<PAGE> 1
[PHOTO APPEARS HERE]
AIM CAPITAL
DEVELOPMENT FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT OCTOBER 31, 1996
<PAGE> 2
[PHOTO APPEARS HERE]
ABOUT FUND PERFORMANCE DATA THROUGHOUT THIS REPORT:
o AIM Capital Development Fund's performance figures are historical and
reflect reinvestment of all distributions and changes in net asset value.
Unless otherwise indicated, Fund results are for Class A shares and
calculated without a sales charge. The Fund's Class B shares commenced
operations October 1, 1996.
o When sales charges are included, the Class A share performance
reflects the 5.50% maximum sales charge and Class B share performance
reflects the applicable contingent deferred sales charge (CDSC) for the
period involved. The CDSC on Class B shares declines from 5% at the time of
purchase to 0% at the beginning of the seventh year. The performance of the
Fund's Class B shares will differ from that of Class A shares due to
differences in sales charge structure and Fund expenses.
o The Fund's investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than
their original cost.
o The Fund's portfolio composition is subject to change and there is no
assurance the Fund will continue to hold any particular security.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Russell 2000 Index is generally representative of the performance of
small-company stocks.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AIM CAPITAL
DEVELOPMENT FUND
For shareholders who seek
long-term growth through
investments in the
stocks of small- and
medium-size companies.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE;
AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
<PAGE> 3
The Chairman's Letter
Dear Shareholder:
As you may have heard in the financial news, AIM
Management Group Inc. recently announced a significant event
in our company's history--an agreement to merge with
[Photo of INVESCO PLC, one of the world's largest independent
Charles T. investment management groups.
Bauer, AIM has long been known for its strategic planning and
Chairman of forward thinking. In seeking this merger, AIM had specific
the Board of goals in choosing a partner: to better AIM's position to
the Fund, succeed in an increasingly competitive financial services
APPEARS HERE] environment, both in the U.S. and globally; to ensure the
continuation of AIM's independent culture, investment
philosophy, and dedication to our shareholders; and to
offer the broadest range of products and services to our
shareholders.
A "MERGER OF EQUALS" THAT PRESERVES INDEPENDENCE
When the merger is completed, AIM and INVESCO will be combined under a new
holding company to be named AMVESCO, to reflect the strongly complementary
strengths of our two companies which together create a "merger of equals."
AMVESCO will have combined assets under management in excess of $150 billion.
Most importantly, the agreement enables AIM to preserve its independent
culture--which has been so essential to our company's success. The locations,
management, structure, and brand names of AIM and INVESCO will not change.
With INVESCO, AIM achieves a strategic combination with a partner that offers
complementary rather than overlapping strengths. AIM has delivered impressive
performance over the years as a domestic retail fund manager. INVESCO brings to
AIM its primary strengths as an institutional money manager, and as a
successful international investment manager with significant operations in
North America, Europe, and the Pacific region.
NO CHANGES IN YOUR AIM FUND OR ITS MANAGEMENT
While AIM certainly will be enriched through these added strengths, it will
retain those qualities that have produced two decades of successful
performance. The reputation of AIM funds has been built by its seasoned team of
portfolio managers who adhere to AIM's disciplined and successful investment
management process. AIM's central goal is to keep the current investment team
in place and our time-tested investment philosophy intact. Also, the names of
AIM funds will not change.
Moreover, because the merger will not result in any changes in the way AIM
does business, this transaction will be seamless--without any disruption of
service to you.
YOUR VOTE IS IMPORTANT
The merger is expected to be completed on or about February 28. As a result of
the merger, it is necessary for shareholders of AIM funds to approve a new
investment advisory agreement.
Recently, we mailed an announcement for the shareholder meeting planned on
February 7, along with a proxy card that describes proposals that relate to the
management and policies of your Fund. We encourage you to review and return
your proxy as soon as possible. Your Fund's Board of Directors carefully
considered and unanimously approved the proposals and recommends that you vote
in favor of each one. Your vote is important to us. If you haven't yet mailed
your proxy card, please send it today.
The AIM/INVESCO merger marks a new and promising era for AIM, and we believe
it will yield exciting opportunities for AIM shareholders. We appreciate the
trust you have placed in us.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
---------------------------
With INVESCO, AIM
achieves a strategic
combination with a
partner that offers comple-
mentary rather than
overlapping strengths.
---------------------------
<PAGE> 4
The Manager's Overview
OFF TO A GOOD START
A ROUNDTABLE DISCUSSION WITH THE FUND MANAGEMENT TEAM FOR AIM CAPITAL
DEVELOPMENT FUND FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996.
- --------------------------------------------------------------------------------
Q. AIM CAPITAL DEVELOPMENT FUND COMMENCED OPERATIONS ON JUNE 17, 1996--IN THE
MIDDLE OF A SHARP MARKET DECLINE. HOW DID THAT AFFECT THE FUND'S PERFORMANCE?
A. Actually, the timing was ideal. The Russell 2000 Index of small-company
stocks was in the midst of a 12.48% retreat that lasted from May 30 to July
31, 1996.
Such declines often are more severe than warranted, that is, they
take down good stocks with the bad. That means that the Fund was able to
make its initial stock selections just as prices for many attractive
companies were near their lowest for the year.
As a result, the Fund delivered an impressive cumulative return of
10.90% from June 17 to October 31, 1996, 4.80% including sales charge.
Q. WHAT FACTORS HAVE PRESSURED THE PERFORMANCE OF SMALL-COMPANY STOCKS?
A. As the market leaders during 1995, small-company stocks were more
vulnerable to possible changes in the business cycle. There was an ongoing
concern over the pace of economic growth and the possibility of rising
interest rates. Higher interest rates increase borrowing and operating
costs, and that can have a stronger impact on the profits of smaller
companies.
In the summer of 1996, investors also were concerned that corporate
earnings would fall short of the brisk pace of 1995, and small companies
had posted stunning profits that seemed hard to meet a year later.
Q. HOW DID INVESTORS REACT IN THAT ENVIRONMENT?
A. Uncertainty creates volatile markets, and investors gravitated to stocks in
larger companies with more predictable earnings. As a result, large-company
stocks generally have outperformed smaller company stocks. However, it has
become apparent recently that small-company stocks have grown more appealing
as earnings reports show surprisingly strong growth.
Q. HOW DID THESE FACTORS AFFECT THE FUND?
A. The current environment has created significant opportunity for the Fund--
it invests in small-company stocks offering attractive growth potential at
a reasonable price. While the market's favor is devoted to large-company
stocks, the Fund can choose from a larger selection of small-company stocks
that are undervalued relative to their future earnings prospects or
underlying assets.
There are also more opportunities to uncover out-of-favor or "turnaround"
companies with improved growth prospects thanks to some new catalyst.
Q. SO, THIS FUND IS GROWTH AND VALUE ORIENTED?
A. Growth plus value is the hallmark of the Fund's investment strategy. For
example, the Fund had only limited participation in the market for initial
public offerings, chiefly because we view many of the deals as excessively
priced for the value offered.
By comparison, the Fund's commitment to growth plus value resulted in a
portfolio that has benefited from 14 corporate acquisitions in just over
four months--companies so highly regarded they were purchased lock, stock,
and barrel.
Of course, such a pace is highly unusual. Nevertheless, it demonstrates
that the tenets of growth plus value investing apply whether you are
evaluating the
================================================================================
FUND FACTS
================================================================================
As of 10/31/96
Inception
Class A 6/17/96
Class B 10/1/96
Total Holdings 430
Total Net Assets $273.7 million
Investment Style Small-company
growth
Portfolio Ed Larsen
Management Kenneth Zschappel
Team
================================================================================
------------------------------------
The current environment
has created significant opportunity
for the Fund--it invests in
small-company stocks
offering attractive growth potential
at a reasonable price.
------------------------------------
See important Fund & index disclosures inside front cover.
2
<PAGE> 5
PORTFOLIO COMPOSITION
As of October 31, 1996
<TABLE>
<CAPTION>
======================================================================================
TOP 10 EQUITY HOLDINGS Top 10 Industries
======================================================================================
<S> <C>
1. CCC Information Services Group 1. Computer Software/Services
2. United Auto Group, Inc. 2. Retail (Stores)
3. SunGard Data Systems Inc. 3. Medical Instruments/Products
4. Stage Stores, Inc. 4. Business Services
5. Sybron International Corp. 5. Telecommunications
6. Ascend Communications, Inc. 6. Advertising/Broadcasting
7. U.S. Robotics Corp. 7. Computer Networking
8. Progressive Corp. 8. Medical (Patient Services)
9. Federal National Mortgage Association 9. Oil Equipment & Supplies
10. American Pad & Paper Co. 10. Oil & Gas (Exploration & Production)
Please keep in mind that the Fund's portfolio is subject to change and
there is no assurance the Fund will continue to hold any particular
security.
======================================================================================
</TABLE>
purchase of single stock or a whole company.
Q. HOW WAS THE FUND POSITIONED AT THE END OF THE FISCAL YEAR?
A. The Fund held a large number of stocks--430 as of October 31, 1996, spread
over 63 industry categories. The largest position weighting in the Fund was
1.02%. The Fund's largest concentrations were 26% in retail and consumer
cyclicals, followed by 23% in technology, 11% in health care, and 8% in
energy.
Q. THE FUND HAD ITS HIGHEST WEIGHTING IN STOCKS OF RETAIL AND CONSUMER
NON-CYCLICAL COMPANIES, PARTICULARLY RETAIL STORES. WHAT ATTRACTED YOU
THERE?
A. Earnings in the retail sector have been surprisingly strong, and they
continue to grow at an attractive pace. Consumer demand for goods has kept
store inventories low and fully priced, which benefits high- profile
players like Neiman-Marcus Group, Inc. and Talbots, Inc.
The Fund also added holdings in stronger, name-brand stores that
dominate their market niche: Stage Stores, Inc., Family Dollar Stores,
Inc., The Finish Line, Inc., and Pier 1 Imports, Inc.
Q. WHERE DO YOU SEE ATTRACTIVE POTENTIAL IN THE TECHNOLOGY SECTOR?
A. The Fund noted a number of positive factors that bode well for selected
technology areas. PC makers benefit from the decline in prices of
semiconductors and other components. Microsoft's Windows NT has the
potential to launch another major upgrade cycle in spring 1997 that will
benefit PC makers and software developers alike. The Fund's greatest
emphasis was in software developers such as CCC Information Services Group
and SunGard Data Systems Inc., and computer networking companies such as
Ascend Communications, Inc. and U.S. Robotics Corp.
Q. WHAT ARE THE MAIN THEMES IN THE HEALTH-CARE INDUSTRY?
A. Consolidation efforts continue and intense competition has begun to drive
out many of the smaller, less experienced players, particularly in the
physician practice management area.
The Fund focused on three major areas in the health-care segment where
there appear to be attractive potential for earnings growth: preventive
maintenance, assisted living, and hospital systems administration.
Among the Fund's strongest performers in those segments were medical
instruments and products makers Sybron International Corp. and Dentsply
International, Inc., patient services providers Healthsouth Corp. and
Oxford Health Plans, Inc., and drugmaker AmeriSource Health Corp.
Q. WHAT IS YOUR OUTLOOK FOR THE MARKET IN 1997?
A. Conditions appear favorable for stocks in general, and even better for
smaller company stocks. Recent reports show the economy slowed to a 2.0%
annual rate in the third quarter from 4.7% in the second quarter. The
economy is growing at a reasonable rate without rising inflation, and that
reduces the likelihood that interest rates may increase over the near term.
Nonetheless, we recommend that investors remain cautious and patient. In
light of the heady market performance that stocks have delivered for more
than six years, it's important to keep an eye on the big picture.
Certainly,investors have enjoyed successful performance in the stock market
for some time. But markets run in cycles--even the longest bull market in
history.
-----------------------------------
The economy is growing
at a reasonable rate
without rising inflation,
and that reduces
the likelihood that interest rates
may increase over the near term.
-----------------------------------
See important Fund & index disclosures inside front cover.
3
<PAGE> 6
For Consideration
INVESTMENT STRATEGIES FOR 1997 TO
KEEP YOU IN THE MARKET COME RAIN OR COME SHINE
DIVERSIFICATION: WEATHER-PROOFING
YOUR PORTFOLIO
As another investment year comes to a close, it's a good time to return to the
basics of investing: risk and reward. Focus on what are you trying to
accomplish--your reward--and ask yourself how much risk you are willing to
take.
You've probably often heard that the higher the risk, the higher the
reward, but that maxim doesn't always hold true. There are different types of
risks, and different types of investments may help buffer those risks.
DIVERSIFICATION AS A STRATEGY
With a diversified investment strategy, return depends on the overall
performance of the portfolio, rather than of one particular investment. The
gains of one sector may offset the losses of another.
Let's look at a core diversification strategy. Investments are classified
into several categories: cash or cash equivalents, income and growth. These
categories are made up of different securities and each meets basic needs:
o MONEY MARKET SECURITIES: ready cash for emergencies or other immediate
needs;
o BONDS: current income to cover ongoing expenses;
o STOCKS: funds for the future.
All of these investment categories belong in a balanced, diversified
portfolio. The blend depends on your age, time horizon, objectives and
tolerance for risk. Money market securities are the most conservative, bonds
range from conservative to aggressive, and stocks generally are the most
aggressive investment. Each category reacts differently to the economy and
other factors affecting the financial markets.
Mutual funds fit well within a diversification strategy. A mutual fund
usually has one or two objectives, such as growth or income or both. It spreads
its professionally managed assets among a variety of investments. When you
invest in more than one fund, you decrease your level of exposure to investment
risks.
HOW SAFE IS SAFE? STOCKS HEDGE
INFLATION
One such risk is inflation: a rise in cost without a rise in value received, a
decrease in the value of money over time. Inflation means that your investment
may lose purchasing power as the cost of living rises.
Overly risk-averse investors who prefer to keep their money in
================================================================
INFLATION'S SHRINKING EFFECT
- ----------------------------------------------------------------
At 4% inflation, $1,000 would shrink to:
5 YEARS $822
10 YEARS $676
15 YEARS $555
20 YEARS $456
25 YEARS $375
================================================================
================================================================
Stocks Historically Beat Other Investments
- ----------------------------------------------------------------
Average Annual Total Returns, Year End: 1925-1996*
*1996 is through 9/30/96.
LARGE-COMPANY STOCKS 10.7%
LONG-TERM GOVERNMENT BONDS 5.1%
U.S. TREASURY BILLS 3.8%
INFLATION 3.1%
================================================================
Source: Ibbotson Associates, Inc. The Standard & Poor's Composite Index of 500
Stocks (S&P 500) is a group of unmanaged securities widely regarded by
investors to be representative of large-company stocks in general; results
shown assume the reinvestment of dividends. Inflation is determined by the
Consumer Price Index, a measure of change in consumer prices, as determined by
the U.S. Bureau of Labor Statistics.
Government securities, such as U.S. Treasury bills and long-term government
bonds, offer a high degree of safety and are guaranteed as to the timely
payment of principal and interest if held to maturity. U.S. Treasury bills are
short- term securities with maturities of one year or less. Long-term
government bonds used in this illustration have a maturity of approximately 20
years. Fund shares are not insured and their value and yield will vary with
market conditions.
----------------------
CONSIDER THE THREE DS:
DIVERSIFICATION
DOLLAR-COST AVERAGING
DISCIPLINE
----------------------
4
<PAGE> 7
"safe" investments such as savings accounts may not have enough growth in their
portfolio to offset inflation. The charts on the previous page show inflation's
shrinking effect and how stocks historically have outperformed all other asset
categories.
BONDS AND MONEY MARKET SECURITIES OFFER BALLAST
Despite their long-term performance, stocks are subject to dramatic swings.
Investing in bonds and conservative money market securities may help offset
stocks' volatility. High-quality bonds usually are considered lower-risk
investments compared to stocks. They pay higher income than short-term
investments such as certificates of deposits, money market funds or savings
accounts. Bank certificates of deposit, which are insured by the FDIC for up to
$100,000, are short-term investments that pay fixed principal and interest, but
are subject to fluctuating rollover rates and early withdrawal penalties. Fund
shares are not insured and their value and yield will vary with market
conditions.
The "money market" is the marketplace for all debt securities of less than
one-year maturity. These securities are considered excellent short-term parking
places for cash that you may need quickly.
Money market securities are among the most conservative investments and,
consequently, their level of return is much lower than that of stocks or bonds.
Your financial consultant can help you create a diversification strategy to
meet your risk tolerance and long-term objectives.
AIM offers a free brochure on asset allocation which also can help you
evaluate your investments. To order, please call 800-347-4246.
DOLLAR-COST AVERAGING
The motto says buy low and sell high, but it's easy for an investor to buy high
and sell low instead. When markets are rising, the temptation to get in on the
action can be irresistible. When markets are dropping, people naturally want to
cut their losses and get out while the getting is good.
Is there a way to enjoy the advantages of having investments without
second-guessing your own decisions?
DOLLAR-COST AVERAGING EMPLOYS DISCIPLINE, NOT EMOTION
With dollar-cost averaging, you invest a set amount of money at regular
intervals regardless of market swings or pundits' forecasts. You decide how
much and how often to invest. And you decide when to change the amount or the
schedule if doing so suits you.
This technique has emotional advantages:
o You will be less tempted to make investment decisions on the basis of
short-term phenomena and your feelings of the moment.
o Whichever way the market is moving, you will be part of it. Your fortunes
as an investor won't depend entirely on your making a right call about
future trends.
DOLLAR-COST AVERAGING ALSO HAS FINANCIAL ADVANTAGES:
o You automatically purchase more shares of a mutual fund when its cost per
share is low and fewer shares when its cost per share is high. As the
illustration below shows, dollar-cost averaging may lower your average
cost per share.
Of course, you don't have to dollar-cost average all the money you invest.
The technique is especially appropriate to investments where your goals are
long-term, since over time market volatility tends to even itself out.
Dollar-cost averaging involves investing continuously regardless of
fluctuating securities prices, so you need to be confident that you can keep
making purchases for an extended period.
No investment technique can assure a profit in a declining market. What
dollar-cost averaging will do is apply discipline to your investing behavior,
discipline that can be especially important when market watchers issue
conflicting forecasts.
=============================================================================
DOLLAR-COST AVERAGING: $200 INVESTMENT PER MONTH*
- -----------------------------------------------------------------------------
MONTH NET ASSET VALUE # OF SHARES PURCHASED
January $24.00 8.333
February $20.00 10.000
March $14.00 14.286
April $18.00 11.111
May $22.00 9.090
June $24.00 8.333
Average Net Asset Value: $20.33
Total Shares Bought: 61.153
Average Purchase Price per Share: $19.62
*Results are hypothetical.
================================================================================
5
<PAGE> 8
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>
6
<PAGE> 9
<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>
7
<PAGE> 10
<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>
8
<PAGE> 11
<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>
9
<PAGE> 12
<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>
10
<PAGE> 13
<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.
11
<PAGE> 14
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.
12
<PAGE> 15
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,
13
<PAGE> 16
$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.
14
<PAGE> 17
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.
15
<PAGE> 18
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
16
<PAGE> 19
Directors & Officers
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman and Chief Executive Officer Chairman Suite 1919
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Formerly Director, President, and
Chief Executive Officer John J. Arthur A I M Advisors, Inc.
COMSAT Corporation Senior Vice President and Treasurer 11 Greenway Plaza
Suite 1919
Owen Daly II Carol F. Relihan Houston, TX 77046
Director Senior Vice President
Cortland Trust Inc. and Secretary TRANSFER AGENT
Carl Frischling Gary T. Crum A I M Fund Services, Inc.
Partner Senior Vice President P.O. Box 4739
Kramer, Levin, Naftalis & Frankel Houston, TX 77210-4739
Scott G. Lucas
Robert H. Graham Senior Vice President CUSTODIAN
President and Chief Operating Officer
A I M Management Group Inc. Jonathan C. Schoolar State Street Bank & Trust
Senior Vice President 225 Franklin Street
John F. Kroeger Boston, MA 02110
Formerly Consultant Dana R. Sutton
Wendell & Stockel Associates, Inc. Vice President and Assistant Treasurer COUNSEL TO THE FUND
Lewis F. Pennock Melville B. Cox Ballard Spahr
Attorney Vice President Andrews & Ingersoll
1735 Market Street
Ian W. Robinson P. Michelle Grace Philadelphia, PA 19103
Consultant; Formerly Executive Assistant Secretary
Vice President and COUNSEL TO THE DIRECTORS
Chief Financial Officer David L. Kite
Bell Atlantic Management Assistant Secretary Kramer, Levin, Naftalis & Frankel
Services, Inc. 919 Third Avenue
Nancy L. Martin New York, NY 10022
Louis S. Sklar Assistant Secretary
Executive Vice President DISTRIBUTOR
Hines Interests Ofelia M. Mayo
Limited Partnership Assistant Secretary A I M Distributors, Inc.
11 Greenway Plaza
Kathleen J. Pflueger Suite 1919
Assistant Secretary Houston, TX 77046
Samuel D. Sirko AUDITORS
Assistant Secretary
KPMG Peat Marwick LLP
Stephen I. Winer 700 Louisiana
Assistant Secretary NationsBank Bldg.
Houston, TX 77002
Mary J. Benson
Assistant Treasurer
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--REGISTERED TRADEMARK--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Capital Development Fund
AIM Constellation Fund
AIM Global Aggressive Growth Fund
GROWTH
AIM Blue Chip Fund
AIM Global Growth Fund
[PHOTO OF 11 GREENWAY AIM Growth Fund
PLAZA APPEARS HERE] AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME
AIM Balanced Fund
AIM Charter Fund
INCOME AND GROWTH
AIM Global Utilities Fund
HIGH CURRENT INCOME
AIM High Yield Fund
CURRENT INCOME
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
HIGH DEGREE OF SAFETY AND CURRENT INCOME
AIM Limited Maturity Treasury Shares
A I M Management Group Inc. has provided leadership in STABILITY, LIQUIDITY, AND CURRENT INCOME
the mutual fund industry since 1976 and currently AIM Money Market Fund
manages approximately $60 billion in assets for more
than 3.5 million shareholders, including individual STABILITY, LIQUIDITY, AND CURRENT TAX-FREE INCOME
investors, corporate clients, and financial AIM Tax-Exempt Cash Fund
institutions. The AIM Family of Funds--Registered
Trademark--is distributed nationwide, and AIM today *AIM Aggressive Growth Fund was closed to new investors
ranks among the nation's top 15 mutual fund companies on July 18, 1995. For more complete information about
in assets under management, according to Lipper any AIM Fund(s), including sales charges and expenses,
Analytical Services, Inc. ask your financial consultant or securities dealer for
a free prospectus(es). Please read the prospectus(es)
carefully before you invest or send money.
[AIM LOGO APPEARS HERE] ---------------
BULK RATE
A I M Distributors, Inc. U.S. POSTAGE
11 Greenway Plaza, Suite 1919 PAID
Houston, TX 77046 HOUSTON, TX
Permit No. 1919
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