fund will attempt to hedge against market risk by
entering into short sales of securities that it currently owns or has the
right to acquire through the conversion or exchange of other securities that
it owns. Such short sales may protect the Fund against the risk of losses in
the value of its portfolio securities because any unrealized losses with
respect to such securities may be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in
such portfolio may be wholly or partially offset by a corresponding loss in
the short position.
D. 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. The Fund has a capital loss carryforward of
$4,645,136 (which may be carried forward to offset future taxable gains, if
any) which expires, if not previously utilized, in the year 2004.
E. Expenses--Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them.
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 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. AIM has agreed to
waive advisory fees on the Fund to the extent necessary to keep the annual
expense ratio for Class A shares at 1.34% for two years commencing August 12,
1996. During the period June 17, 1996 (date operations commenced) through
October 31, 1996, AIM waived fees of $144,946.
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 period June 17, 1996 (date
operations commenced) through October 31, 1996, AIM was reimbursed $19,841 for
such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the period June 17, 1996 (date operations
commenced) through October 31, 1996, AFS was paid $75,666 for such services.
The Fund received reductions in transfer agency fees of $746 from dividends
received on balances in cash management accounts. In addition, the Fund incurred
expenses of $291 from pricing services which are paid through directed brokerage
commissions. The effect of the above arrangements resulted in a reduction of the
Fund's total expenses of $1,037 during the period June 17, 1996 (date operations
commenced) through 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 shares and Class B shares of the Fund. 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 0.35% 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 of the Class B shares. Of this amount, the Fund
pays 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 assignees, its rights to all or a 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 payable to AIM Distributors
related to the Class B shares. During the respective commencement periods of
operations through October 31, 1996, the Class A shares and the Class B shares
paid AIM Distributors $195,157 and $9,333, respectively, as compensation
pursuant to the Plans.
AIM Distributors received commissions of $926,213 from Class A capital stock
transactions during the period June 17, 1996 (date operations commenced) through
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
capital stock. During the period June 17, 1996 (date operations commenced)
through October 31, 1996, AIM Distributors received $733 in contingent deferred
sales charges imposed on redemptions of capital stock. Certain officers and
directors of the Company are officers and directors of AIM, AIM Distributors and
AFS.
During the period June 17, 1996 (date operations commenced) through October
31, 1996 the Fund paid legal fees of $415 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.
FS-73
<PAGE> 166
NOTE 3-DIRECTOR'S FEES
Director's 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
Effective July 19, 1996, 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. During the period July 19, 1996 through 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 period June 17, 1996 (date operations
commenced) through October 31, 1996 was $226,688,330 and $15,145,287,
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 $ 42,977,708
- -------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (10,176,317)
- -------------------------------------------------------
Net unrealized appreciation of
investment securities $ 32,801,391
=======================================================
</TABLE>
Cost of investments for tax purposes is $234,592,600.
NOTE 6-CAPITAL STOCK
Changes in the capital stock outstanding during the period June 17, 1996 (date
operations commenced) through October 31, 1996 were as follows:
<TABLE>
<CAPTION>
1996
------------------------------
SHARES AMOUNT
------------ ---------------
<S> <C> <C>
Sold:
Class A 24,923,432 $ 246,810,746
- -----------------------------------------------------------------------
Class B* 2,026,599 22,898,153
- -----------------------------------------------------------------------
Reacquired:
Class A (2,263,653) (23,864,008)
- -----------------------------------------------------------------------
Class B* (2,576) (28,819)
- -----------------------------------------------------------------------
24,683,802 $ 245,816,072
=======================================================================
* Class B shares commenced sales on October 1, 1996.
</TABLE>
NOTE 7-SECURITIES SOLD SHORT
Outstanding short sales as of October 31, 1996:
<TABLE>
<CAPTION>
PROCEEDS UNREALIZED
SHARES MARKET FROM SHORT APPRECIATION
ISSUER SOLD SHORT VALUE SALES (DEPRECIATION)
- ------------------------ ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Federal National
Mortgage Association 52,000 $2,034,500 $1,917,412 $ (117,088)
============================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the period June 17, 1996 (date operations commenced) through
October 31, 1996 and for a share of Class B capital stock outstanding the period
October 1, 1996 (date sales commenced) through October 31, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B
1996 1996
---------- ----------
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 11.26
- ------------------------------------------ ---------- ----------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.01)(a)
- ------------------------------------------ ---------- ----------
Net gains (losses) on securities (both
realized and unrealized) 1.10 (0.17)
- ------------------------------------------ ---------- ----------
Total from investment operations 1.09 (0.18)
- ------------------------------------------ ---------- ----------
Net asset value, end of period $ 11.09 $ 11.08
========================================== ========== ==========
Total return(b) 10.90% (1.60)%
========================================== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 251,253 $ 22,435
========================================== ========== ==========
Ratio of expenses to average net
assets(c)(d) 1.35%(e) 1.89%(f)
========================================== ========== ==========
Ratio of net investment income (loss) to
average net assets(c) (0.29)%(e) (0.83)%(f)
========================================== ========== ==========
Portfolio turnover rate 13% 13%
========================================== ========== ==========
Average broker commission rate $ 0.0550 $ 0.0550
========================================== ========== ==========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(c) After fee waivers. Ratios are annualized and based on average net assets of
$148,555,639 for the Class A shares and $10,988,774 for the Class B shares.
(d) Excluding indirectly paid expenses, the ratios of expenses to average net
assets would have been 1.34% for the Class A shares. The ratio for the
Class B shares would have remained the same.
(e) Annualized ratios of expenses and net investment income (loss) to average
net assets prior to fee waivers is 1.60% and (0.54)%, respectively, for
Class A shares.
(f) Annualized ratios of expenses and net investment income (loss) to average
net assets prior to fee waivers is 2.28% and (1.22)%, respectively, for
Class B shares.
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.
FS-74
<PAGE> 167
SCHEDULE OF INVESTMENTS
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-79.94%
ADVERTISING/BROADCASTING-0.02%
Interpublic Group of Companies,
Inc. 1,600 $ 90,600
- --------------------------------------------------------------
AEROSPACE/DEFENSE-1.19%
Boeing Co. (The) 21,000 2,071,125
- --------------------------------------------------------------
United Technologies Corp. 40,800 3,085,500
- --------------------------------------------------------------
5,156,625
- --------------------------------------------------------------
AIRLINES-0.98%
AMR Corp.(a) 22,000 2,048,750
- --------------------------------------------------------------
Delta Air Lines, Inc. 24,000 2,211,000
- --------------------------------------------------------------
4,259,750
- --------------------------------------------------------------
BANKING-2.80%
Bank of Boston Corp. 20,000 1,455,000
- --------------------------------------------------------------
Fifth Third Bancorp 37,800 2,820,825
- --------------------------------------------------------------
NationsBank Corp. 64,000 3,864,000
- --------------------------------------------------------------
Norwest Corp. 34,800 1,735,650
- --------------------------------------------------------------
State Street Corp. 29,200 2,299,500
- --------------------------------------------------------------
12,174,975
- --------------------------------------------------------------
BANKING (MONEY CENTER)-0.89%
Chase Manhattan Corp. 20,000 1,852,500
- --------------------------------------------------------------
Citicorp 18,000 2,027,250
- --------------------------------------------------------------
3,879,750
- --------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-1.83%
Coca-Cola Co. (The) 70,000 4,453,750
- --------------------------------------------------------------
PepsiCo, Inc. 100,000 3,487,500
- --------------------------------------------------------------
7,941,250
- --------------------------------------------------------------
BIOTECHNOLOGY-0.52%
Guidant Corp. 33,300 2,272,725
- --------------------------------------------------------------
BUSINESS SERVICES-1.69%
AccuStaff, Inc.(a) 69,300 1,264,725
- --------------------------------------------------------------
Cognizant Corp. 21,700 707,963
- --------------------------------------------------------------
Equifax, Inc. 135,000 3,881,250
- --------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 65,900 1,499,225
- --------------------------------------------------------------
7,353,163
- --------------------------------------------------------------
CHEMICALS-1.08%
Goodrich (B.F.) Co. 56,100 2,236,987
- --------------------------------------------------------------
Monsanto Co. 57,200 2,445,300
- --------------------------------------------------------------
4,682,287
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.37%
IMC Global, Inc. 44,000 1,622,500
- --------------------------------------------------------------
COMPUTER MAINFRAMES-0.56%
International Business Machines
Corp. 15,000 2,411,250
- --------------------------------------------------------------
COMPUTER MINI/PCS-3.35%
Compaq Computer Corp.(a) 50,000 4,268,750
- --------------------------------------------------------------
<CAPTION>
MARKET
COMPUTER MINI/PCS-(CONTINUED) SHARES VALUE
<S> <C> <C>
Dell Computer Corp.(a) 50,000 $ 4,184,375
- --------------------------------------------------------------
Hewlett-Packard Co. 61,000 3,202,500
- --------------------------------------------------------------
Sun Microsystems, Inc. (a) 100,000 2,881,250
- --------------------------------------------------------------
14,536,875
- --------------------------------------------------------------
COMPUTER NETWORKING-0.16%
Ascend Communications, Inc.(a) 14,800 677,100
- --------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-2.22%
Computer Associates International,
Inc. 24,000 1,248,000
- --------------------------------------------------------------
Fiserv, Inc.(a) 62,400 2,355,600
- --------------------------------------------------------------
Microsoft Corp.(a) 49,800 6,050,700
- --------------------------------------------------------------
9,654,300
- --------------------------------------------------------------
CONGLOMERATES-1.71%
Corning Inc. 28,000 1,351,000
- --------------------------------------------------------------
Loews Corp. 45,000 4,134,375
- --------------------------------------------------------------
Tyco International Ltd. 32,000 1,952,000
- --------------------------------------------------------------
7,437,375
- --------------------------------------------------------------
COSMETICS & TOILETRIES-2.44%
Gillette Co. 37,000 3,145,000
- --------------------------------------------------------------
Procter & Gamble Co. (The) 25,000 3,143,750
- --------------------------------------------------------------
Warner-Lambert Co. 44,000 4,312,000
- --------------------------------------------------------------
10,600,750
- --------------------------------------------------------------
ELECTRIC POWER-1.65%
Allegheny Power System, Inc. 49,500 1,299,375
- --------------------------------------------------------------
American Electric Power Co. 73,200 2,964,600
- --------------------------------------------------------------
Consolidated Edison Co. of New
York, Inc. 42,300 1,173,825
- --------------------------------------------------------------
Entergy Corp. 17,200 402,050
- --------------------------------------------------------------
Houston Industries, Inc. 65,500 1,310,000
- --------------------------------------------------------------
7,149,850
- --------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-2.50%
Emerson Electric Co. 61,000 3,095,750
- --------------------------------------------------------------
General Electric Co. 50,000 5,543,750
- --------------------------------------------------------------
Honeywell, Inc. 31,200 2,203,500
- --------------------------------------------------------------
10,843,000
- --------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-1.20%
Franklin Resources, Inc. 51,450 3,041,981
- --------------------------------------------------------------
Merrill Lynch & Co., Inc. 23,000 2,190,750
- --------------------------------------------------------------
5,232,731
- --------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-2.74%
Federal Home Loan Mortgage Corp. 107,000 3,410,625
- --------------------------------------------------------------
Federal National Mortgage
Association 108,000 4,441,500
- --------------------------------------------------------------
Student Loan Marketing Association 34,200 4,044,150
- --------------------------------------------------------------
11,896,275
- --------------------------------------------------------------
</TABLE>
FS-75
<PAGE> 168
<TABLE>
<CAPTION>
FINANCE (SAVINGS & LOAN)-1.33%
MARKET
SHARES VALUE
<S> <C> <C>
Great Western Financial Corp. 70,000 $ 2,940,000
- --------------------------------------------------------------
H.F. Ahmanson & Co. 73,900 2,817,437
- --------------------------------------------------------------
5,757,437
- --------------------------------------------------------------
FOOD/PROCESSING-1.40%
ConAgra, Inc. 48,000 2,766,000
- --------------------------------------------------------------
Sara Lee Corp. 78,900 3,313,800
- --------------------------------------------------------------
6,079,800
- --------------------------------------------------------------
FUNERAL SERVICES-0.81%
Service Corp. International 103,300 3,538,025
- --------------------------------------------------------------
HOTELS/MOTELS-0.55%
HFS, Inc.(a) 40,000 2,370,000
- --------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.28%
Conseco Inc. 100,000 4,137,500
- --------------------------------------------------------------
Equitable Companies, Inc. 48,200 1,409,850
- --------------------------------------------------------------
5,547,350
- --------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-4.45%
Allstate Corp. 66,000 4,323,000
- --------------------------------------------------------------
American International Group, Inc. 33,900 4,356,150
- --------------------------------------------------------------
Chubb Corp. 37,000 2,136,750
- --------------------------------------------------------------
CIGNA Corp. 14,900 2,240,588
- --------------------------------------------------------------
MGIC Investment Corp. 21,000 1,706,250
- --------------------------------------------------------------
Travelers Group, Inc. 82,000 4,540,750
- --------------------------------------------------------------
19,303,488
- --------------------------------------------------------------
LEISURE & RECREATION-2.16%
Carnival Corp.-Class A 112,000 4,130,000
- --------------------------------------------------------------
Eastman Kodak Co. 12,000 1,002,000
- --------------------------------------------------------------
Walt Disney Co. (The) 52,000 4,264,000
- --------------------------------------------------------------
9,396,000
- --------------------------------------------------------------
MACHINERY (HEAVY)-1.24%
Caterpillar Inc. 25,000 2,225,000
- --------------------------------------------------------------
Ingersoll-Rand Co. 64,200 3,153,825
- --------------------------------------------------------------
5,378,825
- --------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-1.07%
Thermo Electron Corp.(a) 135,000 4,657,500
- --------------------------------------------------------------
MEDICAL (DRUGS)-6.69%
Abbott Laboratories 30,000 1,830,000
- --------------------------------------------------------------
American Home Products Corp. 50,000 3,312,500
- --------------------------------------------------------------
Bristol-Myers Squibb Co. 64,900 4,250,950
- --------------------------------------------------------------
Cardinal Health, Inc. 34,000 1,810,500
- --------------------------------------------------------------
Johnson & Johnson 71,900 4,403,875
- --------------------------------------------------------------
Lilly (Eli) & Co. 34,600 3,040,475
- --------------------------------------------------------------
Merck & Co., Inc. 70,200 6,353,100
- --------------------------------------------------------------
Pfizer, Inc. 42,000 4,032,000
- --------------------------------------------------------------
29,033,400
- --------------------------------------------------------------
MEDICAL
(INSTRUMENTS/PRODUCTS)-1.88%
Baxter International Inc. 65,400 3,131,025
- --------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (INSTRUMENTS/PRODUCTS)-(CONTINUED)
Boston Scientific Corp.(a) 39,900 $ 1,925,175
- --------------------------------------------------------------
Medtronic, Inc. 20,000 1,385,000
- --------------------------------------------------------------
Sybron International Corp.(a) 51,600 1,715,700
- --------------------------------------------------------------
8,156,900
- --------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-2.28%
Columbia/HCA Healthcare Corp. 113,000 3,955,000
- --------------------------------------------------------------
HEALTHSOUTH Corp.(a) 152,800 3,017,800
- --------------------------------------------------------------
United Healthcare Corp. 60,000 2,917,500
- --------------------------------------------------------------
9,890,300
- --------------------------------------------------------------
METALS-0.47%
Aluminum Company of America 29,000 2,026,375
- --------------------------------------------------------------
NATURAL GAS PIPELINE-0.76%
El Paso Natural Gas Co. 57,100 3,318,938
- --------------------------------------------------------------
OFFICE AUTOMATION-0.99%
Danka Business Systems PLC-ADR
(United Kingdom) 42,700 1,305,018
- --------------------------------------------------------------
Xerox Corp. 48,600 2,988,900
- --------------------------------------------------------------
4,293,918
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.38%
Apache Corp. 48,400 1,645,600
- --------------------------------------------------------------
OIL & GAS (SERVICES)-3.22%
Exxon Corp. 70,000 3,963,750
- --------------------------------------------------------------
Halliburton Co. 37,000 2,613,125
- --------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York shares (Netherlands) 21,000 3,785,250
- --------------------------------------------------------------
Texaco, Inc. 31,000 3,270,500
- --------------------------------------------------------------
Unocal Corp. 8,600 327,875
- --------------------------------------------------------------
13,960,500
- --------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-1.24%
Baker Hughes, Inc. 69,200 2,387,400
- --------------------------------------------------------------
Schlumberger Ltd. 27,000 2,990,250
- --------------------------------------------------------------
5,377,650
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-2.02%
Bowater, Inc. 47,000 2,032,750
- --------------------------------------------------------------
Kimberly-Clark Corp. 91,000 4,663,750
- --------------------------------------------------------------
Mead Corp. 37,000 2,076,625
- --------------------------------------------------------------
8,773,125
- --------------------------------------------------------------
PUBLISHING-0.36%
New York Times Co.-Class A 36,600 1,582,950
- --------------------------------------------------------------
RAILROADS-0.37%
Canadian National Railway Co.
(Canada) 41,900 1,613,150
- --------------------------------------------------------------
RESTAURANTS-0.03%
Applebee's International, Inc. 6,900 161,287
- --------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.93%
Kroger Co.(a) 114,200 3,140,500
- --------------------------------------------------------------
</TABLE>
FS-76
<PAGE> 169
<TABLE>
<CAPTION>
MARKET
RETAIL (FOOD & DRUG)-(CONTINUED) SHARES VALUE
<S> <C> <C>
Rite Aid Corp. 75,100 $ 3,454,600
- --------------------------------------------------------------
Safeway, Inc.(a) 40,500 1,807,312
- --------------------------------------------------------------
8,402,412
- --------------------------------------------------------------
RETAIL (STORES)-2.34%
CVS Corp. 36,000 1,786,500
- --------------------------------------------------------------
Lowe's Companies, Inc. 83,500 3,173,000
- --------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 23,500 766,688
- --------------------------------------------------------------
Staples, Inc.(a) 80,000 1,440,000
- --------------------------------------------------------------
Sysco Corp. 43,500 1,544,250
- --------------------------------------------------------------
Toys "R" Us, Inc.(a) 51,700 1,473,450
- --------------------------------------------------------------
10,183,888
- --------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.36%
Perkin-Elmer Corp. 21,600 1,568,700
- --------------------------------------------------------------
SEMICONDUCTORS-3.78%
Altera Corp.(a) 59,000 2,924,188
- --------------------------------------------------------------
Applied Materials, Inc.(a) 62,000 3,402,250
- --------------------------------------------------------------
Intel Corp. 28,000 4,287,500
- --------------------------------------------------------------
Motorola, Inc. 54,700 3,131,575
- --------------------------------------------------------------
Texas Instruments, Inc. 30,000 2,677,500
- --------------------------------------------------------------
16,423,013
- --------------------------------------------------------------
SHOES & RELATED APPAREL-0.26%
Nike, Inc. - Class B 19,700 1,108,125
- --------------------------------------------------------------
TELECOMMUNICATIONS-1.74%
Lucent Technologies, Inc. 55,900 3,305,088
- --------------------------------------------------------------
WorldCom, Inc.(a) 176,800 4,243,200
- --------------------------------------------------------------
7,548,288
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TELEPHONE-2.20%
BellSouth Corp. 49,400 $ 2,198,300
- --------------------------------------------------------------
Cincinnati Bell, Inc. 75,000 4,200,000
- --------------------------------------------------------------
SBC Communications, Inc. 57,000 3,163,500
- --------------------------------------------------------------
9,561,800
- --------------------------------------------------------------
TOBACCO-2.45%
Philip Morris Companies, Inc. 183,000 7,205,625
- --------------------------------------------------------------
RJR Nabisco Holdings Corp. 115,000 3,421,250
- --------------------------------------------------------------
10,626,875
- --------------------------------------------------------------
Total Common Stocks 347,158,750
- --------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS-0.34%
INSURANCE (MULTI-LINE
PROPERTY)-0.34%
MGIC Investment Corp.-$3.12 Conv.
Pfd. 21,100 1,474,362
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY BILLS-12.96%(b)
5.10%, 06/26/97 $56,730,000(c) 56,280,223
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-5.81%(d)
HSBC Securities, Inc., 5.49%,
05/01/97(e) 25,227,733 25,227,733
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.05% 430,141,068
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.95% 4,140,970
- ---------------------------------------------------------------
NET ASSETS-100.00% $ 434,282,038
- ---------------------------------------------------------------
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principle balance was pledged as collateral to cover margin
requirements for open futures contract. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 04/30/97 with maturing value of
$200,030,500. Collateralized by $85,760,000 U.S. Government agency
obligations, 0% to 7.15% due 07/18/97 to 02/14/06 and $116,271,000 U.S.
Treasury obligations, 5.875% to 7.875% due 06/30/01 to 08/15/05 with an
aggregate market value at April 30, 1997 of $204,003,650.
See Notes to Financial Statements.
FS-77
<PAGE> 170
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$387,353,855) $430,141,068
- --------------------------------------------------------
Receivables for:
Investments sold 3,170,112
- --------------------------------------------------------
Capital stock sold 5,666,351
- --------------------------------------------------------
Dividends and interest 273,668
- --------------------------------------------------------
Variation margin 213,000
- --------------------------------------------------------
Investment for deferred compensation plan 2,375
- --------------------------------------------------------
Other assets 59,453
- --------------------------------------------------------
Total assets 439,526,027
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 4,136,009
- --------------------------------------------------------
Capital stock reacquired 626,002
- --------------------------------------------------------
Deferred compensation 2,375
- --------------------------------------------------------
Accrued advisory fees 237,752
- --------------------------------------------------------
Accrued administrative service fees 5,859
- --------------------------------------------------------
Accrued directors' fees 1,995
- --------------------------------------------------------
Accrued distribution fees 171,767
- --------------------------------------------------------
Accrued transfer agent fees 47,902
- --------------------------------------------------------
Accrued operating expenses 14,328
- --------------------------------------------------------
Total liabilities 5,243,989
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $434,282,038
========================================================
NET ASSETS:
Class A $318,365,527
========================================================
Class B $115,916,511
========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 12,041,534
========================================================
Class B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 4,395,452
========================================================
CLASS A:
Net asset value and redemption price per
share $ 26.44
========================================================
OFFERING PRICE PER SHARE:
(Net asset value of $26.44
divided by 94.50%) $ 27.98
========================================================
CLASS B:
Net asset value and offering price per
share $ 26.37
========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1997
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $3,596 foreign
withholding tax) $ 1,496,700
- --------------------------------------------------------
Interest 1,200,744
- --------------------------------------------------------
Total investment income 2,697,444
- --------------------------------------------------------
EXPENSES:
Advisory fees 953,904
- --------------------------------------------------------
Custodian fees 26,464
- --------------------------------------------------------
Distribution fees -- Class A 355,285
- --------------------------------------------------------
Distribution fees -- Class B 247,408
- --------------------------------------------------------
Transfer agent fees -- Class A 132,626
- --------------------------------------------------------
Transfer agent fees -- Class B 69,650
- --------------------------------------------------------
Administrative service fees 34,499
- --------------------------------------------------------
Directors' fees 3,261
- --------------------------------------------------------
Other 106,445
- --------------------------------------------------------
Total expenses 1,929,542
- --------------------------------------------------------
Less: Fees waived by advisor (88,557)
- --------------------------------------------------------
Expenses paid indirectly (1,942)
- --------------------------------------------------------
Net expenses 1,839,043
- --------------------------------------------------------
Net investment income 858,401
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain on sales of investment
securities 4,074,170
- --------------------------------------------------------
Net unrealized appreciation of:
Investment securities 15,525,348
- --------------------------------------------------------
Futures contracts 305,318
- --------------------------------------------------------
15,830,666
- --------------------------------------------------------
Net gain on investment securities and
futures contracts 19,904,836
- --------------------------------------------------------
Net increase in net assets resulting from
operations $20,763,237
========================================================
</TABLE>
See Notes to Financial Statements.
FS-78
<PAGE> 171
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1997 and the one month ended October 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ONE MONTH ENDED
APRIL 30, OCTOBER 31,
1997 1996
----------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 858,401 $ 7,068
- -------------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 4,074,170 1,953,887
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and futures contracts 15,830,666 254,588
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,763,237 2,215,543
- -------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (302,061) --
- -------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains (13,654,606) --
- -------------------------------------------------------------------------------------------------
Capital stock transactions -- net:
Class A 192,860,065 11,821,515
- -------------------------------------------------------------------------------------------------
Class B 106,067,049 8,096,586
- -------------------------------------------------------------------------------------------------
Net increase in net assets 305,733,684 22,133,644
- -------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 128,548,354 106,414,710
- -------------------------------------------------------------------------------------------------
End of period $434,282,038 $128,548,354
=================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $386,410,003 $ 87,482,889
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 765,345 209,005
- -------------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities 4,043,977 13,624,413
- -------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 43,062,713 27,232,047
- -------------------------------------------------------------------------------------------------
$434,282,038 $128,548,354
=================================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1997
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip 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 diversified portfolios:
AIM Blue Chip Fund, AIM Aggressive Growth Fund, AIM Capital Development Fund,
AIM Charter Fund, AIM Constellation Fund, and AIM Weingarten Fund. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class B shares commenced sales on October 1, 1996. Class A
shares are sold with a front-end sales charge. Class B shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
Fund's investment objective is long-term growth of capital. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
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--A security listed or traded on an exchange is valued at
its last 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. 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 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
FS-79
<PAGE> 172
issue, coupon rate and maturity date. Securities for which market quotations
are not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the 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. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. 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 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.
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are recorded 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.
E. 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.
F. 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 that a change in the value of contracts may not correlate with changes in
the value of the securities being hedged.
G. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated between the
classes.
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 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $350 million. AIM has agreed to
waive advisory fees for two years to the extent necessary to keep the annual
expense ratio for Class A shares at 1.31% for such period. During the six months
ended April 30, 1997, AIM voluntarily waived advisory fees in the amounts of
$88,557.
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 six months ended April 30, 1997, AIM
was reimbursed $34,499 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the six months ended April 30,
1997, AFS was paid $98,590 for such services.
The Fund received reductions in transfer agency fees of $1,942 from dividends
received on balances in cash management bank accounts. The effect of the above
arrangement resulted in a reduction of the Fund's total expenses of $1,942
during the six months ended April 30, 1997.
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 shares and Class B shares of the Fund. The Company has adopted
distribution 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 an annual rate of 0.35%
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
FS-80
<PAGE> 173
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 assignees, its rights to all or a 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 payable to AIM Distributors
related to the Class B shares. During the six months ended April 30, 1997, the
Class A shares and the Class B shares paid AIM Distributors $355,285 and
$247,408, respectively, as compensation pursuant to the Plans.
AIM Distributors received commissions of $561,119 from sales of shares of the
Class A capital stock transactions during the six months ended April 30, 1997.
Such commissions are not an expense of the Fund. They are deducted from, and are
not included in, the proceeds from sales of capital stock. During the six months
ended April 30, 1997, AIM Distributors received commissions of $37,936 in
contingent deferred sales charges imposed on redemption of Fund Shares. Certain
officers and directors of the Company are officers and directors of AIM, AFS and
AIM Distributors.
During the six months ended April 30, 1997, the Fund paid legal fees of
$2,574, respectively, 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-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.
During the six months ended April 30, 1997, 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 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended April 30, 1997 was $297,101,775
and $72,246,352, respectively.
The amount of unrealized appreciation (depreciation) of investment securities on
a tax basis is as follows:
<TABLE>
<CAPTION>
APRIL 30,
1997
-----------
<S> <C>
Aggregate unrealized appreciation of investment
securities $47,802,414
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment
securities (5,027,924)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $42,774,490
=======================================================================
</TABLE>
Costs of investments for tax purposes is $387,366,578.
NOTE 5-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 6-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended April 30, 1997
and the one month ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 OCTOBER 31, 1996
------------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 9,229,884 $240,812,000 620,358 $16,142,093
- ----------------------------------------------------------- ---------- ------------ -------- -----------
Class B* 4,281,712 111,295,514 313,256 8,163,778
- ----------------------------------------------------------- ---------- ------------ -------- -----------
Issued as reinvestment of dividends:
Class A 475,660 11,415,842 -- --
- ----------------------------------------------------------- ---------- ------------ -------- -----------
Class B* 59,879 1,437,104 -- --
- ----------------------------------------------------------- ---------- ------------ -------- -----------
Reacquired:
Class A (2,282,834) (59,367,777) (165,098) (4,320,578)
- ----------------------------------------------------------- ---------- ------------ -------- -----------
Class B* (256,818) (6,665,569) (2,577) (67,192)
- ----------------------------------------------------------- ---------- ------------ -------- -----------
11,507,483 $298,927,114 765,939 $19,918,101
============================================================ ========== ============ ======== ===========
</TABLE>
* Class B shares commenced sales on October 1, 1996.
FS-81
<PAGE> 174
NOTE 7-OPEN FUTURES CONTRACTS
On April 30, 1997, $2,368,000 principal amount of U.S. Treasury bills were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts were as follows:
<TABLE>
<CAPTION>
NO. OF MONTH/ UNREALIZED
CONTRACT CONTRACTS COMMITMENT APPRECIATION
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
S&P 500 Index 142 June 97/Buy $ 275,500
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding of the Class A shares during the six months ended April 30, 1997,
the one month ended October 31, 1996 and each of the years in the eight-year
period ended September 30, 1996 and for a share of capital stock outstanding of
the Class B shares during the six months ended April 30, 1997 and the period
October 1, 1996 (date sales commenced) through October 31, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30,
APRIL 30, OCTOBER 31, --------------------------------------------
1997 1996 1996(a) 1995 1994 1993
CLASS A: ---------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 26.08 $ 25.56 $ 23.83 $ 19.22 $ 18.89 $ 18.24
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.07 -- 0.33 0.14 0.15 0.19
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Net realized and unrealized gains (losses)
on investments 2.51 0.52 4.61 5.05 1.24 0.63
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Total from investment operations 2.58 0.52 4.94 5.19 1.39 0.82
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.05) -- (0.21) (0.12) (0.21) (0.17)
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Distributions from net realized gains (2.17) -- (3.00) (0.46) (0.85) --
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Total distributions (2.22) -- (3.21) (0.58) (1.06) (0.17)
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 26.44 $ 26.08 $ 25.56 $ 23.83 $ 19.22 $ 18.89
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Total return(b) 10.75% 2.04% 22.39% 27.84% 7.69% 4.54%
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Ratios/supplement data:
Net assets, end of period (000s omitted) $318,366 $120,448 $106,415 $ 71,324 $ 60,115 $ 65,112
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Ratio of expenses to average net assets(c) 1.30%(d)(e) 1.30% 1.26% 1.3% 1.4% 1.3%
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Ratio of net investment income to average net
assets(f) 0.84%(d) 0.12% 0.53% 0.7% 0.8% 1.0%
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Portfolio turnover rate 35% 10% 58% 17% 13% 25%
- --------------------------------------------- -------- -------- -------- -------- -------- --------
Average brokerage commission rate paid(g) $ 0.0622 $ 0.0665 N/A N/A N/A N/A
- --------------------------------------------- -------- -------- -------- -------- -------- --------
<CAPTION>
SEPTEMBER 30,
--------------------------------------------
1992 1991 1990 1989
CLASS A: -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.77 $ 13.60 $ 13.82 $ 11.48
- --------------------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 0.20 0.23 0.25 0.24
- --------------------------------------------- -------- -------- -------- --------
Net realized and unrealized gains (losses)
on investments 1.48 3.19 (0.20) 2.25
- --------------------------------------------- -------- -------- -------- --------
Total from investment operations 1.68 3.42 0.05 2.49
- --------------------------------------------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.21) (0.25) (0.27) (0.15)
- --------------------------------------------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- --
- --------------------------------------------- -------- -------- -------- --------
Total distributions (0.21) (0.25) (0.27) (0.15)
- --------------------------------------------- -------- -------- -------- --------
Net asset value, end of period $ 18.24 $ 16.77 $ 13.60 $ 13.82
- --------------------------------------------- -------- -------- -------- --------
Total return(b) 10.10% 25.52% 0.34% 21.98%
- --------------------------------------------- -------- -------- -------- --------
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 61,601 $ 46,958 $ 31,706 $ 21,170
- --------------------------------------------- -------- -------- -------- --------
Ratio of expenses to average net assets(c) 1.4% 1.5% 1.6% 1.7%
- --------------------------------------------- -------- -------- -------- --------
Ratio of net investment income to average net
assets(f) 1.2% 1.6% 2.0% 1.9%
- --------------------------------------------- -------- -------- -------- --------
Portfolio turnover rate 5% 9% 12% 15%
- --------------------------------------------- -------- -------- -------- --------
Average brokerage commission rate paid(g) N/A N/A N/A N/A
- --------------------------------------------- -------- -------- -------- --------
</TABLE>
(a) The Fund changed investment advisors on June 3, 1996.
(b) Does not deduct sales charges and periods for less than one year are not
annualized.
(c) After waiver of fees and/or expense reimbursements. Ratios of expenses to
average net assets prior to waiver of fees and/or expense reimbursements
were 1.37% (annualized), 1.37% (annualized) and 1.28% for the periods ended
April 30, 1997, October 31, 1996 and September 30, 1996, respectively.
(d) Ratios are annualized and based on average net assets of $204,702,290.
(e) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have been the same.
(f) After waiver of fees and/or expense reimbursements. Ratios of net investment
income to average net assets prior to waiver of fees and/or expense
reimbursements were 0.77% (annualized), 0.05% (annualized) and 0.51% for the
periods ended April 30, 1997, October 31, 1996 and September 30, 1996,
respectively.
(g) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
FS-82
<PAGE> 175
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
CLASS B: ---------- -----------
<S> <C> <C>
Net asset value, beginning of period $ 26.07 $ 25.56
- ------------------------------------------------------------ -------- --------
Income from investment operations:
Net investment income 0.01 (0.01)
- ------------------------------------------------------------ -------- --------
Net realized and unrealized gains on investments 2.49 0.52
- ------------------------------------------------------------ -------- --------
Total from investment operations 2.50 0.51
- ------------------------------------------------------------ -------- --------
Less distributions:
Dividends from net investment income (0.03) --
- ------------------------------------------------------------ -------- --------
Distributions from net realized gains (2.17) --
- ------------------------------------------------------------ -------- --------
Total distributions (2.20) --
- ------------------------------------------------------------ -------- --------
Net asset value, end of period $ 26.37 $ 26.07
============================================================ ======== ========
Total return(a) 10.42% 2.00%
============================================================ ======== ========
Ratios/supplement data:
Net assets, end of period (000s omitted) $115,917 $ 8,101
============================================================ ======== ========
Ratio of expenses to average net assets(b) 2.10%(c)(d) 2.01%(e)
============================================================ ======== ========
Ratio of net investment income (loss) to average net
assets(f) 0.04%(c) (0.58)%(e)
============================================================ ======== ========
Portfolio turnover rate 29% 10%
============================================================ ======== ========
Average brokerage commission rate paid(g) $ 0.0622 $ 0.0665
============================================================ ======== ========
</TABLE>
(a) Does not deduct sales charges and periods for less than one year are not
annualized.
(b) After waiver of fees and/or expense reimbursements. Ratios of expenses to
average net assets prior to waiver of fees and/or expense reimbursements
were 2.17% (annualized) and 2.08% (annualized) for the periods 1997-1996,
respectively.
(c) Ratios are annualized and based on average net assets of $49,891,750.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
the same.
(e) Annualized.
(f) After waiver of fees and/or expense reimbursements. Ratios of net
investment income (loss) to average net assets prior to waiver of fees
and/or expense reimbursements were (0.03)% (annualized) and (0.65)%
(annualized) for the periods 1997-1996, respectively.
(g) Disclosure requirement beginning with the Fund's fiscal year ending
October 31, 1996.
FS-83
<PAGE> 176
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Constellation Fund (the "Fund") and A I M Advisors, Inc.
(3) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 0 19,923,485
Bruce L. Crockett........................................... 619,427,685 0 19,307,045
Owen Daly II................................................ 618,919,919 0 19,814,811
Carl Frischling............................................. 619,275,356 0 19,459,374
Robert H. Graham............................................ 619,431,576 0 19,303,154
John F. Kroeger............................................. 618,878,096 0 19,856,634
Lewis F. Pennock............................................ 619,272,998 0 19,461,732
Ian W. Robinson............................................. 618,944,840 0 19,789,890
Louis S. Sklar.............................................. 619,462,714 0 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 4,528,722 62,834 129,363
(3) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
FS-84
<PAGE> 177
SCHEDULE OF INVESTMENTS
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-83.81%
ADVERTISING/BROADCASTING-0.08%
True North Communications, Inc. 148,200 $ 2,834,324
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.89%
Rockwell International Corp. 275,000 18,287,500
- ---------------------------------------------------------------
United Technologies Corp. 200,000 15,125,000
- ---------------------------------------------------------------
33,412,500
- ---------------------------------------------------------------
APPLIANCES-0.36%
Philips Electronics N.V.-ADR-New
York Shares (Netherlands) 250,000 13,375,000
- ---------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.38%
Lear Corp.(a) 400,000 14,300,000
- ---------------------------------------------------------------
BANKING-1.24%
Marshall & Ilsley Corp. 300,000 11,512,500
- ---------------------------------------------------------------
NationsBank Corp. 400,000 24,150,000
- ---------------------------------------------------------------
Wells Fargo & Co. 40,000 10,670,000
- ---------------------------------------------------------------
46,332,500
- ---------------------------------------------------------------
BANKING (MONEY CENTER)-1.81%
BankAmerica Corp. 260,000 30,387,500
- ---------------------------------------------------------------
Chase Manhattan Corp. 400,000 37,050,000
- ---------------------------------------------------------------
67,437,500
- ---------------------------------------------------------------
BEVERAGES-0.85%
Coca-Cola Co. (The) 350,000 22,268,750
- ---------------------------------------------------------------
PepsiCo, Inc. 268,500 9,363,938
- ---------------------------------------------------------------
31,632,688
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.63%
Biogen, Inc.(a) 740,000 23,680,000
- ---------------------------------------------------------------
BUSINESS SERVICES-1.66%
CUC International, Inc.(a) 800,000 16,900,000
- ---------------------------------------------------------------
Diebold, Inc. 300,000 10,050,000
- ---------------------------------------------------------------
Equifax, Inc. 800,000 23,000,000
- ---------------------------------------------------------------
Paychex, Inc. 260,000 12,171,250
- ---------------------------------------------------------------
62,121,250
- ---------------------------------------------------------------
COMPUTER MAINFRAMES-0.78%
International Business Machines
Corp. 180,000 28,935,000
- ---------------------------------------------------------------
COMPUTER MINI/PCS-3.63%
Compaq Computer Corp.(a) 120,000 10,245,000
- ---------------------------------------------------------------
Dell Computer Corp.(a) 300,000 25,106,250
- ---------------------------------------------------------------
Gateway 2000, Inc.(a) 340,000 18,657,500
- ---------------------------------------------------------------
Hewlett-Packard Co. 1,000,000 52,500,000
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 1,000,000 28,812,500
- ---------------------------------------------------------------
135,321,250
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.35%
ECI Telecommunications Ltd.
Designs (Israel) 600,000 13,125,000
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-0.49%
Seagate Technology, Inc.(a) 400,000 18,350,000
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-3.87%
Computer Associates International,
Inc. 32,300 1,679,600
- ---------------------------------------------------------------
Compuware Corp.(a) 600,000 22,650,000
- ---------------------------------------------------------------
Fiserv, Inc.(a) 460,000 17,365,000
- ---------------------------------------------------------------
HBO & Co. 300,000 16,050,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 240,000 29,160,000
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 1,300,000 33,637,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
Wallace Computer Services, Inc. 900,000 $ 24,075,000
- ---------------------------------------------------------------
144,617,100
- ---------------------------------------------------------------
CONGLOMERATES-1.49%
AlliedSignal Inc. 260,000 18,785,000
- ---------------------------------------------------------------
Loews Corp. 400,000 36,750,000
- ---------------------------------------------------------------
55,535,000
- ---------------------------------------------------------------
COSMETICS & TOILETRIES-2.33%
Avon Products, Inc. 300,000 18,487,500
- ---------------------------------------------------------------
Gillette Co. 200,000 17,000,000
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 200,000 25,150,000
- ---------------------------------------------------------------
Warner-Lambert Co.(b) 270,000 26,460,000
- ---------------------------------------------------------------
87,097,500
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.86%
General Electric Co. 200,000 22,175,000
- ---------------------------------------------------------------
Honeywell, Inc. 140,000 9,887,500
- ---------------------------------------------------------------
32,062,500
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-2.47%
Franklin Resources, Inc. 400,000 23,650,000
- ---------------------------------------------------------------
Merrill Lynch & Co., Inc. 420,000 40,005,000
- ---------------------------------------------------------------
Morgan Stanley Group, Inc. 300,000 18,937,500
- ---------------------------------------------------------------
United Assets Management Corp. 400,000 9,800,000
- ---------------------------------------------------------------
92,392,500
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-5.76%
American Express Co. 500,000 32,937,500
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 400,000 7,900,000
- ---------------------------------------------------------------
Federal Home Loan Mortgage Corp. 1,000,000 31,875,000
- ---------------------------------------------------------------
Federal National Mortgage
Association 1,400,000 57,575,000
- ---------------------------------------------------------------
Green Tree Financial Corp. 600,000 17,775,000
- ---------------------------------------------------------------
Household International, Inc. 220,000 19,360,000
- ---------------------------------------------------------------
Student Loan Marketing Association 400,000 47,300,000
- ---------------------------------------------------------------
214,722,500
- ---------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-2.12%
Washington Mutual, Inc. 1,600,000 79,000,000
- ---------------------------------------------------------------
FOOD/PROCESSING-0.28%
Interstate Bakeries Corp. 200,000 10,375,000
- ---------------------------------------------------------------
FUNERAL SERVICES-0.55%
Service Corp. International(b) 600,000 20,550,000
- ---------------------------------------------------------------
HOTELS/MOTELS-0.63%
HFS, Inc.(a) 400,000 23,700,000
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.69%
Equitable Companies, Inc. 500,000 14,625,000
- ---------------------------------------------------------------
Provident Companies, Inc. 200,000 11,175,000
- ---------------------------------------------------------------
25,800,000
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-6.07%
Aetna Inc. 200,000 18,225,000
- ---------------------------------------------------------------
Allstate Corp. 900,000 58,950,000
- ---------------------------------------------------------------
American International Group, Inc. 300,000 38,550,000
- ---------------------------------------------------------------
CIGNA Corp. 200,000 30,075,000
- ---------------------------------------------------------------
ITT Hartford Group, Inc. 160,000 11,920,000
- ---------------------------------------------------------------
MBIA, Inc. 120,000 11,685,000
- ---------------------------------------------------------------
Travelers Group, Inc. 550,000 30,456,250
- ---------------------------------------------------------------
Travelers Property Casualty
Corp.-Class A 500,000 16,875,000
- ---------------------------------------------------------------
</TABLE>
FS-85
<PAGE> 178
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE PROPERTY)-(CONTINUED)
USF&G Corp. 500,000 $ 10,000,000
- ---------------------------------------------------------------
226,736,250
- ---------------------------------------------------------------
LEISURE & RECREATION-0.38%
Brunswick Corp. 500,000 14,125,000
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.55%
Thermo Electron Corp.(a) 600,000 20,700,000
- ---------------------------------------------------------------
MEDICAL (DRUGS)-9.76%
Abbott Laboratories 340,000 20,740,000
- ---------------------------------------------------------------
American Home Products Corp. 600,000 39,750,000
- ---------------------------------------------------------------
Bergen Brunswig Corp.-Class A 600,000 20,475,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 1,200,000 78,600,000
- ---------------------------------------------------------------
Johnson & Johnson 500,000 30,625,000
- ---------------------------------------------------------------
Lilly (Eli) & Co.(b) 300,000 26,362,500
- ---------------------------------------------------------------
Merck & Co., Inc. 480,000 43,440,000
- ---------------------------------------------------------------
Pfizer, Inc. 200,000 19,200,000
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR (United
Kingdom) 800,000 64,500,000
- ---------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Israel) 400,000 20,300,000
- ---------------------------------------------------------------
363,992,500
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-3.45%
Columbia/HCA Healthcare Corp. 800,000 28,000,000
- ---------------------------------------------------------------
Genesis Health Ventures, Inc.(a) 300,000 8,962,500
- ---------------------------------------------------------------
MedPartners, Inc.(a) 1,800,000 32,850,000
- ---------------------------------------------------------------
Tenet Healthcare Corp.(a) 1,500,000 39,000,000
- ---------------------------------------------------------------
United Healthcare Corp. 400,000 19,450,000
- ---------------------------------------------------------------
128,262,500
- ---------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-1.74%
Baxter International Inc. 600,000 28,725,000
- ---------------------------------------------------------------
Medtronic, Inc. 100,000 6,925,000
- ---------------------------------------------------------------
Omnicare, Inc. 800,000 19,500,000
- ---------------------------------------------------------------
Stryker Corp.(a) 300,000 9,862,500
- ---------------------------------------------------------------
65,012,500
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-2.06%
El Paso Natural Gas Co. 500,000 29,062,500
- ---------------------------------------------------------------
Sonat, Inc. 300,000 17,137,500
- ---------------------------------------------------------------
Williams Companies, Inc. (The) 700,000 30,712,500
- ---------------------------------------------------------------
76,912,500
- ---------------------------------------------------------------
OFFICE AUTOMATION-0.99%
Danka Business Systems PLC-ADR
(United Kingdom) 600,000 18,337,500
- ---------------------------------------------------------------
Xerox Corp. 300,000 18,450,000
- ---------------------------------------------------------------
36,787,500
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.33%
Reynolds & Reynolds Co.- Class A 600,000 12,450,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.36%
Apache Corp.(a) 400,000 13,600,000
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-2.64%
Exxon Corp. 520,000 29,445,000
- ---------------------------------------------------------------
Halliburton Co. 300,000 21,187,500
- ---------------------------------------------------------------
Mobil Corp. 140,000 18,200,000
- ---------------------------------------------------------------
Petroleum Geo-Services ASA-ADR(a)
(Norway) 300,000 11,550,000
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York shares (Netherlands) 100,000 18,025,000
- ---------------------------------------------------------------
98,407,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL EQUIPMENT & SUPPLIES-1.80%
Baker Hughes, Inc. 500,000 $ 17,250,000
- ---------------------------------------------------------------
BJ Services Co.(a) 400,000 18,850,000
- ---------------------------------------------------------------
Coastal Corp. 400,000 19,000,000
- ---------------------------------------------------------------
Tidewater, Inc. 300,000 12,037,500
- ---------------------------------------------------------------
67,137,500
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.82%
Kimberly-Clark Corp. 600,000 30,750,000
- ---------------------------------------------------------------
PUBLISHING-0.46%
R.R. Donnelley & Sons Co. 500,000 17,125,000
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-1.42%
Crescent Real Estate Equities,
Inc. 400,000 10,500,000
- ---------------------------------------------------------------
FelCor Suite Hotels, Inc. 260,000 9,327,500
- ---------------------------------------------------------------
National Health Investors, Inc. 135,200 5,036,200
- ---------------------------------------------------------------
Patriot American Hospitality, Inc. 600,000 12,900,000
- ---------------------------------------------------------------
Starwood Lodging Trust 400,000 15,400,000
- ---------------------------------------------------------------
53,163,700
- ---------------------------------------------------------------
RETAIL (FOOD & DRUGS)-0.84%
American Stores Co. 300,000 13,650,000
- ---------------------------------------------------------------
Safeway, Inc.(a) 400,000 17,850,000
- ---------------------------------------------------------------
31,500,000
- ---------------------------------------------------------------
RETAIL (STORES)-2.60%
Blue Square-Israel Ltd.-ADR(a)
(Israel) 470,000 8,753,750
- ---------------------------------------------------------------
Boise Cascade Office Products
Corp.(a) 600,000 10,575,000
- ---------------------------------------------------------------
CompUSA, Inc.(a) 2,000,000 38,500,000
- ---------------------------------------------------------------
Sports Authority, Inc. (The)(a) 1,000,000 17,750,000
- ---------------------------------------------------------------
U.S. Office Products Co.(a) 300,000 7,650,000
- ---------------------------------------------------------------
Walgreen Co. 300,000 13,800,000
- ---------------------------------------------------------------
97,028,750
- ---------------------------------------------------------------
SEMICONDUCTORS-3.21%
Intel Corp. 200,000 30,625,000
- ---------------------------------------------------------------
Texas Instruments, Inc. 1,000,000 89,250,000
- ---------------------------------------------------------------
119,875,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS-3.12%
ADC Telecommunications, Inc.(a) 600,000 15,675,000
- ---------------------------------------------------------------
Andrew Corp.(a) 200,000 4,950,000
- ---------------------------------------------------------------
DSC Communications Corp.(a) 700,000 14,262,500
- ---------------------------------------------------------------
Lucent Technologies, Inc. 200,000 11,825,000
- ---------------------------------------------------------------
Nokia Oy A.B.-Class A-ADR
(Finland) 460,000 29,727,500
- ---------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson-ADR (Sweden) 600,000 20,175,000
- ---------------------------------------------------------------
Tellabs, Inc.(a) 500,000 19,937,500
- ---------------------------------------------------------------
116,552,500
- ---------------------------------------------------------------
TELEPHONE-2.69%
Cincinnati Bell, Inc. 1,200,000 67,200,000
- ---------------------------------------------------------------
SBC Communications, Inc. 600,000 33,300,000
- ---------------------------------------------------------------
100,500,000
- ---------------------------------------------------------------
TOBACCO-4.07%
Philip Morris Companies, Inc. 2,800,000 110,250,000
- ---------------------------------------------------------------
RJR Nabisco Holdings Corp. 1,400,000 41,650,000
- ---------------------------------------------------------------
151,900,000
- ---------------------------------------------------------------
TRANSPORTATION-0.25%
Hvide Marine, Inc.-Class A(a) 551,800 9,518,550
- ---------------------------------------------------------------
Total Common Stocks 3,128,746,362
- ---------------------------------------------------------------
</TABLE>
FS-86
<PAGE> 179
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS-5.81%
BUSINESS SERVICES-0.48%
Career Horizons, Inc., Conv.
Bonds, 7.00%, 11/01/02(c)
(acquired 10/16/95-02/04/97;
cost $16,536,121) $10,350,000 $ 17,956,112
- --------------------------------------------------------------
COMPUTER NETWORKING-0.29%
Comverse Technology, Inc., Conv.
Sub. Deb., 5.75%, 10/01/06(c)
(acquired 01/21/97-01/22/97;
cost $11,702,662) 10,000,000 10,883,900
- --------------------------------------------------------------
COMPUTER PERIPHERALS-0.73%
Quantum Corp., Conv. Sub. Notes,
5.00%, 03/01/03(c)(acquired
03/13/97-03/14/97; cost
$26,181,500) 14,000,000 27,124,580
- --------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.58%
Baan Co., N.V., (Netherlands)
Conv. Sub. Notes, 4.50%,
12/15/01(c) (acquired
12/12/96-01/07/97; cost
$16,027,500) 16,000,000 21,724,960
- --------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.30%
SCI Systems, Inc., Conv. Sub.
Notes, 5.00%, 05/01/06(c)
(acquired 10/24/96-10/28/96;
cost $9,952,680) 8,000,000 11,210,000
- --------------------------------------------------------------
HOTELS/MOTELS-0.34%
Hilton Hotels Corp., Conv. Sub.
Notes, 5.00%, 05/15/06 12,000,000 12,667,560
- --------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.33%
Diamond Offshore Drilling, Inc.,
Conv. Sub. Notes, 3.75%,
02/15/07 12,000,000 12,235,800
- --------------------------------------------------------------
POLLUTION CONTROL-1.04%
Sanifill, Inc., Conv. Sub. Deb.,
5.00%, 03/01/06 18,000,000 23,044,860
- --------------------------------------------------------------
U.S. Filter Corp., Conv. Sub.
Notes, 6.00%, 09/15/05 9,000,000 15,611,582
- --------------------------------------------------------------
38,656,442
- --------------------------------------------------------------
RESTAURANTS-0.52%
Boston Chicken, Inc., Conv. Sub.
Deb., 7.75%, 05/01/04 18,000,000 19,485,000
- --------------------------------------------------------------
RETAIL (STORES)-0.28%
Staples Inc., Conv. Sub. Deb.,
4.50%, 10/01/00(c) (acquired
09/16/96-10/28/96; cost
$11,027,260) 10,000,000 10,410,300
- --------------------------------------------------------------
SEMICONDUCTORS-0.92%
Altera Corp., Conv. Sub. Notes,
5.75%, 06/15/02(c) (acquired
09/16/96-09/17/96; cost
$11,677,400) 10,000,000 20,278,700
- --------------------------------------------------------------
Analog Devices, Conv. Sub. Notes,
3.50%, 12/01/00 10,000,000 14,039,000
- --------------------------------------------------------------
34,317,700
- --------------------------------------------------------------
Total Convertible Corporate
Bonds 216,672,354
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS-7.88%
COSMETICS & TOILETRIES-0.35%
McKesson Corp.-$2.50 Conv. Pfd.(c)
(acquired 02/13/97-04/29/97;
cost $11,905,813) 230,000 $ 13,167,500
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.29%
AES Trust I-$2.69 Conv. Pfd. 200,000 10,925,000
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-1.08%
Penncorp Financial Group,
Inc.-$3.375 Conv. Pfd. 120,000 9,600,000
- ---------------------------------------------------------------
SunAmerica, Inc.-Series E, $3.10
Dep. Conv. Pfd. 300,000 30,600,000
- ---------------------------------------------------------------
40,200,000
- ---------------------------------------------------------------
FUNERAL SERVICES-1.11%
SCI Financial LLC-Series A, $3.125
Conv. Pfd. 360,000 41,265,000
- ---------------------------------------------------------------
HOTELS/MOTELS-0.45%
Host Marriott Financial
Trust-$3.375 Conv. Pfd.(c)
(acquired 11/25/96-03/19/97;
cost $15,929,000) 300,000 16,651,200
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.57%
Conseco Inc.-$4.278 Conv. PRIDES 400,000 58,600,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-0.47%
Unocal Corp.-$3.125 Conv. Pfd. 320,000 17,725,760
- ---------------------------------------------------------------
RETAIL (STORES)-0.55%
TJX Companies, Inc.-Series E,
$7.00 Conv. Pfd. 80,000 20,680,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS-2.01%
WorldCom, Inc.-$2.68 Dep. Conv.
Pfd. 900,000 75,150,000
- ---------------------------------------------------------------
Total Convertible Preferred
Stocks 294,364,460
- ---------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY NOTES-1.33%
6.00%, 09/30/98 $10,000,000 9,988,300
- ---------------------------------------------------------------
5.875%, 10/31/98 10,000,000 9,961,700
- ---------------------------------------------------------------
5.625%, 11/30/98 10,000,000 9,922,600
- ---------------------------------------------------------------
5.875%, 02/28/99 10,000,000 9,941,800
- ---------------------------------------------------------------
6.25%, 03/31/99 10,000,000 10,003,100
- ---------------------------------------------------------------
Total U.S. Treasury Notes 49,817,500
- ---------------------------------------------------------------
REPURCHASE AGREEMENT(d)-0.44%
HSBC Securities Inc., 5.05%,
05/01/97(e) 16,471,349 16,471,349
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.27% 3,706,072,025
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.73% 27,255,511
- ---------------------------------------------------------------
NET ASSETS-100.00% $3,733,327,536
===============================================================
</TABLE>
Abbreviations:
ADR -- American Depository Receipt
Conv. -- Convertible
Deb. -- Debentures
Dep. -- Depository
Pfd. -- Preferred
PRIDES -- Preferred Redemption Increase Dividend Equity Security
Sub. -- Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of these securities are subject to call options written. See Note
7.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933, as
amended. The valuation of these securities has been determined in accordance
with the procedures established by the Board of Directors. The aggregate
market value of these securities at 04/30/97 was $149,407,252 which
represented 4.00% of the Fund's net assets.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 04/30/97 with a maturing value of
$100,014,028. Collateralized by $96,950,000 U.S. Treasury obligations, 7.50%
to 7.875% due 10/31/99 to 12/31/99 with an aggregate market value at
04/30/97 of $102,002,050.
See Notes to Financial Statements.
FS-87
<PAGE> 180
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$3,120,727,704) $3,706,072,025
- ------------------------------------------------------------
Cash 7
- ------------------------------------------------------------
Receivable for:
Investments sold 48,915,615
- ------------------------------------------------------------
Capital stock sold 7,224,353
- ------------------------------------------------------------
Dividends and interest 6,001,017
- ------------------------------------------------------------
Investment for deferred compensation plan 34,314
- ------------------------------------------------------------
Other assets 232,354
- ------------------------------------------------------------
Total assets 3,768,479,685
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 23,779,363
- ------------------------------------------------------------
Capital stock reacquired 5,050,489
- ------------------------------------------------------------
Options written 1,962,500
- ------------------------------------------------------------
Deferred compensation 34,314
- ------------------------------------------------------------
Accrued advisory fees 1,832,007
- ------------------------------------------------------------
Accrued administrative services fees 10,726
- ------------------------------------------------------------
Accrued distribution fees 1,570,549
- ------------------------------------------------------------
Accrued transfer agent fees 643,884
- ------------------------------------------------------------
Accrued operating expenses 268,317
- ------------------------------------------------------------
Total liabilities 35,152,149
- ------------------------------------------------------------
Net assets applicable to shares outstanding $3,733,327,536
============================================================
NET ASSETS:
Class A $2,948,273,303
============================================================
Class B $ 752,280,983
============================================================
Institutional Class $ 32,773,250
============================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 257,010,441
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 65,718,858
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 2,843,951
============================================================
Class A:
Net asset value and redemption price per
share $ 11.47
============================================================
Offering price per share:
(Net asset value of $11.47
divided by 94.50%) $ 12.14
============================================================
Class B:
Net asset value and offering price per
share $ 11.45
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 11.52
============================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $188,101 foreign
withholding tax) $ 25,739,148
- -----------------------------------------------------------
Interest 10,862,728
- -----------------------------------------------------------
Total investment income 36,601,876
- -----------------------------------------------------------
EXPENSES:
Advisory fees 11,175,345
- -----------------------------------------------------------
Administrative services fees 62,783
- -----------------------------------------------------------
Custodian fees 79,299
- -----------------------------------------------------------
Directors' fees 10,974
- -----------------------------------------------------------
Distribution fees-Class A 4,292,872
- -----------------------------------------------------------
Distribution fees-Class B 3,203,810
- -----------------------------------------------------------
Transfer agent fees-Class A 1,879,410
- -----------------------------------------------------------
Transfer agent fees-Class B 612,124
- -----------------------------------------------------------
Transfer agent fees-Institutional Class 1,440
- -----------------------------------------------------------
Other 586,524
- -----------------------------------------------------------
Total expenses 21,904,581
- -----------------------------------------------------------
Less: Advisory fees waived (193,862)
- -----------------------------------------------------------
Expenses paid indirectly (29,281)
- -----------------------------------------------------------
Net expenses 21,681,438
- -----------------------------------------------------------
Net investment income 14,920,438
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain on sales of:
Investment securities 149,439,237
- -----------------------------------------------------------
Foreign currencies 1,974
- -----------------------------------------------------------
Futures contracts 2,973,432
- -----------------------------------------------------------
152,414,643
- -----------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF:
Investment securities 129,195,133
- -----------------------------------------------------------
Foreign currencies (1,823)
- -----------------------------------------------------------
Futures contracts 51,980
- -----------------------------------------------------------
Option contracts (414,052)
- -----------------------------------------------------------
128,831,238
- -----------------------------------------------------------
Net gain on investment securities, foreign
currencies, futures and option transactions 281,245,881
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $296,166,319
============================================================
</TABLE>
See Notes to Financial Statements.
FS-88
<PAGE> 181
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND THE YEAR ENDED OCTOBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 14,920,438 $ 45,400,910
- ----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies and futures contracts 152,414,643 187,738,534
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 128,831,238 171,775,447
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 296,166,319 404,914,891
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (19,825,669) (34,698,850)
- ----------------------------------------------------------------------------------------------
Class B (2,392,357) (2,262,959)
- ----------------------------------------------------------------------------------------------
Institutional Class (274,510) (506,177)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investments:
Class A (151,133,306) (170,497,932)
- ----------------------------------------------------------------------------------------------
Class B (31,330,634) (8,672,692)
- ----------------------------------------------------------------------------------------------
Institutional Class (1,673,772) (2,168,635)
- ----------------------------------------------------------------------------------------------
Net equalization credits:
Class A 293,484 511,762
- ----------------------------------------------------------------------------------------------
Class B 189,770 219,669
- ----------------------------------------------------------------------------------------------
Institutional Class 5,631 1,194
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 226,440,455 518,654,491
- ----------------------------------------------------------------------------------------------
Class B 222,049,354 417,063,105
- ----------------------------------------------------------------------------------------------
Institutional Class 2,341,356 2,366,710
- ----------------------------------------------------------------------------------------------
Net increase in net assets 540,856,121 1,124,924,577
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 3,192,471,415 2,067,546,838
- ----------------------------------------------------------------------------------------------
End of period $3,733,327,536 $3,192,471,415
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $2,995,573,811 $2,544,742,646
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 1,794,279 8,877,492
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies and futures contracts 151,029,177 182,752,246
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 584,930,269 456,099,031
- ----------------------------------------------------------------------------------------------
$3,733,327,536 $3,192,471,415
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-89
<PAGE> 182
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997
(UNAUDITED)
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 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-A security listed or traded on an exchange (except
convertible bonds) 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. 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 (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as 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 or are
questionable 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.
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-Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
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. 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.
FS-90
<PAGE> 183
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 that a change in the value of the contracts may not correlate
with changes in the value of the securities being hedged.
I. Covered Call Options-The fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option
was written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the
sale of the underlying security and the proceeds of the sale are increased
by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option period, in return
for the premium paid by the purchaser of the option, the Fund has given up
the opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase, but has retained the risk
of loss should the price of the underlying security decline. During the
option period, the Fund may be required at any time to deliver the underlying
security against payment of the exercise price. This obligation is terminated
upon the expiration of the option period or at such earlier time at which the
Fund effects a closing purchase transaction by purchasing (at a price which
may be higher than that received when the call option was written) a call
option identical to the one originally written.
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 six months ended April 30, 1997, AIM waived fees of
$193,862. 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 six months ended April 30, 1997, AIM
was reimbursed $62,783 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 six
months ended April 30, 1997, AFS was paid $1,441,644 for such services. During
the six months ended April 30, 1997, the Fund paid A I M Institutional Fund
Services, Inc. ("AIFS") $1,440 for shareholder and transfer agency services with
respect to the Institutional Class.
The Fund received reductions in transfer agency fees of $27,534 from dividends
received on balances in cash management bank accounts. In addition, the Fund
incurred expenses of $1,747 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 $29,281 during the six months ended
April 30, 1997.
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,
FS-91
<PAGE> 184
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 designated
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 Distributors related to the Class B shares. During the six months ended
April 30, 1997, the Class A and Class B shares paid AIM Distributors $4,292,872
and $3,203,810, respectively, as compensation under the Plans.
AIM Distributors received commissions of $1,075,461 from sales of Class A
shares of the Fund during the six months ended April 30, 1997. 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 six months ended April 30,
1997, AIM Distributors received commissions of $32,837 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 six months ended April 30, 1997, the Fund paid legal fees of $7,348
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.
During the six months ended April 30, 1997, 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 six months ended April 30, 1997 was
$3,547,442,583 and $3,316,306,601, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of April 30, 1997, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $624,573,790
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (39,791,370)
- -------------------------------------------------------------
Net unrealized appreciation of investment
securities $584,782,420
=============================================================
</TABLE>
Cost of investments for tax purposes is $3,121,289,605.
FS-92
<PAGE> 185
NOTE 6-CAPITAL STOCK
Changes in the capital stock outstanding for the six months ended April 30, 1997
and the year ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 OCTOBER 31, 1996
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sold
- ------------------------------------------------------------------------------------------------------------------------
Class A 30,429,955 $ 348,827,200 71,824,128 $ 752,853,277
- ------------------------------------------------------------------------------------------------------------------------
Class B 20,107,157 229,853,138 41,436,800 435,348,846
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class 266,233 3,067,395 448,911 4,759,971
- ------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
- ------------------------------------------------------------------------------------------------------------------------
Class A 15,034,968 162,130,649 19,521,139 192,994,968
- ------------------------------------------------------------------------------------------------------------------------
Class B 2,989,287 32,149,114 1,039,513 10,333,913
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class 172,614 1,869,025 252,209 2,504,537
- ------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (24,923,860) (284,517,394) (40,679,494) (427,193,754)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,513,718) (39,952,898) (2,705,793) (28,619,654)
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class (228,049) (2,595,064) (464,310) (4,897,798)
- ------------------------------------------------------------------------------------------------------------------------
40,334,587 $ 450,831,165 90,673,103 $ 938,084,306
========================================================================================================================
</TABLE>
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
------------------------
NUMBER
OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Beginning of Period -- --
- --------------------------------------------------------------------------------------
Written 4,500 $1,548,448
- --------------------------------------------------------------------------------------
Closed -- --
- --------------------------------------------------------------------------------------
Exercised -- --
- --------------------------------------------------------------------------------------
Expired -- --
- --------------------------------------------------------------------------------------
End of period 4,500 $1,548,448
======================================================================================
</TABLE>
Open call option contracts written at April 30, 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER UNREALIZED
CONTRACT STRIKE OF PREMIUM APRIL 30, 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Lilly (Eli) & Co. Jul. 85 1,500 $ 732,475 $ 993,750 $ (261,275)
- ---------------------------------------------------------------------------------------------------------------------------------
Service Corp. International Nov. 35 2,000 331,489 487,500 (156,011)
- ---------------------------------------------------------------------------------------------------------------------------------
Warner-Lambert Co. Jul. 100 1,000 484,484 481,250 3,234
- ---------------------------------------------------------------------------------------------------------------------------------
4,500 $1,548,448 $ 1,962,500 $ (414,052)
=================================================================================================================================
</TABLE>
FS-93
<PAGE> 186
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
the six months ended April 30, 1997 and each of the years in the nine-year
period ended October 31, 1996 and for a Class B share outstanding during the six
months ended April 30, 1997, the year ended October 31, 1996 and the period June
26, 1995 (date sales commenced) through October 31, 1995.
CLASS A:
<TABLE>
<CAPTION>
OCTOBER 31,
APRIL 30, --------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 11.19 $ 10.63 $ 8.90 $ 9.46 $ 8.36 $ 8.42 $ 6.55
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income 0.06 0.19 0.15 0.21 0.17 0.18 0.18
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net gains on securities (both
realized and unrealized) 0.93 1.43 2.11 (0.45) 1.22 0.16 2.15
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total from investment
operations 0.99 1.62 2.26 (0.24) 1.39 0.34 2.33
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net investment
income (0.08) (0.16) (0.20) (0.16) (0.29) (0.17) (0.15)
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Distributions from capital gains (0.63) (0.90) (0.33) (0.16) -- (0.23) (0.31)
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total distributions (0.71) (1.06) (0.53) (0.32) (0.29) (0.40) (0.46)
- ---------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 11.47 $ 11.19 $ 10.63 $ 8.90 $ 9.46 $ 8.36 $ 8.42
================================== ========== ========== ========== ========== ========== ========== ========
Total return(a) 9.31% 16.70% 27.03% (2.55)% 16.92% 4.17% 37.65%
================================== ========== ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $2,948,273 $2,647,208 $1,974,417 $1,579,074 $1,690,482 $1,256,151 $443,546
================================== ========== ========== ========== ========== ========== ========== ========
Ratio of expenses to average net
assets 1.10%(b)(c) 1.12% 1.17% 1.17% 1.17% 1.17% 1.29%
================================== ========== ========== ========== ========== ========== ========== ========
Ratio of net investment income to
average net assets 0.98%(b) 1.81% 1.55% 2.32% 1.89% 2.14% 2.14%
================================== ========== ========== ========== ========== ========== ========== ========
Portfolio turnover rate 95% 164% 161% 126% 144% 95% 144%
================================== ========== ========== ========== ========== ========== ========== ========
Average broker commission rate(d) $ 0.0623 $ 0.0638 N/A N/A N/A N/A N/A
================================== ========== ========== ========== ========== ========== ========== ========
<CAPTION>
OCTOBER 31,
----------------------------
1990 1989 1988
-------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 6.97 $ 5.40 $ 6.61
- ---------------------------------- -------- ------- -------
Income from investment operations:
Net investment income 0.18 0.21 0.15
- ---------------------------------- -------- ------- -------
Net gains on securities (both
realized and unrealized) 0.08 1.55 0.16
- ---------------------------------- -------- ------- -------
Total from investment
operations 0.26 1.76 0.31
- ---------------------------------- -------- ------- -------
Less distributions:
Dividends from net investment
income (0.26) (0.19) (0.12)
- ---------------------------------- -------- ------- -------
Distributions from capital gains (0.42) -- (1.40)
- ---------------------------------- -------- ------- -------
Total distributions (0.68) (0.19) (1.52)
- ---------------------------------- -------- ------- -------
Net asset value, end of period $ 6.55 $ 6.97 $ 5.40
================================== ======== ======= =======
Total return(a) 3.86% 33.68% 5.90%
================================== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $102,499 $70,997 $65,799
================================== ======== ======= =======
Ratio of expenses to average net
assets 1.35% 1.35% 1.46%
================================== ======== ======= =======
Ratio of net investment income to
average net assets 2.51% 3.73% 2.83%
================================== ======== ======= =======
Portfolio turnover rate 215% 131% 247%
================================== ======== ======= =======
Average broker commission rate(d) N/A N/A N/A
================================== ======== ======= =======
</TABLE>
(a) Does not deduct sales charges and are not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $2,885,632,617.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratios of expenses to average net assets would have been 1.09%.
(d) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
CLASS B:
<TABLE>
<CAPTION>
OCTOBER 31,
APRIL 30, -------------------
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.18 $ 10.62 $ 9.81
- ------------------------------------------------------------ -------- -------- -------
Income from investment operations:
Net investment income 0.01 0.10 0.03
- ------------------------------------------------------------ -------- -------- -------
Net gains on securities (both realized and unrealized) 0.93 1.45 0.80
- ------------------------------------------------------------ -------- -------- -------
Total from investment operations 0.94 1.55 0.83
- ------------------------------------------------------------ -------- -------- -------
Less distributions:
Dividends from net investment income (0.04) (0.09) (0.02)
- ------------------------------------------------------------ -------- -------- -------
Distributions from capital gains (0.63) (0.90) --
- ------------------------------------------------------------ -------- -------- -------
Total distributions (0.67) (0.99) (0.02)
- ------------------------------------------------------------ -------- -------- -------
Net asset value, end of period $ 11.45 $ 11.18 $ 10.62
============================================================ ======== ======== =======
Total return(a) 8.87% 15.90% 8.48%
============================================================ ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $752,281 $515,672 $67,592
============================================================ ======== ======== =======
Ratio of expenses to average net assets 1.85%(b)(c) 1.94% 1.98%(d)
============================================================ ======== ======== =======
Ratio of net investment income to average net assets 0.22%(b) 0.99% 0.74%(d)
============================================================ ======== ======== =======
Portfolio turnover rate 95% 164% 161%
============================================================ ======== ======== =======
Average broker commission rate(e) $ 0.0623 $ 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 annualized and based on average net assets of $646,072,131.
(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.
FS-94
<PAGE> 187
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Charter Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital
Management, Inc.
(4) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(5) To approve the elimination of provisions of a fundamental investment policy
prohibiting or restricting investments in puts, calls, straddles and
spreads.
(6) To approve the elimination of the fundamental investment policy prohibiting
investments in companies with less than five years of continuous operation.
(7) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 0 19,923,485
Bruce L. Crockett........................................... 619,427,685 0 19,307,045
Owen Daly II................................................ 618,919,919 0 19,814,811
Carl Frischling............................................. 619,275,356 0 19,459,374
Robert H. Graham............................................ 619,431,576 0 19,303,154
John F. Kroeger............................................. 618,878,096 0 19,856,634
Lewis F. Pennock............................................ 619,272,998 0 19,461,732
Ian W. Robinson............................................. 618,944,840 0 19,789,890
Louis S. Sklar.............................................. 619,462,714 0 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 173,793,114 2,961,324 7,253,671
(3) Approval of Sub-Advisory Agreement.......................... 173,153,366 3,196,109 7,658,634
(4) Elimination of Policy concerning Other Investment
Companies................................................... 132,189,441 5,578,624 7,737,685
(5) Elimination of Policy concerning Puts, Calls, Straddles and
Spreads..................................................... 130,439,316 6,922,517 8,143,916
(6) Elimination of Policy concerning Companies with Less Than
Five Years of Continuous Operation.......................... 131,139,307 6,923,959 7,442,483
(7) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
FS-95
<PAGE> 188
SCHEDULE OF INVESTMENTS
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-82.79%
ADVERTISING/BROADCASTING-0.29%
Interpublic Group of Companies,
Inc. 275,000 $ 15,571,875
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.63%
Gulfstream Aerospace Corp.(a) 444,300 11,329,650
- ---------------------------------------------------------------
United Technologies Corp. 300,000 22,687,500
- ---------------------------------------------------------------
34,017,150
- ---------------------------------------------------------------
APPLIANCES-0.25%
Sunbeam Corp., Inc. 425,000 13,493,750
- ---------------------------------------------------------------
BANKING-1.11%
NationsBank Corp. 1,000,000 60,375,000
- ---------------------------------------------------------------
BANKING (MONEY CENTER)-0.51%
Chase Manhattan Corp. 300,000 27,787,500
- ---------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-0.09%
PepsiCo, Inc. 143,000 4,987,125
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.89%
Amgen, Inc.(a) 250,000 14,718,750
- ---------------------------------------------------------------
Biogen, Inc.(a) 621,600 19,891,200
- ---------------------------------------------------------------
Guidant Corp. 200,000 13,650,000
- ---------------------------------------------------------------
48,259,950
- ---------------------------------------------------------------
BUSINESS SERVICES-2.17%
AccuStaff, Inc.(a) 1,800,000 32,850,000
- ---------------------------------------------------------------
Cognizant Corp. 935,700 30,527,213
- ---------------------------------------------------------------
Diebold, Inc. 450,150 15,080,025
- ---------------------------------------------------------------
Equifax, Inc. 1,000,000 28,750,000
- ---------------------------------------------------------------
Ingram Micro, Inc.(a)-Class A 457,200 10,401,300
- ---------------------------------------------------------------
117,608,538
- ---------------------------------------------------------------
CHEMICALS-0.27%
Monsanto Co. 341,900 14,616,225
- ---------------------------------------------------------------
COMPUTER MAINFRAMES-0.59%
International Business Machines
Corp. 200,000 32,150,000
- ---------------------------------------------------------------
COMPUTER MINI/PCS-3.14%
Compaq Computer Corp.(a) 500,000 42,687,500
- ---------------------------------------------------------------
Dell Computer Corp.(a) 350,000 29,290,625
- ---------------------------------------------------------------
Gateway 2000, Inc.(a) 350,000 19,206,250
- ---------------------------------------------------------------
Hewlett-Packard Co. 679,500 35,673,750
- ---------------------------------------------------------------
Stratus Computer, Inc.(a) 240,800 9,361,100
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 1,191,300 34,324,331
- ---------------------------------------------------------------
170,543,556
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER NETWORKING-0.57%
Ascend Communications, Inc.(a) 350,000 $ 16,012,500
- ---------------------------------------------------------------
Belden, Inc. 483,300 14,861,475
- ---------------------------------------------------------------
30,873,975
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-1.68%
Adaptec, Inc.(a) 700,000 25,900,000
- ---------------------------------------------------------------
American Power Conversion
Corp.(a) 489,200 9,417,100
- ---------------------------------------------------------------
EMC Corp.(a) 400,000 14,550,000
- ---------------------------------------------------------------
Seagate Technology, Inc.(a) 625,000 28,671,875
- ---------------------------------------------------------------
Storage Technology Corp.(a) 360,000 12,645,000
- ---------------------------------------------------------------
91,183,975
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-4.52%
Adobe Systems, Inc. 500,000 19,562,500
- ---------------------------------------------------------------
BMC Software, Inc.(a) 290,000 12,542,500
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 500,000 16,000,000
- ---------------------------------------------------------------
Computer Associates
International, Inc. 36,000 1,872,000
- ---------------------------------------------------------------
Compuware Corp.(a) 700,000 26,425,000
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 450,000 10,856,250
- ---------------------------------------------------------------
Fiserv, Inc.(a) 708,600 26,749,650
- ---------------------------------------------------------------
HBO & Co. 600,000 32,100,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 300,000 36,450,000
- ---------------------------------------------------------------
National Data Corp. 343,100 12,866,250
- ---------------------------------------------------------------
Parametric Technology Co.(a) 300,000 13,575,000
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 700,000 18,112,500
- ---------------------------------------------------------------
Synopsys, Inc.(a) 210,900 6,722,438
- ---------------------------------------------------------------
Wallace Computer Services, Inc. 425,000 11,368,750
- ---------------------------------------------------------------
245,202,838
- ---------------------------------------------------------------
CONGLOMERATES-2.66%
AlliedSignal Inc. 292,200 21,111,450
- ---------------------------------------------------------------
Corning Inc. 375,000 18,093,750
- ---------------------------------------------------------------
Johnson Controls, Inc. 400,000 15,350,000
- ---------------------------------------------------------------
Loews Corp. 450,000 41,343,750
- ---------------------------------------------------------------
Tyco International Ltd. 500,000 30,500,000
- ---------------------------------------------------------------
U.S. Industries, Inc.(a) 500,000 18,062,500
- ---------------------------------------------------------------
144,461,450
- ---------------------------------------------------------------
CONTAINERS-0.31%
Sealed Air Corp.(a) 369,000 17,066,250
- ---------------------------------------------------------------
COSMETICS & TOILETRIES-1.46%
Dial Corp. 1,000,000 15,500,000
- ---------------------------------------------------------------
McKesson Corp. 67,200 4,863,600
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 350,000 44,012,500
- ---------------------------------------------------------------
</TABLE>
FS-96
<PAGE> 189
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COSMETICS & TOILETRIES-(CONTINUED)
Warner-Lambert Co. 150,000 $ 14,700,000
- ---------------------------------------------------------------
79,076,100
- ---------------------------------------------------------------
ELECTRIC POWER-0.30%
AES Corp.(a) 250,000 16,312,500
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-2.82%
General Electric Co. 300,000 33,262,500
- ---------------------------------------------------------------
Honeywell, Inc. 330,400 23,334,500
- ---------------------------------------------------------------
Symbol Technologies, Inc. 670,100 21,694,487
- ---------------------------------------------------------------
Teradyne, Inc.(a) 950,000 31,112,500
- ---------------------------------------------------------------
Thermo Instrument Systems,
Inc.(a) 538,500 16,895,437
- ---------------------------------------------------------------
Waters Corp.(a) 901,900 26,718,787
- ---------------------------------------------------------------
153,018,211
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.87%
Franklin Resources, Inc. 406,500 24,034,312
- ---------------------------------------------------------------
T. Rowe Price Associates 500,000 23,125,000
- ---------------------------------------------------------------
47,159,312
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-5.10%
Federal Home Loan Mortgage Corp. 1,403,800 44,746,125
- ---------------------------------------------------------------
Federal National Mortgage
Association 1,134,500 46,656,313
- ---------------------------------------------------------------
Finova Group, Inc. 227,000 15,577,875
- ---------------------------------------------------------------
Green Tree Financial Corp. 611,400 18,112,725
- ---------------------------------------------------------------
Household International, Inc. 175,000 15,400,000
- ---------------------------------------------------------------
Money Store, Inc. (The) 1,013,500 21,916,937
- ---------------------------------------------------------------
Student Loan Marketing
Association 952,900 112,680,425
- ---------------------------------------------------------------
SunAmerica, Inc. 33,400 1,536,400
- ---------------------------------------------------------------
276,626,800
- ---------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-1.52%
H.F. Ahmanson & Co. 800,000 30,500,000
- ---------------------------------------------------------------
ContiFinancial Corp.(a) 342,600 9,849,750
- ---------------------------------------------------------------
Great Western Financial Corp. 1,000,000 42,000,000
- ---------------------------------------------------------------
82,349,750
- ---------------------------------------------------------------
FOOD/PROCESSING-1.37%
ConAgra, Inc. 550,000 31,693,750
- ---------------------------------------------------------------
Dean Foods Co. 725,000 26,734,375
- ---------------------------------------------------------------
Lancaster Colony Corp. 394,233 16,212,832
- ---------------------------------------------------------------
74,640,957
- ---------------------------------------------------------------
FUNERAL SERVICES-0.82%
Service Corp. International 1,305,600 44,716,800
- ---------------------------------------------------------------
FURNITURE-0.30%
Furniture Brands International,
Inc.(a) 1,108,900 16,356,275
- ---------------------------------------------------------------
GAMING-0.23%
International Game Technology 800,000 12,700,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOTELS/MOTELS-0.97%
HFS, Inc.(a) 350,000 $ 20,737,500
- ---------------------------------------------------------------
Host Marriott Corp.(a) 208,500 3,622,687
- ---------------------------------------------------------------
Marriot International, Inc. 515,000 28,453,750
- ---------------------------------------------------------------
52,813,937
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.23%
Conseco Inc. 1,148,900 47,535,738
- ---------------------------------------------------------------
Equitable Companies, Inc. 500,000 14,625,000
- ---------------------------------------------------------------
Equitable of Iowa Companies 92,800 4,535,600
- ---------------------------------------------------------------
66,696,338
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-3.28%
Allstate Corp. 565,300 37,027,150
- ---------------------------------------------------------------
American International Group,
Inc. 225,000 28,912,500
- ---------------------------------------------------------------
Everest Re Holdings, Inc. 800,500 23,014,375
- ---------------------------------------------------------------
ITT Hartford Group, Inc. 375,000 27,937,500
- ---------------------------------------------------------------
MBIA, Inc. 150,000 14,606,250
- ---------------------------------------------------------------
MGIC Investment Corp. 200,000 16,250,000
- ---------------------------------------------------------------
Travelers Group, Inc. 550,000 30,456,250
- ---------------------------------------------------------------
178,204,025
- ---------------------------------------------------------------
LEISURE & RECREATION-0.81%
Carnival Corp.-Class A 800,000 29,500,000
- ---------------------------------------------------------------
Walt Disney Co. (The) 175,000 14,350,000
- ---------------------------------------------------------------
43,850,000
- ---------------------------------------------------------------
MACHINERY (HEAVY)-0.59%
Caterpillar Inc. 175,000 15,575,000
- ---------------------------------------------------------------
Ingersoll-Rand Co. 334,100 16,412,663
- ---------------------------------------------------------------
31,987,663
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-1.06%
Thermo Electron Corp.(a) 1,664,400 57,421,800
- ---------------------------------------------------------------
MEDICAL (DRUGS)-6.24%
Abbott Laboratories 250,000 15,250,000
- ---------------------------------------------------------------
American Home Products Corp. 900,000 59,625,000
- ---------------------------------------------------------------
AmeriSource Health Corp.-Class
A(a) 500,000 22,312,500
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 500,000 32,750,000
- ---------------------------------------------------------------
Cardinal Health, Inc. 500,000 26,625,000
- ---------------------------------------------------------------
ICN Pharmaceuticals, Inc. 1,200,000 25,350,000
- ---------------------------------------------------------------
Johnson & Johnson 500,000 30,625,000
- ---------------------------------------------------------------
Merck & Co., Inc. 500,000 45,250,000
- ---------------------------------------------------------------
Pfizer, Inc. 300,000 28,800,000
- ---------------------------------------------------------------
Rhone-Poulenc Rorer, Inc. 180,000 12,982,500
- ---------------------------------------------------------------
Schering-Plough Corp. 175,000 14,000,000
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 700,000 25,025,000
- ---------------------------------------------------------------
338,595,000
- ---------------------------------------------------------------
</TABLE>
FS-97
<PAGE> 190
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-3.71%
Columbia/HCA Healthcare Corp. 875,000 $ 30,625,000
- ---------------------------------------------------------------
Health Care and Retirement
Corp.(a) 222,350 7,031,819
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 1,400,000 27,650,000
- ---------------------------------------------------------------
MedPartners, Inc.(a) 1,100,000 20,075,000
- ---------------------------------------------------------------
Oxford Health Plans, Inc.(a) 300,000 19,762,500
- ---------------------------------------------------------------
Quorum Health Group, Inc.(a) 1,000,000 31,125,000
- ---------------------------------------------------------------
Tenet Healthcare Corp.(a) 1,100,000 28,600,000
- ---------------------------------------------------------------
United Healthcare Corp. 550,000 26,743,750
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 262,000 9,923,250
- ---------------------------------------------------------------
201,536,319
- ---------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-2.96%
Baxter International Inc. 1,000,000 47,875,000
- ---------------------------------------------------------------
Becton, Dickinson & Co. 600,000 27,600,000
- ---------------------------------------------------------------
Boston Scientific Corp.(a) 300,000 14,475,000
- ---------------------------------------------------------------
DePuy, Inc.(a) 172,200 3,616,200
- ---------------------------------------------------------------
Stryker Corp.(a) 701,600 23,065,100
- ---------------------------------------------------------------
Sybron International Corp.(a) 941,900 31,318,175
- ---------------------------------------------------------------
US Surgical Corp. 375,000 12,843,750
- ---------------------------------------------------------------
160,793,225
- ---------------------------------------------------------------
OFFICE AUTOMATION-0.28%
Xerox Corp. 250,000 15,375,000
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.42%
Reynolds & Reynolds Co.-Class A 1,100,000 22,825,000
- ---------------------------------------------------------------
OIL & GAS (DRILLING)-0.24%
Reading & Bates Corp.(a) 575,000 12,865,625
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-1.98%
Exxon Corp. 1,010,000 57,191,250
- ---------------------------------------------------------------
Halliburton Co. 400,000 28,250,000
- ---------------------------------------------------------------
Louisiana Land & Exploration
Co.(a) 360,800 18,040,000
- ---------------------------------------------------------------
Unocal Corp. 108,900 4,151,813
- ---------------------------------------------------------------
107,633,063
- ---------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-1.71%
Baker Hughes, Inc. 550,100 18,978,450
- ---------------------------------------------------------------
BJ Services Co.(a) 142,800 6,729,450
- ---------------------------------------------------------------
Coastal Corp. 300,000 14,250,000
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 95,300 6,790,125
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 675,000 12,150,000
- ---------------------------------------------------------------
Schlumberger Ltd. 200,000 22,150,000
- ---------------------------------------------------------------
Tidewater, Inc. 300,000 12,037,500
- ---------------------------------------------------------------
93,085,525
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.60%
Kimberly-Clark Corp. 640,500 32,825,625
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
POLLUTION CONTROL-0.71%
USA Waste Services, Inc.(a) 800,000 $ 26,200,000
- ---------------------------------------------------------------
US Filter Corp.(a) 399,900 12,146,962
- ---------------------------------------------------------------
38,346,962
- ---------------------------------------------------------------
PUBLISHING-0.54%
Gannett Company, Inc. 97,600 8,515,600
- ---------------------------------------------------------------
New York Times Co.-Class A 325,000 14,056,250
- ---------------------------------------------------------------
Times Mirror Co. 122,400 6,762,600
- ---------------------------------------------------------------
29,334,450
- ---------------------------------------------------------------
RESTAURANTS-0.49%
Applebee's International, Inc. 630,800 14,744,950
- ---------------------------------------------------------------
Boston Chicken, Inc.(a) 500,000 11,937,500
- ---------------------------------------------------------------
26,682,450
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.68%
American Stores Co. 456,000 20,748,000
- ---------------------------------------------------------------
Kroger Co.(a) 997,200 27,423,000
- ---------------------------------------------------------------
Rite Aid Corp. 650,000 29,900,000
- ---------------------------------------------------------------
Safeway, Inc.(a) 300,000 13,387,500
- ---------------------------------------------------------------
91,458,500
- ---------------------------------------------------------------
RETAIL (STORES)-5.79%
Barnes & Noble, Inc.(a) 111,200 4,170,000
- ---------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 575,000 15,740,625
- ---------------------------------------------------------------
Consolidated Stores Corp.(a) 562,500 22,500,000
- ---------------------------------------------------------------
Costco Companies, Inc.(a) 1,100,000 31,762,500
- ---------------------------------------------------------------
CVS Corp. 450,000 22,331,250
- ---------------------------------------------------------------
Dayton Hudson Corp. 425,000 19,125,000
- ---------------------------------------------------------------
Gap, Inc. 140,800 4,488,000
- ---------------------------------------------------------------
Home Depot, Inc. 250,000 14,500,000
- ---------------------------------------------------------------
Jones Apparel Group, Inc.(a) 200,000 8,350,000
- ---------------------------------------------------------------
Lowe's Companies, Inc. 1,080,000 41,040,000
- ---------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 1,000,000 32,625,000
- ---------------------------------------------------------------
Ross Stores, Inc. 525,000 14,765,625
- ---------------------------------------------------------------
Sysco Corp. 298,600 10,600,300
- ---------------------------------------------------------------
Tech Data Corp.(a) 786,800 19,276,600
- ---------------------------------------------------------------
TJX Companies, Inc. 325,000 15,356,250
- ---------------------------------------------------------------
Toys "R" Us, Inc.(a) 550,000 15,675,000
- ---------------------------------------------------------------
U.S. Office Products Co.(a) 850,000 21,675,000
- ---------------------------------------------------------------
313,981,150
- ---------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.30%
Perkin-Elmer Corp. 225,000 16,340,625
- ---------------------------------------------------------------
SEMICONDUCTORS-5.95%
Advanced Micro Devices, Inc.(a) 600,000 25,500,000
- ---------------------------------------------------------------
Analog Devices, Inc.(a) 500,000 13,375,000
- ---------------------------------------------------------------
Applied Materials, Inc.(a) 1,200,000 65,850,000
- ---------------------------------------------------------------
Cypress Semiconductor Corp.(a) 638,900 8,864,738
- ---------------------------------------------------------------
</TABLE>
FS-98
<PAGE> 191
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SEMICONDUCTORS-(CONTINUED)
Intel Corp. 100,000 $ 15,312,500
- ---------------------------------------------------------------
KLA Instruments Corp.(a) 700,000 31,150,000
- ---------------------------------------------------------------
Linear Technology Corp. 300,000 15,075,000
- ---------------------------------------------------------------
LSI Logic Corp.(a) 425,000 16,256,250
- ---------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 300,000 15,862,500
- ---------------------------------------------------------------
Micron Technology, Inc. 850,000 29,962,500
- ---------------------------------------------------------------
Motorola, Inc. 450,000 25,762,500
- ---------------------------------------------------------------
National Semiconductor Corp.(a) 673,300 16,832,500
- ---------------------------------------------------------------
Novellus Systems, Inc.(a) 125,600 7,253,400
- ---------------------------------------------------------------
Texas Instruments, Inc. 400,000 35,700,000
- ---------------------------------------------------------------
322,756,888
- ---------------------------------------------------------------
TELECOMMUNICATIONS-2.83%
ADC Telecommunications, Inc.(a)(b) 750,000 19,593,750
- ---------------------------------------------------------------
Andrew Corp.(a) 525,000 12,993,750
- ---------------------------------------------------------------
Lucent Technologies, Inc. 600,000 35,475,000
- ---------------------------------------------------------------
PairGain Technologies, Inc.(a) 500,000 13,000,000
- ---------------------------------------------------------------
Tellabs, Inc.(a) 800,000 31,900,000
- ---------------------------------------------------------------
WorldCom, Inc.(a) 1,700,000 40,800,000
- ---------------------------------------------------------------
153,762,500
- ---------------------------------------------------------------
TELEPHONE-0.23%
Cincinnati Bell, Inc. 225,000 12,600,000
- ---------------------------------------------------------------
TEXTILES-0.28%
Fruit of The Loom, Inc.-Class A(a) 415,100 14,943,600
- ---------------------------------------------------------------
TOBACCO-3.44%
Philip Morris Companies, Inc. 2,500,000 98,437,500
- ---------------------------------------------------------------
RJR Nabisco Holdings Corp. 2,306,200 68,609,450
- ---------------------------------------------------------------
Universal Corp. 700,000 19,600,000
- ---------------------------------------------------------------
186,646,950
- ---------------------------------------------------------------
Total Domestic Common Stocks 4,494,518,082
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
DOMESTIC CONVERTIBLE PREFERRED STOCKS-1.19%
FINANCE (CONSUMER CREDIT)-0.43%
SunAmerica, Inc.-Series E,
$3.10 Conv. Pfd. 228,800 23,337,600
- ---------------------------------------------------------------
HOTELS/MOTELS-0.31%
Host Marriott Financial Trust-
$3.375 Conv. Pfd. (acquired
02/12/97-02/19/97; cost
$18,036,739)(c) 310,800 17,250,643
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-0.45%
MGIC Investment Corp.-$3.12 Conv.
Pfd. 347,600 24,288,550
- ---------------------------------------------------------------
Total Domestic Convertible Preferred
Stocks 64,876,793
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE BONDS & NOTES-1.42%
CHEMICALS-0.39%
Sandoz Capital BVI Ltd., Gtd.
Conv. Deb., 2.00%, 10/06/02
(acquired 11/01/96-11/05/96;
cost $18,721,100)(c) $17,000,000 $ 21,335,000
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.57%
SCI Systems, Inc., Conv. Sub.
Notes, 5.00%, 05/01/06 22,050,000 30,897,563
- ---------------------------------------------------------------
POLLUTION CONTROL-0.09%
US Filter Corp., Conv. Sub.
Notes, 6.00%, 09/15/05 2,700,000 4,683,475
- ---------------------------------------------------------------
SEMICONDUCTORS-0.37%
Altera Corp., Conv. Sub. Notes,
5.75%, 06/15/02
(acquired 01/17/97; cost
$16,951,400)(c) 10,000,000 20,278,700
- ---------------------------------------------------------------
Total Domestic Convertible Bonds & Notes 77,194,738
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS-8.37%
CANADA-1.48%
Canadian Pacific, Ltd.
(Transportation) 585,000 14,259,375
- ---------------------------------------------------------------
Newbridge Networks Corp.(a)
(Computer Networking) 600,000 19,050,000
- ---------------------------------------------------------------
Northern Telecom Ltd.
(Telecommunications) 325,000 23,603,125
- ---------------------------------------------------------------
Philip Environmental, Inc.(a)
(Pollution Control) 1,500,000 23,625,000
- ---------------------------------------------------------------
80,537,500
- ---------------------------------------------------------------
FINLAND-0.29%
Nokia Oy A.B.-Class A-ADR
(Telecommunications) 240,000 15,510,000
- ---------------------------------------------------------------
FRANCE-0.51%
Elf Aquitaine S.A. (Oil &
Gas-Services) 285,000 27,638,139
- ---------------------------------------------------------------
GERMANY-0.30%
Adidas A.G. (Shoes & Related
Apparel) 78,800 8,213,073
- ---------------------------------------------------------------
VEBA A.G. (Electric Power) 158,000 8,138,122
- ---------------------------------------------------------------
16,351,195
- ---------------------------------------------------------------
HONG KONG-0.88%
HSBC Holdings PLC (Banking) 820,000 20,747,434
- ---------------------------------------------------------------
Sun Hung Kai Properties Ltd.
(Real Estate) 2,505,000 27,163,235
- ---------------------------------------------------------------
47,910,669
- ---------------------------------------------------------------
IRELAND-0.36%
Elan Corp.
PLC-ADR(a)(Medical-Drugs) 580,000 19,720,000
- ---------------------------------------------------------------
ISRAEL-0.38%
Teva Pharmaceutical Industries
Ltd.-ADR (Medical-Drugs) 405,800 20,594,350
- ---------------------------------------------------------------
</TABLE>
FS-99
<PAGE> 192
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ITALY-0.64%
Telecom Italia Mobile S.p.A.
(Telecommunications) 6,000,000 $ 18,821,674
- ---------------------------------------------------------------
Telecom Italia S.p.A.
(Telecommunications) 6,000,000 15,885,058
- ---------------------------------------------------------------
34,706,732
- ---------------------------------------------------------------
MALAYSIA-0.20%
Malayan Banking Berhad (Banking) 1,074,000 10,693,803
- ---------------------------------------------------------------
NETHERLANDS-1.05%
Gucci Group N.V.-ADR-New York
Registered Shares (Textiles) 250,000 17,343,750
- ---------------------------------------------------------------
Philips Electronics N.V.-ADR-New
York Shares (Appliances) 320,300 17,136,050
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York Shares (Oil &
Gas-Services) 125,000 22,531,250
- ---------------------------------------------------------------
57,011,050
- ---------------------------------------------------------------
SWEDEN-0.55%
Telefonaktiebolaget LM
Ericsson-ADR
(Telecommunications) 881,300 29,633,713
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-1.73%
Danka Business Systems PLC-ADR
(Office Automation) 401,900 $ 12,283,069
- ---------------------------------------------------------------
Granada Group PLC (Leisure &
Recreation) 1,330,000 19,184,765
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(Medical-Drugs) 775,000 62,484,375
- ---------------------------------------------------------------
93,952,209
- ---------------------------------------------------------------
Total Foreign Stocks & Other Equity
Interests 454,259,360
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
COMMERCIAL PAPER TRUST-0.55%
Citibank, N.A., 5.895%,
12/26/97(d) $30,000,000 30,000,000
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS(e)-5.24%
Goldman, Sachs & Co., 5.375%,
05/01/97(f) 86,853,893 86,853,893
- ---------------------------------------------------------------
HSBC Securities, Inc., 5.55%,
05/01/97(g) 197,510,181 197,510,181
- ---------------------------------------------------------------
Total Repurchase Agreements 284,364,074
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.56% 5,405,213,047
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.44% 23,707,955
- ---------------------------------------------------------------
TOTAL NET ASSETS-100.00% $5,428,921,002
===============================================================
</TABLE>
Abbreviations:
<TABLE>
<S> <C>
ADR -American Depository Receipt
Conv. -Convertible
Pfd. -Preferred
Gtd. -Guaranteed
Sub. -Subordinated
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security
(b) A portion of this security is subject to call options written. See Note 6.
(c) 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 April 30, 1997 was $58,864,343
which represented 1.08% of the Fund's net assets.
(d) Variable rate trust certificates representing an interest in a trust
(comprised of eligible debt obligations) entitling the Fund to receive
variable rate interest. The Fund has the right, upon seven calendar days'
notice to the trustee, to put its certificates to the trust at par value
plus accrued interest. Because variable rate trust certificates involve a
trust and a third party put feature, they involve complexities and potential
risks that may not be present where the debt obligation is owned directly.
Rate shown is the rate in effect on April 30, 1997.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into on 04/30/97 with maturing value of
$701,547,221. Collateralized by $757,320,000 U.S. Treasury obligations, 0%
to 8.875% due 07/17/97 to 02/15/26 with an aggregate market value at April
30, 1997 of $716,184,843.
(g) Joint repurchase agreement entered into on 04/30/97 with maturing value of
$500,077,083. Collateralized by $285,655,288 U.S. Government agency
obligations, 0% to 8.00% due 04/01/19 to 12/01/35 and $321,339,000 U.S.
Treasury obligations, 4.75% to 9.25% due 09/30/97 to 10/31/99 with an
aggregate market value at April 30, 1997 of $510,003,616.
See Notes to Financial Statements.
FS-100
<PAGE> 193
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$4,524,773,802) $5,405,213,047
- --------------------------------------------------------
Foreign currencies, at market value
(cost $10,528) 10,792
- --------------------------------------------------------
Receivables for:
Investments sold 90,580,668
- --------------------------------------------------------
Options purchased 281,250
- --------------------------------------------------------
Capital stock sold 4,604,126
- --------------------------------------------------------
Dividends and interest 4,277,796
- --------------------------------------------------------
Investment for deferred compensation
plan 66,430
- --------------------------------------------------------
Other assets 126,497
- --------------------------------------------------------
Total assets 5,505,160,606
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 59,109,537
- --------------------------------------------------------
Options written 750,000
- --------------------------------------------------------
Capital stock reacquired 9,292,445
- --------------------------------------------------------
Deferred compensation 66,430
- --------------------------------------------------------
Accrued advisory fees 2,614,487
- --------------------------------------------------------
Accrued administrative service fees 10,510
- --------------------------------------------------------
Accrued distribution fees 2,109,588
- --------------------------------------------------------
Accrued transfer agent fees 1,541,871
- --------------------------------------------------------
Accrued operating expenses 744,736
- --------------------------------------------------------
Total liabilities 76,239,604
- --------------------------------------------------------
Net assets applicable to shares
outstanding $5,428,921,002
========================================================
NET ASSETS:
Class A $5,014,448,112
========================================================
Class B $ 351,019,539
========================================================
Institutional Class $ 63,453,351
========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
CLASS A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 264,935,631
========================================================
CLASS B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 18,779,084
========================================================
INSTITUTIONAL CLASS:
Authorized 200,000,000
- --------------------------------------------------------
Outstanding 3,310,794
- --------------------------------------------------------
CLASS A:
Net asset value and redemption price
per share $ 18.93
========================================================
Offering price per share:
(Net asset value of
$18.93 divided by 94.50%) $ 20.03
========================================================
CLASS B:
Net asset value and offering price per
share $ 18.69
========================================================
INSTITUTIONAL CLASS:
Net asset value, offering and
redemption price per share $ 19.17
========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1997
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $396,081 foreign
withholding tax) $ 24,799,615
- ----------------------------------------------------------
Interest 6,302,042
- ----------------------------------------------------------
Total investment income 31,101,657
- ----------------------------------------------------------
EXPENSES:
Advisory fees 17,460,585
- ----------------------------------------------------------
Administrative service fees 73,693
- ----------------------------------------------------------
Custodian fees 191,071
- ----------------------------------------------------------
Directors' fees 15,990
- ----------------------------------------------------------
Distribution fees-Class A 7,688,203
- ----------------------------------------------------------
Distribution fees-Class B 1,589,373
- ----------------------------------------------------------
Transfer agent fees-Class A 4,286,458
- ----------------------------------------------------------
Transfer agent fees-Class B 385,368
- ----------------------------------------------------------
Transfer agent fees-Institutional Class 2,855
- ----------------------------------------------------------
Other 847,420
- ----------------------------------------------------------
Total expenses 32,541,016
- ----------------------------------------------------------
Less: Fees waived by advisor (949,019)
- ----------------------------------------------------------
Expenses paid indirectly (45,865)
- ----------------------------------------------------------
Net expenses 31,546,132
- ----------------------------------------------------------
Net investment (loss) (444,475)
- ----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN
CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 447,720,009
- ----------------------------------------------------------
Foreign currencies (2,571,094)
- ----------------------------------------------------------
Options contracts 4,829,479
- ----------------------------------------------------------
449,978,394
- ----------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities (153,788,488)
- ----------------------------------------------------------
Foreign currencies (53,868)
- ----------------------------------------------------------
Options contracts 2,178,320
- ----------------------------------------------------------
(151,664,036)
- ----------------------------------------------------------
Net gain on investment securities,
foreign currencies and option
contracts 298,314,358
- ----------------------------------------------------------
Net increase in net assets resulting from
operations $ 297,869,883
==========================================================
</TABLE>
See Notes to Financial Statements.
FS-101
<PAGE> 194
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1997 and the year ended October 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (444,475) $ 14,147,587
- ----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies, futures and options contracts 449,978,394 590,548,116
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies, and options contracts (151,664,036) 79,138,554
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 297,869,883 683,834,257
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (14,825,812) --
- ----------------------------------------------------------------------------------------------
Institutional Class (446,594) --
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (552,424,286) (606,609,217)
- ----------------------------------------------------------------------------------------------
Class B (32,141,402) (7,814,517)
- ----------------------------------------------------------------------------------------------
Institutional Class (6,654,246) (7,332,667)
- ----------------------------------------------------------------------------------------------
Net equalization credits:
Class A 1,412,885 2,368,957
- ----------------------------------------------------------------------------------------------
Class B 62,469 992,175
- ----------------------------------------------------------------------------------------------
Institutional Class 86,077 65,590
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 322,422,079 362,344,237
- ----------------------------------------------------------------------------------------------
Class B 101,653,884 210,825,508
- ----------------------------------------------------------------------------------------------
Institutional Class 6,470,978 5,462,015
- ----------------------------------------------------------------------------------------------
Net increase in net assets 123,485,915 644,136,338
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 5,305,435,087 4,661,298,749
- ----------------------------------------------------------------------------------------------
End of period $5,428,921,002 $5,305,435,087
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,079,731,400 $3,649,184,459
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 30,361,176 44,516,626
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies, futures and options
contracts 439,469,771 580,711,311
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, and option contracts 879,358,655 1,031,022,691
- ----------------------------------------------------------------------------------------------
$5,428,921,002 $5,305,435,087
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-102
<PAGE> 195
NOTES TO FINANCIAL STATEMENTS
April 30, 1997
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten Fund (the "Fund") is a series 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 diversified portfolios:
AIM Weingarten Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund and AIM Constellation Fund. The Fund
currently offers three different classes of shares: the Class A shares, Class B
shares and the Institutional Class. Matters affecting each portfolio or class
will be voted on exclusively by such shareholders. The assets, liabilities and
operations of each portfolio are accounted for separately. The Fund's investment
objective is to seek growth of capital principally through investment in common
stocks of seasoned and better capitalized companies. Information presented in
these financial statements pertains only to the Fund.
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--A security listed or traded on an exchange (except
convertible bonds) 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. 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 (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by an independent pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors
such as yield, type of issue, corporate and maturity date. Securities for
which market quotations are not readily available or are questionable are
valued at fair value as determined in good faith by or under the supervision
of the 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. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a 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.
D. 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 or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contract 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 contract is closed, the Fund records 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 that a change in the value of
the contract may not correlate with changes in the securities being hedged.
E. Covered Call Options--The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent
FS-103
<PAGE> 196
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The current market
value of a written option is the mean between the last bid and asked prices
on that day. If a written call option expires on the stipulated expiration
date, or if the Fund enters into a closing purchase transaction, the Fund
realizes a gain (or a loss if the closing purchase transaction exceeds the
premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised,
the Fund realizes a gain or a loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
F. Put options--The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or
a portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
G. 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 specific identification of 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.
H. 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.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated between the
classes.
J. Equalization--The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and the 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 undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares.
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"). The terms of the master investment advisory agreement
provide that the Fund shall pay an advisory fee to AIM at an 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
$350 million, plus 0.625% of the Fund's average daily net assets in excess of
$350 million. AIM is currently voluntarily waiving a portion of its advisory
fees payable 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. 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 $350 million, plus 0.625% of the Fund's average daily net assets
in excess of $350 million to and including $2 billion, plus 0.60% of the Fund's
average daily net assets in excess of $2 billion to and including $3 billion,
plus 0.575% of the Fund's average daily net assets in excess of $3 billion to
and including $4 billion, plus 0.55% of the Fund's average daily net assets in
excess of $4 billion. The waiver of fees is entirely voluntary but approval is
required by the Board of Directors of the Company for any decision by AIM to
discontinue the waiver. During the six months ended April 30, 1997, AIM waived
fees of $949,019. 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 six months ended April 30, 1997, AIM
was reimbursed $73,693 for such services.
The Fund, pursuant to a transfer agency and service 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 shares and Class B shares. During the
six months ended April 30, 1997, AFS was reimbursed $2,228,690 for such
services.
During the six months ended April 30, 1997, the Fund, pursuant to a transfer
agency and service agreement, paid A I M Institutional Fund Services, Inc.
("AIFS") $2,855 for shareholder and transfer agency services with respect to the
Institutional Class.
FS-104
<PAGE> 197
The Fund received reductions in transfer agency fees of $42,960 from dividends
received on balances in cash management bank accounts. In addition, the Fund
incurred expenses of $2,905 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 $45,865 during the six months ended
April 30, 1997.
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 to implement a program
which 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 designated 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
Distributors related to the Class B shares. During the six months ended April
30, 1997, the Class A shares and the Class B shares paid AIM Distributors
$7,688,203 and $1,589,373, respectively, as compensation under the Plans.
AIM Distributors received commissions of $831,559 from sales of shares of the
Class A shares of the Fund during the year six months ended April 30, 1997. 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 six months
ended April 30, 1997, AIM Distributors received commissions of $24,937 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 six months ended April 30, 1997, the Fund paid legal fees of
$10,693 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-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended April 30, 1997 was $3,610,400,083
and $4,082,664,624, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of April 30, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 980,079,896
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (105,092,131)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $ 874,987,765
==========================================================
</TABLE>
Cost of investments for tax purposes is $4,530,225,282.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-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.
During the six months ended April 30, 1997, 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 6-OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of period 55,804 $ 22,601,072
- -----------------------------------------------------------
Written 62,525 18,316,598
- -----------------------------------------------------------
Closed (79,359) (30,366,331)
- -----------------------------------------------------------
Exercised (9,500) (3,963,917)
- -----------------------------------------------------------
Expired (21,970) (6,081,525)
- -----------------------------------------------------------
End of period 7,500 $ 505,897
- -----------------------------------------------------------
</TABLE>
FS-105
<PAGE> 198
Open call option contracts written at April 30, 1997 were as follows:
<TABLE>
<CAPTION>
APRIL 30, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION
MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
ISSUE -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ADC Telecommunications, Inc. April 27 75 $505,897 $750,000 $(244,103)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7-PUT OPTIONS WRITTEN
Transactions in put options purchased during the six months ended April 30, 1997
are summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS PAID
--------- ----------
<S> <C> <C>
Beginning of period -- --
- --------------------------------------------------------------------------------------
Purchased 7,500 $1,053,750
- --------------------------------------------------------------------------------------
Exercised -- --
- --------------------------------------------------------------------------------------
End of period 7,500 $1,053,750
- --------------------------------------------------------------------------------------
</TABLE>
Open put option contracts purchased at April 30, 1997 were as follows:
<TABLE>
<CAPTION>
APRIL 30, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION
MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
ISSUE -------- ------ --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ADC Telecommunications, Inc. April 22.5 75 $1,053,750 $281,250 $772,500
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in the capital stock outstanding during the six months ended April 30,
1997 and the year ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 OCTOBER 31, 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 18,222,095 $353,778,240 34,550,539 $648,183,624
- ---------------------------------------------------------------------------------------------------------------------
Class B 5,136,342 98,559,132 12,381,545 231,706,372
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 187,453 3,617,225 516,716 9,877,153
- ---------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 29,415,287 528,056,969 32,395,132 557,844,149
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,715,463 30,689,638 425,933 7,326,082
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 313,585 5,650,803 338,803 5,871,449
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (29,281,788) (559,413,130) (44,929,759) (843,683,536)
- ---------------------------------------------------------------------------------------------------------------------
Class B (1,461,847) (27,594,886) (1,500,861) (28,206,946)
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class (146,120) (2,797,050) (552,275) (10,286,587)
- ---------------------------------------------------------------------------------------------------------------------
24,100,470 $430,546,941 33,625,773 $578,631,760
=====================================================================================================================
</TABLE>
FS-106
<PAGE> 199
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
the six months ended April 30, 1997, each of the years in the eight-year period
ended October 31, 1996 and the ten months ended October 31, 1988 and for a Class
B share outstanding during the six months ended April 30, 1997, the year ended
October 31, 1996 and the period June 26, 1995 (date sales commenced) through
October 31, 1995.
CLASS A:
<TABLE>
<CAPTION>
October 31,
April 30, ---------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.19 $ 20.33 $ 17.82 $ 17.62 $ 16.68 $ 15.76
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income -- 0.06 -- 0.07 0.10 0.10
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Net gains (losses) on securities (both
realized and unrealized) 1.04 2.51 4.36 0.57 0.93 0.98
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 1.04 2.57 4.36 0.64 1.03 1.08
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.06) -- (0.07) (0.11) (0.09) (0.07)
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Distributions from net realized capital
gains (2.24) (2.71) (1.78) (0.33) -- (0.09)
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Total distributions (2.30) (2.71) (1.85) (0.44) (0.09) (0.16)
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 18.93 $ 20.19 $ 20.33 $ 17.82 $ 17.62 $ 16.68
========================================== ========== ========== ========== ========== ========== ==========
Total return(b) 5.67% 14.81% 28.20% 3.76% 6.17% 6.85%
========================================== ========== ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,014,448 $4,977,493 $4,564,730 $3,965,858 $4,999,983 $5,198,835
========================================== ========== ========== ========== ========== ========== ==========
Ratio of expenses to average net assets(c) 1.11%(d)(e) 1.12% 1.17% 1.21% 1.13% 1.13%
========================================== ========== ========== ========== ========== ========== ==========
Ratio of net investment income to average
net assets(g) 0.03%(d) 0.33% (0.02)% 0.45% 0.62% 0.60%
========================================== ========== ========== ========== ========== ========== ==========
Portfolio turnover rate 68% 159% 139% 136% 109% 37%
========================================== ========== ========== ========== ========== ========== ==========
Average broker commission rate paid(h) $ 0.0622 $ 0.0615 N/A N/A N/A N/A
========================================== ========== ========== ========== ========== ========== ==========
Borrowings for the period:
Amount of debt outstanding at end of
period (000s omitted) -- -- -- -- -- --
========================================== ========== ========== ========== ========== ========== ==========
Average amount of debt outstanding during
the period (000s omitted)(i) -- -- $ 593 -- -- --
========================================== ========== ========== ========== ========== ========== ==========
Average number of shares outstanding
during the period (000s omitted)(i) 264,280 248,189 229,272 249,351 314,490 246,273
========================================== ========== ========== ========== ========== ========== ==========
Average amount of debt per share during
the period -- -- $ 0.003 -- -- --
========================================== ========== ========== ========== ========== ========== ==========
<CAPTION>
October 31,
---------------------------------------------
1991 1990 1989 1988(a)
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.15 $ 12.32 $ 9.23 $ 8.36
- ------------------------------------------ ---------- ---------- -------- --------
Income from investment operations:
Net investment income 0.11 0.09 0.10 0.07
- ------------------------------------------ ---------- ---------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 4.80 (0.56) 3.10 0.80
- ------------------------------------------ ---------- ---------- -------- --------
Total from investment operations 4.91 (0.47) 3.20 0.87
- ------------------------------------------ ---------- ---------- -------- --------
Less distributions:
Dividends from net investment income (0.09) (0.06) (0.11) --
- ------------------------------------------ ---------- ---------- -------- --------
Distributions from net realized capital
gains (0.21) (0.64) -- --
- ------------------------------------------ ---------- ---------- -------- --------
Total distributions (0.30) (0.70) (0.11) --
- ------------------------------------------ ---------- ---------- -------- --------
Net asset value, end of period $ 15.76 $ 11.15 $ 12.32 $ 9.23
========================================== ========== ========== ======== ========
Total return(b) 44.88% (4.03)% 35.13% 10.41%
========================================== ========== ========== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,534,331 $ 632,522 $393,320 $297,284
========================================== ========== ========== ======== ========
Ratio of expenses to average net assets(c) 1.18% 1.25% 1.19% 1.08%(f)
========================================== ========== ========== ======== ========
Ratio of net investment income to average
net assets(g) 0.72% 0.75% 0.96% 0.90%(f)
========================================== ========== ========== ======== ========
Portfolio turnover rate 46% 79% 87% 93%
========================================== ========== ========== ======== ========
Average broker commission rate paid(h) N/A N/A N/A N/A
========================================== ========== ========== ======== ========
Borrowings for the period:
Amount of debt outstanding at end of
period (000s omitted) -- -- $ 3,781 --
========================================== ========== ========== ======== ========
Average amount of debt outstanding during
the period (000s omitted)(i) -- $ 485 $ 1,083 $ 229
========================================== ========== ========== ======== ========
Average number of shares outstanding
during the period (000s omitted)(i) 102,353 44,770 31,275 33,031
========================================== ========== ========== ======== ========
Average amount of debt per share during
the period -- $ 0.011 $ 0.035 $ 0.007
========================================== ========== ========== ======== ========
</TABLE>
(a) The Fund changed investment advisors on September 30, 1988.
(b) Does not deduct sales charges and, for periods less than one year, total
returns are not annualized.
(c) After waiver of fees and/or expense reimbursements. Ratios of expenses to
average net assets prior to waiver of fees and/or expense reimbursements
were 1.14% (annualized), 1.15%, 1.19%, 1.24%, 1.17% and 1.15% for the
periods 1997-1992, respectively.
(d) Ratios are annualized and based on average net assets of $5,167,944,740.
(e) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average net assets would have remained the same.
(f) Annualized.
(g) After waiver of fees and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to waiver of fees and/or expense
reimbursements were 0.00% (annualized), 0.30%, (0.04%), 0.42%, 0.58% and
0.58% for the periods 1997-1992, respectively.
(h) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
(i) Averages computed on a daily basis.
FS-107
<PAGE> 200
CLASS B:
<TABLE>
<CAPTION>
OCTOBER 31,
APRIL 30, ---------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 19.98 $ 20.28 $ 18.56
- ------------------------------------------------------------ ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.05) (0.05)(a) (0.03)
- ------------------------------------------------------------ ---------- ---------- ----------
Net gains (losses) on securities (both realized and
unrealized) 1.00 2.46 1.75
- ------------------------------------------------------------ ---------- ---------- ----------
Total from investment operations 0.95 2.41 1.72
- ------------------------------------------------------------ ---------- ---------- ----------
Less distributions:
Distributions from capital gains (2.24) (2.71) --
- ------------------------------------------------------------ ---------- ---------- ----------
Net asset value, end of period $ 18.69 $ 19.98 $ 20.28
============================================================ ========== ========== ==========
Total return(b) 5.23% 13.95% 9.27%
============================================================ ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000's omitted) $ 351,020 $ 267,459 $ 42,238
============================================================ ========== ========== ==========
Ratio of expenses to average net assets(c) 1.88%(d)(e) 1.95% 1.91%(f)
============================================================ ========== ========== ==========
Ratio of net investment income (loss) to average net
assets(g) (0.74)%(d) (0.50)% (0.76)%(f)
============================================================ ========== ========== ==========
Portfolio turnover rate 68% 159% 139%
============================================================ ========== ========== ==========
Average broker commission rate paid(h) $ 0.0622 $ 0.0615 N/A
============================================================ ========== ========== ==========
Borrowings for the period:
Amount of debt outstanding at end of
period (000s omitted) -- -- --
============================================================ ========== ========== ==========
Average amount of debt outstanding during the
period (000s omitted)(i) -- -- $ 3
============================================================ ========== ========== ==========
Average number of shares outstanding during the
period (000s omitted)(i) 16,619 7,956 1,036
============================================================ ========== ========== ==========
Average amount of debt per share during the period -- -- $ 0.0039
============================================================ ========== ========== ==========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After waiver of fees and/or expense reimbursements. Ratios of expenses to
average net assets prior to waiver of fees and/or expense reimbursements
were 1.89% (annualized), 1.98% and 1.94% (annualized) for the periods
1997-1995, respectively.
(d) Ratios are annualized and based on average net assets of $320,508,971.
(e) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average net assets would have remained the same.
(f) Annualized.
(g) After waiver of fees and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to waiver of fees and/or expense
reimbursements were (0.75)% (annualized), (0.53)% and (0.79)% (annualized)
for the periods 1997-1995, respectively.
(h) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
(i) Averages computed on a daily basis.
FS-108
<PAGE> 201
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Constellation Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital
Management, Inc.
(4) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(5) To approve the elimination of the fundamental investment policy prohibiting
or restricting the Fund's investments in puts, calls, straddles and spreads.
(6) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 0 19,923,485
Bruce L. Crockett........................................... 619,427,685 0 19,307,045
Owen Daly II................................................ 618,919,919 0 19,814,811
Carl Frischling............................................. 619,275,356 0 19,459,374
Robert H. Graham............................................ 619,431,576 0 19,303,154
John F. Kroeger............................................. 618,878,096 0 19,856,634
Lewis F. Pennock............................................ 619,272,998 0 19,461,732
Ian W. Robinson............................................. 618,944,840 0 19,789,890
Louis S. Sklar.............................................. 619,462,714 0 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 146,733,416 2,498,355 6,552,908
(3) Approval of Sub-Advisory Agreement.......................... 146,153,496 2,885,840 6,745,343
(4) Elimination of Fundamental Investment Policy Concerning
Investments in Other Investment Companies................... 111,841,005 5,168,602 6,908,560
(5) Elimination of Fundamental Investment Policy concerning
Puts, Calls, Straddles and Spreads.......................... 110,091,179 6,531,415 7,295,571
(6) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
FS-109
<PAGE> 202
SCHEDULE OF INVESTMENTS
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-83.91%
ADVERTISING/BROADCASTING-0.99%
American Radio Systems Corp.(a) 300,000 $ 8,775,000
- ------------------------------------------------------------------
Chancellor Corp.-Class A(a) 154,000 4,312,000
- ------------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 1,500,000 72,750,000
- ------------------------------------------------------------------
Jacor Communications, Inc.(a) 786,700 22,125,938
- ------------------------------------------------------------------
Paxson Communications Corp.(a) 750,000 7,500,000
- ------------------------------------------------------------------
True North Communications, Inc. 61,400 1,174,275
- ------------------------------------------------------------------
116,637,213
- ------------------------------------------------------------------
AIRLINES-0.12%
Southwest Airlines Co. 500,000 13,750,000
- ------------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.14%
Mark IV Industries, Inc. 689,063 16,020,703
- ------------------------------------------------------------------
BANKING-0.62%
Bank of Boston Corp. 1,000,000 72,750,000
- ------------------------------------------------------------------
BEVERAGES-ALCOHOLIC-0.10%
Cerner Corp.(a) 725,000 11,690,625
- ------------------------------------------------------------------
BIOTECHNOLOGY-0.92%
Amgen, Inc.(a) 912,700 53,735,212
- ------------------------------------------------------------------
Biogen, Inc.(a) 668,100 21,379,200
- ------------------------------------------------------------------
Guidant Corp. 500,000 34,125,000
- ------------------------------------------------------------------
109,239,412
- ------------------------------------------------------------------
BUSINESS SERVICES-1.25%
AccuStaff, Inc.(a) 1,000,000 18,250,000
- ------------------------------------------------------------------
Corrections Corp. of America(a) 357,100 11,650,388
- ------------------------------------------------------------------
CUC International, Inc.(a) 900,000 19,012,500
- ------------------------------------------------------------------
Equifax, Inc. 500,000 14,375,000
- ------------------------------------------------------------------
HealthCare COMPARE Corp.(a) 493,900 21,422,912
- ------------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 1,350,000 30,712,500
- ------------------------------------------------------------------
Paychex, Inc. 700,000 32,768,750
- ------------------------------------------------------------------
148,192,050
- ------------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.20%
IMC Global, Inc. 625,000 23,046,875
- ------------------------------------------------------------------
COMPUTER MINI/PCS-3.61%
Compaq Computer Corp.(a) 1,350,000 115,256,250
- ------------------------------------------------------------------
Dell Computer Corp.(a) 1,538,400 128,744,850
- ------------------------------------------------------------------
Gateway 2000, Inc.(a) 500,000 27,437,500
- ------------------------------------------------------------------
Hewlett-Packard Co. 750,000 39,375,000
- ------------------------------------------------------------------
Sun Microsystems, Inc.(a) 4,000,000 115,250,000
- ------------------------------------------------------------------
426,063,600
- ------------------------------------------------------------------
COMPUTER NETWORKING-0.88%
ACT Networks, Inc.(a)(b) 500,000 6,750,000
- ------------------------------------------------------------------
Ascend Communications, Inc.(a) 625,000 28,593,750
- ------------------------------------------------------------------
Cabletron Systems, Inc.(a) 2,000,000 69,000,000
- ------------------------------------------------------------------
104,343,750
- ------------------------------------------------------------------
COMPUTER PERIPHERALS-1.78%
Adaptec, Inc.(a) 1,700,000 62,900,000
- ------------------------------------------------------------------
EMC Corp.(a) 2,000,000 72,750,000
- ------------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER PERIPHERALS-(CONTINUED)
Microchip Technology, Inc.(a) 2,100,075 $ 65,627,344
- ------------------------------------------------------------------
Storage Technology Corp.(a) 250,000 8,781,250
- ------------------------------------------------------------------
210,058,594
- ------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-9.95%
Adobe Systems, Inc. 1,350,000 52,818,750
- ------------------------------------------------------------------
Affiliated Computer Services,
Inc.(a) 1,000,000 26,000,000
- ------------------------------------------------------------------
BDM International Inc.(a) 400,000 9,300,000
- ------------------------------------------------------------------
BISYS Group, Inc. (The)(a) 463,200 14,822,400
- ------------------------------------------------------------------
BMC Software, Inc.(a) 2,000,000 86,500,000
- ------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 2,000,000 64,000,000
- ------------------------------------------------------------------
Centura Software Corp.(a) 42,893 85,786
- ------------------------------------------------------------------
Computer Associates International,
Inc. 500,000 26,000,000
- ------------------------------------------------------------------
Computer Sciences Corp.(a) 400,000 25,000,000
- ------------------------------------------------------------------
Compuware Corp.(a) 2,000,000 75,500,000
- ------------------------------------------------------------------
CSG Systems International, Inc.(a) 510,000 9,052,500
- ------------------------------------------------------------------
DST Systems, Inc.(a) 1,000,000 28,375,000
- ------------------------------------------------------------------
Electronic Arts, Inc.(a) 500,000 12,062,500
- ------------------------------------------------------------------
Electronics for Imaging, Inc.(a) 317,200 12,450,100
- ------------------------------------------------------------------
First Data Corp. 850,000 29,325,000
- ------------------------------------------------------------------
Fiserv, Inc.(a) 625,000 23,593,750
- ------------------------------------------------------------------
HBO & Co. 900,000 48,150,000
- ------------------------------------------------------------------
HPR, Inc.(a) 500,000 7,062,500
- ------------------------------------------------------------------
IDX Systems Corp.(a) 356,900 10,617,775
- ------------------------------------------------------------------
McAfee Associates, Inc.(a) 1,000,000 55,750,000
- ------------------------------------------------------------------
Microsoft Corp.(a) 1,000,000 121,500,000
- ------------------------------------------------------------------
National Data Corp. 750,000 28,125,000
- ------------------------------------------------------------------
Network General Corp.(a)(b) 1,985,700 27,303,375
- ------------------------------------------------------------------
Oracle Corp.(a) 1,600,000 63,600,000
- ------------------------------------------------------------------
Parametric Technology Co.(a) 2,317,300 104,857,825
- ------------------------------------------------------------------
Physician Computer Network, Inc.(a) 1,500,000 7,968,750
- ------------------------------------------------------------------
Security Dynamics Technologies,
Inc.(a) 1,000,000 25,250,000
- ------------------------------------------------------------------
Sterling Commerce, Inc.(a) 2,000,000 51,750,000
- ------------------------------------------------------------------
Sterling Software, Inc.(a) 500,000 15,250,000
- ------------------------------------------------------------------
SunGard Data Systems Inc.(a) 530,000 23,518,750
- ------------------------------------------------------------------
Sybase, Inc.(a) 1,000,000 14,750,000
- ------------------------------------------------------------------
Synopsys, Inc.(a) 2,000,000 63,750,000
- ------------------------------------------------------------------
Transition Systems, Inc.(a) 33,300 399,600
- ------------------------------------------------------------------
Wind River Systems(a) 450,000 10,350,000
- ------------------------------------------------------------------
1,174,839,361
- ------------------------------------------------------------------
CONGLOMERATES-0.77%
Corning Inc. 1,000,000 48,250,000
- ------------------------------------------------------------------
Tyco International Ltd. 411,982 25,130,902
- ------------------------------------------------------------------
U.S. Industries, Inc.(a) 500,000 18,062,500
- ------------------------------------------------------------------
91,443,402
- ------------------------------------------------------------------
CONSUMER NON-DURABLES-0.05%
Central Garden and Pet Co.(a) 300,000 5,981,250
- ------------------------------------------------------------------
COSMETICS & TOILETRIES-0.57%
General Nutrition Companies, Inc.(a) 1,750,000 37,625,000
- ------------------------------------------------------------------
</TABLE>
FS-110
<PAGE> 203
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COSMETICS & TOILETRIES-(CONTINUED)
McKesson Corp. 167,600 $ 12,130,050
- ------------------------------------------------------------------
Rexall Sundown, Inc.(a) 877,500 17,440,313
- ------------------------------------------------------------------
67,195,363
- ------------------------------------------------------------------
ELECTRIC POWER-0.30%
AES Corp.(a) 550,000 35,887,500
- ------------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-1.79%
AMETEK, Inc. 300,000 6,712,500
- ------------------------------------------------------------------
Berg Electronics Corp.(a) 500,000 15,000,000
- ------------------------------------------------------------------
BMC Industries, Inc. 500,000 14,500,000
- ------------------------------------------------------------------
Methode Electronics, Inc.-Class A 450,000 6,356,250
- ------------------------------------------------------------------
Micron Electronics, Inc.(a) 1,200,000 24,450,000
- ------------------------------------------------------------------
Molex, Inc.-Class A 292,969 8,496,094
- ------------------------------------------------------------------
Raychem Corp. 270,300 17,434,350
- ------------------------------------------------------------------
SCI Systems, Inc.(a) 105,300 6,502,275
- ------------------------------------------------------------------
Symbol Technologies, Inc.(a) 900,000 29,137,500
- ------------------------------------------------------------------
Teradyne, Inc.(a) 2,000,000 65,500,000
- ------------------------------------------------------------------
Thermo Instrument Systems, Inc.(a) 550,000 17,256,250
- ------------------------------------------------------------------
211,345,219
- ------------------------------------------------------------------
ELECTRONIC/PC DISTRIBUTERS-0.30%
Arrow Electronics, Inc.(a) 421,100 23,423,687
- ------------------------------------------------------------------
Avnet, Inc. 200,000 12,175,000
- ------------------------------------------------------------------
35,598,687
- ------------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.12%
Imperial Credit Industries, Inc.(a) 1,000,000 14,562,500
- ------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-4.37%
Aames Financial Corp.(b) 1,060,500 16,305,187
- ------------------------------------------------------------------
American Express Co. 580,700 38,253,612
- ------------------------------------------------------------------
Capital One Financial Corp. 1,700,000 61,412,500
- ------------------------------------------------------------------
Cityscape Financial Corp.(a) 183,700 2,456,988
- ------------------------------------------------------------------
Concord EFS, Inc.(a) 2,250,000 44,437,500
- ------------------------------------------------------------------
Credit Acceptance Corp.(a) 500,000 5,406,250
- ------------------------------------------------------------------
Green Tree Financial Corp. 2,500,000 74,062,500
- ------------------------------------------------------------------
Household International, Inc. 650,000 57,200,000
- ------------------------------------------------------------------
IMC Mortgage Co.(a)(b) 1,398,000 15,727,500
- ------------------------------------------------------------------
MBNA Corp. 2,000,000 66,000,000
- ------------------------------------------------------------------
Money Store, Inc. (The) 1,579,800 34,163,175
- ------------------------------------------------------------------
PMT Services, Inc.(a) 1,000,000 11,875,000
- ------------------------------------------------------------------
Southern Pacific Funding Corp.(a) 300,000 3,187,500
- ------------------------------------------------------------------
Student Loan Marketing Association 450,000 53,212,500
- ------------------------------------------------------------------
SunAmerica, Inc. 700,000 32,200,000
- ------------------------------------------------------------------
515,900,212
- ------------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-0.21%
Washington Mutual, Inc. 510,600 25,210,875
- ------------------------------------------------------------------
FUNERAL SERVICES-1.30%
Equity Corp. International(a) 400,000 8,600,000
- ------------------------------------------------------------------
Service Corp. International 3,500,000 119,875,000
- ------------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 750,000 24,750,000
- ------------------------------------------------------------------
153,225,000
- ------------------------------------------------------------------
FURNITURE-0.29%
Leggett & Platt, Inc. 1,000,000 34,750,000
- ------------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
GAMING-0.84%
Circus Circus Enterprises(a) 1,250,000 $ 30,156,250
- ------------------------------------------------------------------
GTECH Holdings Corp.(a) 750,000 23,062,500
- ------------------------------------------------------------------
International Game Technology 1,358,300 21,563,013
- ------------------------------------------------------------------
MGM Grand, Inc.(a) 732,100 24,708,375
- ------------------------------------------------------------------
99,490,138
- ------------------------------------------------------------------
HOTELS/MOTELS-1.05%
Choice Hotels International, Inc.(a) 1,500,000 21,000,000
- ------------------------------------------------------------------
Doubletree Corp.(a) 702,800 29,517,600
- ------------------------------------------------------------------
HFS, Inc.(a) 750,000 44,437,500
- ------------------------------------------------------------------
Promus Hotel Corp.(a) 650,000 22,912,500
- ------------------------------------------------------------------
Sun International Hotels Ltd.(a) 200,000 6,075,000
- ------------------------------------------------------------------
123,942,600
- ------------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.40%
Compdent Corp.(a)(b) 350,800 5,656,650
- ------------------------------------------------------------------
Conseco Inc. 1,000,000 41,375,000
- ------------------------------------------------------------------
47,031,650
- ------------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-1.15%
CapMAC Holdings, Inc. 850,000 22,100,000
- ------------------------------------------------------------------
MGIC Investment Corp. 1,000,000 81,250,000
- ------------------------------------------------------------------
Progressive Corp. 44,900 3,418,012
- ------------------------------------------------------------------
Providian Corp. 500,000 28,875,000
- ------------------------------------------------------------------
135,643,012
- ------------------------------------------------------------------
LEISURE & RECREATION-0.71%
Harley-Davidson, Inc. 1,500,000 59,250,000
- ------------------------------------------------------------------
Regal Cinemas, Inc.(a) 500,000 13,625,000
- ------------------------------------------------------------------
Speedway Motorsports, Inc.(a) 511,200 10,671,300
- ------------------------------------------------------------------
83,546,300
- ------------------------------------------------------------------
MACHINE TOOLS-0.23%
Precision Castparts Corp. 500,000 26,750,000
- ------------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.49%
Pentair, Inc. 500,000 14,937,500
- ------------------------------------------------------------------
Thermo Electron Corp.(a) 1,250,000 43,125,000
- ------------------------------------------------------------------
58,062,500
- ------------------------------------------------------------------
MEDICAL (DRUGS)-2.26%
Cardinal Health, Inc. 2,143,200 114,125,400
- ------------------------------------------------------------------
Covance, Inc.(a) 1,650,000 24,337,500
- ------------------------------------------------------------------
Curative Technologies, Inc.(a) 282,200 6,666,975
- ------------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 900,000 26,100,000
- ------------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 700,000 25,725,000
- ------------------------------------------------------------------
Forest Laboratories, Inc.(a) 500,000 17,062,500
- ------------------------------------------------------------------
Jones Medical Industries, Inc. 1,121,350 39,527,588
- ------------------------------------------------------------------
Parexel International Corp.(a) 458,200 12,829,600
- ------------------------------------------------------------------
266,374,563
- ------------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-8.72%
American HomePatient, Inc.(a)(b) 750,000 14,437,500
- ------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 1,700,000 59,500,000
- ------------------------------------------------------------------
FPA Medical Management, Inc.(a) 1,000,000 16,250,000
- ------------------------------------------------------------------
Genesis Health Ventures, Inc.(a) 600,000 17,925,000
- ------------------------------------------------------------------
Health Care and Retirement
Corp.(a)(b) 1,500,000 47,437,500
- ------------------------------------------------------------------
Health Management Associates,
Inc.-Class A(a) 3,184,687 85,190,377
- ------------------------------------------------------------------
HEALTHSOUTH Corp.(a) 6,200,000 122,450,000
- ------------------------------------------------------------------
</TABLE>
FS-111
<PAGE> 204
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Humana, Inc.(a) 1,975,000 $ 42,956,250
- ------------------------------------------------------------------
Lincare Holdings, Inc.(a) 1,100,000 43,175,000
- ------------------------------------------------------------------
MedPartners, Inc.(a) 800,000 14,600,000
- ------------------------------------------------------------------
Multicare Companies, Inc.(a) 702,700 13,087,787
- ------------------------------------------------------------------
OccuSystems, Inc.(a) 430,000 8,868,750
- ------------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 524,200 6,290,400
- ------------------------------------------------------------------
Oxford Health Plans, Inc.(a) 1,450,000 95,518,750
- ------------------------------------------------------------------
PacifiCare Health Systems,
Inc.-Class B(a) 300,000 24,075,000
- ------------------------------------------------------------------
PhyCor, Inc.(a) 1,050,000 27,956,250
- ------------------------------------------------------------------
Quorum Health Group, Inc.(a) 1,100,000 34,237,500
- ------------------------------------------------------------------
Tenet Healthcare Corp.(a) 4,950,000 128,700,000
- ------------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 1,000,000 32,125,000
- ------------------------------------------------------------------
United Healthcare Corp. 1,250,000 60,781,250
- ------------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 1,350,000 51,131,250
- ------------------------------------------------------------------
Vencor, Inc.(a) 1,250,000 52,031,250
- ------------------------------------------------------------------
Wellpoint Health Networks, Inc.(a) 752,000 31,772,000
- ------------------------------------------------------------------
1,030,496,814
- ------------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-3.10%
Boston Scientific Corp.(a) 680,952 32,855,934
- ------------------------------------------------------------------
Dentsply International, Inc. 550,000 27,225,000
- ------------------------------------------------------------------
Gulf South Medical Supply,
Inc.(a)(b) 1,054,700 15,029,475
- ------------------------------------------------------------------
Hillenbrand Industries, Inc. 650,000 27,950,000
- ------------------------------------------------------------------
Invacare Corp. 885,200 17,593,350
- ------------------------------------------------------------------
Omnicare, Inc. 3,250,000 79,218,750
- ------------------------------------------------------------------
Physician Sales & Service, Inc.(a) 750,000 10,875,000
- ------------------------------------------------------------------
Quintiles Transnational Corp.(a) 750,000 38,156,250
- ------------------------------------------------------------------
Steris Corp.(a) 500,000 16,375,000
- ------------------------------------------------------------------
Sybron International Corp.(a) 2,000,000 66,500,000
- ------------------------------------------------------------------
US Surgical Corp. 1,000,000 34,250,000
- ------------------------------------------------------------------
366,028,759
- ------------------------------------------------------------------
OFFICE AUTOMATION-0.31%
Xerox Corp. 600,000 36,900,000
- ------------------------------------------------------------------
OFFICE PRODUCTS-0.57%
Avery Dennison Corp. 600,000 22,050,000
- ------------------------------------------------------------------
Reynolds & Reynolds Co.-Class A 2,155,400 44,724,550
- ------------------------------------------------------------------
66,774,550
- ------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.65%
Apache Corp. 686,800 23,351,200
- ------------------------------------------------------------------
Burlington Resources, Inc. 750,000 31,781,250
- ------------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 1,500,000 21,187,500
- ------------------------------------------------------------------
76,319,950
- ------------------------------------------------------------------
OIL & GAS (SERVICES)-1.36%
Camco International, Inc. 963,700 42,764,187
- ------------------------------------------------------------------
Energy Ventures, Inc.(a) 300,000 20,062,500
- ------------------------------------------------------------------
Global Marine, Inc.(a) 1,750,000 35,218,750
- ------------------------------------------------------------------
Halliburton Co. 500,000 35,312,500
- ------------------------------------------------------------------
Pennzoil Co. 450,000 22,162,500
- ------------------------------------------------------------------
Veritas DGC, Inc.(a) 250,000 4,812,500
- ------------------------------------------------------------------
160,332,937
- ------------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL EQUIPMENT & SUPPLIES-3.44%
Baker Hughes, Inc. 1,500,000 $ 51,750,000
- ------------------------------------------------------------------
BJ Services Co.(a) 500,000 23,562,500
- ------------------------------------------------------------------
Cooper Cameron Corp.(a) 500,000 35,625,000
- ------------------------------------------------------------------
Diamond Offshore Drilling, Inc.(a) 750,000 48,281,250
- ------------------------------------------------------------------
ENSCO International, Inc.(a) 1,000,000 47,500,000
- ------------------------------------------------------------------
Falcon Drilling Co., Inc.(a) 800,000 30,600,000
- ------------------------------------------------------------------
Marine Drilling Companies,
Inc.(a)(b) 2,139,100 33,690,825
- ------------------------------------------------------------------
Nabors Industries, Inc.(a) 1,000,000 18,750,000
- ------------------------------------------------------------------
Pride Petroleum Services, Inc.(a) 1,208,100 20,839,725
- ------------------------------------------------------------------
Rowan Companies, Inc.(a) 750,000 13,500,000
- ------------------------------------------------------------------
Smith International, Inc.(a) 1,000,000 47,375,000
- ------------------------------------------------------------------
Varco International, Inc.(a)(b) 1,500,000 34,500,000
- ------------------------------------------------------------------
405,974,300
- ------------------------------------------------------------------
POLLUTION CONTROL-1.10%
United Waste Systems, Inc.(a) 1,300,000 43,875,000
- ------------------------------------------------------------------
US Filter Corp.(a) 1,300,000 39,487,500
- ------------------------------------------------------------------
USA Waste Services, Inc.(a) 1,410,000 46,177,500
- ------------------------------------------------------------------
129,540,000
- ------------------------------------------------------------------
PUBLISHING-0.25%
Gartner Group, Inc.(a) 500,000 13,125,000
- ------------------------------------------------------------------
Times Mirror Co. 300,000 16,575,000
- ------------------------------------------------------------------
29,700,000
- ------------------------------------------------------------------
RESTAURANTS-1.03%
Apple South, Inc. 1,000,000 13,000,000
- ------------------------------------------------------------------
Applebee's International, Inc. 1,000,000 23,375,000
- ------------------------------------------------------------------
Cracker Barrel Old Country Store,
Inc. 1,250,000 33,437,500
- ------------------------------------------------------------------
Lone Star Steakhouse & Saloon(a) 1,000,000 19,750,000
- ------------------------------------------------------------------
Outback Steakhouse, Inc.(a) 538,900 10,575,913
- ------------------------------------------------------------------
Planet Hollywood International,
Inc.-Class A(a) 425,000 7,809,375
- ------------------------------------------------------------------
Starbucks Corp.(a) 450,000 13,443,750
- ------------------------------------------------------------------
121,391,538
- ------------------------------------------------------------------
RETAIL (FOOD & DRUG)-2.56%
American Stores Co. 1,300,000 59,150,000
- ------------------------------------------------------------------
Kroger Co.(a) 2,400,000 66,000,000
- ------------------------------------------------------------------
Quality Food Centers, Inc.(a) 600,000 24,075,000
- ------------------------------------------------------------------
Revco D.S., Inc.(a) 800,000 34,800,000
- ------------------------------------------------------------------
Rite Aid Corp. 713,420 32,817,320
- ------------------------------------------------------------------
Safeway, Inc.(a) 1,925,000 85,903,125
- ------------------------------------------------------------------
302,745,445
- ------------------------------------------------------------------
RETAIL (STORES)-8.79%
Bed Bath & Beyond, Inc.(a) 1,000,000 27,375,000
- ------------------------------------------------------------------
Blyth Industries, Inc.(a) 172,000 6,794,000
- ------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 1,049,700 50,385,600
- ------------------------------------------------------------------
CompUSA, Inc.(a) 3,000,000 57,750,000
- ------------------------------------------------------------------
Consolidated Stores Corp.(a) 2,250,000 90,000,000
- ------------------------------------------------------------------
Dayton Hudson Corp. 1,750,000 78,750,000
- ------------------------------------------------------------------
Dollar General Corp. 950,066 30,045,837
- ------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 600,000 23,700,000
- ------------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 845,400 8,718,187
- ------------------------------------------------------------------
Gap, Inc. 500,000 15,937,500
- ------------------------------------------------------------------
Global DirectMail Corp.(a) 549,700 9,688,462
- ------------------------------------------------------------------
Hollywood Entertainment Corp.(a) 73,100 1,562,513
- ------------------------------------------------------------------
</TABLE>
FS-112
<PAGE> 205
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (STORES)-(CONTINUED)
Home Depot, Inc. 100,000 $ 5,800,000
- ------------------------------------------------------------------
Jones Apparel Group, Inc.(a) 1,150,000 48,012,500
- ------------------------------------------------------------------
Kohl's Corp.(a) 700,000 34,212,500
- ------------------------------------------------------------------
Lowe's Companies, Inc. 1,600,000 60,800,000
- ------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a)(b) 1,400,050 34,826,244
- ------------------------------------------------------------------
Meyer (Fred), Inc.(a) 706,300 29,046,587
- ------------------------------------------------------------------
Micro Warehouse, Inc.(a) 1,159,600 20,003,100
- ------------------------------------------------------------------
Oakley, Inc.(a) 500,000 5,125,000
- ------------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 750,000 24,468,750
- ------------------------------------------------------------------
Petco Animal Supplies, Inc.(a)(b) 850,000 18,168,750
- ------------------------------------------------------------------
PETsMART, Inc.(a) 2,000,000 33,625,000
- ------------------------------------------------------------------
Ross Stores, Inc. 734,000 20,643,750
- ------------------------------------------------------------------
Saks Holdings, Inc.(a) 89,900 1,719,338
- ------------------------------------------------------------------
Sports Authority, Inc. (The)(a)(b) 1,250,000 22,187,500
- ------------------------------------------------------------------
Staples, Inc.(a) 3,500,000 63,000,000
- ------------------------------------------------------------------
Tech Data Corp.(a) 1,687,300 41,338,850
- ------------------------------------------------------------------
Tiffany & Co. 1,000,000 39,625,000
- ------------------------------------------------------------------
TJX Companies, Inc. 750,000 35,437,500
- ------------------------------------------------------------------
Toys "R" Us, Inc.(a) 2,000,000 57,000,000
- ------------------------------------------------------------------
Viking Office Products, Inc.(a) 2,000,000 27,250,000
- ------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 500,000 15,500,000
- ------------------------------------------------------------------
1,038,497,468
- ------------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.49%
Perkin-Elmer Corp. 794,800 57,722,350
- ------------------------------------------------------------------
SECURITY & SAFETY SERVICES-0.07%
Rural/Metro Corp.(a) 300,000 8,625,000
- ------------------------------------------------------------------
SEMICONDUCTORS-7.70%
Advanced Micro Devices, Inc.(a) 1,250,000 53,125,000
- ------------------------------------------------------------------
Altera Corp.(a) 1,821,400 90,273,137
- ------------------------------------------------------------------
Analog Devices, Inc.(a) 1,000,000 26,750,000
- ------------------------------------------------------------------
Applied Materials, Inc.(a) 1,150,000 63,106,250
- ------------------------------------------------------------------
Atmel Corp.(a) 500,000 12,437,500
- ------------------------------------------------------------------
Intel Corp. 150,000 22,968,750
- ------------------------------------------------------------------
Kemet Corp.(a) 279,900 5,458,050
- ------------------------------------------------------------------
KLA Instruments Corp.(a) 1,500,000 66,750,000
- ------------------------------------------------------------------
Lam Research Corp.(a) 525,000 15,225,000
- ------------------------------------------------------------------
Linear Technology Corp. 1,500,000 75,375,000
- ------------------------------------------------------------------
LSI Logic Corp.(a) 1,500,000 57,375,000
- ------------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 1,275,000 67,415,625
- ------------------------------------------------------------------
Micron Technology, Inc. 800,000 28,200,000
- ------------------------------------------------------------------
Motorola, Inc. 1,000,000 57,250,000
- ------------------------------------------------------------------
National Semiconductor Corp.(a) 2,250,000 56,250,000
- ------------------------------------------------------------------
Novellus Systems, Inc.(a) 500,000 28,875,000
- ------------------------------------------------------------------
Solectron Corp.(a) 300,000 17,212,500
- ------------------------------------------------------------------
Tencor Instruments(a) 511,700 22,706,687
- ------------------------------------------------------------------
Texas Instruments, Inc. 700,000 62,475,000
- ------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 225,000 7,087,500
- ------------------------------------------------------------------
Xilinx, Inc.(a) 1,500,000 73,500,000
- ------------------------------------------------------------------
909,815,999
- ------------------------------------------------------------------
SHOES & RELATED APPAREL-0.54%
Nine West Group, Inc.(a) 1,113,100 44,106,587
- ------------------------------------------------------------------
Wolverine World Wide, Inc. 500,000 20,125,000
- ------------------------------------------------------------------
64,231,587
- ------------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS-3.42%
ACC Corp. 81,500 $ 1,293,813
- ------------------------------------------------------------------
ADC Telecommunications, Inc.(a) 3,000,000 78,375,000
- ------------------------------------------------------------------
Andrew Corp.(a) 1,014,500 25,108,875
- ------------------------------------------------------------------
Aspect Telecommunications Corp.(a) 1,200,000 21,300,000
- ------------------------------------------------------------------
Billing Information Concepts(a)(b) 780,000 18,622,500
- ------------------------------------------------------------------
DSC Communications Corp.(a) 2,000,000 40,750,000
- ------------------------------------------------------------------
Lucent Technologies, Inc. 1,000,000 59,125,000
- ------------------------------------------------------------------
PairGain Technologies, Inc.(a)(b) 1,000,000 26,000,000
- ------------------------------------------------------------------
QUALCOMM, Inc.(a) 300,000 14,025,000
- ------------------------------------------------------------------
Tellabs, Inc.(a) 2,000,000 79,750,000
- ------------------------------------------------------------------
U.S. Long Distance Corp.(a) 343,300 4,162,512
- ------------------------------------------------------------------
WorldCom, Inc.(a) 1,500,000 36,000,000
- ------------------------------------------------------------------
404,512,700
- ------------------------------------------------------------------
TELEPHONE-0.24%
Cincinnati Bell, Inc. 500,000 28,000,000
- ------------------------------------------------------------------
TEXTILES-1.41%
Liz Claiborne, Inc. 1,250,000 56,562,500
- ------------------------------------------------------------------
Nautica Enterprises, Inc.(a) 1,500,000 33,187,500
- ------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 1,150,000 45,712,500
- ------------------------------------------------------------------
Unifi, Inc. 1,000,000 31,000,000
- ------------------------------------------------------------------
166,462,500
- ------------------------------------------------------------------
TRANSPORTATION-0.07%
AirNet Systems, Inc.(a) 560,000 8,680,000
- ------------------------------------------------------------------
TRUCKING-0.33%
Consolidated Freightways, Inc. 825,000 24,543,750
- ------------------------------------------------------------------
USFreightways Corp. 550,000 14,850,000
- ------------------------------------------------------------------
39,393,750
- ------------------------------------------------------------------
Total Domestic Common Stocks 9,910,718,601
- ------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS-0.07%
INSURANCE (MULTI-LINE PROPERTY)-0.07%
MGIC Investment Corp.-$3.12 Conv.
Pfd. 116,500 8,140,438
- ------------------------------------------------------------------
Total Domestic Convertible
Preferred Stocks 8,140,438
- ------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-4.54%
CANADA-1.28%
CanWest Global Communications Corp.
(Electronic
Components/Miscellaneous) 2,250,000 30,093,750
- ------------------------------------------------------------------
Newbridge Networks Corp. (Computer
Networking)(a) 2,000,000 63,500,000
- ------------------------------------------------------------------
Northern Telecom Ltd.
(Telecommunications) 550,000 39,943,750
- ------------------------------------------------------------------
Potash Corp. of Saskatchewan Inc.
(Metals) 225,000 17,296,875
- ------------------------------------------------------------------
150,834,375
- ------------------------------------------------------------------
FINLAND-0.62%
Nokia Oy A.B.-Class
A-ADR (Telecommunications) 999,950 64,621,769
- ------------------------------------------------------------------
Nokia Oy A.B.-Class A
(Telecommunications) 152,650 9,437,154
- ------------------------------------------------------------------
74,058,923
- ------------------------------------------------------------------
FRANCE-0.10%
SGS-Thomson Microelectronics
N.V.-New York shares
(Semiconductors)(a) 146,100 11,450,588
- ------------------------------------------------------------------
IRELAND-0.52%
CBT Group PLC-ADR (Computer
Software/Services)(a) 49,400 2,402,075
- ------------------------------------------------------------------
Elan Corp. PLC-ADR
(Medical-Drugs)(a) 1,750,000 59,500,000
- ------------------------------------------------------------------
61,902,075
- ------------------------------------------------------------------
</TABLE>
FS-113
<PAGE> 206
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ISRAEL-0.17%
Tecnomatix Technologies Ltd.
(Computer Software/Services)(a) 329,500 $ 8,443,438
- ------------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Medical-Drugs) 225,000 11,418,750
- ------------------------------------------------------------------
19,862,188
- ------------------------------------------------------------------
ITALY-0.05%
Telecom Italia Mobile S.p.A.
(Telecommunications) 1,074,000 3,369,080
- ------------------------------------------------------------------
Telecom Italia S.p.A.
(Telecommunications) 1,074,000 2,843,425
- ------------------------------------------------------------------
6,212,505
- ------------------------------------------------------------------
NETHERLANDS-0.61%
Baan Co., N.V.
(Computer Software/Services)(a) 550,000 29,562,500
- ------------------------------------------------------------------
Gucci Group N.V.-ADR (Textiles) 500,000 34,687,500
- ------------------------------------------------------------------
Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit
(Publishing) 328,500 6,794,924
- ------------------------------------------------------------------
71,044,924
- ------------------------------------------------------------------
SWEDEN-0.57%
Telefonaktiebolaget LM Ericsson-ADR
(Telecommunications) 2,000,000 67,250,000
- ------------------------------------------------------------------
UNITED KINGDOM-0.62%
Burton Group PLC (Retail-Stores) 2,700,000 6,673,419
- ------------------------------------------------------------------
Danka Business Systems PLC-ADR
(Office Automation) 2,000,000 61,125,000
- ------------------------------------------------------------------
Granada Group PLC (Leisure &
Recreation) 390,000 5,625,608
- ------------------------------------------------------------------
73,424,027
- ------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests 536,039,605
- ------------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE BONDS-0.22%
ADVERTISING/BROADCASTING-0.06%
Jacor Communications Inc., Sr. Conv.
LYONS, 5.50%, 06/12/11(c) $14,450,000 6,683,125
- ------------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-0.15%
Aames Financial Corp., Conv. Sub.
Deb., 5.50%, 03/15/06(b) $ 7,150,000 $ 6,353,848
- -------------------------------------------------------------------
Cityscape Financial Corp., Conv.
Sub. Deb., 6.00%, 05/01/06(d)
(Acquired 08/06/96 - 04/17/97;
Cost $7,563,854) 17,345,000 11,504,765
- -------------------------------------------------------------------
17,858,613
- -------------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-0.01%
Multicare Companies Inc., Conv. Sub.
Deb., 7.00%, 03/15/03(d) (Acquired
01/13/97; Cost $1,800,000)(c) 1,500,000 1,717,500
- -------------------------------------------------------------------
Total Domestic Convertible Bonds 26,259,238
- -------------------------------------------------------------------
FOREIGN CONVERTIBLE BONDS-0.22%
NETHERLANDS-0.16%
Baan Co., N.V. (Computer
Software/Services), Conv. Sub.
Notes, 4.50%, 12/15/01(d)
(Acquired 01/13/97 - 01/24/97;
Cost $16,084,313) 13,965,000 18,961,817
- -------------------------------------------------------------------
SWITZERLAND-0.06%
Sandoz Capital BVI Ltd. (Chemicals),
Sr. Conv. Deb., 2.00%, 10/06/02(d)
(Acquired 11/04/96 - 11/13/96;
Cost $6,240,625) 5,540,000 6,952,700
- -------------------------------------------------------------------
Total Foreign Convertible Bonds 25,914,517
- -------------------------------------------------------------------
REPURCHASE AGREEMENTS-4.75%(e)
Goldman, Sachs & Co., 5.375%,
05/01/97(f) 5,270,186 5,270,186
- -------------------------------------------------------------------
Goldman, Sachs & Co., 5.375%,
05/01/97(g) 555,263,395 555,263,395
- -------------------------------------------------------------------
Total Repurchase Agreements 560,533,581
- -------------------------------------------------------------------
TIME DEPOSIT-0.16%
Deutsche Morgan Grenfelt/C.J.
Lawrence Inc.
5.75%, 05/01/97 20,000,000 20,000,000
- -------------------------------------------------------------------
U.S. TREASURY BILLS-5.63%(h)
5.10%, 06/26/97 664,537,605(i) 664,537,605
- -------------------------------------------------------------------
TOTAL INVESTMENTS-99.50% 11,752,143,585
- -------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.50% 59,404,105
- -------------------------------------------------------------------
NET ASSETS-100.00% $11,811,547,690
===================================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities as of April 30,
1997 was $342,996,854 which represented 2.90% of the Fund's net assets.
(c) Zero coupon bond. The interest rate shown represents the rate of original
issue discount.
(d) 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 this security has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of this security at April 30, 1997 was $39,136,782,
which represents 0.33% of the Fund's net assets.
(e) Collateral on repurchase agreements, include the Fund's pro-rata interest in
joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 04/30/97 with a maturing value of
$825,123,177. Collaterized by $823,214,000 U.S. Treasury obligations, 0% to
9.375% due 07/03/97 to 02/15/27 with an aggregate market value of
$842,392,678.
(g) Joint repurchase agreement entered into 04/30/97 with a maturing value of
$701,547,221. Collaterized by $757,320,000 U.S. Treasury obligations at 0%
to 9.375% due 07/17/97 to 02/15/26 with an aggregate market value of
$716,184,843.
(h) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(i) A portion of the principal balance was pledged as collateral to cover margin
requirements for open future contracts. See Note 6.
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
LYONS - Liquid Yield Option Notes
Sr. - Senior
Sub. - Subordinated
See Notes to Financial Statements.
FS-114
<PAGE> 207
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$9,635,077,907) $11,752,143,585
- ------------------------------------------------------------
Foreign currencies, at market value (cost
$757) 739
- ------------------------------------------------------------
Receivables for:
Investments sold 130,129,821
- ------------------------------------------------------------
Capital stock sold 21,450,503
- ------------------------------------------------------------
Dividends and interest 2,980,490
- ------------------------------------------------------------
Variation margin 2,455,500
- ------------------------------------------------------------
Investment for deferred compensation plan 73,882
- ------------------------------------------------------------
Other assets 44,900
- ------------------------------------------------------------
Total assets 11,909,279,420
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 48,427,070
- ------------------------------------------------------------
Capital stock reacquired 35,154,727
- ------------------------------------------------------------
Deferred compensation 73,882
- ------------------------------------------------------------
Accrued advisory fees 5,764,650
- ------------------------------------------------------------
Accrued administrative services fees 21,231
- ------------------------------------------------------------
Accrued directors' fees 17,187
- ------------------------------------------------------------
Accrued distribution fees 4,135,002
- ------------------------------------------------------------
Accrued transfer agent fees 2,160,574
- ------------------------------------------------------------
Accrued operating expenses 1,977,407
- ------------------------------------------------------------
Total liabilities 97,731,730
- ------------------------------------------------------------
Net assets applicable to shares outstanding $11,811,547,690
============================================================
NET ASSETS:
Class A $11,505,285,655
============================================================
Institutional Class $ 306,262,035
============================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 479,369,178
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 12,459,982
============================================================
CLASS A:
Net asset value and redemption price per
share $ 24.00
============================================================
Offering price per share:
(Net asset value of $24.00 divided by
94.50%) $ 25.40
============================================================
INSTITUTIONAL CLASS:
Net asset value, offering and redemption
price per share $ 24.58
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1997
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $408,840 foreign
withholding tax) $ 14,766,590
- ------------------------------------------------------------
Interest 30,752,729
- ------------------------------------------------------------
Total investment income 45,519,319
- ------------------------------------------------------------
EXPENSES:
Advisory fees 38,143,072
- ------------------------------------------------------------
Administrative service fees 131,642
- ------------------------------------------------------------
Custodian fees 442,449
- ------------------------------------------------------------
Directors' fees 34,340
- ------------------------------------------------------------
Distribution fees-Class A 17,790,913
- ------------------------------------------------------------
Transfer agent fees-Class A 9,637,007
- ------------------------------------------------------------
Transfer agent fees-Institutional Class 14,456
- ------------------------------------------------------------
Other 2,325,081
- ------------------------------------------------------------
Total expenses 68,518,960
- ------------------------------------------------------------
Less: Fees waived by advisor (1,273,103)
- ------------------------------------------------------------
Expenses paid indirectly (99,884)
- ------------------------------------------------------------
Net expenses 67,145,973
- ------------------------------------------------------------
Net investment income (loss) (21,626,654)
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FUTURES CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 253,029,008
- ------------------------------------------------------------
Foreign currencies (304,504)
- ------------------------------------------------------------
Futures contracts 104,122,264
- ------------------------------------------------------------
356,846,768
- ------------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities (614,289,674)
- ------------------------------------------------------------
Foreign currencies (11,004)
- ------------------------------------------------------------
Futures contracts (33,091,970)
- ------------------------------------------------------------
(647,392,648)
- ------------------------------------------------------------
Net gain (loss) on investment
securities, foreign currencies and
futures contracts (290,545,880)
- ------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (312,172,534)
============================================================
</TABLE>
See Notes to Financial Statements.
FS-115
<PAGE> 208
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1997 and the year ended October 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (21,626,654) $ (25,042,610)
- -----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies and futures contracts 356,846,768 394,119,929
- -----------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and futures contracts (647,392,648) 672,745,646
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (312,172,534) 1,041,822,965
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (401,530,087) (233,242,373)
- -----------------------------------------------------------------------------------------------
Institutional Class (10,336,039) (4,789,469)
- -----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 956,209,959 3,470,281,071
- -----------------------------------------------------------------------------------------------
Institutional Class 30,835,429 135,200,711
- -----------------------------------------------------------------------------------------------
Net increase in net assets 263,006,728 4,409,272,905
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 11,548,540,962 7,139,268,057
- -----------------------------------------------------------------------------------------------
End of period $11,811,547,690 $11,548,540,962
===============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 9,395,851,171 $ 8,408,805,783
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (21,751,192) (124,538)
- -----------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies and futures contracts 333,181,244 388,200,602
- -----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 2,104,266,467 2,751,659,115
- -----------------------------------------------------------------------------------------------
$11,811,547,690 $11,548,540,962
===============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1997
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation 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 diversified portfolios:
AIM Constellation Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM
Capital Development Fund, AIM Charter Fund and AIM Weingarten Fund. The Fund
currently offers two different classes of shares: the Class A 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 seek capital appreciation.
The following is a summary of the 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--A security listed or traded on an exchange (except
convertible bonds) 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. 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. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. 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 (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be
FS-116
<PAGE> 209
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 quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the 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 would 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 market 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 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.
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--Distribution and transfer agency expenses directly attributable
to a class of shares and charged to that class' operations. All other
expenses which are attributable to more than one class are allocated
between the classes.
E. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
F. 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.
G. 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 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 voluntary 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. During the six months ended
April 30, 1997, AIM waived fees of $1,273,103. The waiver is entirely voluntary
but approval is required by the Board of Directors for any decision by AIM to
discontinue the waiver. 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 six months ended April 30, 1997, AIM
was reimbursed $131,642 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Class A shares. During the six months ended April 30, 1997, AFS
was paid $5,265,385 for such services. During the six months ended April 30,
1997, the Fund paid A I M Institutional Fund Services, Inc. ("AIFS") with
FS-117
<PAGE> 210
respect to the Institutional Class $14,456 for shareholder and transfer agency
services.
The Fund received reductions in transfer agency fees of $93,574 from dividends
received on balances in cash management bank accounts. In addition, the Fund
incurred expenses of $6,310 from pricing services which are paid through
directed brokerage commissions. The effect of the above arrangements resulted in
a reduction of the Fund's total expenses of $99,884 during the six months ended
April 30, 1997.
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 shares and a master distribution agreement with Fund Management Company
("FMC") to serve as the distributor for the Institutional Class. The Company has
adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), with
respect to the Class A shares, whereby the Fund pays AIM Distributors an annual
rate of 0.30% of the Class A shares average daily net assets as compensation for
services related to the sales and distribution of the Class A shares. The Plan
provides that payments to dealers and financial institutions that provide
continuing personal shareholder services to their customers who purchase and own
shares of the Class A shares, in amounts of up to 0.25% of the average net
assets of the Class A shares attributable to the customers of such dealers or
financial institutions, may be characterized as a service fee. The Plan also
provides that payments in excess of service fees are characterized as an asset-
based sales charge under the Plan. The Plan also imposes a cap on the total
amount of sales charges, including asset-based sales charges, that may be paid
by the Company with respect to the Fund's Class A shares. During the six months
ended April 30, 1997, the Class A shares paid AIM Distributors $17,790,913 as
compensation under the Plan.
AIM Distributors received commissions of $6,178,551 from Class A capital stock
transactions during the six months ended April 30, 1997. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of capital stock. During the six months ended April 30,
1997, AIM Distributors received commissions of $145,208 in contingent deferred
sales charges imposed on the 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 six months ended April 30, 1997, the Fund paid legal fees of
$20,475 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-DIRECTOR'S FEES
Director's 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.
During the six months ended April 30, 1997, 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 six months ended April 30, 1997 was
$4,450,537,743 and $3,841,421,244, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of April 30, 1997, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $2,499,681,274
- -------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (384,213,274)
- -------------------------------------------------------
Net unrealized appreciation of
investment securities $2,115,468,000
=======================================================
</TABLE>
Cost of investments for tax purposes is $9,636,675,585.
NOTE 6-FUTURES CONTRACT
On April 30, 1997, $27,285,000 par value U.S. Treasury obligations were pledged
as collateral to cover margin requirements for futures contracts.
Futures contracts outstanding at April 30, 1997:
(Contracts--$500 times index/delivery month/commitment)
<TABLE>
<CAPTION>
Unrealized
Appreciation
(Depreciation)
--------------
<S> <C>
S&P 500 Index/1,637 contracts/Jun 97/Buy $(12,789,125)
========================================================
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in the capital stock outstanding for the six months ended April 30, 1997
and the year ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 OCTOBER 31, 1996
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 114,119,928 $ 2,895,955,476 282,903,859 $ 6,791,107,589
- -------------------- ----------- --------------- ------------ ---------------
Institutional Class 3,519,313 91,297,192 7,711,696 189,568,037
- -------------------- ----------- --------------- ------------ ---------------
Issued as
reinvestment of
dividends:
Class A 15,529,296 381,399,365 10,007,849 218,670,843
- -------------------- ----------- --------------- ------------ ---------------
Institutional Class 387,258 9,720,186 200,095 4,444,113
- -------------------- ----------- --------------- ------------ ---------------
Reacquired:
Class A (92,033,269) (2,321,144,882) (146,642,433) (3,539,497,361)
- -------------------- ----------- --------------- ------------ ---------------
Institutional Class (2,711,919) (70,181,949) (2,422,264) (58,811,439)
- -------------------- ----------- --------------- ------------ ---------------
38,810,607 $ 987,045,388 151,758,802 $ 3,605,481,782
==================== =========== =============== ============ ===============
</TABLE>
FS-118
<PAGE> 211
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1997, each of the years in the
eight-year period ended October 31, 1996 and the ten months ended October 31,
1988.
<TABLE>
<CAPTION>
October 31,
April 30, ------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 25.48 $ 23.69 $ 18.31 $ 17.04 $ 13.25 $ 11.72 $ 6.59
- ------------------------------- ----------- ----------- ---------- ---------- ---------- -------- --------
Income from investment
operations:
Net investment income
(loss) (0.05) (0.06) (0.05) (0.02) (0.04) (0.04) (0.03)
- ------------------------------- ----------- ----------- ---------- ---------- ---------- -------- --------
Net gains (losses) on
securities (both realized
and unrealized) (0.54) 2.60 5.95 1.29 3.83 1.76 5.16
- ------------------------------- ----------- ----------- ---------- ---------- ---------- -------- --------
Total from investment
operations (0.59) 2.54 5.90 1.27 3.79 1.72 5.13
- ------------------------------- ----------- ----------- ---------- ---------- ---------- -------- --------
Less distributions:
Dividends from net
investment income -- -- -- -- -- -- --
- ------------------------------- ----------- ----------- ---------- ---------- ---------- -------- --------
Distributions from capital
gains (0.89) (0.75) (0.52) -- -- (0.19) --
- ------------------------------- ----------- ----------- ---------- ---------- ---------- -------- --------
Total distributions (0.89) (0.75) (0.52) -- -- (0.19) --
- ------------------------------- ----------- ----------- ---------- ---------- ---------- -------- --------
Net asset value, end of period $ 24.00 $ 25.48 $ 23.69 $ 18.31 $ 17.04 $ 13.25 $ 11.72
=============================== =========== =========== ========== ========== ========== ======== =========
Total return(b) (2.41)% 11.26% 33.43% 7.45% 28.60% 14.82% 77.85%
=============================== =========== =========== ========== ========== ========== ======== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s
omitted) $11,505,286 $11,255,506 $7,000,350 $3,726,029 $2,756,497 $966,472 $342,835
=============================== =========== =========== ========== ========== ========== ======== =========
Ratio of expenses to average
net assets(c) 1.12%(d)(e) 1.14% 1.16% 1.20% 1.22% 1.21% 1.35%
=============================== =========== =========== ========== ========== ========== ======== =========
Ratio of net investment income
(loss) to average net
assets(f) (0.37)%(d) (0.27)% (0.32)% (0.15)% (0.31)% (0.42)% (0.41)%
=============================== =========== =========== ========== ========== ========== ======== =========
Portfolio turnover rate 33% 58% 45% 79% 70% 62% 109%
=============================== =========== =========== ========== ========== ========== ======== =========
Average broker commission rate
paid(h) $ 0.0588 $ 0.0596 N/A N/A N/A N/A N/A
=============================== =========== =========== ========== ========== ========== ======== =========
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) -- -- -- -- -- -- --
=============================== =========== =========== ========== ========== ========== ======== =========
Average amount of debt
outstanding during the period
(000s omitted)(i) -- -- -- -- -- -- --
=============================== =========== =========== ========== ========== ========== ======== =========
Average amount of shares
outstanding during the period
(000s omitted)(i) 468,998 381,030 244,731 182,897 124,101 55,902 21,205
=============================== =========== =========== ========== ========== ========== ======== =========
Average amount of debt per
share during the period -- -- -- -- -- -- --
=============================== =========== =========== ========== ========== ========== ======== =========
<CAPTION>
October 31,
------------------------------
1990 1989 1988(a)
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 9.40 $ 7.34 $ 6.35
- ------------------------------- -------- -------- --------
Income from investment
operations:
Net investment income
(loss) (0.03) 0.01 (0.03)
- ------------------------------- -------- -------- --------
Net gains (losses) on
securities (both realized
and unrealized) (1.23) 2.46 1.02
- ------------------------------- -------- -------- --------
Total from investment
operations (1.26) 2.47 0.99
- ------------------------------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.01) -- --
- ------------------------------- -------- -------- --------
Distributions from capital
gains (1.54) (0.41) --
- ------------------------------- -------- -------- --------
Total distributions (1.55) (0.41) --
- ------------------------------- -------- -------- --------
Net asset value, end of period $ 6.59 $ 9.40 $ 7.34
=============================== ======== ======== ========
Total return(b) (16.17)% 35.50% 15.59%
=============================== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s
omitted) $ 83,304 $ 74,731 $ 78,272
=============================== ======== ======== ========
Ratio of expenses to average
net assets(c) 1.37% 1.36% 1.30%(g)
=============================== ======== ======== ========
Ratio of net investment income
(loss) to average net
assets(f) (0.44)% 0.07% (0.57)%(g)
=============================== ======== ======== ========
Portfolio turnover rate 192% 149% 131%
=============================== ======== ======== ========
Average broker commission rate
paid(h) N/A N/A N/A
=============================== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) -- $ 9,610 $ 5,266
=============================== ======== ======== ========
Average amount of debt
outstanding during the period
(000s omitted)(i) $ 2,344 $ 2,609 $ 2,148
=============================== ======== ======== ========
Average amount of shares
outstanding during the period
(000s omitted)(i) 11,397 10,050 10,845
=============================== ======== ======== ========
Average amount of debt per
share during the period $ 0.21 $ 0.26 $ 0.20
=============================== ======== ======== ========
(a) The Fund changed investment advisors on September 30, 1988.
(b) Does not deduct sales charges and for periods less than one
year, total returns are not annualized.
(c) Ratios of expenses prior to waiver of advisory fees are
1.14% (annualized), 1.16%, 1.18% and 1.21% for the periods
1997-1994, respectively.
(d) Ratios are annualized and based on average net assets of
$11,958,901,203.
(e) Ratio includes expenses paid indirectly. Excluding expenses
paid indirectly, the ratio of expenses to average net assets
would have remained the same.
(f) Ratios of net investment income (loss) prior to waiver of
advisory fees are (0.39)% (annualized), (0.29)%, (0.34)% and
(0.16)% for the periods 1997-1994, respectively.
(g) Annualized.
(h) Disclosure requirement beginning with the Fund's fiscal year
ending October 31, 1996.
(i) Averages computed on a daily basis.
</TABLE>
FS-119
<PAGE> 212
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Constellation Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital
Management, Inc.
(4) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(5) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 0 19,923,485
Bruce L. Crockett........................................... 619,427,685 0 19,307,045
Owen Daly II................................................ 618,919,919 0 19,814,811
Carl Frischling............................................. 619,275,356 0 19,459,374
Robert H. Graham............................................ 619,431,576 0 19,303,154
John F. Kroeger............................................. 618,878,096 0 19,856,634
Lewis F. Pennock............................................ 619,272,998 0 19,461,732
Ian W. Robinson............................................. 618,944,840 0 19,789,890
Louis S. Sklar.............................................. 619,462,714 0 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 230,906,150 3,535,231 9,875,635
(3) Approval of Sub-Advisory Agreement.......................... 230,060,493 4,051,941 10,204,582
(4) Elimination of Fundamental Investment Policy................ 167,170,198 8,866,029 10,438,104
(5) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
FS-120
<PAGE> 213
SCHEDULE OF INVESTMENTS
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-95.09%
ADVERTISING/BROADCASTING-3.10%
American Radio Systems Corp.(a) 100,000 $ 2,925,000
- ---------------------------------------------------------------
CKS Group, Inc.(a) 200,000 4,225,000
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 300,000 14,550,000
- ---------------------------------------------------------------
Evergreen Media Corp. -- Class
A(a) 200,000 6,475,000
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 401,400 20,070,000
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 352,800 9,922,500
- ---------------------------------------------------------------
Meredith Corp. 200,000 4,700,000
- ---------------------------------------------------------------
Telemundo Group, Inc.-Class A(a) 175,000 4,593,750
- ---------------------------------------------------------------
67,461,250
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.56%
BE Aerospace, Inc.(a) 355,000 8,741,875
- ---------------------------------------------------------------
REMEC, Inc.(a) 150,000 3,450,000
- ---------------------------------------------------------------
12,191,875
- ---------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS &
TIRES-0.29%
Borg-Warner Automotive, Inc. 150,000 6,300,000
- ---------------------------------------------------------------
BANKING-0.77%
Bank United Corp.-Class A(a) 175,000 5,337,500
- ---------------------------------------------------------------
First Republic Bancorp, Inc.(a) 300,000 6,262,500
- ---------------------------------------------------------------
First Savings Bank of Washington
Bancorp, Inc. 250,000 5,250,000
- ---------------------------------------------------------------
16,850,000
- ---------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.26%
Cerner Corp.(a) 350,000 5,643,750
- ---------------------------------------------------------------
BUILDING MATERIALS-0.15%
Danaher Corp. 70,000 3,158,750
- ---------------------------------------------------------------
BUSINESS SERVICES-2.78%
AccuStaff, Inc.(a) 181,000 3,303,250
- ---------------------------------------------------------------
Cambridge Technology Partners,
Inc.(a) 225,000 5,990,625
- ---------------------------------------------------------------
Caribiner International, Inc.(a) 100,000 5,300,000
- ---------------------------------------------------------------
Claremont Technology Group,
Inc.(a) 76,600 1,034,100
- ---------------------------------------------------------------
Data Processing Resources
Corp.(a) 86,500 1,589,437
- ---------------------------------------------------------------
IntelliQuest Information Group,
Inc.(a) 375,000 6,093,750
- ---------------------------------------------------------------
MedQuist, Inc.(a) 175,000 4,418,750
- ---------------------------------------------------------------
NOVA Corp.(a) 175,000 3,150,000
- ---------------------------------------------------------------
Pharmaceutical Product
Development, Inc.(a) 175,000 2,931,250
- ---------------------------------------------------------------
RemedyTemp, Inc.-Class A(a) 165,000 2,516,250
- ---------------------------------------------------------------
Robert Half International,
Inc.(a) 300,000 11,775,000
- ---------------------------------------------------------------
Romac International, Inc.(a) 300,000 5,850,000
- ---------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 60,000 1,380,000
- ---------------------------------------------------------------
Vincam Group, Inc. (The)(a) 100,000 3,250,000
- ---------------------------------------------------------------
Whittman-Hart, Inc.(a) 100,000 1,900,000
- ---------------------------------------------------------------
60,482,412
- ---------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER MINI/PCS-0.22%
Stratus Computer, Inc.(a) 125,000 $ 4,859,375
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.97%
Coherent Communications Systems
Corp.(a) 500,000 8,187,500
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 125,000 4,906,250
- ---------------------------------------------------------------
Digital Microwave Corp.(a) 150,000 3,862,500
- ---------------------------------------------------------------
International Network Services(a) 13,500 276,750
- ---------------------------------------------------------------
Network Appliance, Inc.(a) 75,000 2,184,375
- ---------------------------------------------------------------
VideoServer, Inc.(a) 100,000 1,687,500
- ---------------------------------------------------------------
21,104,875
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-0.68%
Encad, Inc.(a) 200,000 7,350,000
- ---------------------------------------------------------------
MicroTouch Systems, Inc.(a) 350,000 7,481,250
- ---------------------------------------------------------------
14,831,250
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-12.70%
Affiliated Computer Services,
Inc.(a) 600,000 15,600,000
- ---------------------------------------------------------------
Analysts International Corp. 200,000 5,700,000
- ---------------------------------------------------------------
BDM International Inc.(a) 500,000 11,625,000
- ---------------------------------------------------------------
BISYS Group, Inc. (The)(a) 150,000 4,800,000
- ---------------------------------------------------------------
CBT Group PLC-ADR(a) (Ireland) 156,400 7,604,950
- ---------------------------------------------------------------
Centura Software Corp.(a) 14,930 29,860
- ---------------------------------------------------------------
Cognos, Inc.(a) (Canada) 250,000 6,343,750
- ---------------------------------------------------------------
Computer Data Systems, Inc. 181,300 3,943,275
- ---------------------------------------------------------------
Computer Horizons Corp.(a) 100,000 4,350,000
- ---------------------------------------------------------------
Computer Task Group, Inc. 100,000 4,312,500
- ---------------------------------------------------------------
Cooper & Chyan Technology,
Inc.(a) 367,000 8,899,750
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 250,000 4,437,500
- ---------------------------------------------------------------
Documentum, Inc.(a) 100,000 1,850,000
- ---------------------------------------------------------------
Engineering Animation, Inc.(a)(b) 310,100 7,132,300
- ---------------------------------------------------------------
HBO & Co. 125,000 6,687,500
- ---------------------------------------------------------------
HPR, Inc.(a) 500,000 7,062,500
- ---------------------------------------------------------------
IDX Systems Corp.(a) 165,600 4,926,600
- ---------------------------------------------------------------
Imnet Systems, Inc.(a) 325,000 5,971,875
- ---------------------------------------------------------------
Indus Group, Inc.(a) 300,000 4,537,500
- ---------------------------------------------------------------
Integrated Measurement Systems,
Inc.(a) 300,000 3,975,000
- ---------------------------------------------------------------
Jack Henry & Associates 225,000 4,275,000
- ---------------------------------------------------------------
JDA Software Group, Inc.(a) 250,000 6,312,500
- ---------------------------------------------------------------
Keane, Inc.(a) 53,400 2,476,425
- ---------------------------------------------------------------
McAfee Associates, Inc.(a) 200,000 11,150,000
- ---------------------------------------------------------------
Midway Games Inc.(a) 200,000 3,600,000
- ---------------------------------------------------------------
National Data Corp. 200,000 7,500,000
- ---------------------------------------------------------------
National TechTeam, Inc.(a) 250,000 3,875,000
- ---------------------------------------------------------------
Network General Corp.(a) 485,800 6,679,750
- ---------------------------------------------------------------
Peerless Systems Corp.(a) 250,000 2,968,750
- ---------------------------------------------------------------
</TABLE>
FS-121
<PAGE> 214
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
PeopleSoft, Inc.(a) 125,000 $ 5,187,500
- ---------------------------------------------------------------
Physician Computer Network,
Inc.(a) 398,000 2,114,375
- ---------------------------------------------------------------
RadiSys Corp.(a) 100,000 2,937,500
- ---------------------------------------------------------------
Raptor Systems, Inc.(a) 100,000 1,150,000
- ---------------------------------------------------------------
Renaissance Solutions, Inc.(a) 125,000 2,718,750
- ---------------------------------------------------------------
Saville Systems Ireland
PLC-ADR(a) (Ireland) 350,000 14,393,750
- ---------------------------------------------------------------
Scopus Technology, Inc.(a) 44,600 1,193,050
- ---------------------------------------------------------------
Security Dynamics Technologies,
Inc.(a) 300,000 7,575,000
- ---------------------------------------------------------------
SPSS, Inc.(a) 210,000 5,565,000
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 159,260 4,120,852
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 100,000 3,050,000
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 300,000 13,312,500
- ---------------------------------------------------------------
Sykes Enterprises, Inc.(a) 60,900 1,735,650
- ---------------------------------------------------------------
Technology Solutions Co.(a) 250,000 6,593,750
- ---------------------------------------------------------------
Transition Systems, Inc.(a) 373,200 4,478,400
- ---------------------------------------------------------------
Trusted Information System,
Inc.(a) 200,000 1,800,000
- ---------------------------------------------------------------
Vantive Corp.(a) 80,000 1,590,000
- ---------------------------------------------------------------
Veritas Software Corp.(a) 360,000 12,105,000
- ---------------------------------------------------------------
Viasoft, Inc.(a) 175,000 7,437,500
- ---------------------------------------------------------------
Wind River Systems(a) 187,500 4,312,500
- ---------------------------------------------------------------
Yahoo! Inc.(a) 127,500 4,350,938
- ---------------------------------------------------------------
276,349,300
- ---------------------------------------------------------------
CONSUMER NON-DURABLES-0.42%
Central Garden and Pet Co.(a) 275,000 5,482,812
- ---------------------------------------------------------------
Herbalife International, Inc. 233,300 3,761,963
- ---------------------------------------------------------------
9,244,775
- ---------------------------------------------------------------
CONTAINERS-0.14%
Apogee Enterprises, Inc. 200,000 3,000,000
- ---------------------------------------------------------------
COSMETICS & TOILETRIES-1.19%
Helen of Troy Ltd.(a) 550,000 12,787,500
- ---------------------------------------------------------------
NBTY, Inc.(a) 275,000 5,225,000
- ---------------------------------------------------------------
Rexall Sundown, Inc.(a) 400,000 7,950,000
- ---------------------------------------------------------------
25,962,500
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-4.13%
AMETEK, Inc. 200,000 4,475,000
- ---------------------------------------------------------------
ANADIGICS, Inc.(a) 246,300 6,957,975
- ---------------------------------------------------------------
ASE Test Ltd. 65,400 2,427,975
- ---------------------------------------------------------------
Benchmarq Microelectronics,
Inc.(a) 400,000 7,000,000
- ---------------------------------------------------------------
BMC Industries, Inc. 500,000 14,500,000
- ---------------------------------------------------------------
Cyberoptics Corp.(a) 200,000 3,225,000
- ---------------------------------------------------------------
Micro Linear Corp.(a) 200,000 3,175,000
- ---------------------------------------------------------------
Micron Electronics, Inc.(a) 365,000 7,436,875
- ---------------------------------------------------------------
Perceptron, Inc.(a) 200,000 5,650,000
- ---------------------------------------------------------------
Sawtek Inc.(a) 178,500 5,288,063
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 22,600 1,395,550
- ---------------------------------------------------------------
Sipex Corp.(a)(b) 420,000 10,080,000
- ---------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONIC
COMPONENTS/MISCELLANEOUS-(CONTINUED)
Symbol Technologies, Inc.(a) 300,000 $ 9,712,500
- ---------------------------------------------------------------
Technitrol, Inc. 300,000 6,037,500
- ---------------------------------------------------------------
ThermoQuest Corp.(a) 200,000 2,600,000
- ---------------------------------------------------------------
89,961,438
- ---------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.18%
Halter Marine Group, Inc.(a) 200,000 3,925,000
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.20%
Imperial Credit Industries,
Inc.(a) 300,000 4,368,750
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-4.14%
Aames Financial Corp. 214,650 3,300,241
- ---------------------------------------------------------------
AmeriCredit Corp.(a) 300,000 4,312,500
- ---------------------------------------------------------------
Amresco, Inc.(a) 400,000 5,825,000
- ---------------------------------------------------------------
Cityscape Financial Corp.(a) 225,000 3,009,375
- ---------------------------------------------------------------
CMAC Investment Corp. 300,000 11,400,000
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 600,000 11,850,000
- ---------------------------------------------------------------
Consumer Portfolio Services,
Inc.(a) 350,000 2,712,500
- ---------------------------------------------------------------
Delta Financial Corp.(a) 250,000 3,375,000
- ---------------------------------------------------------------
First Alliance Corp.(a) 200,000 4,100,000
- ---------------------------------------------------------------
FIRSTPLUS Financial Group,
Inc.(a) 450,000 9,956,250
- ---------------------------------------------------------------
IMC Mortgage Co.(a) 300,000 3,375,000
- ---------------------------------------------------------------
Metris Companies Inc.(a) 125,000 3,125,000
- ---------------------------------------------------------------
Money Store, Inc. (The) 716,600 15,496,475
- ---------------------------------------------------------------
PMT Services, Inc.(a) 300,000 3,562,500
- ---------------------------------------------------------------
Southern Pacific Funding Corp.(a) 250,000 2,656,250
- ---------------------------------------------------------------
Union Acceptance Corp.(a) 200,000 2,100,000
- ---------------------------------------------------------------
90,156,091
- ---------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-0.70%
Bay View Capital Corp. 150,000 7,284,375
- ---------------------------------------------------------------
Ocwen Financial Corp.(a) 120,000 3,780,000
- ---------------------------------------------------------------
TCF Financial Corp. 100,000 4,087,500
- ---------------------------------------------------------------
15,151,875
- ---------------------------------------------------------------
FOOD/PROCESSING-0.37%
Delta & Pine Land Co. 133,333 3,333,325
- ---------------------------------------------------------------
Smithfield Foods, Inc.(a) 100,000 4,612,500
- ---------------------------------------------------------------
7,945,825
- ---------------------------------------------------------------
FUNERAL SERVICES-1.01%
Equity Corp. International(a) 450,000 9,675,000
- ---------------------------------------------------------------
Stewart Enterprises, Inc.- Class
A 375,000 12,375,000
- ---------------------------------------------------------------
22,050,000
- ---------------------------------------------------------------
FURNITURE-0.48%
Ethan Allen Interiors, Inc. 125,000 5,531,250
- ---------------------------------------------------------------
Herman Miller, Inc. 150,000 4,856,250
- ---------------------------------------------------------------
10,387,500
- ---------------------------------------------------------------
GAMING-0.17%
Primadonna Resorts, Inc.(a) 200,000 3,750,000
- ---------------------------------------------------------------
</TABLE>
FS-122
<PAGE> 215
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOME BUILDING-0.09%
American Homestar Corp.(a) 125,000 $ 2,031,250
- ---------------------------------------------------------------
HOTELS/MOTELS-0.51%
Prime Hospitality Corp.(a) 450,000 7,481,250
- ---------------------------------------------------------------
Suburban Lodges of America,
Inc.(a) 80,000 1,290,000
- ---------------------------------------------------------------
Wyndham Hotel Corp.(a) 83,300 2,301,163
- ---------------------------------------------------------------
11,072,413
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.49%
Compdent Corp.(a) 66,500 1,072,313
- ---------------------------------------------------------------
CRA Managed Care, Inc.(a) 100,000 3,525,000
- ---------------------------------------------------------------
First Commonwealth, Inc.(a) 162,500 1,990,625
- ---------------------------------------------------------------
Penn Treaty American Corp.(a) 150,000 4,050,000
- ---------------------------------------------------------------
10,637,938
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-0.93%
CapMAC Holdings, Inc. 250,000 6,500,000
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 250,000 6,281,250
- ---------------------------------------------------------------
Vesta Insurance Group, Inc. 178,500 7,452,375
- ---------------------------------------------------------------
20,233,625
- ---------------------------------------------------------------
LEISURE & RECREATION-1.15%
Avid Technology, Inc.(a) 200,000 3,875,000
- ---------------------------------------------------------------
Cannondale Corp.(a) 200,000 3,900,000
- ---------------------------------------------------------------
North Face, Inc.(a) 200,000 2,825,000
- ---------------------------------------------------------------
Penske Motorsports, Inc.(a) 100,000 2,937,500
- ---------------------------------------------------------------
Royal Caribbean Cruises Ltd. 200,000 6,375,000
- ---------------------------------------------------------------
West Marine, Inc.(a) 200,000 5,200,000
- ---------------------------------------------------------------
25,112,500
- ---------------------------------------------------------------
MACHINE TOOLS-0.25%
Precision Castparts Corp. 100,000 5,350,000
- ---------------------------------------------------------------
MACHINERY (HEAVY)-0.09%
Rental Service Corp.(a) 103,600 1,916,600
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.53%
Kulicke & Soffa Industries,
Inc.(a) 250,000 6,984,375
- ---------------------------------------------------------------
Prime Service, Inc.(a) 200,000 4,475,000
- ---------------------------------------------------------------
11,459,375
- ---------------------------------------------------------------
MEDICAL (DRUGS)-2.66%
Arbor Drugs, Inc. 300,000 5,512,500
- ---------------------------------------------------------------
Biovail Corporation
International(a) (Canada) 300,000 7,500,000
- ---------------------------------------------------------------
Cardinal Health, Inc. 278,700 14,840,775
- ---------------------------------------------------------------
Curative Technologies, Inc.(a) 150,000 3,543,750
- ---------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 207,000 6,003,000
- ---------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 125,000 4,593,750
- ---------------------------------------------------------------
Medicis Pharmaceutical Corp.(a) 405,000 9,922,500
- ---------------------------------------------------------------
Parexel International Corp.(a) 214,800 6,014,400
- ---------------------------------------------------------------
57,930,675
- ---------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-11.55%
ABR Information Services, Inc.(a) 240,000 $ 4,830,000
- ---------------------------------------------------------------
ADAC Laboratories 250,000 5,781,250
- ---------------------------------------------------------------
American HomePatient, Inc.(a) 337,350 6,493,988
- ---------------------------------------------------------------
American Medserve Corp.(a) 191,700 2,084,738
- ---------------------------------------------------------------
Arbor Health Care Co.(a)(b) 450,000 11,025,000
- ---------------------------------------------------------------
Atria Communities, Inc.(a) 250,000 2,812,500
- ---------------------------------------------------------------
CareMatrix Corp.(a) 350,000 6,956,250
- ---------------------------------------------------------------
EmCare Holdings, Inc.(a) 200,000 5,625,000
- ---------------------------------------------------------------
Envoy Corp.(a) 300,000 6,262,500
- ---------------------------------------------------------------
FPA Medical Management, Inc.(a) 375,000 6,093,750
- ---------------------------------------------------------------
Genesis Health Ventures, Inc.(a) 150,000 4,481,250
- ---------------------------------------------------------------
Health Care and Retirement
Corp.(a) 300,000 9,487,500
- ---------------------------------------------------------------
Health Management Associates,
Inc.-Class A(a) 737,662 19,732,458
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 1,000,000 19,750,000
- ---------------------------------------------------------------
Hologic, Inc.(a) 300,000 6,225,000
- ---------------------------------------------------------------
Integrated Health Services,
Inc.(a) 225,000 7,228,125
- ---------------------------------------------------------------
Lincare Holdings, Inc.(a) 200,000 7,850,000
- ---------------------------------------------------------------
MedPartners, Inc.(a) 150,000 2,737,500
- ---------------------------------------------------------------
Multicare Companies, Inc.(a) 375,000 6,984,375
- ---------------------------------------------------------------
NCS HealthCare, Inc.-Class A(a) 125,000 2,843,750
- ---------------------------------------------------------------
NovaCare, Inc.(a) 300,000 3,412,500
- ---------------------------------------------------------------
OccuSystems, Inc.(a) 287,200 5,923,500
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 625,000 7,500,000
- ---------------------------------------------------------------
Oxford Health Plans, Inc.(a) 100,000 6,587,500
- ---------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 150,000 4,950,000
- ---------------------------------------------------------------
PhyCor, Inc.(a) 187,500 4,992,187
- ---------------------------------------------------------------
Quorum Health Group, Inc.(a) 250,000 7,781,250
- ---------------------------------------------------------------
Renal Care Group, Inc.(a) 200,000 6,000,000
- ---------------------------------------------------------------
Renal Treatment Centers, Inc.(a) 200,000 4,325,000
- ---------------------------------------------------------------
RoTech Medical Corp.(a) 500,000 7,875,000
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 94,800 2,287,050
- ---------------------------------------------------------------
Tenet Healthcare Corp.(a) 540,000 14,040,000
- ---------------------------------------------------------------
Total Renal Care Holdings,
Inc.(a) 150,000 4,818,750
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 400,000 15,150,000
- ---------------------------------------------------------------
Vencor, Inc.(a) 250,000 10,406,250
- ---------------------------------------------------------------
251,333,921
- ---------------------------------------------------------------
MEDICAL
INSTRUMENTS/PRODUCTS-4.22%
Acuson Corp.(a) 250,000 6,062,500
- ---------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a) 150,000 2,231,250
- ---------------------------------------------------------------
Capstone Pharmacy Services,
Inc.(a) 105,000 885,937
- ---------------------------------------------------------------
CardioThoracic Systems, Inc.(a) 100,000 1,587,500
- ---------------------------------------------------------------
Dentsply International, Inc. 250,000 12,375,000
- ---------------------------------------------------------------
ESC Medical Systems Ltd.(a)
(Israel) 47,850 1,285,969
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 200,000 5,550,000
- ---------------------------------------------------------------
MiniMed, Inc.(a) 150,000 3,712,500
- ---------------------------------------------------------------
National Dentex Corp.(a)(b) 185,000 3,156,563
- ---------------------------------------------------------------
</TABLE>
FS-123
<PAGE> 216
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL INSTRUMENTS/PRODUCTS-(CONTINUED)
Omnicare, Inc. 500,000 $ 12,187,500
- ---------------------------------------------------------------
Patterson Dental Co.(a) 300,000 10,050,000
- ---------------------------------------------------------------
Physician Sales & Service, Inc.(a) 200,000 2,900,000
- ---------------------------------------------------------------
ResMed, Inc.(a) 275,000 4,812,500
- ---------------------------------------------------------------
Suburban Ostomy Supply Co.,
Inc.(a)(b) 556,900 5,012,100
- ---------------------------------------------------------------
Sybron International Corp.(a) 600,000 19,950,000
- ---------------------------------------------------------------
91,759,319
- ---------------------------------------------------------------
METALS-0.13%
Northwest Pipe Co.(a) 150,000 2,400,000
- ---------------------------------------------------------------
Shaw Group, Inc.(a) 36,700 495,450
- ---------------------------------------------------------------
2,895,450
- ---------------------------------------------------------------
OFFICE AUTOMATION-0.35%
Danka Business Systems PLC-ADR
(United Kingdom) 250,000 7,640,625
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.49%
Daisytek International Corp.(a)(b) 393,000 10,709,250
- ---------------------------------------------------------------
OIL & GAS (DRILLING)-0.80%
Cliffs Drilling Co.(a) 145,000 8,845,000
- ---------------------------------------------------------------
Patterson Energy, Inc.(a) 120,000 3,450,000
- ---------------------------------------------------------------
Precision Drilling Corp.(a)
(Canada) 150,000 5,212,500
- ---------------------------------------------------------------
17,507,500
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.60%
Devon Energy Corp.(a) 225,000 7,425,000
- ---------------------------------------------------------------
Edge Petroleum Corp.(a) 225,000 3,065,625
- ---------------------------------------------------------------
St. Mary Land & Exploration Co. 100,000 2,600,000
- ---------------------------------------------------------------
13,090,625
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-2.13%
Camco International, Inc. 225,000 9,984,375
- ---------------------------------------------------------------
Energy Ventures, Inc.(a) 250,000 16,718,750
- ---------------------------------------------------------------
Global Industries Ltd.(a) 250,000 5,250,000
- ---------------------------------------------------------------
Newpark Resources, Inc.(a) 100,000 4,487,500
- ---------------------------------------------------------------
SEACOR Holdings Inc.(a) 50,000 2,150,000
- ---------------------------------------------------------------
Veritas DGC, Inc.(a) 400,000 7,700,000
- ---------------------------------------------------------------
46,290,625
- ---------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-1.39%
Marine Drilling Companies, Inc.(a) 377,600 5,947,200
- ---------------------------------------------------------------
National-Oilwell, Inc.(a) 400,000 15,550,000
- ---------------------------------------------------------------
Pride Petroleum Services, Inc.(a) 169,200 2,918,700
- ---------------------------------------------------------------
Varco International, Inc.(a) 250,000 5,750,000
- ---------------------------------------------------------------
30,165,900
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.19%
Schweitzer-Mauduit International,
Inc. 125,000 4,078,125
- ---------------------------------------------------------------
POLLUTION CONTROL-2.00%
Philip Environmental, Inc.(a)
(Canada) 475,000 7,481,250
- ---------------------------------------------------------------
Tetra Technologies, Inc.(a) 265,000 6,161,250
- ---------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
POLLUTION CONTROL-(CONTINUED)
United Waste Systems, Inc.(a) 100,000 $ 3,375,000
- ---------------------------------------------------------------
US Filter Corp.(a) 450,000 13,668,750
- ---------------------------------------------------------------
USA Waste Services, Inc.(a) 390,000 12,772,500
- ---------------------------------------------------------------
43,458,750
- ---------------------------------------------------------------
PUBLISHING-0.22%
World Color Press, Inc.(a) 200,000 4,800,000
- ---------------------------------------------------------------
RESTAURANTS-1.64%
Apple South, Inc. 499,962 6,499,506
- ---------------------------------------------------------------
CKE Restaurants, Inc. 225,000 4,415,625
- ---------------------------------------------------------------
Foodmaker, Inc.(a) 770,000 8,373,750
- ---------------------------------------------------------------
Landry's Seafood Restaurants,
Inc.(a) 275,000 3,862,891
- ---------------------------------------------------------------
NPC International Inc.(a) 52,500 577,500
- ---------------------------------------------------------------
Papa John's International, Inc.(a) 200,000 5,150,000
- ---------------------------------------------------------------
Showbiz Pizza Time, Inc.(a) 200,000 3,850,000
- ---------------------------------------------------------------
Starbucks Corp.(a) 100,000 2,987,500
- ---------------------------------------------------------------
35,716,772
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-0.87%
Quality Food Centers, Inc.(a) 350,000 14,043,750
- ---------------------------------------------------------------
Twinlab Corp.(a) 375,000 4,968,750
- ---------------------------------------------------------------
19,012,500
- ---------------------------------------------------------------
RETAIL (STORES)-9.15%
Blyth Industries, Inc.(a) 400,000 15,800,000
- ---------------------------------------------------------------
Buckle, Inc. (The)(a) 340,000 5,015,000
- ---------------------------------------------------------------
CDW Computer Centers, Inc.(a) 162,500 7,800,000
- ---------------------------------------------------------------
CompUSA, Inc.(a) 600,000 11,550,000
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 175,000 6,912,500
- ---------------------------------------------------------------
Duty Free International, Inc. 400,000 5,650,000
- ---------------------------------------------------------------
Eagle Hardware & Garden, Inc.(a) 550,000 10,312,500
- ---------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 322,800 3,328,875
- ---------------------------------------------------------------
Footstar, Inc.(a) 125,000 2,593,750
- ---------------------------------------------------------------
Gadzooks, Inc.(a) 100,000 2,787,500
- ---------------------------------------------------------------
Hollywood Entertainment Corp.(a) 300,000 6,412,500
- ---------------------------------------------------------------
Inacom Corp.(a) 150,000 3,318,750
- ---------------------------------------------------------------
Insight Enterprises, Inc.(a) 350,000 8,312,500
- ---------------------------------------------------------------
Just for Feet, Inc.(a) 400,000 6,350,000
- ---------------------------------------------------------------
Loehmann's Holdings, Inc.(a)(b) 125,000 859,375
- ---------------------------------------------------------------
Marks Bros. Jewelers, Inc.(a) 200,000 2,225,000
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 325,000 8,084,375
- ---------------------------------------------------------------
Meyer (Fred), Inc.(a) 100,000 4,112,500
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 200,000 3,850,000
- ---------------------------------------------------------------
Micro Warehouse, Inc.(a) 200,000 3,450,000
- ---------------------------------------------------------------
MicroAge, Inc. 350,000 4,418,750
- ---------------------------------------------------------------
MSC Industrial Direct Co., Inc.-
Class A(a) 125,000 3,843,750
- ---------------------------------------------------------------
99 Cents Only Stores(a) 100,000 2,162,500
- ---------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 200,000 7,000,000
- ---------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 450,000 9,618,750
- ---------------------------------------------------------------
</TABLE>
FS-124
<PAGE> 217
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (STORES)-(CONTINUED)
Pier 1 Imports, Inc. 600,000 $ 11,850,000
- ---------------------------------------------------------------
Sports Authority, Inc. (The)(a) 300,000 5,325,000
- ---------------------------------------------------------------
Stein Mart, Inc.(a) 200,000 5,800,000
- ---------------------------------------------------------------
Tech Data Corp.(a) 545,000 13,352,500
- ---------------------------------------------------------------
Wet Seal, Inc.-Class A(a) 225,000 5,568,750
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 175,000 5,425,000
- ---------------------------------------------------------------
Wilmar Industries, Inc.(a) 150,000 2,475,000
- ---------------------------------------------------------------
Zale Corp.(a) 200,000 3,700,000
- ---------------------------------------------------------------
199,265,125
- ---------------------------------------------------------------
SCHOOLS-0.27%
Children's Comprehensive
Services, Inc.(a) 275,000 3,231,250
- ---------------------------------------------------------------
Strayer Education, Inc. 100,000 2,575,000
- ---------------------------------------------------------------
5,806,250
- ---------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.49%
Datum, Inc.(a) 133,300 3,099,225
- ---------------------------------------------------------------
Dynatech Corp.(a) 100,000 3,475,000
- ---------------------------------------------------------------
Thermo Optek Corp.(a) 350,000 4,068,750
- ---------------------------------------------------------------
10,642,975
- ---------------------------------------------------------------
SECURITY & SAFETY SERVICES-0.22%
Cornell Corrections, Inc.(a) 200,000 1,875,000
- ---------------------------------------------------------------
Rural/Metro Corp.(a) 100,000 2,875,000
- ---------------------------------------------------------------
4,750,000
- ---------------------------------------------------------------
SEMICONDUCTORS-5.66%
Actel Corp.(a) 100,000 1,787,500
- ---------------------------------------------------------------
Burr-Brown Corp.(a) 100,000 2,950,000
- ---------------------------------------------------------------
Computer Products, Inc.(a) 550,000 9,418,750
- ---------------------------------------------------------------
Cymer, Inc.(a) 150,000 6,168,750
- ---------------------------------------------------------------
Dallas Semiconductor Corp.(a) 250,000 9,125,000
- ---------------------------------------------------------------
DuPont Photomasks, Inc.(a) 150,000 7,181,250
- ---------------------------------------------------------------
GaSonics International Corp.(a) 123,200 1,047,200
- ---------------------------------------------------------------
HADCO Corp.(a) 230,000 9,832,500
- ---------------------------------------------------------------
Integrated Device Technology, Inc.(a) 450,000 5,287,500
- ---------------------------------------------------------------
Kemet Corp.(a) 300,000 5,850,000
- ---------------------------------------------------------------
Lattice Semiconductor Corp.(a) 275,000 15,365,625
- ---------------------------------------------------------------
MEMC Electronic Materials, Inc.(a) 235,700 6,452,288
- ---------------------------------------------------------------
Photronics, Inc.(a) 200,000 6,925,000
- ---------------------------------------------------------------
Sanmina Corp.(a) 150,000 7,500,000
- ---------------------------------------------------------------
Sierra Semiconductor Corp.(a) 400,000 6,750,000
- ---------------------------------------------------------------
Silicon Valley Group, Inc.(a) 250,000 5,140,625
- ---------------------------------------------------------------
Tower Semiconductor Ltd. 350,000 4,375,000
- ---------------------------------------------------------------
Triquint Semiconductor, Inc.(a) 235,000 6,991,250
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 162,500 5,118,750
- ---------------------------------------------------------------
123,266,988
- ---------------------------------------------------------------
SHOES & RELATED APPAREL-1.70%
Converse, Inc.(a) 500,000 7,500,000
- ---------------------------------------------------------------
Genesco Inc.(a) 200,000 2,325,000
- ---------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SHOES & RELATED APPAREL-(CONTINUED)
Pacific Sunwear of California(a) 200,000 $ 6,250,000
- ---------------------------------------------------------------
Stride Rite Corp. 250,000 3,437,500
- ---------------------------------------------------------------
Vans, Inc.(a) 250,000 2,406,250
- ---------------------------------------------------------------
Wolverine World Wide, Inc. 375,000 15,093,750
- ---------------------------------------------------------------
37,012,500
- ---------------------------------------------------------------
STEEL-0.52%
Maverick Tube Corp.(a) 279,100 6,105,313
- ---------------------------------------------------------------
Tubos de Acero de Mexico S.A.(a)
(Mexico) 325,000 5,321,875
- ---------------------------------------------------------------
11,427,188
- ---------------------------------------------------------------
TELECOMMUNICATIONS-5.47%
ADC Telecommunications, Inc.(a) 552,200 14,426,225
- ---------------------------------------------------------------
Adtran, Inc.(a) 100,000 2,962,500
- ---------------------------------------------------------------
Advanced Fibre Communications,
Inc.(a) 125,000 4,984,375
- ---------------------------------------------------------------
Andrew Corp.(a) 201,600 4,989,600
- ---------------------------------------------------------------
Anicom, Inc.(a) 400,000 3,300,000
- ---------------------------------------------------------------
Aspect Telecommunications Corp.(a) 250,000 4,437,500
- ---------------------------------------------------------------
Billing Information Concepts(a) 350,000 8,356,250
- ---------------------------------------------------------------
Brightpoint, Inc.(a)(b) 937,406 20,505,762
- ---------------------------------------------------------------
CellStar Corp.(a) 275,000 6,600,000
- ---------------------------------------------------------------
Davox Corp.(a) 150,000 4,950,000
- ---------------------------------------------------------------
MasTec, Inc.(a) 150,000 4,350,000
- ---------------------------------------------------------------
NACT Telecommunications, Inc.(a) 100,000 687,500
- ---------------------------------------------------------------
P-COM, Inc.(a) 100,000 2,862,500
- ---------------------------------------------------------------
PairGain Technologies, Inc.(a) 189,600 4,929,600
- ---------------------------------------------------------------
Precision Response Corp.(a) 50,000 818,750
- ---------------------------------------------------------------
Premiere Technologies, Inc.(a) 250,000 5,968,750
- ---------------------------------------------------------------
Proxim, Inc.(a) 100,000 2,012,500
- ---------------------------------------------------------------
Tel-Save Holdings, Inc.(a) 200,000 2,800,000
- ---------------------------------------------------------------
Tellabs, Inc.(a) 200,000 7,975,000
- ---------------------------------------------------------------
Tollgrade Communications, Inc.(a) 200,000 3,950,000
- ---------------------------------------------------------------
U.S. Long Distance Corp.(a) 350,000 4,243,750
- ---------------------------------------------------------------
Xpedite Systems, Inc.(a) 100,000 2,012,500
- ---------------------------------------------------------------
Yurie Systems, Inc.(a) 100,000 962,500
- ---------------------------------------------------------------
119,085,562
- ---------------------------------------------------------------
TEXTILES-2.14%
G & K Services, Inc.-Class A(a) 200,000 5,800,000
- ---------------------------------------------------------------
Mohawk Industries, Inc.(a) 250,000 5,593,750
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 390,000 8,628,750
- ---------------------------------------------------------------
Quicksilver, Inc.(a) 150,000 3,262,500
- ---------------------------------------------------------------
St. John Knits, Inc. 250,000 9,593,750
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 150,000 5,962,500
- ---------------------------------------------------------------
WestPoint Stevens, Inc.(a) 200,000 7,825,000
- ---------------------------------------------------------------
46,666,250
- ---------------------------------------------------------------
TRANSPORTATION-0.45%
Hub Group, Inc.(a) 200,000 5,300,000
- ---------------------------------------------------------------
</TABLE>
FS-125
<PAGE> 218
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TRANSPORTATION-(CONTINUED)
Trico Marine Services, Inc.(a) 125,000 $ 4,437,500
- ---------------------------------------------------------------
9,737,500
- ---------------------------------------------------------------
TRUCKING-0.13%
Swift Transportation Co., Inc.(a) 100,000 2,850,000
- ---------------------------------------------------------------
Total Common Stocks 2,069,850,667
- ---------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS-0.41%
ADVERTISING/BROADCASTING-0.07%
Jacor Communications Inc.,
Conv. Sr. LYON,
5.50%, 06/12/11(c) $ 3,200,000 1,480,000
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.34%
Aames Financial Corp.,
Conv. Sub. Deb.,
5.50%, 03/15/06 1,560,000 1,386,294
- ---------------------------------------------------------------
Cityscape Financial Corp.,
Conv. Sub. Deb.,
6.00%, 05/01/06(d)
(Acquired 08/06/96; Cost
$1,326,624) 960,000 636,758
- ---------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-(CONTINUED)
Southern Pacific Funding Corp.,
Conv. Sub. Notes,
6.75%, 10/15/06 $ 6,750,000 $ 5,332,500
- ---------------------------------------------------------------
7,355,552
- ---------------------------------------------------------------
Total Convertible Corporate
Bonds 8,835,552
- ---------------------------------------------------------------
U.S. TREASURY SECURITIES-1.87%
U.S. Treasury Bills-1.87%(e)
5.10%, 06/26/97(f) 41,160,000 40,828,458
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-1.89%(g)
HSBC Securities, Inc.
5.05%, 05/01/97(h) 4,935,390 4,935,390
- ---------------------------------------------------------------
5.49%, 05/01/97(i) 36,238,378 36,238,378
- ---------------------------------------------------------------
Total Repurchase Agreements 41,173,768
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.26% 2,160,688,445
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.74% 16,030,352
- ---------------------------------------------------------------
NET ASSETS -100.00% $2,176,718,797
===============================================================
</TABLE>
Investment Abbreviations:
ADR -- American Depository Receipt
Conv. -- Convertible
Deb. -- Debentures
LYON -- Liquid Yield Option Notes
Sr. -- Senior
Sub. -- Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities at 04/30/97 was
$63,287,088 which represented 2.91% of the Fund's net assets.
(c) Zero coupon bond. Interest rate shown represents the rate of original issue
discount.
(d) Restricted security. May be resold to qualified buyers in accordance with
the provisions of Rule 144A under the Securities Act of 1933, as amended.
The valuation of this security has been determined in accordance with
procedures established by the Board of Directors. The market value of this
security at 04/30/97 was $636,758 which represented 0.03% of the Fund's net
assets.
(e) U.S. Treasury bills are traded on discount basis. In such cases the interest
rate shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(f) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 6.
(g) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(h) Joint repurchase agreement entered into 04/30/97 with a maturing value of
$100,014,028. Collateralized by $96,950,000 U.S. Treasury obligations, 7.50%
to 7.875% due 10/31/99 to 12/31/99 with an aggregate market value at
04/30/97 of $102,002,050.
(i) Joint repurchase agreement entered into 04/30/97 with a maturing value of
$200,030,500. Collateralized by $116,271,000 U.S. Treasury obligations,
5.875% to 7.875% due 06/30/01 to 08/15/05 and $85,760,000 U.S. Government
agency obligations, 0% to 7.15% due 07/18/97 to 02/14/06 with an aggregate
market value at 04/30/97 of $204,003,650.
See Notes to Financial Statements.
FS-126
<PAGE> 219
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,826,531,956) $2,160,688,445
- --------------------------------------------------------
Receivables for:
Investments sold 27,207,337
- --------------------------------------------------------
Capital stock sold 3,108,203
- --------------------------------------------------------
Dividends and interest 218,165
- --------------------------------------------------------
Variation margin 150,000
- --------------------------------------------------------
Investment for deferred compensation
plan 26,760
- --------------------------------------------------------
Other assets 94,307
- --------------------------------------------------------
Total assets 2,191,493,217
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 6,161,450
- --------------------------------------------------------
Capital stock reacquired 5,970,653
- --------------------------------------------------------
Deferred compensation 26,760
- --------------------------------------------------------
Accrued advisory fees 1,139,436
- --------------------------------------------------------
Accrued administrative services fees 8,183
- --------------------------------------------------------
Accrued distribution fees 791,602
- --------------------------------------------------------
Accrued directors fees 5,714
- --------------------------------------------------------
Accrued transfer agent fees 462,405
- --------------------------------------------------------
Accrued operating expenses 208,217
- --------------------------------------------------------
Total liabilities 14,774,420
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $2,176,718,797
========================================================
Capital stock, $.001 par value per share:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 59,821,734
========================================================
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 36.39
- --------------------------------------------------------
OFFERING PRICE PER SHARE:
(Net asset value of $36.39
divided by 94.50%) $ 38.51
========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 2,462,377
- --------------------------------------------------------
Dividends (net of $7,376 foreign
withholding tax) 1,233,237
- --------------------------------------------------------
Total investment income 3,695,614
- --------------------------------------------------------
EXPENSES:
Advisory fees 8,135,710
- --------------------------------------------------------
Custodian fees 72,204
- --------------------------------------------------------
Directors' fees 11,408
- --------------------------------------------------------
Distribution fees 3,203,882
- --------------------------------------------------------
Administrative services fees 51,740
- --------------------------------------------------------
Transfer agent fees 1,728,703
- --------------------------------------------------------
Other 330,251
- --------------------------------------------------------
Total expenses 13,533,898
- --------------------------------------------------------
Less: Expenses paid indirectly (21,810)
- --------------------------------------------------------
Net expenses 13,512,088
- --------------------------------------------------------
Net investment income (loss) (9,816,474)
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities (54,620,324)
- --------------------------------------------------------
Futures contracts 10,934,911
- --------------------------------------------------------
(43,685,413)
- --------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities (320,721,159)
- --------------------------------------------------------
Futures contracts (4,932,050)
- --------------------------------------------------------
(325,653,209)
- --------------------------------------------------------
Net gain (loss) on investment
securities and futures contracts (369,338,622)
- --------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(379,155,096)
========================================================
</TABLE>
See Notes to Financial Statements.
FS-127
<PAGE> 220
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND THE YEAR ENDED OCTOBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (9,816,474) $ (19,703,976)
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities
and futures contracts (43,685,413) 141,538,687
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and futures contracts (325,653,209) 211,197,677
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (379,155,096) 333,032,388
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities (138,552,307) (54,512,548)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions (56,137,743) 226,490,173
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (573,845,146) 505,010,013
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,750,563,943 2,245,553,930
- ---------------------------------------------------------------------------------------------
End of period $2,176,718,797 $2,750,563,943
=============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,901,777,366 $1,957,915,109
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (9,860,637) (44,163)
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities and futures contracts (48,508,221) 133,729,499
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 333,310,289 658,963,498
- ---------------------------------------------------------------------------------------------
$2,176,718,797 $2,750,563,943
=============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997
(UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth 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 diversified
portfolios: AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten
Fund. 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. The Fund has
temporarily discontinued public sales of its shares to new investors. The Fund
is a diversified portfolio which seeks to achieve long-term growth of capital by
investing primarily in common stocks, convertible bonds, convertible preferred
stocks and warrants of companies which in the opinion of the Fund's investment
advisor are expected to achieve earnings growth over time at a rate in excess of
15% per year.
Information presented in these financial statements pertains only to the Fund.
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. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last 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. 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. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. 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 (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market quotations are not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the 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
FS-128
<PAGE> 221
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 recorded 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.
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. 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 that a change in the value of contracts may not correlate with
changes in the value of the securities being hedged.
E. Foreign Currency Transactions--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
F. 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.
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 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $150 million.
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 six months ended April 30, 1997, AIM
was reimbursed $51,740 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the six months ended April 30,
1997, AFS was paid $932,435 for such services.
The Fund received reductions in transfer agency fees of $20,308 from dividends
received on balances in cash management accounts. In addition, the Fund incurred
expenses of $1,502 from pricing services which are paid through directed
brokerage commissions. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $21,810 during the six months ended
April 30, 1997.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Company has adopted a plan pursuant to rule 12b-1 under the 1940 Act
(the "Plan"), whereby the Fund pays to AIM Distributors an annual rate of 0.25%
of the Fund's average daily net assets as compensation for services related to
the sales and distribution of the Fund's shares. The Plan provides that payments
to dealers and financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions, may be characterized as
a service fee. Any amounts not paid as a service fee under the Plan would
constitute an assets-based sales charge. The Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund's shares. During the six months
ended April 30, 1997, the Fund paid AIM Distributors $3,203,882 as compensation
under the Plan.
AIM Distributors received commissions of $464,530 from sales of shares of the
Fund's capital stock during the six months ended April 30, 1997. Such
commissions are not an expense of the Fund. They are deducted from, and are not
included in, the proceeds from sales of capital stock. During the six months
ended April 30, 1997, AIM Distributors received $60,656 in contingent deferred
sales charges imposed on redemptions of the Fund's capital stock. Certain
officers and directors of the Company are officers and directors of AIM, AFS and
AIM Distributors.
During the six months ended April 30, 1997, the Fund paid legal fees of $8,010
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-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.
During the six months ended April 30, 1997, 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.
FS-129
<PAGE> 222
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended April 30, 1997 were $895,057,405
and $995,995,419, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of April 30, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 463,850,725
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (130,204,448)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $ 333,646,277
==========================================================
</TABLE>
Cost of investment for tax purposes is $1,827,042,168.
NOTE 5-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 6-FUTURES CONTRACTS
On April 30, 1997, $1,668,000 par value U.S. Treasury obligations were pledged
as collateral to cover margin requirements for futures contracts.
Futures contracts outstanding at April 30, 1997:
(Contracts -- $500 times index/delivery month/commitment)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
--------------
<S> <C>
S&P 500 Index/100 Contracts/June
97/Buy $(846,200)
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended April 30, 1997
and the year ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 OCTOBER 31, 1996
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold 11,500,320 $ 483,235,051 30,538,437 $ 1,334,476,880
- ------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 3,068,744 127,935,858 1,291,013 49,897,557
- ------------------------------------------------------------------------------------------------------------------------
Reacquired (15,971,688) (667,308,652) (26,568,998) (1,157,884,264)
- ------------------------------------------------------------------------------------------------------------------------
(1,402,624) $ (56,137,743) 5,260,452 $ 226,490,173
========================================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during the six months ended April 30, 1997, each of the years in the
three-year period ended October 31, 1996, the ten month period ended October 31,
1993 and each of the years in the five-year period ended December 31, 1992.
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
APRIL 30, ------------------------------------------------ --------------------
1997 1996 1995 1994 1993 1992(a) 1991
---------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06 $ 11.85
- ------------------------------------ ---------- ---------- ---------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss) (0.16) (0.32) (0.04) (0.05) (0.02) (0.03) (0.04)
- ------------------------------------ ---------- ---------- ---------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (6.08) 6.09 11.80 4.57 5.35 3.41 7.29
- ------------------------------------ ---------- ---------- ---------- -------- -------- -------- --------
Total from investment
operations (6.24) 5.77 11.76 4.52 5.33 3.38 7.25
- ------------------------------------ ---------- ---------- ---------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income -- -- -- -- -- -- --
- ------------------------------------ ---------- ---------- ---------- -------- -------- -------- --------
Distributions from capital gains (2.30) (0.97) -- -- -- (0.92) (3.04)
- ------------------------------------ ---------- ---------- ---------- -------- -------- -------- --------
Total distributions (2.30) (0.97) -- -- -- (0.92) (3.04)
- ------------------------------------ ---------- ---------- ---------- -------- -------- -------- --------
Net asset value, end of period $ 36.39 $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06
==================================== ========== ========== ========== ======== ======== ======== ========
Total return(b) (14.54)% 14.77% 41.45% 18.96% 28.78% 21.34% 63.90%
==================================== ========== ========== ========== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $2,176,719 $2,750,564 $2,245,554 $687,238 $217,256 $ 38,238 $ 16,218
==================================== ========== ========== ========== ======== ======== ======== ========
Ratio of expenses to average net
assets(c) 1.06%(d)(e) 1.11% 1.08% 1.07% 1.00%(g) 1.25% 1.25%
==================================== ========== ========== ========== ======== ======== ======== ========
Ratio of net investment income
(loss) to average net assets(f) (0.77)%(d) (0.76)% (0.19)% (0.26)% (0.24)%(g) (0.59)% (0.31)%
==================================== ========== ========== ========== ======== ======== ======== ========
Portfolio turnover rate 36% 79% 52% 75% 61% 164% 165%
==================================== ========== ========== ========== ======== ======== ======== ========
Average broker commission rate
paid(h) $ 0.0539 $ 0.0545 N/A N/A N/A N/A N/A
==================================== ========== ========== ========== ======== ======== ======== ========
<CAPTION>
DECEMBER 31,
--------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.30 $ 11.07 $ 9.86
- ------------------------------------ ------- -------- --------
Income from investment operations:
Net investment income (loss) 0.08 0.03 0.05
- ------------------------------------ ------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.95) 2.28 1.21
- ------------------------------------ ------- -------- --------
Total from investment
operations (0.87) 2.31 1.26
- ------------------------------------ ------- -------- --------
Less distributions:
Dividends from net investment
income (0.09) (0.03) (0.05)
- ------------------------------------ ------- -------- --------
Distributions from capital gains (0.49) (0.05) --
- ------------------------------------ ------- -------- --------
Total distributions (0.58) (0.08) (0.05)
- ------------------------------------ ------- -------- --------
Net asset value, end of period $ 11.85 $ 13.30 $ 11.07
- ------------------------------------ ======= ======== ========
Total return(b) (6.50)% 20.89% 12.77%
- ------------------------------------ ======= ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $ 9,234 $ 11,712 $ 12,793
- ------------------------------------ ======= ======== ========
Ratio of expenses to average net
assets(c) 1.25% 1.25% 1.22%
- ------------------------------------ ======= ======== ========
Ratio of net investment income
(loss) to average net assets(f) 0.62% 0.24% 0.38%
- ------------------------------------ ======= ======== ========
Portfolio turnover rate 137% 69% 56%
- ------------------------------------ ======= ======== ========
Average broker commission rate
paid(h) N/A N/A N/A
- ------------------------------------ ======= ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(c) Ratios of expenses to average net assets prior to reduction of advisory fees
and expense reimbursements were 1.15%, 1.09%, 1.17% (annualized), 1.65%,
1.83%, 1.99%, 1.80% and 1.56% for 1995-88, respectively.
(d) Ratios are annualized and based on average net assets of $2,584,346,866.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been 1.05%.
(f) Ratios of net investment income (loss) to average net assets prior to
reduction of advisory fees and expense reimbursements were (0.26)%,
(0.28)%, (0.41)% (annualized), (0.99)%, (0.89)%, (0.11)%, (0.31)% and 0.04%
for 1995-88, respectively.
(g) Annualized.
(h) Disclosure requirement beginning with the Fund's fiscal year ending October
31, 1996.
NOTE 9-LEGAL PROCEEDINGS
A claim, Saltzberg v. AIM Equity Funds, Inc., et al., was filed in Southern
District Court in Texas in October 1996 against AIM and certain other
subsidiaries of AIM Management. The claim was instituted under section 36(b) of
the Investment Company Act of 1940 and seeks to recover damages allegedly
suffered by the Fund in connection with fees paid for marketing and shareholder
services after the Fund was closed to new investors. AIM Management is
investigating whether there is any basis at all for this claim and intends to
defend it vigorously.
NOTE 10-FUND REOPENING AND CLOSING
The Fund was reopened to new investors on June 4, 1997 and subsequently closed
to new investors effective as of the close of business June 5, 1997.
FS-130
<PAGE> 223
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Aggressive Growth Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(4) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 0 19,923,485
Bruce L. Crockett........................................... 619,427,685 0 19,307,045
Owen Daly II................................................ 618,919,919 0 19,814,811
Carl Frischling............................................. 619,275,356 0 19,459,374
Robert H. Graham............................................ 619,431,576 0 19,303,154
John F. Kroeger............................................. 618,878,096 0 19,856,634
Lewis F. Pennock............................................ 619,272,998 0 19,461,732
Ian W. Robinson............................................. 618,944,840 0 19,789,890
Louis S. Sklar.............................................. 619,462,714 0 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 31,114,791 731,317 1,218,650
Elimination of policy prohibiting investments in other
(3) investment companies........................................ 23,839,643 1,595,508 1,270,078
(4) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
FS-131
<PAGE> 224
SCHEDULE OF INVESTMENTS
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-96.96%
ADVERTISING/BROADCASTING-4.01%
Alliance Communications Corp.-Class
B(a) (Canada) 60,000 $ 504,375
- ----------------------------------------------------------------
Argyle Television, Inc.-Class A(a) 17,500 439,687
- ----------------------------------------------------------------
Chancellor Corp.-Class A(a) 10,000 280,000
- ----------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 85,000 1,721,250
- ----------------------------------------------------------------
Eagle River Interactive, Inc.(a) 42,000 456,750
- ----------------------------------------------------------------
Emmis Broadcasting Corp.-Class A(a) 5,000 175,000
- ----------------------------------------------------------------
Evergreen Media Corp.-Class A(a) 30,000 971,250
- ----------------------------------------------------------------
Film Roman, Inc.(a) 110,000 206,250
- ----------------------------------------------------------------
Heftel Broadcasting Corp.(a) 39,300 1,965,000
- ----------------------------------------------------------------
Jacor Communications, Inc.(a) 5,000 140,625
- ----------------------------------------------------------------
Lamar Advertising Co.(a) 140,000 2,765,000
- ----------------------------------------------------------------
Leap Group, Inc. (The)(a) 5,000 23,750
- ----------------------------------------------------------------
Metro Networks, Inc.(a) 61,600 1,563,100
- ----------------------------------------------------------------
Snyder Communications, Inc.(a) 65,000 1,348,750
- ----------------------------------------------------------------
Universal Outdoor Holdings, Inc.(a) 70,000 1,907,500
- ----------------------------------------------------------------
Univision Communications, Inc.(a) 64,000 2,176,000
- ----------------------------------------------------------------
16,644,287
- ----------------------------------------------------------------
AEROSPACE/DEFENSE-0.59%
DONCASTERS PLC-ADR(a) (United
Kingdom) 26,400 594,000
- ----------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 69,200 1,764,600
- ----------------------------------------------------------------
Tracor, Inc.(a) 3,900 84,825
- ----------------------------------------------------------------
2,443,425
- ----------------------------------------------------------------
AIRLINES-0.58%
ASA Holdings, Inc. 10,000 212,500
- ----------------------------------------------------------------
Aviation Sales Co.(a) 20,000 485,000
- ----------------------------------------------------------------
China Eastern Airlines Corp.
Ltd.-ADR(a) (Hong Kong) 40,000 1,245,000
- ----------------------------------------------------------------
Eagle USA Airfreight, Inc.(a) 22,400 448,000
- ----------------------------------------------------------------
2,390,500
- ----------------------------------------------------------------
APPLIANCES-0.12%
Service Experts, Inc.(a) 21,800 485,050
- ----------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.36%
United Auto Group, Inc.(a) 90,000 1,496,250
- ----------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-1.07%
Aftermarket Technology Corp.(a) 134,300 2,484,550
- ----------------------------------------------------------------
Cross-Continent Auto Retailers,
Inc.(a) 38,500 572,687
- ----------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 100,000 1,125,000
- ----------------------------------------------------------------
Rush Enterprises, Inc.(a) 30,000 247,500
- ----------------------------------------------------------------
4,429,737
- ----------------------------------------------------------------
BANKING-0.84%
AmSouth Bancorporation 6,000 316,500
- ----------------------------------------------------------------
Banknorth Group, Inc. 16,000 680,000
- ----------------------------------------------------------------
Cullen/Frost Bankers, Inc. 8,000 280,000
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BANKING-(CONTINUED)
Hibernia Corp.-Class A 20,000 $ 257,500
- ----------------------------------------------------------------
Marshall & Ilsley Corp. 40,000 1,535,000
- ----------------------------------------------------------------
Southwest Bancorporation of Texas,
Inc.(a) 20,600 427,450
- ----------------------------------------------------------------
3,496,450
- ----------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.16%
Cerner Corp.(a) 40,000 645,000
- ----------------------------------------------------------------
BEVERAGES-0.06%
Diedrich Coffee, Inc.(a) 100,000 262,500
- ----------------------------------------------------------------
BIOTECHNOLOGY-0.28%
Genzyme Corp.(a) 50,000 1,156,250
- ----------------------------------------------------------------
BUILDING MATERIALS-0.29%
Juno Lighting, Inc. 50,000 775,000
- ----------------------------------------------------------------
Kevco, Inc.(a) 32,500 438,750
- ----------------------------------------------------------------
1,213,750
- ----------------------------------------------------------------
BUILDING MATERIALS (TOOLS)-0.14%
Regal-Beloit Corp. 24,200 574,750
- ----------------------------------------------------------------
BUSINESS SERVICES-3.45%
Abacus Direct Corp.(a) 55,000 1,361,250
- ----------------------------------------------------------------
Administaff, Inc.(a) 28,000 521,500
- ----------------------------------------------------------------
Claremont Technology Group, Inc.(a) 45,000 607,500
- ----------------------------------------------------------------
Cognizant Corp. 13,000 424,125
- ----------------------------------------------------------------
CUC International, Inc.(a) 65,000 1,373,125
- ----------------------------------------------------------------
First Aviation Services, Inc.(a) 78,500 667,250
- ----------------------------------------------------------------
HealthCare COMPARE Corp.(a) 20,000 867,500
- ----------------------------------------------------------------
HealthPlan Services Corp.(a) 55,000 907,500
- ----------------------------------------------------------------
Hertz Corp.-Class A(a) 27,800 806,200
- ----------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 30,300 689,324
- ----------------------------------------------------------------
International Telecommunication Data
Systems, Inc.(a) 45,000 540,000
- ----------------------------------------------------------------
Lason Holdings, Inc.(a) 66,400 1,128,800
- ----------------------------------------------------------------
MedQuist, Inc.(a) 20,000 505,000
- ----------------------------------------------------------------
MemberWorks, Inc.(a) 40,000 620,000
- ----------------------------------------------------------------
Metzler Group, Inc.(a) 75,000 1,912,500
- ----------------------------------------------------------------
OmniQuip International, Inc.(a) 50,000 650,000
- ----------------------------------------------------------------
On Assignment, Inc.(a) 5,000 155,000
- ----------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 25,000 575,000
- ----------------------------------------------------------------
14,311,574
- ----------------------------------------------------------------
COMPUTER MAINFRAMES-0.10%
Amdahl Corp.(a) 50,000 428,125
- ----------------------------------------------------------------
COMPUTER MINI/PCS-0.27%
Gateway 2000, Inc.(a) 14,200 779,225
- ----------------------------------------------------------------
Rational Software Corp.(a) 25,000 345,312
- ----------------------------------------------------------------
1,124,537
- ----------------------------------------------------------------
</TABLE>
FS-132
<PAGE> 225
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER NETWORKING-2.32%
ACT Networks, Inc.(a) 20,000 $ 270,000
- ----------------------------------------------------------------
Ascend Communications, Inc.(a) 56,500 2,584,875
- ----------------------------------------------------------------
Auspex Systems, Inc.(a) 28,600 228,800
- ----------------------------------------------------------------
Bay Networks, Inc.(a) 30,000 532,500
- ----------------------------------------------------------------
Black Box Corp.(a) 20,000 472,500
- ----------------------------------------------------------------
Cabletron Systems, Inc.(a) 42,000 1,449,000
- ----------------------------------------------------------------
Cidco, Inc.(a) 45,000 573,750
- ----------------------------------------------------------------
Coherent Communications Systems
Corp.(a) 80,000 1,310,000
- ----------------------------------------------------------------
DSP Communications, Inc.(a) 105,000 833,437
- ----------------------------------------------------------------
FORE Systems, Inc.(a) 40,000 610,000
- ----------------------------------------------------------------
Harmonic Lightwaves, Inc.(a) 35,000 577,500
- ----------------------------------------------------------------
InterVoice, Inc.(a) 20,000 190,000
- ----------------------------------------------------------------
9,632,362
- ----------------------------------------------------------------
COMPUTER PERIPHERALS-1.56%
Cognex Corp.(a) 50,000 1,231,250
- ----------------------------------------------------------------
NeoMagic Corp.(a) 25,000 292,188
- ----------------------------------------------------------------
Oak Technology, Inc.(a) 45,000 362,812
- ----------------------------------------------------------------
Printronix, Inc.(a) 145,000 1,830,625
- ----------------------------------------------------------------
Quantum Corp.(a) 12,500 521,094
- ----------------------------------------------------------------
Raster Graphics, Inc.(a) 50,000 306,250
- ----------------------------------------------------------------
Read-Rite Corp.(a) 39,000 1,009,125
- ----------------------------------------------------------------
Trident Microsystems, Inc.(a) 70,000 945,000
- ----------------------------------------------------------------
6,498,344
- ----------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-12.35%
Adobe Systems, Inc. 35,000 1,369,375
- ----------------------------------------------------------------
American Software, Inc.-Class A(a) 50,000 287,500
- ----------------------------------------------------------------
ANSYS, Inc.(a) 80,000 550,000
- ----------------------------------------------------------------
BDM International Inc.(a) 36,000 837,000
- ----------------------------------------------------------------
Bell & Howell Co.(a) 80,000 1,890,000
- ----------------------------------------------------------------
BISYS Group, Inc. (The)(a) 45,000 1,440,000
- ----------------------------------------------------------------
BMC Software, Inc.(a) 40,000 1,730,000
- ----------------------------------------------------------------
Broderbund Software, Inc.(a) 30,000 562,500
- ----------------------------------------------------------------
Business Objects S.A.-ADR(a)
(France) 85,000 765,000
- ----------------------------------------------------------------
C/NET, Inc.(a) 25,000 506,250
- ----------------------------------------------------------------
Cadence Design Systems, Inc.(a) 5,200 166,400
- ----------------------------------------------------------------
CCC Information Services Group(a) 165,000 1,938,750
- ----------------------------------------------------------------
CFI Proservices, Inc.(a) 10,000 150,000
- ----------------------------------------------------------------
Check Point Software Technologies
Ltd.(a) (Israel) 25,000 590,625
- ----------------------------------------------------------------
Computer Learning Centers, Inc.(a) 3,150 83,868
- ----------------------------------------------------------------
Compuware Corp.(a) 30,000 1,132,500
- ----------------------------------------------------------------
Cooper & Chyan Technology, Inc.(a) 1,200 29,100
- ----------------------------------------------------------------
CyberMedia, Inc.(a) 23,400 292,500
- ----------------------------------------------------------------
Dassault Systemes S.A.-ADR(a)
(France) 15,000 924,375
- ----------------------------------------------------------------
DataWorks Corp.(a) 2,700 39,150
- ----------------------------------------------------------------
Dendrite International, Inc.(a) 35,000 293,125
- ----------------------------------------------------------------
Digital Lightwave, Inc.(a) 50,000 262,500
- ----------------------------------------------------------------
Document Sciences Corp.(a) 70,000 236,250
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
Dr. Solomon's Group PLC-ADR(a)
(United Kingdom) 35,000 $ 809,375
- ----------------------------------------------------------------
DST Systems, Inc.(a) 34,000 964,750
- ----------------------------------------------------------------
Electronic Arts, Inc.(a) 30,000 723,750
- ----------------------------------------------------------------
FactSet Research Systems, Inc.(a) 9,600 194,400
- ----------------------------------------------------------------
Forrester Research, Inc.(a) 11,800 215,350
- ----------------------------------------------------------------
Geoworks(a) 60,000 435,000
- ----------------------------------------------------------------
HBO & Co. 40,000 2,140,000
- ----------------------------------------------------------------
HPR, Inc.(a) 90,000 1,271,250
- ----------------------------------------------------------------
Hyperion Software Corp.(a) 96,500 1,568,125
- ----------------------------------------------------------------
Infinity Financial Technology,
Inc.(a) 30,000 378,750
- ----------------------------------------------------------------
Information Resources, Inc.(a) 10,400 137,800
- ----------------------------------------------------------------
Intuit, Inc.(a) 20,000 442,500
- ----------------------------------------------------------------
JDA Software Group, Inc.(a) 30,000 757,500
- ----------------------------------------------------------------
Macromedia, Inc.(a) 10,000 76,250
- ----------------------------------------------------------------
Mastech Corp.(a) 100,000 1,150,000
- ----------------------------------------------------------------
May & Speh, Inc.(a) 10,000 73,750
- ----------------------------------------------------------------
Memco Software Ltd.(a) (Israel) 67,700 846,250
- ----------------------------------------------------------------
Mercury Interactive Corp.(a) 85,000 1,041,250
- ----------------------------------------------------------------
Metromail Corp.(a) 90,000 1,766,250
- ----------------------------------------------------------------
Midway Games Inc.(a) 65,000 1,170,000
- ----------------------------------------------------------------
National Instruments Corp.(a) 10,000 302,500
- ----------------------------------------------------------------
Network General Corp.(a) 50,000 687,500
- ----------------------------------------------------------------
Object Design, Inc.(a) 20,000 102,500
- ----------------------------------------------------------------
Parametric Technology Co.(a) 7,000 316,750
- ----------------------------------------------------------------
PHAMIS, Inc.(a) 20,000 355,000
- ----------------------------------------------------------------
Physician Computer Network, Inc.(a) 20,000 106,250
- ----------------------------------------------------------------
Platinum Technology, Inc.(a) 150,000 1,800,000
- ----------------------------------------------------------------
Puma Technology, Inc.(a) 56,000 427,000
- ----------------------------------------------------------------
Pure Atria Corp.(a) 10,000 97,500
- ----------------------------------------------------------------
Qualix Group, Inc.(a) 50,000 312,500
- ----------------------------------------------------------------
Saville Systems Ireland PLC-ADR(a) 29,000 1,192,625
- ----------------------------------------------------------------
Security Dynamics Technologies,
Inc.(a) 5,000 126,250
- ----------------------------------------------------------------
SEI Corp. 100,000 2,100,000
- ----------------------------------------------------------------
SELECT Software Tools-ADR(a) (United
Kingdom) 60,000 795,000
- ----------------------------------------------------------------
Shared Medical Systems Corp. 8,000 337,000
- ----------------------------------------------------------------
Siebel Systems, Inc.(a) 42,000 761,250
- ----------------------------------------------------------------
Simulation Sciences, Inc.(a) 30,000 305,625
- ----------------------------------------------------------------
Spectrum Holobyte, Inc.(a) 7,500 45,938
- ----------------------------------------------------------------
Sterling Commerce, Inc.(a) 37,500 970,313
- ----------------------------------------------------------------
SunGard Data Systems Inc.(a) 112,000 4,970,000
- ----------------------------------------------------------------
Symantec Corp.(a) 5,100 73,313
- ----------------------------------------------------------------
Systemsoft Corp.(a) 35,000 266,875
- ----------------------------------------------------------------
Technology Modeling Associates,
Inc.(a) 53,500 535,000
- ----------------------------------------------------------------
Template Software, Inc.(a) 30,800 257,950
- ----------------------------------------------------------------
Transaction Systems Architects,
Inc.-Class A(a) 5,000 150,000
- ----------------------------------------------------------------
Trusted Information Systems, Inc.(a) 75,000 675,000
- ----------------------------------------------------------------
USCS International, Inc.(a) 15,000 247,500
- ----------------------------------------------------------------
Vantive Corp.(a) 10,000 198,750
- ----------------------------------------------------------------
</TABLE>
FS-133
<PAGE> 226
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
Viewlogic Systems, Inc.(a) 20,000 $ 280,000
- ----------------------------------------------------------------
Wallace Computer Services, Inc. 10,000 267,500
- ----------------------------------------------------------------
51,302,457
- ----------------------------------------------------------------
CONGLOMERATES-0.22%
Amway Asia Pacific Ltd. (Hong Kong) 13,900 583,800
- ----------------------------------------------------------------
Sotheby's Holdings, Inc.-Class A 20,000 317,500
- ----------------------------------------------------------------
901,300
- ----------------------------------------------------------------
CONSUMER NON-DURABLES-0.53%
Central Garden and Pet Co.(a) 20,000 398,750
- ----------------------------------------------------------------
TAG Heuer International S.A.-ADR(a)
(Luxembourg) 20,000 280,000
- ----------------------------------------------------------------
The First Years, Inc. 100,000 1,525,000
- ----------------------------------------------------------------
2,203,750
- ----------------------------------------------------------------
CONTAINERS-0.85%
PalEx, Inc.(a) 25,000 231,250
- ----------------------------------------------------------------
Silgan Holdings, Inc.(a) 125,000 3,312,500
- ----------------------------------------------------------------
3,543,750
- ----------------------------------------------------------------
COSMETICS & TOILETRIES-2.90%
Carson, Inc.(a) 68,600 514,500
- ----------------------------------------------------------------
Dial Corp. 105,000 1,627,500
- ----------------------------------------------------------------
Estee Lauder Cos.-Class A 14,500 663,375
- ----------------------------------------------------------------
French Fragrances, Inc.(a) 75,000 543,750
- ----------------------------------------------------------------
General Nutrition Companies, Inc.(a) 140,000 3,010,000
- ----------------------------------------------------------------
Helen of Troy Ltd.(a) 10,000 232,500
- ----------------------------------------------------------------
McKesson Corp. 28,000 2,026,500
- ----------------------------------------------------------------
Nu Skin Asia Pacific Inc.-Class A(a) 105,000 2,730,000
- ----------------------------------------------------------------
Rexall Sundown, Inc.(a) 35,000 695,625
- ----------------------------------------------------------------
12,043,750
- ----------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-1.59%
Checkpoint Systems, Inc.(a) 67,000 921,250
- ----------------------------------------------------------------
Harman International Industries,
Inc. 5,000 191,250
- ----------------------------------------------------------------
Micron Electronics, Inc.(a) 50,000 1,018,750
- ----------------------------------------------------------------
PRI Automation, Inc.(a) 17,500 896,875
- ----------------------------------------------------------------
Sawtek Inc.(a) 5,000 148,125
- ----------------------------------------------------------------
SBS Technologies, Inc.(a) 75,000 1,125,000
- ----------------------------------------------------------------
Speedfam International, Inc.(a) 75,000 1,818,750
- ----------------------------------------------------------------
SRS Labs, Inc.(a) 50,000 462,500
- ----------------------------------------------------------------
6,582,500
- ----------------------------------------------------------------
ELECTRONIC/DEFENSE-0.07%
Stanford Telecommunications, Inc.(a) 20,000 295,000
- ----------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.33%
Alliance Capital Management 3,000 81,375
- ----------------------------------------------------------------
Edwards (A.G.), Inc. 5,000 175,000
- ----------------------------------------------------------------
Hambrecht & Quist Group(a) 20,000 332,500
- ----------------------------------------------------------------
Investors Financial Services Corp. 10,000 350,000
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (ASSET MANAGEMENT)-(CONTINUED)
Lehman Brothers Holdings, Inc. 10,000 $ 338,750
- ----------------------------------------------------------------
T. Rowe Price Associates 1,800 83,250
- ----------------------------------------------------------------
1,360,875
- ----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.96%
Advanta Corp.-Class B 10,000 222,500
- ----------------------------------------------------------------
BA Merchant Services, Inc.-Class
A(a) 205,000 2,870,000
- ----------------------------------------------------------------
CMAC Investment Corp. 13,000 494,000
- ----------------------------------------------------------------
Concord EFS, Inc.(a) 5,000 98,750
- ----------------------------------------------------------------
Medaphis Corp.(a) 10,000 51,875
- ----------------------------------------------------------------
SunAmerica, Inc. 5,600 257,600
- ----------------------------------------------------------------
3,994,725
- ----------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-0.39%
Hamilton Bancorp, Inc.(a) 85,000 1,636,250
- ----------------------------------------------------------------
FOOD/PROCESSING-1.45%
Delta & Pine Land Co. 71,666 1,791,650
- ----------------------------------------------------------------
Lancaster Colony Corp. 20,000 822,500
- ----------------------------------------------------------------
ProSource, Inc.(a) 115,000 1,056,562
- ----------------------------------------------------------------
Rykoff-Sexton, Inc. 130,000 2,356,250
- ----------------------------------------------------------------
6,026,962
- ----------------------------------------------------------------
FUNERAL SERVICES-0.54%
Carriage Services, Inc.(a) 25,100 426,700
- ----------------------------------------------------------------
Equity Corp. International(a) 85,000 1,827,500
- ----------------------------------------------------------------
2,254,200
- ----------------------------------------------------------------
FURNITURE-0.26%
Kimball International, Inc.-Class B 30,000 1,057,500
- ----------------------------------------------------------------
GAMING-1.20%
GTECH Holdings Corp.(a) 25,000 768,750
- ----------------------------------------------------------------
International Game Technology 115,000 1,825,625
- ----------------------------------------------------------------
Sodak Gaming, Inc.(a) 200,000 2,350,000
- ----------------------------------------------------------------
WHG Resorts & Casinos Inc.(a) 6,250 58,593
- ----------------------------------------------------------------
5,002,968
- ----------------------------------------------------------------
HOTELS/MOTELS-0.31%
Choice Hotels International, Inc.(a) 6,000 84,000
- ----------------------------------------------------------------
Four Seasons Hotels, Inc. (Canada) 36,000 801,000
- ----------------------------------------------------------------
U.S. Franchise Systems, Inc.(a) 20,000 140,000
- ----------------------------------------------------------------
Wyndham Hotel Corp.(a) 10,000 276,250
- ----------------------------------------------------------------
1,301,250
- ----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.34%
First Commonwealth, Inc.(a) 15,000 183,750
- ----------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A(a) 130,000 3,445,000
- ----------------------------------------------------------------
UNUM Corp. 5,200 400,400
- ----------------------------------------------------------------
Western National Corp. 60,000 1,545,000
- ----------------------------------------------------------------
5,574,150
- ----------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-3.53%
Ace, Ltd. 4,000 240,000
- ----------------------------------------------------------------
AMBAC, Inc. 2,900 187,775
- ----------------------------------------------------------------
Amerin Corp.(a) 170,000 3,315,000
- ----------------------------------------------------------------
</TABLE>
FS-134
<PAGE> 227
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE PROPERTY)-(CONTINUED)
AmerUs Life Holdings, Inc.-Class A 42,400 $ 975,200
- ----------------------------------------------------------------
Arthur J. Gallagher & Co. 3,000 93,750
- ----------------------------------------------------------------
Capital Re Corp. 10,000 396,250
- ----------------------------------------------------------------
CapMAC Holdings, Inc. 20,000 520,000
- ----------------------------------------------------------------
Everest Re Holdings, Inc. 51,000 1,466,250
- ----------------------------------------------------------------
Exel Ltd. 11,200 436,800
- ----------------------------------------------------------------
HCC Insurance Holdings, Inc. 17,500 439,687
- ----------------------------------------------------------------
Horace Mann Educators Corp. 8,000 375,000
- ----------------------------------------------------------------
MBIA, Inc. 2,100 204,488
- ----------------------------------------------------------------
Mercury General Corp. 2,400 148,800
- ----------------------------------------------------------------
MGIC Investment Corp. 11,400 926,250
- ----------------------------------------------------------------
Mutual Risk Management Ltd. 15,000 551,250
- ----------------------------------------------------------------
NAC Re Corp. 8,000 310,000
- ----------------------------------------------------------------
Progressive Corp. 30,000 2,283,750
- ----------------------------------------------------------------
TIG Holdings, Inc. 20,000 555,000
- ----------------------------------------------------------------
Transatlantic Holdings, Inc. 3,000 248,250
- ----------------------------------------------------------------
UnionAmerica Holdings PLC-ADR
(United Kingdom) 27,000 452,250
- ----------------------------------------------------------------
Vesta Insurance Group, Inc. 5,000 208,750
- ----------------------------------------------------------------
W. R. Berkley Corp. 7,000 344,750
- ----------------------------------------------------------------
14,679,250
- ----------------------------------------------------------------
LEISURE & RECREATION-3.17%
Coleman Co., Inc.(a) 10,000 155,000
- ----------------------------------------------------------------
Galoob Toys, Inc.(a) 155,000 2,615,625
- ----------------------------------------------------------------
Harley-Davidson, Inc. 26,400 1,042,800
- ----------------------------------------------------------------
Hasbro, Inc. 15,000 375,000
- ----------------------------------------------------------------
K2, Inc. 18,000 470,250
- ----------------------------------------------------------------
Samsonite Corp.(a) 32,500 1,348,750
- ----------------------------------------------------------------
Steinway Musical Instruments(a) 20,000 342,500
- ----------------------------------------------------------------
The North Face, Inc.(a) 130,000 1,836,250
- ----------------------------------------------------------------
Toy Biz, Inc.(a) 170,000 1,657,500
- ----------------------------------------------------------------
Travis Boats & Motors, Inc.(a) 30,000 322,500
- ----------------------------------------------------------------
Vail Resorts Inc.(a) 125,000 2,546,875
- ----------------------------------------------------------------
WMS Industries, Inc.(a) 25,000 446,875
- ----------------------------------------------------------------
13,159,925
- ----------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-1.23%
American Residential Services,
Inc.(a) 80,800 1,525,100
- ----------------------------------------------------------------
Pall Corp. 70,000 1,618,750
- ----------------------------------------------------------------
Pfeiffer Vacuum Technology
A.G.-ADR(a) (Germany) 20,000 465,000
- ----------------------------------------------------------------
Prime Service, Inc.(a) 7,700 172,287
- ----------------------------------------------------------------
U.S. Rentals, Inc.(a) 70,000 1,330,000
- ----------------------------------------------------------------
5,111,137
- ----------------------------------------------------------------
MEDICAL (DRUGS)-3.82%
Algos Pharmaceutical Corp.(a) 5,000 76,875
- ----------------------------------------------------------------
Allergan, Inc. 5,000 133,750
- ----------------------------------------------------------------
AmeriSource Health Corp.(a) 25,000 1,115,625
- ----------------------------------------------------------------
Applied Analytical Industries,
Inc.(a) 44,300 586,975
- ----------------------------------------------------------------
Aronex Pharmaceuticals, Inc.(a) 25,000 125,000
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (DRUGS)-(CONTINUED)
BioChem Pharma, Inc.(a)(Canada) 39,000 $ 701,391
- ----------------------------------------------------------------
Cambridge NeuroScience, Inc.(a) 25,000 209,375
- ----------------------------------------------------------------
Cephalon, Inc.(a) 10,000 167,500
- ----------------------------------------------------------------
Collagenex Pharmaceuticals, Inc.(a) 20,000 230,000
- ----------------------------------------------------------------
Covance, Inc.(a) 40,000 590,000
- ----------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 66,000 1,914,000
- ----------------------------------------------------------------
Elan Corp. PLC-ADR(a) (Ireland) 8,000 272,000
- ----------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 13,000 477,750
- ----------------------------------------------------------------
Gilead Sciences, Inc.(a) 8,000 177,000
- ----------------------------------------------------------------
Guilford Pharmaceuticals, Inc.(a) 10,000 231,250
- ----------------------------------------------------------------
Immunex Corp.(a) 3,000 83,625
- ----------------------------------------------------------------
Incyte Pharmaceuticals, Inc.(a) 3,000 127,500
- ----------------------------------------------------------------
Interneuron Pharmaceuticals, Inc.(a) 15,000 196,875
- ----------------------------------------------------------------
Jones Medical Industries, Inc. 25,000 881,250
- ----------------------------------------------------------------
Kos Pharmaceuticals, Inc.(a) 25,000 562,500
- ----------------------------------------------------------------
Liposome Company, Inc.(a) 60,000 1,331,250
- ----------------------------------------------------------------
Martek Biosciences Corp.(a) 20,000 292,500
- ----------------------------------------------------------------
Micro Therapeutics, Inc.(a) 50,000 275,000
- ----------------------------------------------------------------
NABI Inc.(a) 145,000 870,000
- ----------------------------------------------------------------
North American Vaccine, Inc.(a) 50,000 1,043,750
- ----------------------------------------------------------------
Perrigo Co.(a) 65,000 763,750
- ----------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Israel) 33,000 1,674,750
- ----------------------------------------------------------------
Texas Biotechnology Corp.(a) 15,000 60,000
- ----------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 19,000 679,250
- ----------------------------------------------------------------
15,850,491
- ----------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-3.69%
ADAC Laboratories 20,000 462,500
- ----------------------------------------------------------------
Advance ParadigM, Inc.(a) 95,000 1,080,625
- ----------------------------------------------------------------
Alternative Living Services, Inc.(a) 85,000 1,402,500
- ----------------------------------------------------------------
American Medserve Corp.(a) 45,000 489,375
- ----------------------------------------------------------------
American Oncology Resources, Inc.(a) 25,000 221,875
- ----------------------------------------------------------------
ClinTrials Research Inc.(a) 50,000 387,500
- ----------------------------------------------------------------
FPA Medical Management, Inc.(a) 32,000 520,000
- ----------------------------------------------------------------
Health Management Associates,
Inc.-Class A(a) 15,000 401,250
- ----------------------------------------------------------------
HealthCor Holdings, Inc.(a) 100,000 837,500
- ----------------------------------------------------------------
HEALTHSOUTH Corp.(a) 2,400 47,400
- ----------------------------------------------------------------
Horizon Mental Health Management,
Inc.(a) 25,500 417,563
- ----------------------------------------------------------------
Horizon/CMS Healthcare Corp.(a) 25,000 396,875
- ----------------------------------------------------------------
Integrated Health Services, Inc. 30,000 963,750
- ----------------------------------------------------------------
Intensiva Healthcare Corp.(a) 70,000 542,500
- ----------------------------------------------------------------
Manor Care, Inc. 6,000 140,250
- ----------------------------------------------------------------
Marquette Medical Systems-Class A(a) 60,000 1,207,500
- ----------------------------------------------------------------
Maxicare Health Plans, Inc.(a) 5,000 116,250
- ----------------------------------------------------------------
Medical Resources, Inc.(a) 75,000 956,250
- ----------------------------------------------------------------
MedPartners, Inc.(a) 55,715 1,016,799
- ----------------------------------------------------------------
National Surgery Centers, Inc.(a) 5,000 150,000
- ----------------------------------------------------------------
NovaCare, Inc.(a) 20,000 227,500
- ----------------------------------------------------------------
OccuSystems, Inc.(a) 40,000 825,000
- ----------------------------------------------------------------
</TABLE>
FS-135
<PAGE> 228
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Oxford Health Plans, Inc.(a) 13,500 $ 889,313
- ----------------------------------------------------------------
PacifiCare Health Systems,
Inc.-Class B(a) 5,000 401,250
- ----------------------------------------------------------------
Premier Research Worldwide, Ltd.(a) 17,400 167,475
- ----------------------------------------------------------------
Prime Medical Services, Inc.(a) 10,000 92,500
- ----------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 35,000 844,375
- ----------------------------------------------------------------
Vencor, Inc.(a) 3,000 124,875
- ----------------------------------------------------------------
15,330,550
- ----------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-6.13%
Alza Corp.(a) 5,000 146,250
- ----------------------------------------------------------------
Bard (C.R.), Inc. 45,000 1,428,750
- ----------------------------------------------------------------
Biomet, Inc. 65,000 987,188
- ----------------------------------------------------------------
Cohr, Inc.(a) 85,000 1,891,250
- ----------------------------------------------------------------
Dentsply International, Inc. 35,000 1,732,500
- ----------------------------------------------------------------
Gulf South Medical Supply, Inc.(a) 11,000 156,750
- ----------------------------------------------------------------
Haemonetics Corp.(a) 15,000 249,375
- ----------------------------------------------------------------
Heartstream, Inc.(a) 110,000 921,250
- ----------------------------------------------------------------
Human Genome Sciences, Inc.(a) 15,000 470,625
- ----------------------------------------------------------------
Maxxim Medical, Inc.(a) 15,000 195,000
- ----------------------------------------------------------------
Medical Manager Corp.(a) 355,000 3,150,625
- ----------------------------------------------------------------
MiniMed, Inc.(a) 45,000 1,113,750
- ----------------------------------------------------------------
Nitinol Medical Technologies,
Inc.(a) 90,000 765,000
- ----------------------------------------------------------------
Owens & Minor, Inc. Holding Co. 30,000 390,000
- ----------------------------------------------------------------
SangStat Medical Corp.(a) 15,000 256,875
- ----------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 40,000 1,560,000
- ----------------------------------------------------------------
Steris Corp.(a) 70,000 2,292,500
- ----------------------------------------------------------------
Stryker Corp.(a) 19,000 624,625
- ----------------------------------------------------------------
Suburban Ostomy Supply Co., Inc.(a) 125,000 1,125,000
- ----------------------------------------------------------------
Sullivan Dental Products, Inc. 10,000 147,500
- ----------------------------------------------------------------
Sybron International Corp.(a) 85,000 2,826,250
- ----------------------------------------------------------------
TECNOL Medical Products, Inc.(a) 115,000 2,026,875
- ----------------------------------------------------------------
Trex Medical Corp.(a) 25,000 309,375
- ----------------------------------------------------------------
Ventana Medical Systems, Inc.(a) 70,000 691,250
- ----------------------------------------------------------------
25,458,563
- ----------------------------------------------------------------
METALS-0.57%
Potash Corp. of Saskatchewan Inc.
(Canada) 24,928 1,916,340
- ----------------------------------------------------------------
Rental Service Corp.(a) 24,200 447,700
- ----------------------------------------------------------------
2,364,040
- ----------------------------------------------------------------
NATURAL GAS PIPELINE-0.28%
NGC Corp. 65,000 1,145,625
- ----------------------------------------------------------------
OFFICE AUTOMATION-0.22%
Danka Business Systems PLC-ADR
(United Kingdom) 30,000 916,875
- ----------------------------------------------------------------
OFFICE PRODUCTS-0.98%
Daisytek International Corp.(a) 87,000 2,370,750
- ----------------------------------------------------------------
Deluxe Corp. 40,000 1,225,000
- ----------------------------------------------------------------
OfficeMax, Inc.(a) 40,000 495,000
- ----------------------------------------------------------------
4,090,750
- ----------------------------------------------------------------
OIL & GAS (DRILLING)-0.88%
Atwood Oceanics, Inc.(a) 43,000 2,633,750
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (DRILLING)-(CONTINUED)
Precision Drilling Corp.(a) (Canada) 10,000 $ 347,500
- ----------------------------------------------------------------
Reading & Bates Corp.(a) 31,000 693,625
- ----------------------------------------------------------------
3,674,875
- ----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-1.79%
Anadarko Petroleum Corp. 4,000 219,500
- ----------------------------------------------------------------
Apache Corp. 5,000 170,000
- ----------------------------------------------------------------
Burlington Resources, Inc. 15,000 635,625
- ----------------------------------------------------------------
Cabot Oil and Gas Corp.-Class A 70,000 1,172,500
- ----------------------------------------------------------------
Cross Timbers Oil Co. 12,000 186,000
- ----------------------------------------------------------------
Devon Energy Corp. 8,000 264,000
- ----------------------------------------------------------------
Houston Exploration Co. (The)(a) 80,000 1,000,000
- ----------------------------------------------------------------
Newfield Exploration Co.(a) 5,000 95,625
- ----------------------------------------------------------------
Noble Affiliates, Inc. 4,000 143,000
- ----------------------------------------------------------------
Nuevo Energy Co.(a) 16,000 550,000
- ----------------------------------------------------------------
Petsec Energy Ltd.-ADR(a)
(Australia) 15,000 322,500
- ----------------------------------------------------------------
Pogo Producing Co. 18,000 659,250
- ----------------------------------------------------------------
Rutherford-Moran Oil Corp.(a) 30,000 555,000
- ----------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 8,400 118,650
- ----------------------------------------------------------------
Titan Exploration, Inc.(a) 80,000 600,000
- ----------------------------------------------------------------
Transocean Offshore Inc. 12,000 727,500
- ----------------------------------------------------------------
7,419,150
- ----------------------------------------------------------------
OIL & GAS (SERVICES)-1.53%
Camco International, Inc. 8,000 355,000
- ----------------------------------------------------------------
Energy Ventures, Inc.(a) 25,000 1,671,875
- ----------------------------------------------------------------
Enron Oil & Gas Co. 20,000 372,500
- ----------------------------------------------------------------
Louisiana Land & Exploration Co. 10,000 500,000
- ----------------------------------------------------------------
Oceaneering International, Inc.(a) 20,000 290,000
- ----------------------------------------------------------------
Petroleum Geo-Services ASA-ADR(a)
(Norway) 18,300 704,550
- ----------------------------------------------------------------
SEACOR Holdings Inc.(a) 12,000 516,000
- ----------------------------------------------------------------
Stolt Comex Seaway, S.A.(a) (Norway) 86,000 1,580,250
- ----------------------------------------------------------------
Veritas DGC, Inc.(a) 19,000 365,750
- ----------------------------------------------------------------
6,355,925
- ----------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-4.32%
Baker Hughes, Inc. 16,500 569,250
- ----------------------------------------------------------------
BJ Services Co.(a) 20,000 942,500
- ----------------------------------------------------------------
Cooper Cameron Corp.(a) 10,500 748,125
- ----------------------------------------------------------------
Diamond Offshore Drilling, Inc.(a) 20,000 1,287,500
- ----------------------------------------------------------------
ENSCO International, Inc.(a) 50,000 2,375,000
- ----------------------------------------------------------------
Falcon Drilling Company, Inc.(a) 28,000 1,071,000
- ----------------------------------------------------------------
GulfMark International, Inc.(a) 26,000 1,852,500
- ----------------------------------------------------------------
National-Oilwell, Inc.(a) 43,000 1,671,625
- ----------------------------------------------------------------
Noble Drilling Corp.(a) 95,000 1,650,625
- ----------------------------------------------------------------
Pride Petroleum Services, Inc.(a) 39,000 672,750
- ----------------------------------------------------------------
Rowan Companies, Inc.(a) 10,000 180,000
- ----------------------------------------------------------------
Smith International, Inc.(a) 20,000 947,500
- ----------------------------------------------------------------
Tidewater, Inc. 6,000 240,750
- ----------------------------------------------------------------
Tuboscope Vetco International
Corp.(a) 130,000 1,820,000
- ----------------------------------------------------------------
Weatherford Enterra, Inc.(a) 60,000 1,905,000
- ----------------------------------------------------------------
17,934,125
- ----------------------------------------------------------------
</TABLE>
FS-136
<PAGE> 229
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PAPER & FOREST PRODUCTS-0.90%
American Pad & Paper Co.(a) 215,000 $ 3,198,125
- ----------------------------------------------------------------
Thermo Fibergen Inc.(a) 45,000 393,750
- ----------------------------------------------------------------
Thermo Fibergen Inc. Rights(a) 45,000 151,875
- ----------------------------------------------------------------
3,743,750
- ----------------------------------------------------------------
POLLUTION CONTROL-0.38%
Philip Environmental, Inc.(a)
(Canada) 45,000 708,750
- ----------------------------------------------------------------
Tetra Technologies, Inc.(a) 2,400 55,800
- ----------------------------------------------------------------
USA Waste Services, Inc.(a) 25,000 818,750
- ----------------------------------------------------------------
1,583,300
- ----------------------------------------------------------------
REAL ESTATE-0.33%
Insignia Financial Group, Inc.-Class
A(a) 30,000 525,000
- ----------------------------------------------------------------
Kilroy Realty Corp.(a) 35,800 841,300
- ----------------------------------------------------------------
1,366,300
- ----------------------------------------------------------------
RESTAURANTS-1.82%
Apple South, Inc. 30,000 390,000
- ----------------------------------------------------------------
Boston Chicken, Inc.(a) 18,000 429,750
- ----------------------------------------------------------------
Brinker International, Inc.(a) 50,000 581,250
- ----------------------------------------------------------------
Chart House Enterprises Inc.(a) 25,000 137,500
- ----------------------------------------------------------------
Cracker Barrel Old Country Store,
Inc. 8,000 214,000
- ----------------------------------------------------------------
IHOP Corp.(a) 5,000 131,250
- ----------------------------------------------------------------
Landry's Seafood Restaurants,
Inc.(a) 20,000 280,937
- ----------------------------------------------------------------
Logan's Roadhouse, Inc.(a) 25,000 400,000
- ----------------------------------------------------------------
Lone Star Steakhouse & Saloon,
Inc.(a) 15,000 296,250
- ----------------------------------------------------------------
New York Bagel Enterprises(a) 80,000 330,000
- ----------------------------------------------------------------
Outback Steakhouse, Inc.(a) 10,000 196,250
- ----------------------------------------------------------------
Rare Hospitality International
Inc.(a) 10,000 116,250
- ----------------------------------------------------------------
Ryan's Family Steak Houses, Inc.(a) 65,000 576,875
- ----------------------------------------------------------------
Shoney's, Inc.(a) 100,000 462,500
- ----------------------------------------------------------------
Showbiz Pizza Time, Inc.(a) 45,000 866,250
- ----------------------------------------------------------------
Starbucks Corp.(a) 30,000 896,250
- ----------------------------------------------------------------
Wendy's International, Inc. 60,000 1,237,500
- ----------------------------------------------------------------
7,542,812
- ----------------------------------------------------------------
RETAIL (FOOD & DRUG)-2.12%
Casey's General Stores, Inc. 50,000 943,750
- ----------------------------------------------------------------
Dominick's Supermarkets, Inc.()(a) 45,000 922,500
- ----------------------------------------------------------------
Einstein/Noah Bagel Corp.(a) 20,100 370,594
- ----------------------------------------------------------------
Revco D.S., Inc.(a) 25,000 1,087,500
- ----------------------------------------------------------------
Rite Aid Corp. 20,000 920,000
- ----------------------------------------------------------------
Twinlab Corp.(a) 140,000 1,855,000
- ----------------------------------------------------------------
Wild Oats Markets Inc.(a) 170,000 2,720,000
- ----------------------------------------------------------------
8,819,344
- ----------------------------------------------------------------
RETAIL (STORES)-9.68%
Abercrombie & Fitch Co.-Class A(a) 95,000 1,389,375
- ----------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 20,000 237,500
- ----------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 13,000 355,875
- ----------------------------------------------------------------
Blyth Industries, Inc.(a) 10,000 395,000
- ----------------------------------------------------------------
Boise Cascade Office Products
Corp.(a) 20,000 352,500
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (STORES)-(CONTINUED)
Borders Group, Inc.(a) 2,400 $ 51,000
- ----------------------------------------------------------------
Brookstone, Inc.(a) 35,000 280,000
- ----------------------------------------------------------------
Circuit City Stores, Inc. -- CarMax
Group(a) 21,100 316,500
- ----------------------------------------------------------------
Coldwater Creek Inc.(a) 40,000 560,000
- ----------------------------------------------------------------
CompUSA, Inc.(a) 33,000 635,250
- ----------------------------------------------------------------
Consolidated Stores Corp.(a) 1,125 45,000
- ----------------------------------------------------------------
Corporate Express, Inc.(a) 75,000 750,000
- ----------------------------------------------------------------
Costco Companies, Inc.(a) 10,000 288,750
- ----------------------------------------------------------------
CVS Corp. 20,000 992,500
- ----------------------------------------------------------------
Damark International, Inc.-Class
A(a) 50,000 462,500
- ----------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 13,000 513,500
- ----------------------------------------------------------------
Duty Free International, Inc. 8,900 125,713
- ----------------------------------------------------------------
Eagle Hardware & Garden, Inc.(a) 20,000 375,000
- ----------------------------------------------------------------
Family Dollar Stores, Inc. 115,000 3,004,375
- ----------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 79,000 814,688
- ----------------------------------------------------------------
Friedman's, Inc.-Class A(a) 25,000 421,875
- ----------------------------------------------------------------
Gadzooks, Inc.(a) 24,000 669,000
- ----------------------------------------------------------------
Gargoyles, Inc.(a) 50,000 375,000
- ----------------------------------------------------------------
Guitar Center Inc.(a) 39,000 550,875
- ----------------------------------------------------------------
Gymboree Corp.(a) 20,000 553,750
- ----------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 35,000 560,000
- ----------------------------------------------------------------
Hot Topic, Inc.(a) 65,000 1,673,750
- ----------------------------------------------------------------
Just for Feet, Inc.(a) 32,500 515,937
- ----------------------------------------------------------------
Kohl's Corp.(a) 3,000 146,625
- ----------------------------------------------------------------
Linens 'N Things, Inc.(a) 145,000 3,081,250
- ----------------------------------------------------------------
Little Switzerland, Inc.(a) 70,000 345,625
- ----------------------------------------------------------------
Mac Frugals Bargains Close-Outs,
Inc.(a) 60,000 1,755,000
- ----------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 55,000 1,368,125
- ----------------------------------------------------------------
Neiman Marcus Group, Inc. (The)(a) 34,000 892,500
- ----------------------------------------------------------------
Nordstrom, Inc. 8,000 314,000
- ----------------------------------------------------------------
Oakley, Inc.(a) 75,000 768,750
- ----------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 1,200 39,150
- ----------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 22,000 470,250
- ----------------------------------------------------------------
Pier 1 Imports, Inc. 75,000 1,481,250
- ----------------------------------------------------------------
Proffitt's, Inc.(a) 4,200 156,975
- ----------------------------------------------------------------
RDO Equipment Co.-Class A(a) 37,500 618,750
- ----------------------------------------------------------------
Sports Authority, Inc. (The)(a) 75,000 1,331,250
- ----------------------------------------------------------------
Stage Stores, Inc.(a) 134,700 2,795,025
- ----------------------------------------------------------------
Staples, Inc.(a) 10,000 180,000
- ----------------------------------------------------------------
Sunglass Hut International, Inc.(a) 125,000 906,250
- ----------------------------------------------------------------
Talbots, Inc. 13,700 369,900
- ----------------------------------------------------------------
Tech Data Corp.(a) 10,000 245,000
- ----------------------------------------------------------------
Tiffany & Co. 35,000 1,386,875
- ----------------------------------------------------------------
U.S. Office Products Co.(a) 70,000 1,785,000
- ----------------------------------------------------------------
Viking Office Products, Inc.(a) 35,000 476,875
- ----------------------------------------------------------------
Whole Foods Market, Inc.(a) 60,000 1,380,000
- ----------------------------------------------------------------
Williams-Sonoma, Inc.(a) 5,000 155,000
- ----------------------------------------------------------------
Zale Corp.(a) 25,000 462,500
- ----------------------------------------------------------------
40,177,138
- ----------------------------------------------------------------
</TABLE>
FS-137
<PAGE> 230
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SCHOOLS-0.07%
Children's Comprehensive Services,
Inc.(a) 20,000 $ 235,000
- ----------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 1,800 54,225
- ----------------------------------------------------------------
289,225
- ----------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.75%
Dynatech Corp.(a) 45,000 1,563,750
- ----------------------------------------------------------------
Fisher Scientific International 30,000 1,271,250
- ----------------------------------------------------------------
Input/Output, Inc.(a) 20,000 280,000
- ----------------------------------------------------------------
3,115,000
- ----------------------------------------------------------------
SECURITY & SAFETY SERVICES-0.72%
O'Gara Co. (The)(a) 25,000 267,188
- ----------------------------------------------------------------
Pittston Brink's Group 9,000 285,750
- ----------------------------------------------------------------
Protection One, Inc.(a) 170,000 1,721,250
- ----------------------------------------------------------------
Safety 1st, Inc.(a) 35,000 236,250
- ----------------------------------------------------------------
Vivid Technologies, Inc.(a) 36,500 492,750
- ----------------------------------------------------------------
3,003,188
- ----------------------------------------------------------------
SEMICONDUCTORS-0.62%
Analog Devices, Inc.(a) 9,067 242,533
- ----------------------------------------------------------------
DuPont Photomasks, Inc.(a) 10,000 478,750
- ----------------------------------------------------------------
ESS Technology, Inc.(a) 35,000 481,250
- ----------------------------------------------------------------
Fusion Systems Corp.(a) 10,000 263,750
- ----------------------------------------------------------------
Integrated Process Equipment
Corp.(a) 54,000 735,750
- ----------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 2,400 126,900
- ----------------------------------------------------------------
SDL, Inc.(a) 20,000 260,000
- ----------------------------------------------------------------
2,588,933
- ----------------------------------------------------------------
SHOES & RELATED APPAREL-0.07%
Genesco Inc.(a) 20,000 232,500
- ----------------------------------------------------------------
Kenneth Cole Productions, Inc.(a) 4,500 74,813
- ----------------------------------------------------------------
307,313
- ----------------------------------------------------------------
TELECOMMUNICATIONS-3.57%
ADC Telecommunications, Inc.(a) 5,000 130,625
- ----------------------------------------------------------------
Advanced Fibre Communications,
Inc.(a) 25,000 996,875
- ----------------------------------------------------------------
Aerial Communications Inc.(a) 60,000 292,500
- ----------------------------------------------------------------
Andrew Corp.(a) 700 17,325
- ----------------------------------------------------------------
Billing Information Concepts(a) 15,000 358,125
- ----------------------------------------------------------------
Brooks Fiber Properties, Inc.(a) 60,000 1,305,000
- ----------------------------------------------------------------
DSC Communications Corp.(a) 75,000 1,528,125
- ----------------------------------------------------------------
General Instrument Corp.(a) 33,000 771,375
- ----------------------------------------------------------------
GeoTel Communications Corp.(a) 14,700 154,350
- ----------------------------------------------------------------
LCC International, Inc. Class A(a) 160,000 1,640,000
- ----------------------------------------------------------------
McLeod, Inc. Class A(a) 6,500 119,438
- ----------------------------------------------------------------
NACT Telecommunications, Inc.(a) 50,000 343,750
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
</TABLE>
TELECOMMUNICATIONS-(CONTINUED)
Octel Communications Corp.(a) 30,000 $ 487,500
- ----------------------------------------------------------------
Omnipoint Corp.(a) 5,000 38,750
- ----------------------------------------------------------------
P-COM, Inc.(a) 43,000 1,230,875
- ----------------------------------------------------------------
PairGain Technologies, Inc.(a) 5,000 130,000
- ----------------------------------------------------------------
Premiere Technologies, Inc.(a) 12,500 298,438
- ----------------------------------------------------------------
Scientific-Atlanta, Inc. 40,000 640,000
- ----------------------------------------------------------------
SmarTalk Teleservices Inc.(a) 25,000 268,750
- ----------------------------------------------------------------
Tekelec(a) 10,000 230,000
- ----------------------------------------------------------------
Tellabs, Inc.(a) 26,000 1,036,750
- ----------------------------------------------------------------
Teltrend, Inc.(a) 20,000 370,000
- ----------------------------------------------------------------
360 Communications Co.(a) 3,000 52,125
- ----------------------------------------------------------------
Tollgrade Communications, Inc.(a) 50,000 987,500
- ----------------------------------------------------------------
Transaction Network Services,
Inc.(a) 30,000 337,500
- ----------------------------------------------------------------
TTI Team Telecom International
Ltd.(a) (Israel) 49,900 246,381
- ----------------------------------------------------------------
U.S. Long Distance Corp.(a) 15,000 181,875
- ----------------------------------------------------------------
West TeleServices Corp.(a) 40,500 531,562
- ----------------------------------------------------------------
Yurie Systems, Inc.(a) 10,450 100,581
- ----------------------------------------------------------------
14,826,075
- ----------------------------------------------------------------
TEXTILES-0.36%
Ashworth, Inc.(a) 35,000 264,688
- ----------------------------------------------------------------
G & K Services, Inc.-Class A 28,500 826,500
- ----------------------------------------------------------------
Tommy Hilfiger Corp.(a) 10,000 397,500
- ----------------------------------------------------------------
1,488,688
- ----------------------------------------------------------------
TOBACCO-0.42%
Consolidated Cigar Holdings, Inc.(a) 27,000 621,000
- ----------------------------------------------------------------
General Cigar Holdings, Inc.(a) 50,000 1,181,250
- ----------------------------------------------------------------
1,802,250
- ----------------------------------------------------------------
TRANSPORTATION-1.52%
AirNet Systems, Inc.(a) 50,000 775,000
- ----------------------------------------------------------------
Hvide Marine, Inc.-Class A(a) 170,000 2,932,500
- ----------------------------------------------------------------
Kitty Hawk, Inc.(a) 55,000 756,250
- ----------------------------------------------------------------
Trico Marine Services, Inc.(a) 52,000 1,846,000
- ----------------------------------------------------------------
6,309,750
- ----------------------------------------------------------------
Total Common Stocks 402,768,625
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-3.03%(b)
HSBC Securities, Inc., 5.49%,
05/01/97(c) $12,573,588 12,573,588
- ----------------------------------------------------------------
TOTAL INVESTMENTS-99.99% 415,342,213
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.01% 52,477
- ----------------------------------------------------------------
NET ASSETS-100.00% $415,394,690
- ----------------------------------------------------------------
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sale price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 04/30/97 with a maturing value of
$200,030,500. Collateralized by $116,271,000 U.S. Treasury obligations,
5.875% to 7.875% due 06/30/01 to 08/15/05 and $85,760,000 U.S. Government
obligations, 0% to 7.15% due 07/18/97 to 02/14/06 with an aggregate market
value at 04/30/97 of $204,003,650.
See Notes to Financial Statements.
FS-138
<PAGE> 231
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$409,037,704) $415,342,213
- -----------------------------------------------------------
Receivables for:
Investments sold 80,335
- -----------------------------------------------------------
Capital stock sold 2,700,615
- -----------------------------------------------------------
Dividends and interest 47,130
- -----------------------------------------------------------
Investment for deferred compensation plan 2,415
- -----------------------------------------------------------
Other assets 112,021
- -----------------------------------------------------------
Total assets 418,284,729
- -----------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,195,575
- -----------------------------------------------------------
Capital stock reacquired 1,134,364
- -----------------------------------------------------------
Deferred compensation 2,415
- -----------------------------------------------------------
Accrued advisory fees 238,847
- -----------------------------------------------------------
Accrued administrative service fees 6,215
- -----------------------------------------------------------
Accrued directors' fees 2,297
- -----------------------------------------------------------
Accrued distribution fees 217,656
- -----------------------------------------------------------
Accrued transfer agent fees 60,658
- -----------------------------------------------------------
Accrued operating expenses 32,012
- -----------------------------------------------------------
Total liabilities 2,890,039
- -----------------------------------------------------------
Net assets applicable to shares outstanding $415,394,690
===========================================================
NET ASSETS:
Class A $310,035,927
===========================================================
Class B $105,358,763
===========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- -----------------------------------------------------------
Outstanding 30,372,240
===========================================================
Class B:
Authorized 750,000,000
- -----------------------------------------------------------
Outstanding 10,360,230
===========================================================
CLASS A:
Net asset value and redemption price per
share $ 10.21
===========================================================
Offering price per share:
(Net assets value of $10.21
divided by 94.50%) $ 10.80
===========================================================
CLASS B:
Net asset value and offering price per
share $ 10.17
===========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $2,499 foreign withholding
tax) $ 393,163
- -----------------------------------------------------------
Interest 679,054
- -----------------------------------------------------------
Total investment income 1,072,217
- -----------------------------------------------------------
EXPENSES:
Advisory fees 1,538,850
- -----------------------------------------------------------
Administrative service fees 37,898
- -----------------------------------------------------------
Custodian fees 23,287
- -----------------------------------------------------------
Directors' fees 3,645
- -----------------------------------------------------------
Distribution fees-Class A 536,414
- -----------------------------------------------------------
Distribution fees-Class B 375,468
- -----------------------------------------------------------
Transfer agent fees-Class A 334,356
- -----------------------------------------------------------
Transfer agent fees-Class B 118,321
- -----------------------------------------------------------
Other 76,153
- -----------------------------------------------------------
Total expenses 3,044,392
- -----------------------------------------------------------
Less: Advisory fees waived (224,977)
- -----------------------------------------------------------
Expenses paid indirectly (2,995)
- -----------------------------------------------------------
Net expenses 2,816,420
- -----------------------------------------------------------
Net investment income (loss) (1,744,203)
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (10,251,214)
- -----------------------------------------------------------
Net realized gain (loss) on securities sold
short (3,783)
- -----------------------------------------------------------
Net realized gain (loss) on investment
securities (10,254,997)
- -----------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities (27,115,796)
- -----------------------------------------------------------
Net gain (loss) on investment securities (37,370,793)
- -----------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(39,114,996)
- -----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-139
<PAGE> 232
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND THE PERIOD JUNE 17, 1996 (DATE
OPERATIONS COMMENCED) THROUGH OCTOBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (1,744,203) $ (167,630)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on investment securities (10,254,997) (5,381,138)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (27,115,796) 33,420,305
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (39,114,996) 27,871,537
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 87,083,460 222,946,738
- ------------------------------------------------------------------------------------------
Class B 93,738,617 22,869,334
- ------------------------------------------------------------------------------------------
Net increase in net assets 141,707,081 273,687,609
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 273,687,609 --
- ------------------------------------------------------------------------------------------
End of period $415,394,690 $273,687,609
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $426,472,043 $245,649,966
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (1,745,727) (1,524)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on investment
securities (15,636,135) (5,381,138)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 6,304,509 33,420,305
- ------------------------------------------------------------------------------------------
$415,394,690 $273,687,609
==========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1997
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development 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 diversified
portfolios: AIM Capital Development Fund, AIM Aggressive Growth Fund, AIM Blue
Chip Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. The
Fund currently offers two different classes of shares: the Class A shares and
the Class B shares. Class A shares commenced operations on June 17, 1996 and
Class B shares commenced sales on October 1, 1996. Class A shares are sold with
a front-end sales charge. Class B shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term capital appreciation.
The following is a summary of the 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--A security listed or traded on an exchange (except
convertible bonds) 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. 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. If a mean is not available, as is the
case in some foreign markets, the closing bid will be used absent a last
sales price. 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
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the 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.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a
FS-140
<PAGE> 233
trade date basis. Realized gains or losses on sales are computed on the
specific identification of the securities sold. Interest income is recorded
as earned from settlement date and is recorded on the accrual basis. Dividend
income, dividend expense on short sales and distributions to shareholders are
recorded on the ex-dividend date.
C. Accounting for Securities Sold Short--When the Fund sells common stock short,
an amount equal to the proceeds of the sales is recorded as an asset. This
asset is offset by a liability (representing the borrowed security) recorded
on the books of the Fund at the market value of the common stock determined
each day in accordance with the procedures for security valuations discussed
in "A" above. The Fund's risk is that the value of the security will increase
rather than decline and thus an unrealized loss will be recorded. When the
Fund closes out a short position by delivering the stock sold short, the Fund
will realize a gain or loss and the liability related to such short position
will be eliminated. The Fund will attempt to hedge against market risk by
entering into short sales of securities that it currently owns or has the
right to acquire through the conversion or exchange of other securities that
it owns. Such short sales may protect the Fund against the risk of losses in
the value of its portfolio securities because any unrealized losses with
respect to such securities may be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in
such portfolio may be wholly or partially offset by a corresponding loss in
the short position.
D. 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. The Fund has a capital loss carryforward of
$4,645,136 (which may be carried forward to offset future taxable gains, if
any) which expires, if not previously utilized, in the year 2004.
E. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
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 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. AIM has agreed to
waive advisory fees on the Fund to the extent necessary to keep the annual
expense ratio for Class A shares at 1.34% for two years commencing August 12,
1996. During the six months ended April 30, 1997, 1996, AIM waived fees of
$224,977.
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 six months ended April 30, 1997, AIM
was reimbursed $37,898 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the six months ended April 30, 1997, AFS was paid
$260,707 for such services.
The Fund received reductions in transfer agency fees of $2,995 from dividends
received on balances in cash management accounts. The effect of the above
arrangement resulted in a reduction of the Fund's total expenses of $2,995
during the six months ended April 30, 1997.
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 shares and Class B shares of the Fund. 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 0.35% 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 of the Class B shares. Of this amount, the Fund
pays 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 assignees, its rights to all or a 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 payable to AIM Distributors
related to the Class B shares. During the six months ended April 30, 1997, the
Class A shares and the Class B shares paid AIM Distributors $536,414 and
$375,468, respectively, as compensation pursuant to the Plans.
AIM Distributors received commissions of $604,215 from Class A capital stock
transactions during the six months ended April 30, 1997. 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 capital stock. During the six months ended April
30, 1997, AIM Distributors received $5,583 in contingent deferred sales charges
imposed on redemptions of capital stock. Certain officers and directors of the
Company are officers and directors of AIM, AIM Distributors and AFS.
During the six months ended April 30, 1997 the Fund paid legal fees of $2,780
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.
FS-141
<PAGE> 234
NOTE 3-DIRECTOR'S FEES
Director's 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.
During the six months ended April 30, 1997, 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 six months ended April 30, 1997 was
$275,496,648 and $74,919,850, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of April 30, 1997, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 49,302,694
- -------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (43,288,268)
- -------------------------------------------------------
Net unrealized appreciation of
investment securities $ 6,014,426
=======================================================
</TABLE>
Cost of investments for tax purposes is $409,327,787.
NOTE 6-CAPITAL STOCK
Changes in the capital stock outstanding during the six months ended April 30,
1997 and the period June 17, 1996 (date operations commenced) through October
31, 1996 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1997 OCTOBER 31, 1996
--------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 14,534,714 $ 163,157,737 24,923,432 $ 246,810,746
- ------------------- ------------ ------------- ---------- ---------------
Class B* 9,175,182 102,943,426 2,026,599 22,898,153
- ------------------- ------------ ------------- ---------- ---------------
Reacquired:
Class A (6,822,253) (76,074,277) (2,263,653) (23,864,008)
- ------------------- ------------ ------------- ---------- ---------------
Class B* (838,975) (9,204,809) (2,576) (28,819)
- ------------------- ------------ ------------- ---------- ---------------
16,048,668 $ 180,822,077 24,683,802 $ 245,816,072
=================== ============ ============= ========== ===============
* Class B shares commenced sales on October 1, 1996.
</TABLE>
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1997 and the period June 17,
1996 (date operations commenced) through October 31, 1996 and for a share of
Class B capital stock outstanding during the six months ended April 30, 1997 and
the period October 1, 1996 (date sales commenced) through October 31, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------- --------------------------
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31,
1997 1996 1997 1996
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 11.09 $ 10.00 $ 11.08 $ 11.26
- ---------------------------- -------- -------- -------- --------
Income from investment
operations:
Net investment income
(loss) (0.04) (0.01)(a) (0.05) (0.01)(a)
- ---------------------------- -------- -------- -------- --------
Net gains (losses) on
securities (both
realized and
unrealized) (0.84) 1.10 (0.86) (0.17)
- ---------------------------- -------- -------- -------- --------
Total from investment
operations (0.88) 1.09 (0.91) (0.18)
- ---------------------------- -------- -------- -------- --------
Net asset value, end of
period $ 10.21 $ 11.09 $ 10.17 $ 11.08
============================ ======== ======== ======== ========
Total return(b) (7.94)% 10.90% (8.21)% (1.60)%
============================ ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $310,036 $251,253 $105,359 $ 22,435
============================ ======== ======== ======== ========
Ratio of expenses to average
net assets(c) 1.34%(d)(e) 1.35%(f) 2.04%(d)(e) 1.89%(f)
============================ ======== ======== ======== ========
Ratio of net investment
income (loss) to average
net assets(g) (0.78)%(d) (0.29)%(f) (1.47)%(d) (0.83)%(f)
============================ ======== ======== ======== ========
Portfolio turnover rate 21% 13% 21% 13%
============================ ======== ======== ======== ========
Average broker commission
rate $ 0.0533 $ 0.0550 $ 0.0533 $ 0.0550
============================ ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(c) After fee waivers. Annualized ratios of expenses to average net assets prior
to fee waivers for the periods 1997 and 1996 are 1.46% and 1.60% for Class A
shares and 2.15% and 2.28% for Class B shares.
(d) Ratios are annualized and based on average net assets of $309,062,782 for
the Class A shares and $75,715,935 for the Class B shares.
(e) Excluding indirectly paid expenses, the ratios of expenses to average net
assets would have been the same for the Class A and Class B shares.
(f) Annualized.
(g) After fee waivers. Annualized ratios of net investment income (loss) prior
to fee waivers for the periods 1997 and 1996 are (0.89)% and (0.54)% for
Class A shares are (1.59)% and (1.22)% for Class B shares.
FS-142
<PAGE> 235
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Capital Development Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(4) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 0 19,923,485
Bruce L. Crockett........................................... 619,427,685 0 19,307,045
Owen Daly II................................................ 618,919,919 0 19,814,811
Carl Frischling............................................. 619,275,356 0 19,459,374
Robert H. Graham............................................ 619,431,576 0 19,303,154
John F. Kroeger............................................. 618,878,096 0 19,856,634
Lewis F. Pennock............................................ 619,272,998 0 19,461,732
Ian W. Robinson............................................. 618,944,840 0 19,789,890
Louis S. Sklar.............................................. 619,462,714 0 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 15,997,633 226,397 615,219
(3) Elimination of policy prohibiting investments in other
investment companies........................................ 12,434,128 708,699 648,163
(4) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
FS-143
