<PAGE> 1
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 1919
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 (713) 626-1919, EXTENSION 5001 (IN HOUSTON)
OR (800) 347-4246 (ELSEWHERE).
STATEMENT OF ADDITIONAL INFORMATION DATED
JANUARY 15, 1997, AS REVISED MARCH 18, 1997
RELATING TO THE AIM AGGRESSIVE
GROWTH FUND PROSPECTUS DATED JANUARY 15, 1997, AS REVISED MARCH 17, 1997
THE AIM CHARTER FUND, AIM WEINGARTEN FUND AND AIM CONSTELLATION FUND
PROSPECTUSES DATED JANUARY 15, 1997, AS REVISED MARCH 17, 1997
THE AIM BLUE CHIP FUND PROSPECTUS DATED JANUARY 15,1997,
AS REVISED MARCH 17, 1997 AND THE AIM CAPITAL
DEVELOPMENT FUND PROSPECTUS DATED JANUARY 15,1997, AS REVISED MARCH 17, 1997
<PAGE> 2
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 ................................ 14
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>
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<TABLE>
<S> <C>
DISTRIBUTION PLANS ................................................................. 33
The Class A 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>
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<PAGE> 4
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 January 15, 1997, as revised March 17, 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 January
15, 1997, as revised March 17, 1997. The information for the Retail Class of
AIM Blue Chip Fund ("Blue Chip") is contained in a separate prospectus dated
January 15, 1997, as revised March 17, 1997. The information for the Retail
Class of AIM Capital Development Fund ("Capital Development") is contained in a
separate prospectus dated January 15, 1997, as revised March 17, 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
three separate classes: Class A and Class B and an Institutional Class.
Constellation has two classes of shares: Class A and an Institutional Class.
Aggressive Growth has Class A shares only. Blue Chip and Capital Development
each have two classes of shares: Class A and Class B. Class A shares (sold with
a front-end sales charge) and Class B shares (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,
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<PAGE> 5
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 contingent
deferred sales charge into account. Excluding sales charges from a total return
calculation produces a higher total return figure.
2
<PAGE> 6
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> 7
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.
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> 8
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 ("S&P") 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.
S & P'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.
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<PAGE> 9
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; and
(c) the broker's attitude toward and interest in mutual funds in general and in
the Funds and other mutual funds advised by AIM or A I M Capital Management,
Inc. ("AIM Capital") 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> 10
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> 11
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
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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
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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 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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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.
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 S&P'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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<PAGE> 19
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.
16
<PAGE> 20
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) invest in securities of companies which have a record of less
than three years of continuous operation if such purchase at the time thereof
would cause more than 5% of the total assets of the Fund to be invested in the
securities of such companies (with such period of three years to include the
operation of any predecessor company or companies, partnership or individual
enterprise if the company whose securities are proposed for investment by the
Fund has come into existence as the result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of such
predecessor company or companies, partnership or individual enterprise). 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
17
<PAGE> 21
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> 22
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, and (b) engage in the writing and sale of put options and the
writing, sale or purchase of uncovered call options, straddles, spreads or
combinations thereof. 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; (g) invest in securities of companies
which have a record of less than three years of continuous operation if such
purchase at the time thereof would cause more than 5% of the total assets of
the Fund to be invested in the securities of such companies (with such period
of three years to include the operation of any predecessor company or
companies, partnership or individual enterprise if the company whose securities
are proposed for investment
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<PAGE> 23
by the Fund has come into existence as the result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of such
predecessor company or companies, partnership or individual enterprise)
(h) write covered call options in excess of 25% of the value of the
Fund's net assets; or
(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. 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> 24
(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.
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 securities of any company with a
record of less than three years' continuous operations (including that of
predecessors) if such purchase would cause the Fund's aggregate investments in
all such companies taken at cost to exceed 5% of the Fund's total assets taken
at market value; and (f) 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> 25
of the securities of such issuer. 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> 26
(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) invest in
securities of companies which have a record of less than three years of
continuous operation if such purchase at the time thereof would cause more
than 5% of the total assets of the Fund to be invested in the securities of
such companies (with such period of three years to include the operation of
any predecessor company or companies, partnership or individual enterprise
if the company whose securities are proposed for investment by the Fund has
come into existence as the result of a merger, consolidation, reorganization
or purchase of substantially all of the assets of such predecessor company or
companies, partnership or individual enterprise). 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,
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<PAGE> 27
Suite 1919, 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 (77)
Director, Chairman and Chief Executive Officer, A I M Management Group
Inc.; Chairman of the Board of Directors, 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.
BRUCE L. CROCKETT, Director (52)
906 Frome Lane
McLean, VA 22102
Formerly, Director, President and Chief Executive Officer, COMSAT
Corporation (Includes COMSAT World Systems, COMSAT Mobile Communications,
COMSAT Video Enterprises, COMSAT RSI and COMSAT International Ventures).
Previously, President and Chief Operating Officer, COMSAT Corporation;
President, World Systems Division, COMSAT Corporation; and Chairman, Board of
Governors of INTELSAT; (each of the COMSAT companies listed above is an
international communication, information and entertainment-distribution
services 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.
**CARL FRISCHLING, Director (59)
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.
- --------
* 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> 28
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)
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (73)
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.
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> 29
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 (37)
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. Daly, Kroeger
(Chairman), Pennock and Robinson. 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), Kroeger and Pennock. 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, Kroeger, Pennock (Chairman) 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> 30
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 13,461 3,655 57,750
- ---------------------------------------------------------------------------------------------------------------
Owen Daly II 14,385 18,662 58,125
- ---------------------------------------------------------------------------------------------------------------
Carl Frischling 13,938 11,323 57,250(4)
- ---------------------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- ---------------------------------------------------------------------------------------------------------------
John F. Kroeger 14,807 22,313 58,125
- ---------------------------------------------------------------------------------------------------------------
Lewis F. Pennock 13,476 5,067 58,125
- ---------------------------------------------------------------------------------------------------------------
Ian Robinson 13,373 15,381 56,750
- ---------------------------------------------------------------------------------------------------------------
Louis S. Sklar 14,003 6,632 57,250
===============================================================================================================
</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) See also page 31 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> 31
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
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 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 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, Frischling, Kroeger, Pennock, Robinson and Sklar
are 9, 10, 19, 19, 15, 9 and 7 years, respectively.
<TABLE>
<CAPTION>
==============================================================================
Number of Annual Compensation
Years of Paid By All AIM Funds
Service With
the AIM Fund $60,000 $65,000 $70,000
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 $45,000 $48,750 $52,500
- ------------------------------------------------------------------------------
9 $40,500 $43,875 $47,250
- ------------------------------------------------------------------------------
8 $36,000 $39,000 $42,000
- ------------------------------------------------------------------------------
7 $31,500 $34,125 $36,750
- ------------------------------------------------------------------------------
6 $27,000 $29,250 $31,500
- ------------------------------------------------------------------------------
5 $22,500 $24,375 $26,250
==============================================================================
</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> 32
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 1919, Houston, Texas 77046. AIM
Management is a holding company that has been engaged in the financial services
business since 1976. 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 42 investment company portfolios. As of December 31, 1996, the total
assets of the investment company portfolios advised or managed by AIM and its
affiliates were approximately $62.3 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> 33
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> 34
* 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 each Fund (other than Blue Chip, Capital Development and
Aggressive Growth), 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> 35
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> 36
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 PLAN. The Company has adopted a Master Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act relating to the Class A shares of the
Funds (the "Class A Plan"). The Class A 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. Activities appropriate for financing under the
Class A 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
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 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;
33
<PAGE> 37
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> 38
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 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>
35
<PAGE> 39
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, 1997, 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> 40
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 Plan is amended
in a manner which the Board of Directors determines would materially increase
the charges paid under the Class A 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 Plan and the Class B
Plan are: (i) the Class A 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 was approved by the Board of Directors on December 10,
1996. 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 10, 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> 41
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.
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> 42
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> 43
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> 44
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> 45
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).
42
<PAGE> 46
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> 47
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> 48
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> 49
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 1919, 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> 50
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 December 31, 1996, 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. 29.11%** -0-
Attn: Mutual Fund Operations
777 E. Wisconsin Ave.
Milwaukee, WI 53202
Merrill Lynch Pierce Fenner & Smith -0- 5.00%
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- 10.20%
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 December 31, 1996, and the Institutional Class of Charter as of
December 31, 1996, 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.
** 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.
47
<PAGE> 51
<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- 12.56%
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 7.66% -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- 10.56%
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 90.76%** -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> 52
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 December 31, 1996, and the Institutional Class of Weingarten
as of December 31, 1996, 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- 18.98%
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- 12.32%
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 67.53%** -0-
One Ashburton Place
12th Floor
Boston, MA 02108
Union Planters NationsBank -0- 16.58%
P. O. Box 387
Memphis, TN 38147
City of Milwaukee Deferred Comp. 5.78% -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> 53
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 December 31, 1996, and of the Institutional
Class of Constellation as of December 31, 1996, 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- 16.68%
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 49.18%** -0-
Compensation Plan
40 Street, 3rd Floor
New York, NY 10006
Nationwide Ohio Variable Account 13.76% -0-
P.O. Box 182029
Columbus, Ohio 43218
Commonwealth of Massachusetts 12.73% -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.
50
<PAGE> 54
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 December 31, 1996, 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- 21.40%
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 December 31, 1996, 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- 17.74%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
Robert W. Baird Inc. 9.57% -0-
Attn: Mutual Fund Operations
777 E. Wisconsin Avenue
Milwaukee, WI 53202
</TABLE>
As of December 31, 1996, 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> 55
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> 56
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> 57
FINANCIAL STATEMENTS
FS
<PAGE> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
<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> 77
<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> 78
<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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
<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> 88
<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> 89
<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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
<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> 101
<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> 102
<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> 103
<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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
<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> 112
<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> 113
<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> 114
<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> 115
<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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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>
FS-65
<PAGE> 123
<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>
FS-66
<PAGE> 124
<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> 125
<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> 126
<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> 127
<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> 128
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> 129
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> 130
$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> 131
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