<PAGE> 1
AIM EQUITY FUNDS, INC.
INSTITUTIONAL CLASSES
AIM CHARTER FUND
AIM CONSTELLATION FUND
[AIM LOGO APPEARS HERE] AIM WEINGARTEN FUND ANNUAL REPORT
OCTOBER 31, 1997
<PAGE> 2
TABLE OF CONTENTS
AIM Charter Fund 2-19
AIM Constellation Fund 20-37
AIM Weingarten Fund 38-Inside
back cover
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 Fellow Shareholder:
The fiscal year ended October 31 experienced no let-up in
[PHOTO OF the volatility in equity markets, and it closed on an
Charles T. unsettling note. In late October, in the wake of a
Bauer, currency crisis in Southeast Asia, the stock market
Chairman of experienced its first 10% correction since 1991. On
The Board of Monday, October 27, the New York Stock Exchange closed to
THE FUND, deal with market volatility for the first time in its
APPEARS HERE] history when the Dow Jones Industrial Average fell 554
points, the index's largest point decline ever. It is
important to note that in percentage terms, this was a
drop of 7.18%, far smaller than the 22.61% decline that
occurred October 19, 1987. Fortunately, this time the
market snapped back, and the Dow regained 337 points the
next day. As of this writing, markets continue to
recover.
Many investment managers, including AIM, had cautioned that a
correction was inevitable, that the relentless rise in benchmarks like the Dow
could not continue. In less than 12 months, the Dow had climbed from 6010 on
October 14, 1996, to reach its all-time high of 8259 on August 6, 1997.
When markets become overvalued, no one knows what will precipitate a
decline. No one foresaw that a currency devaluation by Thailand beginning
during the summer would lead to worldwide stock market turmoil.
Despite recent activities, the fiscal year ended October 31 brought
domestic equity investors excellent returns: The Dow was up almost 26%; the
broader S&P 500, more than 32%; the NASDAQ small-cap index, 30.46%.
International investments, while positive, weren't as robust; the EAFE Index
rose 4.63%. On the following pages, your Fund managers discuss how your Fund
performed in this market context and their outlook for the future.
REALISTIC EXPECTATIONS
The 1100-point decline in the Dow between early August and late October was the
latest in a series of market breaks. Between mid-March and mid-April of this
year, for example, the Dow dropped almost 10%.
Many investors, including professional fund managers, have become
accustomed to buying on these market breaks because the market has bounced back
quickly. From its 1997 low of 6391 on April 11, the Dow took less than four
months to rise almost 2000 points to its all-time high.
However, this time could be different. Many investors have developed
two unrealistic expectations: first, a belief that stocks can rise more than
20% a year indefinitely; and second, confidence that the market always rebounds
swiftly from a decline.
Neither notion is historically correct. History tells us that over the
long term, average annual total return for stocks is about 10%, not 20%. And
those of us who have been in this business for many years remember the bear
market of the 1970s, when the market experienced a series of declines and
recovery was very slow.
Nevertheless, there is reason for optimism, including sound fiscal
policy steadily shrinking the federal deficit, stable interest rates, and a
strong economy unharmed by inflation. Despite recent events in Asia, it is
difficult to be pessimistic about the U.S. economy and, indeed, about most of
the developed economies in the world.
We are pleased to send you this report on your Fund. If you have any
questions or comments, we invite you to contact Client Services at 800-659-1005.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
--------------------------------------
Despite recent activities,
the fiscal year
ended October 31
brought domestic equity investors
excellent returns.
--------------------------------------
<PAGE> 4
Long-Term Performance
AIM CHARTER FUND
For shareholders who seek growth and income by investing primarily in
stocks of large-cap, well-run companies with a history of stable and improving
earnings and generally increasing dividend payouts.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Charter Fund Institutional Class performance figures are
historical and reflect reinvestment of all distributions and changes
in net asset value.
o One-year performance includes reinvested distributions of $0.834 per
share.
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. Past performance cannot guarantee
comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged Lipper Growth & Income Fund Index represents an average
of the performance of the 30 largest growth-and-income mutual funds.
o The unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P
500) is widely regarded by investors as representative of the stock
market in general.
o The Dow Jones Industrial Average (DJIA) is price-weighted average of
30 actively traded primarily industrial stocks.
o The Europe, Australia, Far East (EAFE) Index is a group of unmanaged
foreign securities. The index is compiled by Morgan Stanley Capital
International.
o The NASDAQ (National Association of Securities Dealers Automated
Quotation system) Composite Index is a group of more than 4,500
unmanaged over-the-counter securities widely regarded by investors to
be representative of the small- and medium-sized company stock
universe.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not
reflect sales charges.
<TABLE>
<CAPTION>
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
1 Year 29.05%
5 Years 17.28
Inception (7/30/91) 15.30
================================================================================
</TABLE>
================================================================================
Growth of $10,000 Investment
7/30/91-10/31/97
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Charter Fund, Institutional Class Standard & Poor's 500 Lipper Growth & Income Index
- ----------------------------------------------------------------------------------------------------------------------------------
In thousands.
<S> <C> <C> <C>
7/30/91 $10,000 $10,000 $10,000
10/91 10,512 10,231 10,316
10/92 10,988 11,247 11,234
10/93 12,898 12,921 13,424
10/94 12,637 13,421 13,849
10/95 16,105 16,959 16,657
10/96 18,891 21,033 20,221
10/97 24,368 27,785 25,889
==================================================================================================================================
</TABLE>
Past performance cannot guarantee comparable future results.
Source: Towers Data Systems HYPO--Registered Trademark--
2
C H A R T E R
<PAGE> 5
The Managers' Overview
THREE SECTORS PROPEL FUND
TO EXCELLENT RESULTS
A roundtable discussion with the Fund management team for AIM Charter Fund for
the fiscal year ended October 31, 1997.
- --------------------------------------------------------------------------------
Q. HOW DID AIM CHARTER FUND PERFORM DURING THE FISCAL YEAR?
A. The Institutional Class produced a total return of 29.05%, including
distributions of $0.834 per share. This was excellent performance, with
the Fund outpacing its own long-term average annual returns. Net assets
under management were $40.2 million at the close of the fiscal year.
Q. WHICH HOLDINGS CONTRIBUTED TO SUCH GOOD PERFORMANCE?
A. Our three largest sectors continue to be financials, technology, and
health care. The individual stocks we hold in these sectors and the mix of
industries will vary, but we think these three sectors represent excellent
long-term growth potential.
Q. WHAT IS ATTRACTIVE ABOUT FINANCIAL COMPANIES?
A. Our holdings in the financial sector, including banks, insurers, and
brokerage houses, were up during the fiscal year. With a growing economy,
stable interest rates, and demographic trends leading more people into
retirement-oriented financial planning, financial institutions have
prospered. Earnings growth for big money center banks such as Chase and
Citicorp outdid analysts' expectations.
The sector is experiencing a wave of mergers and acquisitions, for
example the purchase of brokerage firm Robertson-Stephens by Bank of
America. Financial firms want to be capable of offering the broadest
possible range of services and of competing in a global environment.
Through careful securities selection, we want to focus on the companies
initiating this consolidation--the franchise companies that will be around
five years from now.
Q. WHY DO YOU OWN SUCH A LARGE NUMBER OF TECHNOLOGY STOCKS?
A. The biggest portion of corporate capital expenditures, domestically and
overseas, has been spent on technology. This investment has resulted in
the productivity improvements that have been driving economic growth.
Manufacturers in the tech sector have done well. Specialized
semiconductor makers like Texas Instruments, networking-equipment
producers such as Bay Networks, and such industry-leading personal
computer manufacturers as Compaq have been very good holdings.
On the software/services side, another successful holding is software
maker Compuware, which is poised to profit from the so called "millennium
problem," the need to reprogram older computers to recognize the year
2000.
Not all news in the tech sector is good. Pricing pressures are tough.
You can now buy a meaningful personal computer for $1,000, which has to
affect profit margins. Even Intel has been feeling the pressure, though it
remains the industry's flagship.
Despite these glitches, we think the sector's long-term growth
prospects are excellent. We will continue to seek individual companies
whose earnings justify our investment. For example, while not included in
the technology sector, retailers of computers and electronic gear have
been doing well. We added CompUSA to the portfolio since our last report
to shareholders.
Q. WHY DOES HEALTH CARE REMAIN A LONG-TERM THEME?
A. One factor contributing to strength in the health-care sector is the FDA's
move toward more rapid approval of drugs and medical devices, which should
reduce costs for the medical instrument and pharmaceutical industries. We
hold such major pharmaceutical makers as Merck and SmithKline Beecham, and
the portfolio includes companies like Medtronic Inc., a maker of
sophisticated implantable therapeutic devices such as stents, pacemakers,
and heart valves.
Q. DOES THE PORTFOLIO STILL INCLUDE CONVERTIBLE SECURITIES?
A. About 15% of the portfolio consisted of convertible bonds or convertible
preferred stocks at the close of the fiscal year. We stress
dividend-paying securities in this portfolio because of our investment
objective, which is primarily growth with income as a secondary goal.
The dividend yield on common stocks has been declining recently for
various
================================================================================
NET ASSETS UNDER MANAGEMENT
- --------------------------------------------------------------------------------
10/31/96 $29.6 MILLION
10/31/97 $40.2 MILLION
================================================================================
--------------------------------
We will continue to seek
individual companies whose
earnings justify investment.
--------------------------------
3
C H A R T E R
<PAGE> 6
The Managers' Overview
PORTFOLIO COMPOSITION
As of 10/31/97, based on total net assets
<TABLE>
<CAPTION>
==================================================================================================================================
TOP 10 INDUSTRIES TOP 10 HOLDINGS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Financial (Diversified) 5.97% 1. WorldCom, Inc. 2.56%
2. Health Care (Diversified) 5.05 2. Chase Manhattan Corp. 2.53
3. Banks (Money Center) 4.73 3. Philip Morris Companies Inc. 1.95
4. Health Care (Drugs--Major Pharmaceuticals) 4.22 4. Brunswick Corp. 1.85
5. Computers (Software & Services) 3.96 5. American Home Products Corp. 1.62
6. Services (Commercial & Consumer) 3.67 6. SmithKline Beecham PLC-ADR 1.56
7. Communications Equipment 3.31 7. Citicorp 1.51
8. Insurance (Multi-Line) 3.18 8. Allstate Corp. 1.45
9. Computers (Hardware) 3.10 9. Warner-Lambert Co. 1.41
10. Oil & Gas (Drilling & Equipment) 2.67 10. Morgan Stanley, Dean Witter, Discover & Co. 1.39
Please keep in mind that the Fund's portfolio composition is subject to change and there is no assurance the Fund will
continue to hold any particular security.
==================================================================================================================================
</TABLE>
================================================================================
PORTFOLIO COMPOSITION
As of 10/31/97, based on total net assets
NUMBER OF HOLDINGS: 182
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
U.S. Stocks 73.43%
Domestic Convertible Bonds 7.44%
Convertible Preferred Stocks 6.72%
U.S. Government Securities 6.19%
Foreign Stocks 5.79%
Convertible Foreign Bonds 0.56%
Repurchase Agreements 0.28%
</TABLE>
================================================================================
reasons. Rather than paying dividends, many corporations have elected to
reinvest cash flow in capital equipment, largely new technology systems to
enhance productivity, or in acquisitions of new or complementary
businesses. Another trend has been stock repurchases by corporations.
Corporate dividends are taxed twice, once at the corporate level as
dividends are distributed on an after-tax basis, and then at the
individual level. To avoid this double taxation, companies have been
"returning" capital to shareholders by buying back stock instead. This
spreads future corporate earnings over fewer shares outstanding,
increasing earnings per share and thus the stock price.
Given the tax code's bias in favor of long-term capital gains over
income, these trends are likely to continue and we don't anticipate any
big rise in the level of corporate dividends. We will continue to employ
convertibles as opportunities arise. Current convertible holdings include
WorldCom Inc., which is merging with MCI Communications Corp.; and
Conseco, Inc., a leading consolidator in the insurance industry.
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY IN THE NEAR TERM?
A. There are a few cautionary signs: a tight labor market that could put
inflationary pressure on wages, a drop in consumer confidence measured by
The Conference Board, a slip in new vehicle sales.
Nevertheless, there is much evidence of a favorable economic
environment. Inflation is so well controlled many economy watchers are
more concerned about deflation. Because of monetary turmoil and market
declines overseas, few expect a rate hike by the Federal Reserve, at least
for the short term. And finally, corporate earnings continue to grow. As
of the third quarter of 1997, earnings for S&P 500 companies were up more
than 12% year over year, for example.
Q. WHAT DO YOU SEE AHEAD FOR THE EQUITY MARKETS?
A. In our last report, we commented on the "narrowness" of the markets during
1996 and early 1997, when a few very large companies accounted for much of
the rise in market indexes. Beginning in May, investors began to look
beyond these blue-chip stocks. From May through the end of the fiscal
year, small- and mid-sized company stocks either paced or outpaced
larger-company stocks.
Although about 75% of our holdings in AIM Charter Fund are large
companies, we also have the flexibility to invest in smaller companies,
and we do. So as a diversified fund, we were glad to see the market
broaden. The market is more normal when investors cast their nets broadly
rather than pouring money into a few huge stocks with sky-high valuations.
Earnings remain key to market performance, and earnings look as if
they may be coming down to more normal levels. Earnings for the companies
in the S&P 500 have been very high: 20-percent-plus for three years in a
row. As we just mentioned, the most recent figure is about 12%. With
interest rates stable, investors will focus more on earnings. Given our
earnings-focused discipline, we believe AIM Charter Fund is
well-positioned for this market.
4
C H A R T E R
<PAGE> 7
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-79.22%
AUTO PARTS & EQUIPMENT-0.47%
Lear Corp.(a) 450,000 $ 21,628,125
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.32%
Wells Fargo & Co. 50,000 14,568,750
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-4.73%
BankAmerica Corp. 450,000 32,175,000
- ---------------------------------------------------------------
Chase Manhattan Corp. 1,000,000 115,375,000
- ---------------------------------------------------------------
Citicorp 550,000 68,784,375
- ---------------------------------------------------------------
216,334,375
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.58%
Marshall & Ilsley Corp. 250,000 12,968,750
- ---------------------------------------------------------------
Uniao de Bancos Brasileiros
S.A.-GDR (Brazil)(a) 500,000 13,625,000
- ---------------------------------------------------------------
26,593,750
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.49%
Coca-Cola Co. 400,000 22,600,000
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.25%
Lubrizol Corp. (The) 300,000 11,550,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.31%
ADC Telecommunications, Inc.(a) 700,000 23,187,500
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 270,000 11,137,500
- ---------------------------------------------------------------
DSC Communications Corp.(a) 400,000 9,750,000
- ---------------------------------------------------------------
ECI Telecommunications Ltd.
Designs (Israel) 400,000 11,050,000
- ---------------------------------------------------------------
Lucent Technologies, Inc. 200,000 16,487,500
- ---------------------------------------------------------------
Nokia Oy A.B.-Class A-ADR
(Finland) 300,000 26,475,000
- ---------------------------------------------------------------
Northern Telecom Ltd. (Canada) 150,000 13,453,125
- ---------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson-ADR (Sweden) 350,000 15,487,500
- ---------------------------------------------------------------
Tellabs, Inc.(a) 450,000 24,300,000
- ---------------------------------------------------------------
151,328,125
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-3.10%
Compaq Computer Corp.(a)(b) 660,500 42,106,875
- ---------------------------------------------------------------
Dell Computer Corp.(a)(b) 200,000 16,025,000
- ---------------------------------------------------------------
Hewlett-Packard Co. 200,000 12,337,500
- ---------------------------------------------------------------
International Business Machines
Corp. 550,000 53,934,375
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 500,000 17,125,000
- ---------------------------------------------------------------
141,528,750
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.64%
3Com Corp.(a) 300,000 12,431,250
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-(CONTINUED)
Bay Networks, Inc.(a)(b) 1,200,000 $ 37,950,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 300,000 24,609,375
- ---------------------------------------------------------------
74,990,625
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-3.73%
America Online, Inc.(a) 300,000 23,100,000
- ---------------------------------------------------------------
Computer Associates
International, Inc.(b) 700,000 52,193,750
- ---------------------------------------------------------------
Compuware Corp.(a) 200,000 13,225,000
- ---------------------------------------------------------------
HBO & Co.(b) 400,000 17,400,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 300,000 39,000,000
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 450,000 14,934,375
- ---------------------------------------------------------------
Sybase, Inc.(a) 650,000 10,603,125
- ---------------------------------------------------------------
170,456,250
- ---------------------------------------------------------------
CONSUMER FINANCE-1.55%
Household International, Inc. 300,000 33,975,000
- ---------------------------------------------------------------
MBNA Corp. 600,000 15,787,500
- ---------------------------------------------------------------
SLM Holding Corp. 150,000 21,056,250
- ---------------------------------------------------------------
70,818,750
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-1.14%
AmeriSource Health Corp.-Class
A(a) 125,000 7,421,875
- ---------------------------------------------------------------
Bergen Brunswig Corp.-Class A 400,000 16,025,000
- ---------------------------------------------------------------
Cardinal Health, Inc. 250,000 18,562,500
- ---------------------------------------------------------------
Sysco Corp. 250,000 10,000,000
- ---------------------------------------------------------------
52,009,375
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.80%
General Electric Co. 500,000 32,281,250
- ---------------------------------------------------------------
Philips Electronics N.V.-ADR-New
York Shares (Netherlands) 500,000 39,187,500
- ---------------------------------------------------------------
Westinghouse Electric Corp. 400,000 10,575,000
- ---------------------------------------------------------------
82,043,750
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.27%
Kent Electronics Corp.(a) 350,000 12,228,125
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-1.50%
Intel Corp.(b) 450,000 34,650,000
- ---------------------------------------------------------------
National Semiconductor Corp.(a) 350,000 12,600,000
- ---------------------------------------------------------------
Texas Instruments, Inc. 200,000 21,337,500
- ---------------------------------------------------------------
68,587,500
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-5.41%
American Express Co. 500,000 39,000,000
- ---------------------------------------------------------------
American General Corp. 250,000 12,750,000
- ---------------------------------------------------------------
Federal Home Loan Mortgage Corp. 1,250,000 47,343,750
- ---------------------------------------------------------------
</TABLE>
5
C H A R T E R
<PAGE> 8
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
Federal National Mortgage
Association 1,000,000 $ 48,437,500
- ---------------------------------------------------------------
MBIA, Inc. 400,000 23,900,000
- ---------------------------------------------------------------
MGIC Investment Corp. 200,000 12,062,500
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 1,300,000 63,700,000
- ---------------------------------------------------------------
247,193,750
- ---------------------------------------------------------------
FOODS-0.28%
Sara Lee Corp. 250,000 12,781,250
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-5.05%
Abbott Laboratories 200,000 12,262,500
- ---------------------------------------------------------------
American Home Products Corp. 1,000,000 74,125,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 650,000 57,037,500
- ---------------------------------------------------------------
Johnson & Johnson 400,000 22,950,000
- ---------------------------------------------------------------
Warner-Lambert Co. 450,000 64,434,375
- ---------------------------------------------------------------
230,809,375
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.52%
Dura Pharmaceuticals, Inc.(a) 300,000 14,512,500
- ---------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Israel) 200,000 9,350,000
- ---------------------------------------------------------------
23,862,500
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-4.22%
Lilly (Eli) & Co. 250,000 16,718,750
- ---------------------------------------------------------------
Merck & Co., Inc. 500,000 44,625,000
- ---------------------------------------------------------------
Pfizer, Inc. 850,000 60,137,500
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(United Kingdom) 1,500,000 71,437,500
- ---------------------------------------------------------------
192,918,750
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.59%
Health Management Associates, Inc.-Class
A(a) 100,000 2,437,500
- ---------------------------------------------------------------
Tenet Healthcare Corp.(a) 800,000 24,450,000
- ---------------------------------------------------------------
26,887,500
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.31%
HEALTHSOUTH Corp.(a) 550,000 14,059,375
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.89%
MedPartners, Inc.(a) 1,600,000 40,700,000
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.76%
Arterial Vascular Engineering,
Inc.(a) 350,000 18,593,750
- ---------------------------------------------------------------
Baxter International Inc. 300,000 13,875,000
- ---------------------------------------------------------------
Boston Scientific Corp.(a) 325,000 14,787,500
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 350,000 11,506,250
- ---------------------------------------------------------------
Medtronic, Inc. 500,000 21,750,000
- ---------------------------------------------------------------
80,512,500
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.69%
Covance, Inc.(a) 365,000 $ 6,455,938
- ---------------------------------------------------------------
Omnicare, Inc. 900,000 25,031,250
- ---------------------------------------------------------------
31,487,188
- ---------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.20%
Leggett & Platt, Inc. 213,900 8,930,325
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.78%
Colgate-Palmolive Co. 300,000 19,425,000
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 240,000 16,320,000
- ---------------------------------------------------------------
35,745,000
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.51%
Provident Companies, Inc. 700,000 23,362,500
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-2.18%
Ace, Ltd. 200,000 18,587,500
- ---------------------------------------------------------------
American International Group,
Inc. 450,000 45,928,125
- ---------------------------------------------------------------
Travelers Group, Inc. 500,000 35,000,000
- ---------------------------------------------------------------
99,515,625
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-1.77%
Allstate Corp. 800,000 66,350,000
- ---------------------------------------------------------------
Travelers Property Casualty
Corp.-Class A 400,000 14,450,000
- ---------------------------------------------------------------
80,800,000
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-1.04%
Merrill Lynch & Co., Inc. 700,000 47,337,500
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.49%
Franklin Resources, Inc. 250,000 22,468,750
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.85%
Brunswick Corp. 2,500,000 84,375,000
- ---------------------------------------------------------------
LODGING-HOTELS-1.20%
Carnival Corp.-Class A 342,500 16,611,250
- ---------------------------------------------------------------
ITT Corp. 200,000 14,937,500
- ---------------------------------------------------------------
Patriot American Hospitality,
Inc. 700,000 23,100,000
- ---------------------------------------------------------------
54,648,750
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.29%
Deere & Co. 250,000 13,156,250
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.45%
Eaton Corp. 250,000 24,156,250
- ---------------------------------------------------------------
Hillenbrand Industries, Inc. 300,000 12,825,000
- ---------------------------------------------------------------
Tyco International Ltd. 400,000 15,100,000
- ---------------------------------------------------------------
United Technologies Corp. 200,000 14,000,000
- ---------------------------------------------------------------
66,081,250
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.29%
Diebold, Inc. 300,000 13,218,750
- ---------------------------------------------------------------
</TABLE>
6
C H A R T E R
<PAGE> 9
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NATURAL GAS-0.52%
El Paso Natural Gas Co. 400,000 $ 23,975,000
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.80%
Boise Cascade Office Products
Corp.(a) 400,000 7,600,000
- ---------------------------------------------------------------
Wallace Computer Services, Inc. 750,000 28,828,125
- ---------------------------------------------------------------
36,428,125
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-1.82%
BJ Services Co.(a) 300,000 25,425,000
- ---------------------------------------------------------------
Halliburton Co. 400,000 23,850,000
- ---------------------------------------------------------------
Hvide Marine, Inc.-Class A(a) 500,000 16,500,000
- ---------------------------------------------------------------
Petroleum Geo-Services ASA-ADR
(Norway)(a) 250,000 17,312,500
- ---------------------------------------------------------------
83,087,500
- ---------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-1.11%
Exxon Corp. 400,000 24,575,000
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 500,000 26,312,500
- ---------------------------------------------------------------
50,887,500
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.51%
Tosco Corp. 700,000 23,100,000
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-0.29%
YPF Sociedad Anonima-ADR
(Argentina) 410,300 13,129,600
- ---------------------------------------------------------------
PERSONAL CARE-1.09%
Avon Products, Inc.(b) 350,000 22,925,000
- ---------------------------------------------------------------
Gillette Co. 300,000 26,718,750
- ---------------------------------------------------------------
49,643,750
- ---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.96%
Xerox Corp. 555,000 44,018,438
- ---------------------------------------------------------------
POWER PRODUCERS
(INDEPENDENT)-0.19%
CalEnergy, Inc.(a) 250,000 8,562,500
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUST-1.38%
Cali Realty Corp. 425,000 17,212,500
- ---------------------------------------------------------------
Crescent Real Estate Equities,
Inc. 400,000 14,400,000
- ---------------------------------------------------------------
Starwood Lodging Trust 300,000 17,943,750
- ---------------------------------------------------------------
Vornado Realty Trust 300,000 13,387,500
- ---------------------------------------------------------------
62,943,750
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.79%
CompUSA, Inc.(a)(b) 1,100,000 36,025,000
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-1.97%
Carson Pirie Scott & Co.(a) 250,000 12,046,875
- ---------------------------------------------------------------
Federated Department Stores,
Inc.(a) 400,000 17,600,000
- ---------------------------------------------------------------
J.C. Penney Co., Inc. 400,000 23,475,000
- ---------------------------------------------------------------
Kohl's Corp.(a) 250,000 16,781,250
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-(CONTINUED)
Proffitt's, Inc.(a) 700,000 $ 20,081,250
- ---------------------------------------------------------------
89,984,375
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.22%
Consolidated Stores Corp.(a) 250,000 9,968,750
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.37%
Walgreen Co. 600,000 16,875,000
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.17%
Blue Square-Israel Ltd.-ADR
(Israel)(a) 660,000 7,672,500
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-0.38%
Costco Companies, Inc.(a) 450,000 17,325,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.71%
Corporate Express, Inc.(a) 1,000,000 14,687,500
- ---------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 600,000 15,600,000
- ---------------------------------------------------------------
Staples, Inc.(a) 85,000 2,231,250
- ---------------------------------------------------------------
32,518,750
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.16%
Stage Stores, Inc.(a) 200,000 7,300,000
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.90%
Washington Mutual, Inc. 600,000 41,062,500
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-3.27%
American Residential Services,
Inc.(a) 425,000 6,215,625
- ---------------------------------------------------------------
CUC International, Inc.(a) 800,000 23,600,000
- ---------------------------------------------------------------
HFS, Inc.(a) 600,000 42,300,000
- ---------------------------------------------------------------
Service Corp. International 2,000,000 60,875,000
- ---------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 400,000 16,600,000
- ---------------------------------------------------------------
149,590,625
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.02%
Ceridian Corp.(a) 400,000 15,625,000
- ---------------------------------------------------------------
Equifax, Inc. 500,000 15,531,250
- ---------------------------------------------------------------
Fiserv, Inc.(a) 350,000 15,662,500
- ---------------------------------------------------------------
46,818,750
- ---------------------------------------------------------------
TELEPHONE-1.86%
Cincinnati Bell, Inc. 2,200,000 59,400,000
- ---------------------------------------------------------------
SBC Communications, Inc. 400,000 25,450,000
- ---------------------------------------------------------------
84,850,000
- ---------------------------------------------------------------
TOBACCO-1.95%
Philip Morris Companies, Inc. 2,250,000 89,156,250
- ---------------------------------------------------------------
TRUCKS & PARTS-0.13%
Cummins Engine Co., Inc. 100,000 6,093,749
- ---------------------------------------------------------------
Total Common Stocks 3,619,135,550
- ---------------------------------------------------------------
</TABLE>
7
C H A R T E R
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS-8.00%
AUTOMOBILES-0.31%
Volkswagen International Finance
N.V. (Germany), Conv. Gtd.
Notes, 3.00%, 01/24/02 $12,000,000 $ 14,130,000
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.55%
Mark IV Industries, Conv. Sub.
Notes, 4.75%, 11/01/04(c)
(acquired 10/23/97-10/24/97;
cost $14,997,500) 15,000,000 14,460,900
- ---------------------------------------------------------------
Tower Automotive Inc., Conv. Sub.
Notes, 5.00%, 08/01/04(c)
(acquired 07/24/97; cost
$10,591,433) 10,450,000 10,821,184
- ---------------------------------------------------------------
25,282,084
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.03%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 20,000,000 27,757,000
- ---------------------------------------------------------------
Quantum Corp., Conv. Sub. Notes,
5.00%, 03/01/03 7,000,000 19,396,860
- ---------------------------------------------------------------
47,153,860
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.23%
Veritas Software Corp., Conv.
Sub. Notes, 5.25%, 11/01/04(c)
(acquired 10/09/97; cost
$10,500,000) 10,500,000 10,368,750
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.32%
SCI Systems, Inc., Conv. Sub.
Notes, 5.00%, 05/01/06 8,000,000 14,769,840
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-0.53%
Altera Corp., Conv. Sub. Notes,
5.75%, 06/15/02 5,000,000 8,750,550
- ---------------------------------------------------------------
Analog Devices, Conv. Sub. Notes,
3.50%, 12/01/00 10,000,000 15,307,400
- ---------------------------------------------------------------
24,057,950
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.25%
NCS Healthcare Inc., Conv. Sub.
Notes, 5.75%, 08/15/04(c)
(acquired 08/07/97-08/08/97;
cost $12,058,245) 12,000,000 11,546,760
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.00%
Loews Corp., Conv. Sub. Notes,
3.125%, 09/15/07 40,000,000 45,646,000
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.50%
Thermo Electron Corp., Conv. Sub.
Deb., 4.25%, 01/01/03(c)
(acquired 06/20/97-06/27/97;
cost $23,144,315) 20,000,000 22,621,800
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.52%
U.S. Filter Corp., Conv. Sub.
Notes, 4.50%, 12/15/01 20,000,000 23,641,600
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.65%
Danka Business Systems PLC, Conv.
Sub. Notes, 6.75%, 04/01/02
(United Kingdom) $22,500,000 $ 29,817,675
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.41%
Nabors Industries, Inc., Conv.
Sub. Notes, 5.00%, 05/15/06 8,000,000 18,872,400
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.14%
Home Depot, Inc., Conv. Sub.
Notes, 3.25%, 10/01/01 5,000,000 6,465,800
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.14%
Staples Inc., Conv. Sub. Deb.,
4.50%, 10/01/00(c) (acquired
10/23/97-10/24/97; cost
$6,725,000) 5,000,000 6,361,800
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.56%
Career Horizons, Inc., Conv.
Bonds, 7.00%, 11/01/02 10,000,000 25,409,400
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.86%
Sanifill, Inc., Conv. Sub. Deb.,
5.00%, 03/01/06 18,000,000 25,648,920
- ---------------------------------------------------------------
United Waste Systems, Inc., Conv.
Sub. Notes, 4.50%, 06/01/01 10,250,000 13,820,280
- ---------------------------------------------------------------
39,469,200
- ---------------------------------------------------------------
Total Convertible Corporate
Bonds 365,614,919
- ---------------------------------------------------------------
SHARES
CONVERTIBLE PREFERRED STOCKS-6.72%
FINANCIAL (DIVERSIFIED)-0.56%
AES Trust I-$2.69 Conv. Pfd 250,000 16,000,000
- ---------------------------------------------------------------
AES Trust II-$2.75 Conv. Pfd.,(c)
(acquired 10/24/97; cost
$10,000,000) 200,000 9,525,000
- ---------------------------------------------------------------
25,525,000
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.74%
Medpartners Inc.-$1.44 Conv. Pfd. 1,400,000 33,950,000
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.16%
Conseco Inc.-$4.278 Conv. PRIDES 350,000 53,200,000
- ---------------------------------------------------------------
LODGING-HOTELS-0.50%
Host Marriott Corp., $3.375 Conv.
Pfd. 350,000 22,881,250
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.44%
EVI, Inc., $2.50 Conv. Pfd. 400,000 20,150,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.36%
TJX Companies., Inc.-Series E,
$7.00 Conv. Pfd. 50,000 16,250,000
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.40%
Automatic Common Exchange
Security Trust II-$1.55 Conv.
Pfd. 350,000 9,887,500
- ---------------------------------------------------------------
</TABLE>
8
C H A R T E R
<PAGE> 11
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)-(CONTINUED)
Hvide Capital Trust-$3.25 Conv.
Pfd.(c) (acquired
10/11/96-05/02/97; cost
$8,701,548) 123,000 $ 8,270,520
- ---------------------------------------------------------------
18,158,020
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-2.56%
WorldCom, Inc.-$2.68 Dep. Conv.
Pfd. 1,000,000 117,000,000
- ---------------------------------------------------------------
Total Convertible Preferred
Stocks 307,114,270
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY NOTES-6.19%
8.875%, 02/15/99 $25,000,000 $ 26,000,750
- ---------------------------------------------------------------
9.125%, 05/15/99(d) 70,000,000 73,541,300
- ---------------------------------------------------------------
8.50%, 02/15/00 20,000,000 21,195,200
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY NOTES-(CONTINUED)
8.875%, 05/15/00(d) $20,000,000 $ 21,508,400
- ---------------------------------------------------------------
8.75%, 08/15/00(d) 20,000,000 21,553,400
- ---------------------------------------------------------------
11.75%, 02/15/01(d) 80,000,000 94,303,200
- ---------------------------------------------------------------
13.125%, 05/15/01 20,000,000 24,682,600
- ---------------------------------------------------------------
Total U.S. Treasury Notes 282,784,850
- ---------------------------------------------------------------
REPURCHASE AGREEMENT(e)-0.28%
Sanwa Securities (USA) L.P.,
5.73%, 11/03/97(f) 12,899,236 12,899,236
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.41% 4,587,548,825
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(0.41)% (18,682,659)
- ---------------------------------------------------------------
NET ASSETS-100.00% $4,568,866,166
===============================================================
</TABLE>
Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debentures
Dep. - Depository
GDR - Global Depository Receipt
Gtd. - Guaranteed
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Sub. - Subordinated
Notes to Schedule of Investments:
(a)Non-income producing security
(b)A portion of these securities are subject to call options written. See note
8.
(c)Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of the securities has been determined in accordance
with the procedures established by the Board of Directors. The aggregate
market value of these securities at 10/31/97 was $93,976,714, which
represented 2.06% of the Fund's net assets.
(d)A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See note 7.
(e)Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor.
(f)Joint repurchase agreement entered into 10/31/97 with a maturing value of
$200,095,500. Collateralized by $201,314,000 U.S. Government obligations, 0%
to 8.875% due 11/03/97 to 08/15/27 with an aggregate market value at 10/31/97
of $204,000,545.
See Notes to Financial Statements.
9
C H A R T E R
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$3,678,855,389) $4,587,548,825
- ------------------------------------------------------------
Receivable for:
Investments sold 46,111,494
- ------------------------------------------------------------
Capital stock sold 20,097,839
- ------------------------------------------------------------
Dividends and interest 14,817,418
- ------------------------------------------------------------
Variation margin 1,040,625
- ------------------------------------------------------------
Investment for deferred compensation plan 44,514
- ------------------------------------------------------------
Other assets 133,382
- ------------------------------------------------------------
Total assets 4,669,794,097
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 82,481,133
- ------------------------------------------------------------
Capital stock reacquired 10,912,732
- ------------------------------------------------------------
Options written 2,272,031
- ------------------------------------------------------------
Deferred compensation 44,514
- ------------------------------------------------------------
Accrued advisory fees 2,492,536
- ------------------------------------------------------------
Accrued administrative services fees 9,821
- ------------------------------------------------------------
Accrued distribution fees 1,858,913
- ------------------------------------------------------------
Accrued transfer agent fees 549,487
- ------------------------------------------------------------
Accrued operating expenses 306,764
- ------------------------------------------------------------
Total liabilities 100,927,931
- ------------------------------------------------------------
Net assets applicable to shares outstanding $4,568,866,166
============================================================
NET ASSETS:
Class A $3,466,912,125
============================================================
Class B $1,056,094,084
============================================================
Class C $ 5,668,794
============================================================
Institutional Class $ 40,191,163
============================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 258,500,666
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 78,995,187
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 423,413
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 2,981,340
============================================================
Class A:
Net asset value and redemption price per
share $ 13.41
============================================================
Offering price per share:
(Net asset value of $13.41 divided by
94.50%) $ 14.19
============================================================
Class B:
Net asset value and offering price per
share $ 13.37
============================================================
Class C:
Net asset value and offering price per
share $ 13.39
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 13.48
============================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $363,901 foreign
withholding tax) $ 54,637,403
- -----------------------------------------------------------
Interest 20,413,876
- -----------------------------------------------------------
Total investment income 75,051,279
- -----------------------------------------------------------
EXPENSES:
Advisory fees 25,224,069
- -----------------------------------------------------------
Administrative services fees 127,908
- -----------------------------------------------------------
Custodian fees 335,709
- -----------------------------------------------------------
Directors' fees 32,960
- -----------------------------------------------------------
Distribution fees-Class A 9,459,952
- -----------------------------------------------------------
Distribution fees-Class B 8,046,181
- -----------------------------------------------------------
Distribution fees-Class C 6,079
- -----------------------------------------------------------
Transfer agent fees-Class A 4,142,179
- -----------------------------------------------------------
Transfer agent fees-Class B 1,472,206
- -----------------------------------------------------------
Transfer agent fees-Class C 1,330
- -----------------------------------------------------------
Transfer agent fees-Institutional Class 17,500
- -----------------------------------------------------------
Other 1,185,816
- -----------------------------------------------------------
Total expenses 50,051,889
- -----------------------------------------------------------
Less: Fees waived by advisor (498,463)
- -----------------------------------------------------------
Expenses paid indirectly (218,302)
- -----------------------------------------------------------
Net expenses 49,335,124
- -----------------------------------------------------------
Net investment income 25,716,155
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 479,170,082
- -----------------------------------------------------------
Foreign currencies 8,764
- -----------------------------------------------------------
Futures contracts (2,590,423)
- -----------------------------------------------------------
Option contracts (4,682,882)
- -----------------------------------------------------------
471,905,541
- -----------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 452,544,247
- -----------------------------------------------------------
Foreign currencies (1,823)
- -----------------------------------------------------------
Futures contracts (2,280,695)
- -----------------------------------------------------------
Option contracts 3,564,452
- -----------------------------------------------------------
453,826,181
- -----------------------------------------------------------
Net gain on investment securities, foreign
currencies, futures and option transactions 925,731,722
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $951,447,877
===========================================================
</TABLE>
See Notes to Financial Statements.
10
C H A R T E R
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 25,716,155 $ 45,400,910
- ----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies, futures, and option contracts 471,905,541 187,738,534
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 453,826,181 171,775,447
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 951,447,877 404,914,891
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (29,364,689) (34,698,850)
- ----------------------------------------------------------------------------------------------
Class B (2,392,475) (2,262,959)
- ----------------------------------------------------------------------------------------------
Institutional Class (438,502) (506,177)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (162,219,599) (170,497,932)
- ----------------------------------------------------------------------------------------------
Class B (34,439,480) (8,672,692)
- ----------------------------------------------------------------------------------------------
Class C (2,594) --
- ----------------------------------------------------------------------------------------------
Institutional Class (1,797,486) (2,168,635)
- ----------------------------------------------------------------------------------------------
Net equalization credits:
Class A 292,768 511,762
- ----------------------------------------------------------------------------------------------
Class B 189,770 219,669
- ----------------------------------------------------------------------------------------------
Institutional Class 6,698 1,194
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 247,700,247 518,654,491
- ----------------------------------------------------------------------------------------------
Class B 397,291,935 417,063,105
- ----------------------------------------------------------------------------------------------
Class C 5,872,568 --
- ----------------------------------------------------------------------------------------------
Institutional Class 4,247,713 2,366,710
- ----------------------------------------------------------------------------------------------
Net increase in net assets 1,376,394,751 1,124,924,577
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 3,192,471,415 2,067,546,838
- ----------------------------------------------------------------------------------------------
End of period $4,568,866,166 $3,192,471,415
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $3,199,855,109 $2,544,742,646
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 2,895,981 8,877,492
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies, futures and option
contracts 456,189,864 182,752,246
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 909,925,212 456,099,031
- ----------------------------------------------------------------------------------------------
$4,568,866,166 $3,192,471,415
==============================================================================================
</TABLE>
See Notes to Financial Statements.
11
C H A R T E R
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc.
(the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six diversified portfolios:
AIM Charter Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Constellation Fund and AIM Weingarten Fund. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and the Institutional Class. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to provide growth
of capital, with current income as a secondary objective.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on
the NASDAQ National Market System is valued at the last sales price on the
valuation date, or absent a last sales price, at the mean of the closing bid
and asked prices. Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices are
not provided by any of the above methods are valued at the mean between last
bid and asked prices based upon quotes furnished by independent sources.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors of the Company. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Directors.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1997
$8,764 was reclassified from undistributed net realized gains to
undistributed net investment income as a result of differing book/tax
treatment of foreign currency transactions. Net assets of the Fund were
unaffected as a result of this reclassification.
C. Bond Premiums-It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
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.
E. Expenses-Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
F. Equalization-The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and costs of repurchases of
Fund shares, equivalent on a per share basis to the amount of undistributed
net investment income, is credited or charged to undistributed net income
when the transaction is recorded so that the undistributed net investment
income per share is unaffected by sales or redemptions of Fund shares.
G. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
12
C H A R T E R
<PAGE> 15
H. Foreign Currency Contracts-A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed upon price at a future
date. The Fund may enter into a forward currency contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of that security. The Fund could be exposed to
risk if counterparties to the contracts are unable to meet the terms of
their contracts.
I. Stock Index Futures Contracts-The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the
Fund's basis in the contract. Risks include the possibility of an illiquid
market and that a change in the value of the contracts may not correlate
with changes in the value of the securities being hedged.
J. Covered Call Options-The fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option
was written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the
sale of the underlying security and the proceeds of the sale are increased
by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.0% of
the first $30 million of the Fund's average daily net assets, plus 0.75% of the
Fund's average daily net assets in excess of $30 million to and including $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. AIM has agreed to voluntarily waive a portion of its advisory fees paid
by the Fund to AIM to the extent necessary to reduce the fees paid by the Fund
at net asset levels higher than those currently incorporated in the present
advisory fee schedule. Under the voluntary waiver, AIM will receive a fee
calculated at the annual rate of 1.0% of the first $30 million of the Fund's
average daily net assets, plus 0.75% of the Fund's average daily net assets in
excess of $30 million to and including $150 million, plus 0.625% of the Fund's
average daily net assets in excess of $150 million to and including $2 billion,
plus 0.60% of the Fund's average daily net assets in excess of $2 billion. The
waiver is entirely voluntary but approval is required by the Board of Directors
for any decision by AIM to discontinue the waiver. During the year ended October
31, 1997, AIM waived fees of $498,463. Under the terms of a master sub-advisory
agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM
pays AIM Capital 50% of the amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1997, AIM was
reimbursed $127,908 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Class A, Class B shares and Class C Shares.
During the year ended October 31, 1997, AFS was paid $3,129,677 for such
services.
The Fund, pursuant to another transfer agency and service agreement, has
agreed to pay A I M Institutional Fund Services, Inc. ("AIFS") a fee for
providing transfer agent and shareholder services to the Institutional Class.
During the year ended October 31, 1997, the Fund paid AIFS $3,178 for such
services with respect to the Institutional Class. On September 19, 1997, the
Board of Directors of the Fund approved the appointment of AFS as transfer agent
of the Institutional Class to be effective in late 1997 or early 1998.
13
C H A R T E R
<PAGE> 16
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Class
A, Class B and Class C shares of the Fund. The Company has adopted distribution
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares (the "Class A Plan"), the Fund's Class B shares (the "Class B Plan"),
and the Fund's Class C shares (the "Class C Plan") (collectively, the "Plans").
The Fund, pursuant to the Class A and Class C Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the average daily net assets of
Class A shares and 1.00% of the average daily net assets of Class C shares. The
Class A and C Plans are designed to compensate AIM Distributors for certain
promotional and other sales related costs, and to implement a dealer incentive
program which provides for periodic payments to selected dealers who furnish
continuing personal shareholder services to their customers who purchase and own
Class A or Class C shares of the Fund. The Fund, pursuant to the Class B Plan,
pays AIM Distributors compensation at an annual rate of 1.00% of the average
daily net assets attributable to the Class B shares. Of this amount, the Fund
may pay a service fee of 0.25% of the average daily net assets of the Class B
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own Class B
shares of the Fund. Any amounts not paid as a service fee under such Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the total
sales charges, including asset-based sales charges, that may be paid by the
respective classes. AIM Distributors may, from time to time, assign, transfer or
pledge to one or more designees, its rights to all or a designated portion of
(a) compensation received by AIM Distributors from the Fund pursuant to the
Class B Plan (but not AIM Distributors' duties and obligations pursuant to the
Class B Plan), and (b) any contingent deferred sales charges received by AIM
Distributors related to the Class B shares. During the year ended October 31,
1997, the Class A and Class B, and the period August 4, 1997 through October 31,
1997 Class C shares paid AIM Distributors $9,459,952, $8,046,181, and $6,079,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $2,129,799 from sales of Class A
shares of the Fund during the year ended October 31, 1997. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1997,
AIM Distributors received commissions of $62,653 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, AIM Capital, AIM Distributors,
AFS, AIFS and FMC.
During the year ended October 31, 1997, the Fund paid legal fees of $12,872
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund. For the year ended
October 31, 1997, the Fund's expenses were reduced by $15,778 for this service.
The Fund also received reductions in transfer agency fees from AFS (an affiliate
of AIM) and reductions in custodian fees of $51,566 and $150,958, respectively,
under expense offset arrangements. The effect of the above arrangements resulted
in reductions of the Fund's total expenses of $218,302 during the year ended
October 31, 1997.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lesser of i) $325,000,000 or ii) the limit set by
its prospectus for borrowings. During the year ended October 31, 1997, the Fund
did not borrow under the line of credit agreement. The funds which are party to
the line of credit are charged a commitment fee of 0.05% on the unused balance
of the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1997 was
$7,160,060,290 and $6,696,104,946, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1997, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $955,676,275
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (53,296,715)
- -------------------------------------------------------------
Net unrealized appreciation of investment
securities $902,379,560
=============================================================
</TABLE>
Cost of investments for tax purposes is $3,685,169,265.
14
C H A R T E R
<PAGE> 17
NOTE 7-FUTURES CONTRACTS
On October 31, 1997, $900,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for futures contracts. Open
contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF MONTH/ APPRECIATION
CONTRACT CONTRACTS COMMITMENT (DEPRECIATION)
<S> <C> <C> <C>
Russell 2000 Index 200 Dec. 97/Buy $(2,007,675)
Russell 2000 Index 25 Mar. 98/Buy (325,000)
-----------
$(2,332,675)
===========
</TABLE>
NOTE 8-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-------------------------
NUMBER
OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of Period -- --
- ---------------------------------------------------------------------------------------
Written 40,155 $ 9,469,083
- ---------------------------------------------------------------------------------------
Closed (11,850) (2,734,038)
- ---------------------------------------------------------------------------------------
Exercised (2,000) (898,562)
- ---------------------------------------------------------------------------------------
Expired -- --
- ---------------------------------------------------------------------------------------
End of period 26,305 $ 5,836,483
=======================================================================================
</TABLE>
Open call option contracts written at October 31, 1997 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
NUMBER 1997 UNREALIZED
CONTRACT STRIKE OF PREMIUM MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
----- -------- ------ --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Avon Products, Inc. Nov. 97 $ 75 3,500 $ 765,410 $ 54,688 $ 710,722
- ---------------------------------------------------------------------------------------------------------------------------------
Bay Networks, Inc. Nov. 97 40 2,000 145,995 31,250 114,745
- ---------------------------------------------------------------------------------------------------------------------------------
Bay Networks, Inc. Nov. 97 42.5 3,000 703,476 37,500 665,976
- ---------------------------------------------------------------------------------------------------------------------------------
Compaq Computer Corp. Nov. 97 65 605 300,675 207,968 92,707
- ---------------------------------------------------------------------------------------------------------------------------------
Compaq Computer Corp. Nov. 97 75 1,000 174,014 71,875 102,139
- ---------------------------------------------------------------------------------------------------------------------------------
Compaq Computer Corp. Nov. 97 85 2,500 495,082 46,875 448,207
- ---------------------------------------------------------------------------------------------------------------------------------
Computer Associates International, Inc. Dec. 97 80 2,500 1,179,960 640,625 539,335
- ---------------------------------------------------------------------------------------------------------------------------------
CompUSA, Inc. Nov. 97 35 500 73,498 40,625 32,873
- ---------------------------------------------------------------------------------------------------------------------------------
CompUSA, Inc. Nov. 97 40 4,000 440,265 75,000 365,265
- ---------------------------------------------------------------------------------------------------------------------------------
Dell Computer Corp. Nov. 97 85 2,000 868,971 750,000 118,971
- ---------------------------------------------------------------------------------------------------------------------------------
HBO & Co. Nov. 97 50 2,700 264,591 84,375 180,216
- ---------------------------------------------------------------------------------------------------------------------------------
Intel Corp. Nov. 97 85 2,000 424,546 231,250 193,296
- ---------------------------------------------------------------------------------------------------------------------------------
$5,836,483 $ 2,272,031 $ 3,564,452
=================================================================================================================================
</TABLE>
15
C H A R T E R
<PAGE> 18
NOTE 9-CAPITAL STOCK
Changes in the capital stock outstanding for the years ended October 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sold
- ------------------------------------------------------------------------------------------------------------------------
Class A 64,563,425 $ 804,527,781 71,824,128 $ 752,853,277
- ------------------------------------------------------------------------------------------------------------------------
Class B 37,105,082 454,511,843 41,436,800 435,348,846
- ------------------------------------------------------------------------------------------------------------------------
Class C* 437,883 6,069,012 -- --
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class 600,091 7,589,130 448,911 4,759,971
- ------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
- ------------------------------------------------------------------------------------------------------------------------
Class A 16,507,011 181,612,880 19,521,139 192,994,968
- ------------------------------------------------------------------------------------------------------------------------
Class B 3,210,439 35,080,359 1,039,513 10,333,913
- ------------------------------------------------------------------------------------------------------------------------
Class C* 159 2,155 -- --
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class 193,613 2,149,460 252,209 2,504,537
- ------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (59,039,148) (738,440,414) (40,679,494) (427,193,754)
- ------------------------------------------------------------------------------------------------------------------------
Class B (7,456,466) (92,300,267) (2,705,793) (28,619,654)
- ------------------------------------------------------------------------------------------------------------------------
Class C* (14,629) (198,599) -- --
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class (445,517) (5,490,877) (464,310) (4,897,798)
- ------------------------------------------------------------------------------------------------------------------------
55,661,943 $ 655,112,463 90,673,103 $ 938,084,306
========================================================================================================================
</TABLE>
* Class C commenced sales on August 4, 1997.
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
capital stock outstanding during each of the years in the five-year period ended
October 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.24 $ 10.66 $ 8.93 $ 9.48 $ 8.38
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.16 0.24 0.23 0.25 0.19
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 2.91 1.44 2.07 (0.44) 1.23
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Total from investment operations 3.07 1.68 2.30 (0.19) 1.42
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.16) (0.20) (0.24) (0.20) (0.32)
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Distributions from capital gains (0.67) (0.90) (0.33) (0.16) --
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Total distributions (0.83) (1.10) (0.57) (0.36) (0.32)
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Net asset value, end of period $ 13.48 $ 11.24 $ 10.66 $ 8.93 $ 9.48
============================================================ ======= ======= ======= ======= =======
Total return 29.05% 17.29% 27.45% (2.02)% 17.39%
============================================================ ======= ======= ======= ======= =======
Net assets, end of period (000s omitted) $40,191 $29,591 $25,538 $21,840 $24,196
============================================================ ======= ======= ======= ======= =======
Ratio of expenses to average net assets(a) 0.67%(b)(c) 0.69% 0.74% 0.73% 0.79%
============================================================ ======= ======= ======= ======= =======
Ratio of net investment income to average net assets(a) 1.21%(b) 2.24% 1.98% 2.76% 2.26%
============================================================ ======= ======= ======= ======= =======
Portfolio turnover rate 170% 164% 161% 126% 144%
============================================================ ======= ======= ======= ======= =======
Average brokerage commission rate(d) $0.0615 $0.0638 N/A N/A N/A
============================================================ ======= ======= ======= ======= =======
</TABLE>
(a) The ratios of expenses and net investment income to average net assets prior
to the reduction of advisory fees were 0.68% and 1.20% for 1997 and 0.70%
and 2.23% for 1996, respectively.
(b) Ratios are based on average net assets of $35,307,526.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have remained the same.
(d) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
16
C H A R T E R
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Charter Fund:
We have audited the accompanying statement of assets and
liabilities of the AIM Charter Fund (a portfolio of AIM
Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1997, the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended and the financial
highlights for each of the years or periods in the
four-year period then ended. These financial statements
and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an
opinion on these financial statements and financial
highlights based on our audits. The financial highlights
for the year ended October 31, 1993 were audited by other
auditors whose report thereon, dated November 12, 1993
expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1997, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Charter
Fund as of October 31, 1997, the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended and the financial highlights for each of the
years or periods in the four-year period then ended, in
conformity with generally accepted accounting principles
KPMG Peat Marwick LLP
Houston, Texas
December 5, 1997
17
C H A R T E R
<PAGE> 20
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Charter Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital
Management, Inc.
(4) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(5) To approve the elimination of provisions of a fundamental investment policy
prohibiting or restricting investments in puts, calls, straddles and
spreads.
(6) To approve the elimination of the fundamental investment policy prohibiting
investments in companies with less than five years of continuous operation.
(7) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes Withheld/
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 N/A 19,923,485
Bruce L. Crockett........................................... 619,427,685 N/A 19,307,045
Owen Daly II................................................ 618,919,919 N/A 19,814,811
Carl Frischling............................................. 619,275,356 N/A 19,459,374
Robert H. Graham............................................ 619,431,576 N/A 19,303,154
John F. Kroeger............................................. 618,878,096 N/A 19,856,634
Lewis F. Pennock............................................ 619,272,998 N/A 19,461,732
Ian W. Robinson............................................. 618,944,840 N/A 19,789,890
Louis S. Sklar.............................................. 619,462,714 N/A 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 173,793,114 2,961,324 7,253,671
(3) Approval of Sub-Advisory Agreement.......................... 173,153,366 3,196,109 7,658,634
(4) Elimination of Policy concerning Other Investment
Companies................................................... 132,189,441 5,578,624 7,737,685
(5) Elimination of Policy concerning Puts, Calls, Straddles and
Spreads..................................................... 130,439,316 6,922,517 8,143,916
(6) Elimination of Policy concerning Companies with Less Than
Five Years of Continuous Operation.......................... 131,139,307 6,923,959 7,442,483
(7) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
18
C H A R T E R
<PAGE> 21
Directors & Officers
<TABLE>
<CAPTION>
<S> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director,
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Gary T. Crum Houston, TX 77046
Senior Vice President
Owen Daly II TRANSFER AGENT
Director Carol F. Relihan
Cortland Trust Inc. Senior Vice President and Secretary A I M Institutional Fund
Services, Inc.
Jonathan C. Schoolar 11 Greenway Plaza
Jack Fields Senior Vice President Suite 100
Formerly Member of the Houston, TX 77046
U.S. House of Representatives Melville B. Cox
Vice President CUSTODIAN
Carl Frischling
Partner Dana R. Sutton State Street Bank & Trust Company
Kramer, Levin, Naftalis & Frankel Vice President and Assistant Treasurer 225 Franklin Street
Boston, MA 02110
Robert H. Graham P. Michelle Grace
President and Chief Executive Officer Assistant Secretary COUNSEL TO THE FUND
A I M Management Group Inc.
Nancy L. Martin Ballard Spahr
John F. Kroeger Assistant Secretary Andrews & Ingersoll
Formerly Consultant 1735 Market Street
Wendell & Stockel Associates, Inc. Ofelia M. Mayo Philadelphia, PA 19103
Assistant Secretary
Lewis F. Pennock COUNSEL TO THE DIRECTORS
Attorney Kathleen J. Pflueger
Assistant Secretary Kramer, Levin, Naftalis & Frankel
Ian W. Robinson 919 Third Avenue
Consultant; Formerly Executive Vice President Samuel D. Sirko New York, NY 10022
and Chief Financial Officer Assistant Secretary
Bell Atlantic Management DISTRIBUTOR
Services, Inc. Stephen I. Winer
Assistant Secretary Fund Management Company
Louis S. Sklar 11 Greenway Plaza
Executive Vice President Mary J. Benson Suite 100
Hines Interests Assistant Treasurer Houston, TX 77046
Limited Partnership
AUDITORS
KPMG Peat Marwick LLP
700 Louisiana
Houston, TX 77002
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Charter Fund Institutional Class paid ordinary dividends in the amount of
$0.247 per share during the Fund's tax year ended October 31, 1997. Of this
amount 38% is eligible for the dividends received deduction for corporations.
The Fund also distributed long-term capital gains of $0.587 per share during
the Fund's tax year ended October 31, 1997.
REQUIRED STATE INCOME TAX INFORMATION
Of the total Income dividends paid, 9% was derived from U.S. Treasury
obligations.
19
C H A R T E R
<PAGE> 22
Long-Term Performance
AIM CONSTELLATION FUND
For shareholders who seek capital appreciation through investments in common
stocks, with emphasis on medium-size and smaller emerging growth companies.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Constellation Fund Institutional Class performance figures are
historical and reflect reinvestment of all distributions and changes in net
asset value.
o One-year performance includes reinvested distributions of $0.887 per share.
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. Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o Standard & Poor's Corporation (S&P) is a credit-rating agency. The
unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P 500) is
widely regarded by investors as representative of the stock market in
general. The Standard & Poor's Mid-Cap Index (S&P 400) is an unmanaged
index comprising common stocks of approximately 400 mid-capitalization
companies.
o The NASDAQ (National Association of Securities Dealers Automated Quotation
System) Composite Index is a group of more than 4,500 unmanaged
over-the-counter securities widely regarded by investors to be
representative of the small- and medium-size company stock universe.
o The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded primarily industrial stocks.
o The Europe, Australia, Far East (EAFE) Index is a group of unmanaged
securities. The index is compiled by Morgan Stanley Capital International.
o An investment cannot be made in the indexes listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
==============================================================================
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1997
- ------------------------------------------------------------------------------
1 Year 19.42%
5 Years 20.06
Inception (7/30/91) 19.49
==============================================================================
==============================================================================
Growth of a $10,000 Investment
4/8/92-10/31/97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NASDAQ Standard & Poor's 400 AIM Constellation Fund,
Composite Index Midcap Index Institutional Class
- --------------------------------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C> <C>
4/8/92 $10,000 $10,000 $10,000
10/92 10,797 10,291 10,023
10/93 13,938 12,499 12,907
10/94 15,045 12,798 12,877
10/95 20,173 15,509 17,160
10/96 22,556 18,191 20,231
10/97 24,130 26,394 26,936
==========================================================================================================================
</TABLE>
Source: Towers Data Systems HYPO--Registered Trademark--
20
C O N S T A L L A T I O N
<PAGE> 23
The Managers' Overview
FUND CAPITALIZES ON BROADENING OF THE MARKET, PRODUCES SOLID RETURNS
A ROUNDTABLE DISCUSSION WITH THE FUND MANAGEMENT TEAM FOR AIM CONSTELLATION FUND
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997.
- --------------------------------------------------------------------------------
Q. HOW DID AIM CONSTELLATION FUND PERFORM DURING THE FISCAL YEAR COVERED BY
THIS REPORT?
A. We are pleased to report that, during the final half of the fiscal year, the
Institutional Class produced a dramatic rebound from the -2.16% total return
reported in our April 30 report to shareholders. For the six months ended
October 31, 1997, the Fund's Institutional Class shares produced an impressive
total return of 22.05%, bringing total return for the fiscal year as a whole to
19.42%, a return in keeping with AIM Constellation Fund's long-term performance.
Net assets stood at $188.1 million at the close of the fiscal year.
Q. WHAT EXPLAINS THE BIG DIFFERENCE IN THE TWO HALVES OF THE YEAR?
A. During the latter six months, the market broadened, which makes for a more
favorable environment for a mutual fund as diversified as AIM Constellation
Fund, which had 368 holdings as of the fiscal year-end.
We discussed the "narrow market" phenomenon in our last report. For much of
1996 and for the first few months of 1997, investors focused on relatively few
large-company stocks sometimes dubbed "the new Nifty Fifty" in reference to the
stocks that dominated the markets back in the 1960s and early 1970s.
During the latter half of the fiscal year, investors began to look beyond
these stocks. From May through the end of the fiscal year, small- and mid-sized
company stocks paced or outpaced larger-company stocks. During the six months
ended October 31, the large-cap S&P 500 rose 15.16% while the small-cap NASDAQ
Composite was up 26.4%.
Q. DID YOU MAKE ANY MAJOR CHANGES TO THE PORTFOLIO DURING THE FISCAL YEAR?
A. Probably the most significant change was a sizable increase in energy sector
holdings, much of which occurred during the last six months of the fiscal year.
For example, as of October 31, 1997, we had almost 8% of the portfolio in oil
and gas drilling and equipment companies, up from 3.44% six months earlier.
These holdings include companies such as Baker Hughes, Inc. and Cooper Cameron
Corp., both of which reported substantial earnings growth during the fiscal
year.
The energy sector, especially oil and gas, looks healthy after more than a
decade of restructuring. Though oil and gas prices have been stable, energy
demand is strong worldwide and likely will remain so despite very recent
economic shocks in Asia. Equipment suppliers have become especially attractive,
as an equipment shortage has raised prices. And technological improvements have
lowered the cost of finding oil--the drilling success rate has improved from one
out of five holes drilled to one out of two.
Q. WERE THERE OTHER MAJOR CHANGES TO THE PORTFOLIO?
A. A few themes have remained constant: technology, retail, and health care. The
individual stocks we hold within these sectors will change over time, and the
mix of industries will vary, but we think these three sectors represent
excellent long-term growth potential.
Q. WHY IS TECHNOLOGY ATTRACTIVE?
A. Technology stocks still constitute more than a third of the portfolio,
and our tech holdings were increased during the fiscal year. The portfolio is
overweight in this sector compared to its benchmark S&P 400 index, which is only
about 12.5% tech stocks. Within the technology sector, the two largest industry
groups in the portfolio are computer software and services and semiconductors.
We expect the computer software and services industry to profit from the
so-called "millennium" problem. The special skills needed to reprogram older
computers to recognize the year 2000 already are in demand. Portfolio holding
Compuware Corp. is poised to profit from this situation. Another bright spot in
the sector's future is Europe's migration to a common currency, which also will
require large investments in information technology.
In semiconductors, we still lean toward makers of high-value, noncommodity
products, firms like Burr-Brown Corp., which enjoy a competitive edge over
makers of commodity products. And we still hold Dell Computer Corp. and Compaq
Computer Corp., which continue to capture more market share.
--------------------
A few themes
have remained constant:
technology, retail, and health care.
--------------------
21
C O N S T E L L A T I O N
<PAGE> 24
The Managers' Overview
PORTFOLIO COMPOSITION
As of 10/31/97
Number of Holdings: 368
<TABLE>
<CAPTION>
TOP 10 INDUSTRIES TOP 10 COMMON STOCKS
<S> <C> <C> <C>
1. Oil & Gas (Drilling & Equipment) 7.94% 1. Compuware Corp. 0.92%
2. Computer (Software/Services) 7.84 2. HEALTHSOUTH Corp. 0.91
3. Electronics (Semiconductors) 6.69 3. Health Management Associates, Inc. 0.87
4. Communications Equipment 4.81 4. MGIC Investment Corp. 0.83
5. Consumer Finance 3.60 5. Dell Computer Corp. 0.83
6. Retail (Specialty) 3.55 6. Tenet Healthcare Corp. 0.82
7. Computers (Hardware) 3.34 7. EMC Corp. 0.81
8. Electrical Equipment 2.85 8. Safeway, Inc. 0.80
9. Equipment (Semiconductors) 2.70 9. Household International, Inc. 0.78
10. Health Care (Hospital Management) 2.40 10. Compaq Computer Corp. 0.76
</TABLE>
Please keep in mind that the Fund's portfolio composition is subject to change
and there is no assurance the Fund will continue to hold any particular
security.
which also will require large investments in information technology.
In semiconductors, we still lean toward makers of high-value, noncommodity
products, firms like Burr-Brown Corp., which enjoy a competitive edge over
makers of commodity products. And we still hold Dell Computer Corp. and Compaq
Computer Corp., which continue to capture more market share.
Nevertheless, the technology sector is characterized by volatility and
ongoing price cutting, and it faces possible negative effects of the recent
turmoil in Asia. The portfolio's large weighting in technology is a potential
vulnerability. We will continue to seek out individual companies whose earnings
performance justifies our investment.
Q. WHY DOES THE FUND HAVE A LARGE STAKE IN THE RETAILING SECTOR?
A. Our holdings in retail were about 13% of the portfolio as of October 31,
not much changed since the fiscal year opened. A year ago, the portfolio tended
toward high-visibility brands; at fiscal year-end, discount stores selling
brand-name merchandise at reduced prices were very attractive. Discounters in
the portfolio include Ross Stores Inc., which is expecting record earnings per
share this year.
Other retailers doing well include those with a big emphasis on computers
and electronic equipment--for example, CompUSA, Inc.--and several in the mail
order industry, which finally appears to have established itself as a successful
participant in this sector.
Q. WHY DO YOU STILL HOLD A LARGE NUMBER OF HEALTH-CARE STOCKS?
A. One positive note in the health-care sector is the FDA's move toward more
rapid approval of drugs and medical devices, which should reduce costs for
the medical instrument and pharmaceutical industries. Portfolio holding Quintile
Transnational Corp., a contract research organization that assesses the efficacy
of medical devices, can be expected to capitalize on this change.
Another positive is the economies of scale produced by continued
consolidation, especially in the patient care arena. However, we are beginning
to tread somewhat carefully. The steady growth of the companies operating in
this area has limited the ability of any one industry participant to dictate
prices or other business terms to any other participant.
Nevertheless, as we have reiterated on a number of occasions, demographic
trends in the U.S. argue for continued growth in the health-care sector for some
time to come.
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY IN GENERAL?
A. There are a few cautionary signs: a tight labor market that could put
inflationary pressure on wages, a drop in consumer confidence measured by The
Conference Board, a slip in new vehicle sales.
Nevertheless, there is much evidence of a favorable economic environment.
Inflation is so well controlled many economists are more concerned about
deflation. Because of monetary crises overseas, few market participants
anticipate a rate hike by the Federal Reserve, at least for the short term. And
finally, corporate earnings continue to grow. As of the third quarter of 1997,
earnings for S&P 500 companies were up more than 12% year over year, for
example.
Q. WHAT IS YOUR OUTLOOK FOR THE MIDCAP MARKET SECTOR THE NEXT FEW MONTHS?
A. We continue to be optimistic for a number of reasons:
First, the relative valuations of mid-cap stocks are attractive compared to
large-company stocks, especially since the earnings growth rate for mid caps is
expected to be higher than for large caps.
Second, tax changes enacted during 1997 favored capital growth over income.
It seems intuitive to assume that investors will gravitate toward
growth-oriented investments such as mid-capitalization stocks, and that should
boost their performance.
Third, because of recent turmoil in foreign markets and its possible
negative impact on big multinational companies, investors may want to put their
assets in smaller, more domestically oriented companies.
-----------------------------------
WE WILL CONTINUE TO SEEK OUT
INDIVIDUAL COMPANIES
WHOSE EARNINGS PERFORMANCE
JUSTIFIES OUR INVESTMENT.
-----------------------------------
22
C O N S T E L L A T I O N
<PAGE> 25
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-89.37%
AEROSPACE/DEFENSE-0.35%
BE Aerospace, Inc.(a) 750,000 $ 21,093,750
- ---------------------------------------------------------------
Precision Castparts Corp. 500,000 29,406,250
- ---------------------------------------------------------------
50,500,000
- ---------------------------------------------------------------
AIR FREIGHT-0.39%
AirNet Systems, Inc.(a) 560,000 11,480,000
- ---------------------------------------------------------------
CNF Transportation Inc. 1,000,000 44,625,000
- ---------------------------------------------------------------
56,105,000
- ---------------------------------------------------------------
AIRLINES-0.11%
Southwest Airlines Co. 500,000 16,312,500
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.12%
Mark IV Industries, Inc. 689,062 16,709,754
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.28%
BankBoston Corp. 500,000 40,531,250
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.30%
AmSouth Bancorporation 750,000 36,046,875
- ---------------------------------------------------------------
North Fork Bancorporation,
Inc. 250,000 7,359,375
- ---------------------------------------------------------------
43,406,250
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.08%
Curative Technologies, Inc.(a) 365,100 10,998,638
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.62%
Chancellor Media Corp.(a) 140,001 7,682,555
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 750,000 49,500,000
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 786,700 32,943,062
- ---------------------------------------------------------------
90,125,617
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.32%
ADC Telecommunications,
Inc.(a) 3,000,000 99,375,000
- ---------------------------------------------------------------
Brightpoint, Inc.(a) 750,000 24,750,000
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 100,000 4,125,000
- ---------------------------------------------------------------
Digital Microwave Corp.(a) 35,000 1,260,000
- ---------------------------------------------------------------
DSC Communications Corp.(a) 2,800,000 68,250,000
- ---------------------------------------------------------------
Glenayre Technologies, Inc.(a) 1,000,000 13,000,000
- ---------------------------------------------------------------
Lucent Technologies, Inc. 500,000 41,218,750
- ---------------------------------------------------------------
MasTec, Inc.(a) 500,000 16,218,750
- ---------------------------------------------------------------
Motorola, Inc. 600,000 37,050,000
- ---------------------------------------------------------------
PairGain Technologies,
Inc.(a)(b) 1,500,000 42,375,000
- ---------------------------------------------------------------
REMEC, Inc.(a) 250,000 6,343,750
- ---------------------------------------------------------------
Scientific-Atlanta, Inc. 1,750,000 32,484,375
- ---------------------------------------------------------------
Tellabs, Inc.(a) 1,800,000 97,200,000
- ---------------------------------------------------------------
483,650,625
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-3.34%
Citrix Systems, Inc.(a) 250,000 $ 18,359,374
- ---------------------------------------------------------------
Comdisco, Inc. 1,250,000 39,453,125
- ---------------------------------------------------------------
Compaq Computer Corp.(a) 1,743,000 111,116,250
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 2,500,000 74,218,750
- ---------------------------------------------------------------
Data General Corp.(a) 250,000 4,812,500
- ---------------------------------------------------------------
Dell Computer Corp.(a) 1,500,000 120,187,500
- ---------------------------------------------------------------
IDX Systems Corp.(a) 756,900 25,545,375
- ---------------------------------------------------------------
Micron Electronics, Inc.(a) 1,050,000 14,568,750
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 2,250,000 77,062,500
- ---------------------------------------------------------------
485,324,124
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.31%
Bay Networks, Inc.(a) 3,000,000 94,875,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 650,000 53,320,313
- ---------------------------------------------------------------
3Com Corp.(a) 1,000,000 41,437,500
- ---------------------------------------------------------------
189,632,813
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-2.23%
Adaptec, Inc.(a) 2,000,000 96,875,000
- ---------------------------------------------------------------
EMC Corp.(a) 1,672,000 93,632,000
- ---------------------------------------------------------------
Iomega Corp.(a) 1,500,000 40,218,750
- ---------------------------------------------------------------
Lexmark International Group,
Inc.(a) 400,000 12,225,000
- ---------------------------------------------------------------
MicroTouch Systems, Inc.(a) 250,000 6,031,250
- ---------------------------------------------------------------
Quantum Corp.(a) 1,000,000 31,625,000
- ---------------------------------------------------------------
Smart Modular Technologies,
Inc.(a) 150,000 7,462,500
- ---------------------------------------------------------------
Storage Technology Corp.(a) 600,000 35,212,500
- ---------------------------------------------------------------
323,282,000
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-7.71%
America Online, Inc.(a) 200,000 15,400,000
- ---------------------------------------------------------------
Applied Voice Technology,
Inc.(a) 250,000 6,500,000
- ---------------------------------------------------------------
Aspect Development, Inc.(a) 325,000 15,193,750
- ---------------------------------------------------------------
Autodesk, Inc. 500,000 18,500,000
- ---------------------------------------------------------------
Avant! Corp.(a) 750,000 19,687,500
- ---------------------------------------------------------------
BMC Software, Inc.(a) 1,750,000 105,656,250
- ---------------------------------------------------------------
Cadence Design Systems,
Inc.(a) 1,750,000 93,187,500
- ---------------------------------------------------------------
Computer Associates
International, Inc. 1,000,000 74,562,500
- ---------------------------------------------------------------
Compuware Corp.(a) 2,014,200 133,188,975
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 1,000,000 33,875,000
- ---------------------------------------------------------------
Electronics for Imaging,
Inc.(a) 300,000 14,025,000
- ---------------------------------------------------------------
HBO & Co. 2,500,000 108,750,000
- ---------------------------------------------------------------
McAfee Associates, Inc.(a) 200,000 9,950,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 824,200 107,146,000
- ---------------------------------------------------------------
Oracle Corp.(a) 2,000,000 71,562,500
- ---------------------------------------------------------------
</TABLE>
23
C O N S T E L L A T I O N
<PAGE> 26
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Parametric Technology Co.(a) 1,600,000 $ 70,600,000
- ---------------------------------------------------------------
Security Dynamics
Technologies, Inc.(a) 1,000,000 33,875,000
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 2,000,000 66,375,000
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 500,000 17,062,500
- ---------------------------------------------------------------
Sybase, Inc.(a) 517,500 8,441,719
- ---------------------------------------------------------------
Symantec Corp.(a) 1,000,000 21,875,000
- ---------------------------------------------------------------
Synopsys, Inc.(a) 1,500,000 58,312,500
- ---------------------------------------------------------------
Wind River Systems(a) 450,000 17,268,750
- ---------------------------------------------------------------
1,120,995,444
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.16%
Action Performance Companies,
Inc.(a) 400,000 10,250,000
- ---------------------------------------------------------------
Blyth Industries, Inc.(a) 525,000 13,059,375
- ---------------------------------------------------------------
23,309,375
- ---------------------------------------------------------------
CONSUMER FINANCE-3.60%
Aames Financial Corp.(b) 900,000 13,162,500
- ---------------------------------------------------------------
Capital One Financial Corp. 750,000 34,218,750
- ---------------------------------------------------------------
ContiFinancial Corp.(a) 500,000 14,218,750
- ---------------------------------------------------------------
FIRSTPLUS Financial Group,
Inc.(a) 500,000 27,500,000
- ---------------------------------------------------------------
Green Tree Financial Corp. 2,500,000 105,312,500
- ---------------------------------------------------------------
Household International, Inc. 1,000,000 113,250,000
- ---------------------------------------------------------------
IMC Mortgage Co.(a)(b) 1,500,000 26,062,500
- ---------------------------------------------------------------
MBNA Corp. 3,000,000 78,937,500
- ---------------------------------------------------------------
Money Store, Inc. 1,000,000 28,375,000
- ---------------------------------------------------------------
Providian Financial Corp. 500,000 18,500,000
- ---------------------------------------------------------------
SLM Holding Corp. 450,000 63,168,750
- ---------------------------------------------------------------
522,706,250
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.81%
Cardinal Health, Inc. 1,000,000 74,250,000
- ---------------------------------------------------------------
McKesson Corp. 400,000 42,925,000
- ---------------------------------------------------------------
117,175,000
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.85%
American Power Conversion
Corp.(a) 1,000,000 27,250,000
- ---------------------------------------------------------------
Avid Technology, Inc.(a) 500,000 14,281,250
- ---------------------------------------------------------------
AVX Corp. 1,000,000 28,250,000
- ---------------------------------------------------------------
Berg Electronics Corp.(a) 1,000,000 23,375,000
- ---------------------------------------------------------------
Black Box Corp.(a) 500,000 20,500,000
- ---------------------------------------------------------------
Hadco Corp.(a) 500,000 27,687,500
- ---------------------------------------------------------------
Kemet Corp.(a) 1,000,000 21,750,000
- ---------------------------------------------------------------
Molex, Inc.-Class A 292,968 10,272,191
- ---------------------------------------------------------------
Sanmina Corp.(a) 700,000 52,325,000
- ---------------------------------------------------------------
Sawtek Inc.(a) 400,000 13,600,000
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 2,250,000 99,000,000
- ---------------------------------------------------------------
Solectron Corp.(a) 1,000,000 39,250,000
- ---------------------------------------------------------------
Symbol Technologies, Inc. 900,000 35,775,000
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-(CONTINUED)
Vishay Intertechnology,
Inc.(a) 17,100 $ 409,331
- ---------------------------------------------------------------
413,725,272
- ---------------------------------------------------------------
ELECTRONIC (COMPONENT DISTRIBUTORS)-0.75%
Arrow Electronics, Inc.(a) 1,300,000 36,887,500
- ---------------------------------------------------------------
Avnet, Inc. 750,000 47,203,125
- ---------------------------------------------------------------
Computer Products, Inc.(a) 250,000 6,812,500
- ---------------------------------------------------------------
Kent Electronics Corp.(a) 500,000 17,468,750
- ---------------------------------------------------------------
108,371,875
- ---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-0.73%
Methode Electronics,
Inc.-Class A 1,050,000 20,737,500
- ---------------------------------------------------------------
Perkin-Elmer Corp. 894,800 55,925,000
- ---------------------------------------------------------------
Tektronix, Inc. 500,000 29,562,500
- ---------------------------------------------------------------
106,225,000
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-6.43%
Altera Corp.(a) 1,600,000 71,000,000
- ---------------------------------------------------------------
Anadagics, Inc.(a) 321,600 11,899,200
- ---------------------------------------------------------------
Analog Devices, Inc.(a) 1,750,000 53,484,375
- ---------------------------------------------------------------
Atmel Corp.(a) 2,000,000 51,750,000
- ---------------------------------------------------------------
Burr-Brown Corp.(a) 750,000 22,687,500
- ---------------------------------------------------------------
Dallas Semiconductor Corp.(a) 800,000 39,100,000
- ---------------------------------------------------------------
Intel Corp. 1,000,000 77,000,000
- ---------------------------------------------------------------
Lattice Semiconductor Corp.(a) 400,000 20,025,000
- ---------------------------------------------------------------
Linear Technology Corp. 1,500,000 94,312,500
- ---------------------------------------------------------------
Maxim Integrated Products,
Inc.(a) 1,525,000 101,031,250
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 2,499,975 99,686,503
- ---------------------------------------------------------------
National Semiconductor
Corp.(a) 2,500,000 90,000,000
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 500,000 13,187,500
- ---------------------------------------------------------------
Sipex Corp.(a) 100,000 3,287,500
- ---------------------------------------------------------------
Texas Instruments, Inc. 1,000,000 106,687,500
- ---------------------------------------------------------------
Unitrode Corp.(a) 300,000 8,043,750
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 475,000 20,603,124
- ---------------------------------------------------------------
Xilinx, Inc.(a) 1,500,000 51,187,500
- ---------------------------------------------------------------
934,973,202
- ---------------------------------------------------------------
ENTERTAINMENT-0.16%
Regal Cinemas, Inc.(a) 1,000,000 23,000,000
- ---------------------------------------------------------------
EQUIPMENT
(SEMICONDUCTORS)-2.70%
Applied Materials, Inc.(a) 3,000,000 100,125,000
- ---------------------------------------------------------------
BMC Industries, Inc. 500,000 16,093,750
- ---------------------------------------------------------------
KLA-Tencor Corp.(a) 2,511,700 110,357,819
- ---------------------------------------------------------------
Lam Research Corp.(a) 1,400,000 50,575,000
- ---------------------------------------------------------------
Novellus Systems, Inc.(a) 1,000,000 44,500,000
- ---------------------------------------------------------------
Teradyne, Inc.(a) 1,887,900 70,678,256
- ---------------------------------------------------------------
392,329,825
- ---------------------------------------------------------------
</TABLE>
24
C O N S T E L L A T I O N
<PAGE> 27
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-1.09%
MGIC Investment Corp. 2,000,000 $ 120,625,000
- ---------------------------------------------------------------
SunAmerica, Inc. 1,050,000 37,734,375
- ---------------------------------------------------------------
158,359,375
- ---------------------------------------------------------------
FOOTWEAR-0.15%
Wolverine World Wide, Inc. 1,000,000 22,000,000
- ---------------------------------------------------------------
GAMING, LOTTERY & PARI-MUTUEL COMPANIES-0.28%
International Game Technology 750,000 19,171,875
- ---------------------------------------------------------------
MGM Grand, Inc.(a) 500,000 21,937,500
- ---------------------------------------------------------------
41,109,375
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.29%
Alpharma, Inc. 254,967 5,625,209
- ---------------------------------------------------------------
Columbia Laboratories, Inc.(a) 500,000 8,000,000
- ---------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 900,000 43,537,500
- ---------------------------------------------------------------
Forest Laboratories, Inc.(a) 600,000 27,750,000
- ---------------------------------------------------------------
Jones Medical Industries, Inc. 1,000,050 30,126,507
- ---------------------------------------------------------------
Mylan Laboratories, Inc.(a) 1,000,000 21,937,500
- ---------------------------------------------------------------
Parexel International Corp.(a) 350,000 12,643,750
- ---------------------------------------------------------------
Watson Pharmaceuticals,
Inc.(a) 1,200,000 38,100,000
- ---------------------------------------------------------------
187,720,466
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-2.40%
Health Management Associates,
Inc.-Class A(a) 5,186,530 126,421,680
- ---------------------------------------------------------------
Quorum Health Group, Inc.(a) 1,800,000 43,650,000
- ---------------------------------------------------------------
Tenet Healthcare Corp.(a) 3,913,800 119,615,513
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 1,350,000 59,484,375
- ---------------------------------------------------------------
349,171,568
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-1.83%
Beverly Enterprises, Inc.(a) 2,000,000 29,875,000
- ---------------------------------------------------------------
Health Care and Retirement
Corp.(a)(b) 1,815,000 68,629,688
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 5,200,000 132,925,000
- ---------------------------------------------------------------
Vencor, Inc.(a) 1,250,000 33,750,000
- ---------------------------------------------------------------
265,179,688
- ---------------------------------------------------------------
HEALTH CARE (MANAGED
CARE)-1.71%
American Oncology Resources,
Inc.(a) 250,000 3,656,250
- ---------------------------------------------------------------
Concentra Managed Care,
Inc.(a) 430,000 14,028,750
- ---------------------------------------------------------------
Express Scripts, Inc.-Class
A(a)(b) 700,000 39,462,500
- ---------------------------------------------------------------
HealthCare COMPARE Corp.(a) 600,000 32,250,000
- ---------------------------------------------------------------
Humana, Inc.(a) 1,235,000 25,935,000
- ---------------------------------------------------------------
Oxford Health Plans, Inc.(a) 911,900 23,538,419
- ---------------------------------------------------------------
PhyCor, Inc.(a) 2,050,000 47,278,125
- ---------------------------------------------------------------
United Healthcare Corp. 602,300 27,894,019
- ---------------------------------------------------------------
Wellpoint Health Networks,
Inc.(a) 752,000 34,404,000
- ---------------------------------------------------------------
248,447,063
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.28%
Arterial Vascular Engineering,
Inc.(a) 263,100 $ 13,977,187
- ---------------------------------------------------------------
Biomet, Inc. 875,000 21,820,313
- ---------------------------------------------------------------
Dentsply International, Inc. 820,200 23,273,175
- ---------------------------------------------------------------
Guidant Corp. 800,000 46,000,000
- ---------------------------------------------------------------
Medtronic, Inc. 900,000 39,150,000
- ---------------------------------------------------------------
Physician Sales & Service,
Inc.(a) 850,000 20,825,000
- ---------------------------------------------------------------
Quintiles Transnational
Corp.(a) 605,000 43,862,500
- ---------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 220,100 15,159,388
- ---------------------------------------------------------------
Stryker Corp. 400,000 14,875,000
- ---------------------------------------------------------------
Sullivan Dental Products, Inc. 500,000 11,687,500
- ---------------------------------------------------------------
Sybron International Corp.(a) 2,000,000 80,250,000
- ---------------------------------------------------------------
330,880,063
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-1.90%
American HomePatient,
Inc.(a)(b) 750,000 19,312,500
- ---------------------------------------------------------------
Covance, Inc.(a) 2,000,000 35,375,000
- ---------------------------------------------------------------
FPA Medical Management,
Inc.(a) 1,500,000 36,187,500
- ---------------------------------------------------------------
Lincare Holdings, Inc.(a) 1,000,000 53,625,000
- ---------------------------------------------------------------
Omnicare, Inc. 3,450,000 95,953,125
- ---------------------------------------------------------------
Orthodontic Centers of
America, Inc.(a) 524,200 9,075,213
- ---------------------------------------------------------------
Total Renal Care Holdings,
Inc.(a) 833,333 25,677,083
- ---------------------------------------------------------------
Transition Systems, Inc.(a) 33,300 674,325
- ---------------------------------------------------------------
275,879,746
- ---------------------------------------------------------------
HOMEBUILDING-0.24%
Clayton Homes, Inc. 1,750,000 28,765,625
- ---------------------------------------------------------------
Oakwood Homes Corp. 250,000 6,578,125
- ---------------------------------------------------------------
35,343,750
- ---------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.29%
Leggett & Platt, Inc. 1,000,000 41,750,000
- ---------------------------------------------------------------
HOUSEWARES-0.11%
Central Garden and Pet Co.(a) 485,500 12,744,375
- ---------------------------------------------------------------
Helen of Troy Ltd.(a) 185,000 3,075,625
- ---------------------------------------------------------------
15,820,000
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.36%
CapMAC Holdings, Inc. 424,800 12,744,000
- ---------------------------------------------------------------
Everest Reinsurance Holdings,
Inc. 750,000 28,218,750
- ---------------------------------------------------------------
Frontier Insurance Group, Inc. 100,000 3,368,750
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 343,100 8,019,963
- ---------------------------------------------------------------
52,351,463
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.34%
T. Rowe Price Associates 750,000 49,687,500
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.67%
Callaway Golf Co. 450,000 14,512,500
- ---------------------------------------------------------------
GTECH Holdings Corp.(a) 750,000 24,187,500
- ---------------------------------------------------------------
</TABLE>
25
C O N S T E L L A T I O N
<PAGE> 28
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LEISURE TIME (PRODUCTS)-(CONTINUED)
Harley-Davidson, Inc. 1,400,000 $ 38,850,000
- ---------------------------------------------------------------
North Face, Inc. (The)(a) 330,000 7,796,250
- ---------------------------------------------------------------
Speedway Motorsports, Inc.(a) 511,200 12,236,850
- ---------------------------------------------------------------
97,583,100
- ---------------------------------------------------------------
LODGING-HOTELS-0.56%
Choice Hotels International,
Inc.(a) 1,000,000 17,562,500
- ---------------------------------------------------------------
Doubletree Corp.(a) 702,800 29,254,050
- ---------------------------------------------------------------
Promus Hotel Corp.(a) 650,000 25,512,500
- ---------------------------------------------------------------
Sun International Hotels Ltd.
(a) 157,600 5,673,600
- ---------------------------------------------------------------
Sunburst Hospitality Corp.(a) 333,333 3,375,000
- ---------------------------------------------------------------
81,377,650
- ---------------------------------------------------------------
MANUFACTURING
(DIVERSIFIED)-0.94%
AMETEK, Inc. 300,000 7,068,750
- ---------------------------------------------------------------
Hillenbrand Industries, Inc. 750,000 32,062,500
- ---------------------------------------------------------------
Pentair, Inc. 500,000 19,312,500
- ---------------------------------------------------------------
Thermo Electron Corp.(a) 1,250,000 46,640,625
- ---------------------------------------------------------------
Tyco International Ltd. 823,964 31,104,641
- ---------------------------------------------------------------
136,189,016
- ---------------------------------------------------------------
MANUFACTURING
(SPECIALIZED)-0.76%
Cognex Corp.(a) 1,000,000 26,750,000
- ---------------------------------------------------------------
Diebold, Inc. 700,000 30,843,750
- ---------------------------------------------------------------
US Filter Corp.(a) 1,300,000 52,162,500
- ---------------------------------------------------------------
109,756,250
- ---------------------------------------------------------------
NATURAL GAS-0.01%
Edge Petroleum Corp.(a) 77,600 1,134,900
- ---------------------------------------------------------------
OFFICE EQUIPMENT &
SUPPLIES-0.18%
Herman Miller, Inc. 350,000 17,106,250
- ---------------------------------------------------------------
HON INDUSTRIES, Inc. 181,900 9,390,587
- ---------------------------------------------------------------
26,496,837
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-7.52%
BJ Services Co.(a) 1,000,000 84,750,000
- ---------------------------------------------------------------
Baker Hughes, Inc. 1,000,000 45,937,500
- ---------------------------------------------------------------
Camco International, Inc. 963,700 69,627,325
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 1,000,000 72,250,000
- ---------------------------------------------------------------
Diamond Offshore Drilling,
Inc. 900,000 56,025,000
- ---------------------------------------------------------------
ENSCO International, Inc. 1,000,000 42,062,500
- ---------------------------------------------------------------
EVI, Inc.(a) 600,000 38,512,500
- ---------------------------------------------------------------
Falcon Drilling Company,
Inc.(a) 1,500,000 54,562,500
- ---------------------------------------------------------------
Global Industries Ltd.(a) 1,954,200 39,328,275
- ---------------------------------------------------------------
Global Marine, Inc.(a) 700,000 21,787,500
- ---------------------------------------------------------------
Halliburton Co. 750,000 44,718,750
- ---------------------------------------------------------------
Input/Output, Inc.(a) 1,400,000 37,537,500
- ---------------------------------------------------------------
Lone Star Technologies,
Inc.(a) 700,000 26,731,250
- ---------------------------------------------------------------
Marine Drilling Companies,
Inc.(a)(b) 1,500,000 44,437,500
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED)
Nabors Industries, Inc.(a) 1,500,000 $ 61,687,500
- ---------------------------------------------------------------
National-Oilwell, Inc.(a) 200,000 15,312,500
- ---------------------------------------------------------------
Noble Drilling Corp.(a) 1,000,000 35,562,500
- ---------------------------------------------------------------
Pride International, Inc.(a) 1,608,100 53,067,300
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 1,000,000 38,875,000
- ---------------------------------------------------------------
Santa Fe International Corp. 394,200 19,389,713
- ---------------------------------------------------------------
Smith International, Inc.(a) 1,000,000 76,250,000
- ---------------------------------------------------------------
Varco International,
Inc.(a)(b) 1,500,000 91,406,250
- ---------------------------------------------------------------
Veritas DGC, Inc.(a) 600,000 24,562,500
- ---------------------------------------------------------------
1,094,381,363
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.75%
Apache Corp.(a) 750,000 31,500,000
- ---------------------------------------------------------------
Burlington Resources, Inc. 750,000 36,703,125
- ---------------------------------------------------------------
Pioneer Natural Resources Co. 350,000 14,021,875
- ---------------------------------------------------------------
St. Mary Land & Exploration
Co. 100,000 4,075,000
- ---------------------------------------------------------------
Santa Fe Energy Resources,
Inc.(a) 1,750,000 22,859,375
- ---------------------------------------------------------------
109,159,375
- ---------------------------------------------------------------
PERSONAL CARE-0.47%
Perrigo Co.(a) 1,977,400 30,402,524
- ---------------------------------------------------------------
Rexall Sundown, Inc.(a) 1,755,000 38,390,625
- ---------------------------------------------------------------
68,793,149
- ---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.27%
Xerox Corp. 500,000 39,656,250
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.30%
AES Corp.(a) 1,100,000 43,587,500
- ---------------------------------------------------------------
RESTAURANTS-1.39%
Apple South, Inc.(b) 2,000,000 37,250,000
- ---------------------------------------------------------------
Applebee's International,
Inc.(b) 1,700,000 37,718,750
- ---------------------------------------------------------------
Brinker International, Inc.(a) 1,000,000 14,000,000
- ---------------------------------------------------------------
CKE Restaurants, Inc. 947,900 37,856,756
- ---------------------------------------------------------------
Cracker Barrel Old Country
Store, Inc. 1,125,000 33,187,500
- ---------------------------------------------------------------
Foodmaker, Inc.(a) 250,000 4,109,375
- ---------------------------------------------------------------
Outback Steakhouse, Inc.(a) 500,000 13,531,250
- ---------------------------------------------------------------
Starbucks Corp.(a) 750,000 24,750,000
- ---------------------------------------------------------------
202,403,631
- ---------------------------------------------------------------
RETAIL (BUILDING
SUPPLIES)-0.32%
Eagle Hardware & Garden,
Inc.(a) 750,000 12,750,000
- ---------------------------------------------------------------
Fastenal Co. 350,000 17,150,000
- ---------------------------------------------------------------
Home Depot, Inc. 300,000 16,687,500
- ---------------------------------------------------------------
46,587,500
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.94%
Best Buy Company, Inc.(a) 1,000,000 27,937,500
- ---------------------------------------------------------------
CHS Electronics, Inc.(a) 1,500,000 36,656,250
- ---------------------------------------------------------------
</TABLE>
26
C O N S T E L L A T I O N
<PAGE> 29
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (COMPUTERS & ELECTRONICS)-(CONTINUED)
CompUSA, Inc.(a) 3,000,000 $ 98,250,000
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 1,350,000 40,246,875
- ---------------------------------------------------------------
Tech Data Corp.(a) 1,775,000 78,987,500
- ---------------------------------------------------------------
282,078,125
- ---------------------------------------------------------------
RETAIL (DEPARTMENT
STORES)-0.74%
Fred Meyer, Inc.(a) 1,000,000 28,562,500
- ---------------------------------------------------------------
Kohl's Corp.(a) 500,000 33,562,500
- ---------------------------------------------------------------
Nordstrom, Inc. 750,000 45,937,500
- ---------------------------------------------------------------
108,062,500
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.71%
Consolidated Stores Corp.(a) 2,500,000 99,687,500
- ---------------------------------------------------------------
Dollar General Corp. 625,082 20,666,773
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 1,040,400 42,136,200
- ---------------------------------------------------------------
Men's Wearhouse,
Inc.(The)(a)(b) 1,500,050 58,126,938
- ---------------------------------------------------------------
Ross Stores, Inc. 734,000 27,433,250
- ---------------------------------------------------------------
248,050,661
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.62%
CVS Corp. 200,000 12,262,500
- ---------------------------------------------------------------
Rite Aid Corp. 1,300,020 77,188,688
- ---------------------------------------------------------------
89,451,188
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-2.26%
American Stores Co. 3,000,000 77,062,500
- ---------------------------------------------------------------
Kroger Co.(a) 2,700,000 88,087,500
- ---------------------------------------------------------------
Quality Food Centers, Inc.(a) 1,000,000 47,625,000
- ---------------------------------------------------------------
Safeway, Inc.(a) 2,000,000 116,250,000
- ---------------------------------------------------------------
329,025,000
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-0.56%
Costco Companies, Inc.(a) 500,000 19,250,000
- ---------------------------------------------------------------
Dayton Hudson Corp. 1,000,000 62,812,500
- ---------------------------------------------------------------
82,062,500
- ---------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.71%
CDW Computer Centers,
Inc.(a)(b) 1,200,000 74,400,000
- ---------------------------------------------------------------
Micro Warehouse, Inc.(a)(b) 1,925,200 28,878,000
- ---------------------------------------------------------------
103,278,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-3.54%
AutoZone, Inc.(a) 518,700 15,334,069
- ---------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 1,250,000 39,687,500
- ---------------------------------------------------------------
Finish Line, Inc. (The)-Class
A(a) 250,000 4,218,750
- ---------------------------------------------------------------
General Nutrition Companies,
Inc.(a) 1,000,000 31,500,000
- ---------------------------------------------------------------
Hollywood Entertainment
Corp.(a) 1,500,000 18,375,000
- ---------------------------------------------------------------
Inacom Corp.(a) 580,000 17,871,250
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 1,250,000 37,578,125
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-(CONTINUED)
Office Depot, Inc.(a) 2,175,000 $ 44,859,375
- ---------------------------------------------------------------
Petco Animal Supplies,
Inc.(a)(b) 850,000 26,137,500
- ---------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 800,000 20,800,000
- ---------------------------------------------------------------
Staples, Inc.(a) 3,500,000 91,875,000
- ---------------------------------------------------------------
Tiffany & Co. 1,000,000 39,500,000
- ---------------------------------------------------------------
Toys "R" Us, Inc.(a) 750,000 25,546,875
- ---------------------------------------------------------------
Viking Office Products,
Inc.(a) 3,000,000 71,812,500
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 750,000 30,093,750
- ---------------------------------------------------------------
515,189,694
- ---------------------------------------------------------------
RETAIL
(SPECIALTY-APPAREL)-0.56%
Gap, Inc. 775,000 41,220,312
- ---------------------------------------------------------------
TJX Companies, Inc. (The) 1,350,000 39,993,750
- ---------------------------------------------------------------
81,214,062
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.22%
Dime Bancorp, Inc. 250,000 6,000,000
- ---------------------------------------------------------------
TCF Financial Corp. 457,000 25,991,875
- ---------------------------------------------------------------
31,991,875
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.24%
Omnicom Group, Inc. 500,000 35,312,500
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.75%
Cerner Corp.(a)(b) 1,750,000 42,437,500
- ---------------------------------------------------------------
Cintas Corp. 100,000 7,225,000
- ---------------------------------------------------------------
Equity Corp. International(a) 400,000 8,150,000
- ---------------------------------------------------------------
HFS, Inc.(a) 500,000 35,250,000
- ---------------------------------------------------------------
Service Corp. International 3,500,000 106,531,250
- ---------------------------------------------------------------
Stewart Enterprises, Inc.-
Class A 1,300,000 53,950,000
- ---------------------------------------------------------------
253,543,750
- ---------------------------------------------------------------
SERVICES (COMPUTER & SYSTEMS)-0.45%
Cambridge Technology Partners,
Inc.(a) 470,400 17,169,600
- ---------------------------------------------------------------
Shared Medical Systems Corp. 410,000 22,447,500
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 1,060,000 25,042,500
- ---------------------------------------------------------------
64,659,600
- ---------------------------------------------------------------
SERVICES (DATA
PROCESSING)-2.00%
Affiliated Computer Services,
Inc.(a) 1,000,000 25,125,000
- ---------------------------------------------------------------
BDM International Inc.(a) 361,500 7,998,188
- ---------------------------------------------------------------
BISYS Group, Inc. (The)(a) 463,200 14,417,100
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 703,100 27,552,731
- ---------------------------------------------------------------
DST Systems, Inc.(a) 1,000,000 35,312,500
- ---------------------------------------------------------------
Equifax, Inc. 500,000 15,531,250
- ---------------------------------------------------------------
First Data Corp. 400,000 11,625,000
- ---------------------------------------------------------------
Fiserv, Inc.(a) 1,250,000 55,937,500
- ---------------------------------------------------------------
National Data Corp. 750,000 27,703,125
- ---------------------------------------------------------------
</TABLE>
27
C O N S T E L L A T I O N
<PAGE> 30
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING)-(CONTINUED)
Paychex, Inc. 1,300,000 $ 49,562,500
- ---------------------------------------------------------------
PMT Services, Inc.(a) 1,250,000 20,156,250
- ---------------------------------------------------------------
290,921,144
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.20%
AccuStaff, Inc.(a) 1,000,000 28,562,500
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.21%
Corrections Corp. of
America(a) 1,000,000 30,500,000
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.38%
Gartner Group, Inc.(a) 1,150,000 32,487,500
- ---------------------------------------------------------------
Valassis Communications,
Inc.(a) 750,000 22,125,000
- ---------------------------------------------------------------
54,612,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-1.04%
Billing Information
Concepts(a)(b) 780,000 30,615,000
- ---------------------------------------------------------------
CIENA Corp.(a) 1,050,000 57,750,000
- ---------------------------------------------------------------
LCI International, Inc.(a) 2,000,000 51,750,000
- ---------------------------------------------------------------
USLD Communications Corp.(a) 570,300 11,299,068
- ---------------------------------------------------------------
151,414,068
- ---------------------------------------------------------------
TELEPHONE-0.23%
Cincinnati Bell, Inc. 1,250,000 33,750,000
- ---------------------------------------------------------------
TEXTILES (APPAREL)-1.75%
Jones Apparel Group, Inc.(a) 1,500,000 76,312,500
- ---------------------------------------------------------------
Liz Claiborne, Inc. 1,250,000 63,359,375
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 1,300,000 34,612,500
- ---------------------------------------------------------------
St. John Knits, Inc. 500,000 20,093,750
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 1,500,000 59,343,750
- ---------------------------------------------------------------
253,721,875
- ---------------------------------------------------------------
TEXTILES (SPECIALTY)-0.26%
Unifi, Inc. 1,000,000 38,437,500
- ---------------------------------------------------------------
TRUCKERS-0.11%
Caliber System, Inc. 300,200 15,647,925
- ---------------------------------------------------------------
TRUCKS & PARTS-0.07%
Wabash National Corp. 340,200 10,163,475
- ---------------------------------------------------------------
WASTE MANAGEMENT-1.06%
American Disposal Services,
Inc.(a) 500,000 17,625,000
- ---------------------------------------------------------------
Thermo Instrument Systems,
Inc.(a) 908,400 32,759,175
- ---------------------------------------------------------------
USA Waste Services, Inc.(a) 2,807,500 103,877,500
- ---------------------------------------------------------------
154,261,675
- ---------------------------------------------------------------
Total Domestic Common
Stocks 12,986,108,509
- ---------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS-0.08%
FINANCIAL (DIVERSIFIED)-0.08%
MGIC Investment Corp.-$3.12
Conv. Pfd. 116,500 11,883,000
- ---------------------------------------------------------------
CONVERTIBLE BONDS & PRINCIPAL
NOTES-0.37% AMOUNT
BROADCASTING (TELEVISION, RADIO & CABLE)-0.06%
Jacor Communications Inc.,
Conv. Sr. LYON, 5.50%,
06/12/11(b)(c) $ 14,450,000 $ 8,849,614
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.17%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 17,500,000 24,287,375
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.06%
Sandoz Capital BVI Ltd.
(Switzerland),
Sr. Conv. Deb., 2.00%,
10/06/02(d) (Acquired
11/04/96-11/13/96;
Cost $6,240,625) 5,540,000 8,143,800
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.08%
Loews Corp., Conv. Sub. Notes,
3.125%, 09/15/07 10,500,000 11,982,075
- ---------------------------------------------------------------
Total Convertible Bonds &
Notes 53,262,864
- ---------------------------------------------------------------
MARKET
SHARES VALUE
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-5.07%
CANADA-1.67%
Biovail Corporation
International (Health
Care-Drugs-Generic &
Other)(a) 250,000 $ 7,218,750
- ---------------------------------------------------------------
CanWest Global Communications
Corp.
(Broadcasting-Television,
Radio & Cable) 2,250,000 43,031,250
- ---------------------------------------------------------------
Newbridge Networks Corp.
(Computers-Networking)(a) 2,000,000 106,000,000
- ---------------------------------------------------------------
Newcourt Credit Group, Inc.
(Finance-Diversified) 257,800 8,974,663
- ---------------------------------------------------------------
Northern Telecom Ltd.
(Communications Equipment) 350,000 31,390,625
- ---------------------------------------------------------------
Precision Drilling Corp. (Oil &
Gas-Drilling & Equipment)(a) 1,500,000 46,125,000
- ---------------------------------------------------------------
242,740,288
- ---------------------------------------------------------------
FINLAND-0.70%
Nokia Oy A.B.-Class A-ADR
(Telecommunications-
Cellular/Wireless) 999,950 88,245,588
- ---------------------------------------------------------------
Nokia Oy A.B.-Class A
(Telecommunications-
Cellular/Wireless) 152,650 13,337,418
- ---------------------------------------------------------------
101,583,006
- ---------------------------------------------------------------
GERMANY-0.10%
Adidas A.G. (Footwear) 100,000 14,486,022
- ---------------------------------------------------------------
IRELAND-0.63%
CBT Group PLC-ADR
(Computers-Software &
Services)(a) 49,400 3,791,450
- ---------------------------------------------------------------
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic &
Other)(a) 1,750,000 87,281,250
- ---------------------------------------------------------------
91,072,700
- ---------------------------------------------------------------
</TABLE>
28
C O N S T E L L A T I O N
<PAGE> 31
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ISRAEL-0.41%
ECI Telecommunications Ltd.
Designs (Communications
Equipment) 750,000 $ 20,718,750
- ---------------------------------------------------------------
Tecnomatix Technologies Ltd.
(Computers-Software &
Services)(a)(b) 479,500 14,804,563
- ---------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Health
Care-Drugs-Generic & Other) 500,000 23,375,000
- ---------------------------------------------------------------
58,898,313
- ---------------------------------------------------------------
ITALY-0.05%
Telecom Italia Mobile S.p.A.
(Telecommunications-
Cellular/Wireless) 1,074,000 3,964,855
- ---------------------------------------------------------------
Telecom Italia S.p.A.
(Telephone) 596,666 3,732,246
- ---------------------------------------------------------------
7,697,101
- ---------------------------------------------------------------
NETHERLANDS-0.20%
ASM Lithography Holding N.V.
(Electronics-Semiconductors)(a) 300,000 21,975,000
- ---------------------------------------------------------------
Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit (Publishing) 328,500 7,783,157
- ---------------------------------------------------------------
29,758,157
- ---------------------------------------------------------------
NORWAY-0.09%
Petroleum Geo-Services ASA-ADR
(Oil & Gas-Drilling &
Equipment)(a) 187,300 12,970,525
- ---------------------------------------------------------------
SWEDEN-0.52%
Telefonaktiebolaget LM
Ericsson-ADR (Communications
Equipment) 1,707,500 75,556,875
- ---------------------------------------------------------------
TAIWAN-0.10%
ASE Test Ltd.-ADR (Electronics-
Semiconductors)(a) 82,200 4,500,450
- ---------------------------------------------------------------
TAIWAN-(CONTINUED)
Taiwan Semiconductor
Manufacturing Co. Ltd.-ADR
(Electronics-Semiconductors)(a) 500,000 $ 9,906,250
- ---------------------------------------------------------------
14,406,700
- ---------------------------------------------------------------
UNITED KINGDOM-0.60%
Danka Business Systems PLC-ADR
(Office Equipment & Supplies) 2,200,000 81,400,000
- ---------------------------------------------------------------
Granada Group PLC (Leisure
Time-Products) 390,000 5,378,530
- ---------------------------------------------------------------
86,778,530
- ---------------------------------------------------------------
Total Foreign Stocks &
Other Equity Interests 735,948,217
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-2.43%(e)
5.093%, 01/02/98 $355,185,000(f) $ 352,350,624
- ---------------------------------------------------------------
COMMERCIAL PAPER-0.21%
Citibank, NA CP Trust, 5.715%,
12/26/97(g) 30,000,000 30,000,000
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-1.67%(h)
Goldman Sachs & Co.(i) 242,843,032 242,843,032
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.20% 14,412,396,246
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.80% 116,662,726
- ---------------------------------------------------------------
NET ASSETS-100.00% $14,529,058,972
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Fund's holdings of an Issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities as of 10/31/97
was $664,603,803 which represented 4.57% of the Fund's net assets.
(c) Zero coupon bond. The interest rate shown represents the rate of original
issue discount.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of this security has been determined in
accordance with procedures established by the Board of Directors. The market
value of this security at 10/31/97 represented 0.06% of the Fund's net
assets.
(e) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(f) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 8.
(g) Variable rate trust certificates representing an interest in a trust
(comprised of eligible debt obligations) entitling the Portfolio to receive
variable rate interest. The Fund has the right, upon seven calendar days'
notice to the trustee, to put its certificates to the trust at par value
plus accrued interest. Because variable rate trust certificates involve a
trust and a third party put feature, they involve complexities and potential
risks that may not be present where the debt obligation is owned directly.
Rate shown is the rate in effect on 10/31/97.
(h) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(i) Joint repurchase agreement entered into 10/31/97 with a maturing value of
$500,239,583. Collateralized by $500,000,000 U.S. Government obligations,
5.63% to 9.50% due 02/01/00 to 08/01/36 with an aggregate market value at
10/31/97 of $510,000,000.
Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debentures
LYON - Liquid Yield Option Notes
Pfd. - Preferred
Sr. - Senior
Sub. - Subordinated
See Notes to Financial Statements.
29
C O N S T E L L A T I O N
<PAGE> 32
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$10,410,065,063) $14,412,396,246
- ------------------------------------------------------------
Foreign currencies, at market value (cost
$43,837) 45,707
- ------------------------------------------------------------
Receivables for:
Investments sold 100,404,112
- ------------------------------------------------------------
Capital stock sold 106,931,262
- ------------------------------------------------------------
Dividends and interest 1,922,668
- ------------------------------------------------------------
Variation margin 7,210,500
- ------------------------------------------------------------
Investment for deferred compensation plan 100,105
- ------------------------------------------------------------
Other assets 55,235
- ------------------------------------------------------------
Total assets 14,629,065,835
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 56,413,158
- ------------------------------------------------------------
Capital stock reacquired 27,338,316
- ------------------------------------------------------------
Deferred compensation 100,105
- ------------------------------------------------------------
Accrued advisory fees 7,883,834
- ------------------------------------------------------------
Accrued administrative service fees 18,472
- ------------------------------------------------------------
Accrued directors' fees 24,640
- ------------------------------------------------------------
Accrued distribution fees 3,864,856
- ------------------------------------------------------------
Accrued transfer agent fees 2,384,261
- ------------------------------------------------------------
Accrued operating expenses 1,979,221
- ------------------------------------------------------------
Total liabilities 100,006,863
- ------------------------------------------------------------
Net assets applicable to shares outstanding $14,529,058,972
============================================================
NET ASSETS:
Class A $14,319,441,125
============================================================
Class C $ 21,508,420
============================================================
Institutional Class $ 188,109,427
============================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 489,907,670
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 737,163
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 6,269,599
============================================================
CLASS A:
Net asset value and redemption price per
share $ 29.23
============================================================
Offering price per share:
(Net asset value of $29.23 divided by
94.50%) $ 30.93
============================================================
CLASS C:
Net asset value and offering price per
share $ 29.18
============================================================
INSTITUTIONAL CLASS:
Net asset value, offering and redemption
price per share $ 30.00
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $582,223 foreign
withholding tax) $ 32,008,695
- ------------------------------------------------------------
Interest 61,609,664
- ------------------------------------------------------------
Total investment income 93,618,359
- ------------------------------------------------------------
EXPENSES:
Advisory fees 82,922,239
- ------------------------------------------------------------
Administrative service fees 251,513
- ------------------------------------------------------------
Custodian fees 808,078
- ------------------------------------------------------------
Directors' fees 91,513
- ------------------------------------------------------------
Distribution fees-Class A 38,860,415
- ------------------------------------------------------------
Distribution fees-Class C 26,490
- ------------------------------------------------------------
Transfer agent fees-Class A 21,499,897
- ------------------------------------------------------------
Transfer agent fees-Class C 5,881
- ------------------------------------------------------------
Transfer agent fees-Institutional Class 24,455
- ------------------------------------------------------------
Other 3,850,511
- ------------------------------------------------------------
Total expenses 148,340,992
- ------------------------------------------------------------
Less: Fees waived by advisor (2,805,955)
- ------------------------------------------------------------
Expenses paid indirectly (290,066)
- ------------------------------------------------------------
Net expenses 145,244,971
- ------------------------------------------------------------
Net investment income (loss) (51,626,612)
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FUTURES CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 851,008,605
- ------------------------------------------------------------
Foreign currencies (275,168)
- ------------------------------------------------------------
Futures contracts 195,426,592
- ------------------------------------------------------------
1,046,160,029
- ------------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 1,270,975,830
- ------------------------------------------------------------
Foreign currencies 1,294
- ------------------------------------------------------------
Futures contracts (36,703,480)
- ------------------------------------------------------------
1,234,273,644
- ------------------------------------------------------------
Net gain on investment securities,
foreign currencies and futures
contracts 2,280,433,673
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $2,228,807,061
============================================================
</TABLE>
See Notes to Financial Statements.
30
C O N S T E L L A T I O N
<PAGE> 33
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (51,626,612) $ (25,042,610)
- -----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies and futures contracts 1,046,160,029 394,119,929
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies and futures contracts 1,234,273,644 672,745,646
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,228,807,061 1,041,822,965
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (401,536,883) (233,242,373)
- -----------------------------------------------------------------------------------------------
Institutional Class (10,336,039) (4,789,469)
- -----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 1,280,740,251 3,470,281,071
- -----------------------------------------------------------------------------------------------
Class C 22,611,449 --
- -----------------------------------------------------------------------------------------------
Institutional Class (139,767,829) 135,200,711
- -----------------------------------------------------------------------------------------------
Net increase in net assets 2,980,518,010 4,409,272,905
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 11,548,540,962 7,139,268,057
- -----------------------------------------------------------------------------------------------
End of period $14,529,058,972 $11,548,540,962
===============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 9,520,633,579 $ 8,408,805,783
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (270,243) (124,538)
- -----------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies and futures contracts 1,022,762,877 388,200,602
- -----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 3,985,932,759 2,751,659,115
- -----------------------------------------------------------------------------------------------
$14,529,058,972 $11,548,540,962
===============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds,
Inc. (the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six diversified portfolios:
AIM Constellation Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM
Capital Development Fund, AIM Charter Fund and AIM Weingarten Fund. The Fund
currently offers three different classes of shares: the Class A shares, the
Class C shares and the Institutional Class. Class C shares commenced sales on
August 4, 1997. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to seek capital appreciation.
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent
31
C O N S T E L L A T I O N
<PAGE> 34
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors of the Company. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing
the net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which would not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their
fair market value as determined in good faith by or under the supervision
of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1997,
$275,168 was reclassified from undistributed net realized gains to
undistributed net investment income (loss) as a result of differing
book/tax treatments on foreign currency transactions. In addition,
$51,756,075 was reclassified from undistributed net investment income
(loss) to paid-in capital as a result of a net operating tax loss. The
reclassifications were made in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position
93-2. Net assets of the Fund were unaffected by the reclassifications
discussed above.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Expenses--Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated
between the classes.
E. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
F. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of that security. The Fund could be exposed to
risk if counterparties to the contracts are unable to meet the terms of
their contracts.
G. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized
gain or loss equal to the difference between the proceeds from, or cost of,
the closing transaction and the Fund's basis in the contract. Risks include
the possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment agreement with A I M Advisors,
Inc. ("AIM"). Under the terms of the master investment advisory agreement, the
Fund pays an advisory fee to AIM at the annual rate of 1.0% of the first $30
million of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $30 million to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million. AIM has
agreed to voluntarily waive a portion of its advisory fees paid by the Fund to
AIM to the extent necessary to reduce the fees paid by the Fund at net asset
levels higher than those currently incorporated in the present advisory fee
schedule. Under the voluntary waiver, AIM will receive a fee calculated at the
annual rate of 1.0% of the first $30 million of the Fund's average daily net
assets, plus 0.75% of the Fund's average daily net assets in excess of $30
million to and including $150 million, plus 0.625% of the Fund's average daily
net assets in excess of $150 million to and including $2 billion, plus 0.60% of
the Fund's average daily net assets in excess of $2 billion. During the year
ended October 31, 1997, AIM waived fees of $2,805,955. The waiver is entirely
voluntary but approval is required by the
32
C O N S T E L L A T I O N
<PAGE> 35
Board of Directors for any decision by AIM to discontinue the waiver. Under the
terms of a master sub-advisory agreement between AIM and A I M Capital
Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount paid by
the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1997, AIM was
reimbursed $251,513 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Class A shares and Class C shares. During the
year ended October 31, 1997, AFS was reimbursed $10,499,779 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Institutional Fund Services, Inc. ("AIFS") a fee for providing
transfer agent and shareholder services to the Fund. During the year ended
October 31, 1997, the Portfolio paid AIFS $24,455 for such services. On
September 19, 1997, the Board of Directors of the Fund approved the appointment
of AFS as transfer agent of the Fund to be effective in late 1997 or early 1998.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A and Class C shares and a master distribution agreement with Fund
Management Company ("FMC") to serve as the distributor for the Institutional
Class. The Company has adopted distribution plans pursuant to Rule 12b-1 under
the 1940 Act with respect to the Fund's Class A shares (the "Class A Plan") and
the Fund's Class C shares (the "Class C Plan") (collectively, the "Plan"). The
Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual
rate of 0.30% of the average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class C shares. The Plan is designed to compensate
AIM Distributors for certain promotional and other sales related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected dealers who furnish continuing personal shareholder services to their
customers who purchase and own Class A or Class C shares of the Fund. The Plan
also provides that payments in excess of service fees are characterized as an
asset-based sales charge under the Plan. The Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund's Class A and Class C shares.
During the year ended October 31, 1997 for the Class A shares and the period
August 4, 1997 (date sales commenced) through October 31, 1997, the Class C
shares, paid AIM Distributors $38,860,415 and $26,490, respectively as
compensation under the Plan.
AIM Distributors received commissions of $10,566,898 from sales of the Class A
shares of the Fund during the year ended October 31, 1997. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1997,
AIM Distributors received commissions of $253,473 in contingent deferred sales
charges imposed on the redemptions of Fund shares. Certain officers and
directors of the Company are officers and directors of AIM, AIM Capital, AIM
Distributors, AFS, AIFS and FMC.
During the year ended October 31, 1997, the Fund paid legal fees of $34,413
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced Fund
expenses by $49,686 during the year ended October 31, 1997. The Fund also
received reductions in transfer agency fees from AFS (an affiliate of AIM) and
reductions in custodian fees of $70,375 and $170,005, respectively, under
expense offset arrangements. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $290,066 during the year ended October
31, 1997.
NOTE 4-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 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lessor of (i) $325,000,000 or (ii) the limit set
by its prospectus for borrowings. During the year ended October 31, 1997, the
Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.05% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1997 was
$9,490,517,179 and $8,083,184,229, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1997, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $4,320,251,644
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (333,338,001)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $3,986,913,643
==========================================================
</TABLE>
Cost of investments for tax purposes is $10,425,482,603.
33
C O N S T E L L A T I O N
<PAGE> 36
NOTE 7-CAPITAL STOCK
Changes in the capital stock outstanding for the years ended October 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 211,624,665 $ 5,717,830,615 282,903,859 $ 6,791,107,589
- -----------------------------------------------------------------------------------------------------------------------------
Class C* 745,655 22,872,597 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 5,274,034 141,917,489 7,711,696 189,568,037
- -----------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 15,529,296 381,406,093 10,007,849 218,670,843
- -----------------------------------------------------------------------------------------------------------------------------
Class C* -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 387,258 9,720,186 200,095 4,444,113
- -----------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (178,999,514) (4,818,496,457) (146,642,433) (3,539,497,361)
- -----------------------------------------------------------------------------------------------------------------------------
Class C* (8,492) (261,148) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class (10,657,023) (291,405,504) (2,422,264) (58,811,439)
- -----------------------------------------------------------------------------------------------------------------------------
43,895,879 $ 1,163,583,871 151,758,802 $ 3,605,481,782
=============================================================================================================================
</TABLE>
*Class C Shares commenced sales on August 4, 1997.
NOTE 8-OPEN FUTURES CONTRACTS
On October 31, 1997, $13,341,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open future
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF MONTH/ APPRECIATION
CONTRACT CONTRACTS COMMITMENT (DEPRECIATION)
-------- --------- ---------- --------------
<S> <C> <C> <C>
S&P 500 Index............................................... 690 Dec. '97 $(16,400,635)
</TABLE>
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
capital stock outstanding during each of the years in the
five-year period ended October 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 26.01 $ 24.05 $ 18.49 $ 17.13 $ 13.27
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.02 0.04 0.02 0.03 --
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains on securities (both realized and unrealized) 4.86 2.67 6.06 1.33 3.86
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 4.88 2.71 6.08 1.36 3.86
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Distributions from capital gains (0.89) (0.75) (0.52) -- --
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 30.00 $ 26.01 $ 24.05 $ 18.49 $ 17.13
============================================================ ======== ======== ======== ======== ========
Total return 19.42% 11.81% 34.09% 7.94% 29.09%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $188,109 $293,035 $138,918 $ 39,847 $ 12,338
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets(a) 0.65%(b)(c) 0.66% 0.66% 0.69% 0.87%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets(d) 0.06%(b) 0.21% 0.18% 0.36% 0.04%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 67% 58% 45% 79% 70%
============================================================ ======== ======== ======== ======== ========
Average brokerage commission rate paid(e) $ 0.0576 $ 0.0596 N/A N/A N/A
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Ratios of expenses to average net assets prior to waiver of advisory fees
and/or expense reimbursement were 0.67%, 0.67%, 0.68%, and 0.70% for the
periods 1997-1994, respectively.
(b) Ratios are based on average net assets of $271,723,352.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have remained the same.
(d) Ratios of net investment income prior to waiver of advisory fees and/or
expense reimbursement were 0.04%, 0.20%, 0.16% and 0.35% for the periods
1997-1994, respectively.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
34
C O N S T E L L A T I O N
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Constellation Fund:
We have audited the accompanying statement of assets and
liabilities of the AIM Constellation Fund (a portfolio of
AIM Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1997, and the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended, and the financial
highlights for each of the years or periods in the
five-year period then ended. These financial statements
and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an
opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1997, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and
financial highlights referred to above present fairly, in
all material respects, the financial position of AIM
Constellation Fund as of October 31, 1997, and the
results of its operations for the year then ended, the
changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights
for each of the years or periods in the five-year period
then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 5, 1997
35
C O N S T E L L A T I O N
<PAGE> 38
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Constellation Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital
Management, Inc.
(4) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(5) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 0 19,923,485
Bruce L. Crockett........................................... 619,427,685 0 19,307,045
Owen Daly II................................................ 618,919,919 0 19,814,811
Carl Frischling............................................. 619,275,356 0 19,459,374
Robert H. Graham............................................ 619,431,576 0 19,303,154
John F. Kroeger............................................. 618,878,096 0 19,856,634
Lewis F. Pennock............................................ 619,272,998 0 19,461,732
Ian W. Robinson............................................. 618,944,840 0 19,789,890
Louis S. Sklar.............................................. 619,462,714 0 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 230,906,150 3,535,231 9,875,635
(3) Approval of Sub-Advisory Agreement.......................... 230,060,493 4,051,941 10,204,582
(4) Elimination of Fundamental Investment Policy................ 167,170,198 8,866,029 10,438,104
(5) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
36
C O N S T E L L A T I O N
<PAGE> 39
Directors & Officers
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Bruce L. Crockett Robert H. Graham
Director President INVESTMENT ADVISOR
ACE Limited; A I M Advisors, Inc.
Formerly Director, President, and John J. Arthur 11 Greenway Plaza
Chief Executive Officer Senior Vice President and Treasurer Suite 100
COMSAT Corporation Houston, TX 77046
Gary T. Crum
Owen Daly II Senior Vice President TRANSFER AGENT
Director A I M Institutional Fund
Cortland Trust Inc. Carol F. Relihan Services, Inc.
Senior Vice President and Secretary 11 Greenway Plaza
Jack Fields Suite 100
Formerly Member of the Jonathan C. Schoolar Houston, TX 77046
U.S. House of Representatives Senior Vice President
CUSTODIAN
Carl Frischling Melville B. Cox State Street Bank & Trust Company
Partner Vice President 225 Franklin Street
Kramer, Levin, Naftalis & Frankel Boston, MA 02110
Dana R. Sutton
Robert H. Graham Vice President and Assistant Treasurer COUNSEL TO THE FUND
President and Chief Executive Officer Ballard Spahr
A I M Management Group Inc. P. Michelle Grace Andrews & Ingersoll
Assistant Secretary 1735 Market Street
John F. Kroeger Philadelphia, PA 19103
Formerly Consultant Nancy L. Martin
Wendell & Stockel Associates, Inc. Assistant Secretary COUNSEL TO THE DIRECTORS
Kramer, Levin, Naftalis & Frankel
Lewis F. Pennock Ofelia M. Mayo 919 Third Avenue
Attorney Assistant Secretary New York, NY 10022
Ian W. Robinson Kathleen J. Pflueger DISTRIBUTOR
Consultant; Formerly Executive Vice President Assistant Secretary Fund Management Company
and Chief Financial Officer 11 Greenway Plaza
Bell Atlantic Management Samuel D. Sirko Suite 100
Services, Inc. Assistant Secretary Houston, TX 77046
Louis S. Sklar Stephen I. Winer AUDITORS
Executive Vice President Assistant Secretary KPMG Peat Marwick LLP
Hines Interests 700 Louisiana
Limited Partnership Mary J. Benson Houston, TX 77002
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Constellation Fund Institutional Class distributed long-term capital gains
of $0.887 per share during the Fund's tax year ended October 31, 1997.
37
C O N S T E L L A T I O N
<PAGE> 40
Long-Term Performance
AIM WEINGARTEN FUND
For shareholders who seek long-term growth of capital through investments
primarily in common stocks of leading U.S. companies considered by management to
have strong earnings momentum.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Weingarten Fund Institutional Class performance figures are historical and
refect reinvestment of all distributions and changes in net asset value.
o One-year performance includes reinvested distributions of $2.385 per share.
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. Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o Lipper Analytical Services, Inc. is an independent mutual fund performance
monitor. The unmanaged Lipper Growth Fund Index represents an average of the
performance of the 30 largest growth mutual funds.
o Standard & Poor's Corporation (S&P) is a credit-rating agency. The unmanaged
Standard & Poor's Composite Index of 500 Stocks (S&P 500) is widely regarded
by investors as representative of the stock market in general.
o The Dow Jones Industrial Average (DJIA) is an unmanaged composite of the
performance of 30 large-company stocks.
o The Europe, Australia, Far East (EAFE) Index is a group of unmanaged
securities. The index is compiled by Morgan Stanley Capital International.
o The NASDAQ (National Association of Securities Dealers Automated Quotation
System) Compositie Index is a group of more than 4,500 unmanaged
over-the-counter securities widely regarded by investors to be representative
of the small- and medium-sized company stock universe.
o An investment cannot be made in any Index listed. Unless otherwise indicated,
index results include reinvested dividends and do not reflect sales charges.
==============================================================================
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED OCTOBER 31, 1997
- ------------------------------------------------------------------------------
1 Year 27.37%
5 Years 16.02
Inception (7/30/91) 15.02
==============================================================================
Growth of a $10,000 Investment
10/8/91-10/31/97
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
AIM Weingarten Fund, Institutional Class Lipper Growth Fund Index Standard & Poor's 500
- ---------------------------------------------------------------------------------------------------------------------
In Thousands.
<S> <C> <C> <C>
10/8/91 $10,000 $10,000 $10,000
10/91 11,735 10,883 10,832
10/92 11,609 11,713 11,656
10/93 11,831 13,116 12,826
10/94 11,846 12,910 13,000
10/95 16,042 17,126 17,868
10/96 18,969 20,119 21,959
10/97 23,356 24,771 27,999
=====================================================================================================================
</TABLE>
Past performance cannot guarantee comparable future results.
Source: Towers Data Systems HYPO--Registered Trademark--
38
W E I N G A R T E N
<PAGE> 41
The Managers' Overview
AS MARKET BROADENS, FINANCIAL AND HEALTH-CARE HOLDINGS HELP DELIVER SOLID
RESULTS
A ROUNDTABLE DISCUSSION WITH THE FUND MANAGEMENT TEAM FOR AIM WEINGARTEN FUND
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997.
- -------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED OCTOBER 31?
A. We are pleased to report that the Institutional Class performed very well,
outpacing its own long-term averages. Total return for the fiscal year was
27.37%. The latter half of the fiscal year was excellent: For the six months
ended October 31, total return was 20.24%. Net assets under management grew from
$60.5 million to $62.1 million during the fiscal year.
Q. WERE MARKET CONDITIONS MORE FAVORABLE TO THE FUND SINCE YOUR APRIL REPORT TO
SHAREHOLDERS?
A. Yes, during the latter six months of the fiscal year, the market broadened
considerably, producing a much friendlier environment for a well-diversified
mutual fund like AIM Weingarten Fund.
We discussed the "narrow market" in our April 30 report to you. Throughout
1996 and for the first few months of 1997, investors focused on relatively few
large-company stocks sometimes dubbed "the new Nifty Fifty" in reference to the
stocks that dominated the markets back in the 1960s and early 1970s.
During the second half of the fiscal year, especially during the third
calendar quarter of 1997, investors began to look beyond these stocks. For the
first time in a long time the broad market outperformed the narrow index, a
reversal of the pattern we mentioned in our last report. AIM Weingarten Fund did
well in this changed environment.
Net Assets Under Management
10/31/96 $60.5 million
10/31/97 $62.1 million
Q. HOW DO YOU EXPLAIN THIS CHANGE IN MARKET SENTIMENT DURING THE LATTER HALF OF
THE FISCAL YEAR?
A. Many market participants had come to question the high valuations being
placed on a number of very large companies. Some doubted that these firms could
sustain the double-digit earnings growth they'd reported for three years
running, especially after cautions on earnings from such giants as The Coca-Cola
Company and The Gillette Company. And the strong dollar was a negative for big
multinationals and companies that draw a large portion of their sales from
overseas.
Q. DID YOU ALTER THE PORTFOLIO AS MARKET SENTIMENT SHIFTED?
A. Not dramatically. We still tend to be heavily invested in financial
stocks, the health-care sector, and also technology.
The individual stocks we own in these sectors will change over time, but we
think these three sectors have excellent long-term growth potential.
Q. WHAT DO YOU FIND ATTRACTIVE ABOUT FINANCIAL STOCKS?
A. Our holdings in the financial sector, including banks, were up during the
fiscal year, from about 16% of the portfolio to approximately 22%.
Big money-center banks such as Chase Manhattan Corp. and Citicorp out-did
analysts' earnings forecasts. With the economy doing well, interest rates
stable, and demographics leading more and more people into retirement-oriented
investing, financial institutions have prospered. Another trend has been a wave
of mergers and acquisitions, for example the purchase of investment banker
Salomon, Inc. by the big insurance company Travelers Group, Inc. Firms in this
sector want to be capable of offering a broad range of financial service to
clients and of competing in a global environment.
Q. WHAT TRENDS AFFECTED THE HEALTH-CARE PORTION OF THE PORTFOLIO?
A. Growth in size of the companies that deliver patient care has limited the
ability of any one industry participant to dictate prices or other business
terms to any other participant. We dropped a couple of HMOs from the portfolio
while increasing our investment in instruments/products makers.
The medical instruments and products industry faces an improved business
environment because of the FDA's move toward more rapid approval of drugs and
medical devices. One of our larger holdings in this field, Becton Dickinson and
Company, reported record earnings for 1997. Becton Dickinson and Company
recently began to market a first-of-a-kind at-home blood-sugar testing kit for
diabetics.
The health-care sector composed about 15% of the portfolio at the close of
the fiscal year, about the same as a year ago and six months ago.
Q. WHY DO YOU STILL HAVE LARGE HOLDINGS IN TECHNOLOGY?
A. Our holdings in the technology sector have been reduced somewhat.
Pricing pressures in computers and semiconductors are tough. You can now buy
one a meaningful personal computer for $1,000, which strains profit margins.
Even Intel Corp., while remaining the industry flagship, has been feeling the
pressure: While everyone upgraded to the Pentium chip when it was introduced,
people
39
W E I N G A R T E N
<PAGE> 42
The Managers' Overview
aren't moving that readily to the Pentium's successor.
In semiconductors, we still lean toward companies like Texas Instruments
Inc., makers of high-value, specialized products that enjoy a competitive edge
over makers of commodity products. And we still hold computer makers like Dell
Computer Corp. and Compaq Computer Corp., which continue to grow and capture
more market share.
Q. WHAT TRENDS ARE AFFECTING THE TECH SECTOR?
A. We expect the computer software and services industry to profit from the
so-called "millennium" problem. The special skills needed to reprogram older
computers to recognize the year 2000 already are in demand.
Another bright spot in the sector's future is Europe's migration to a common
currency, which also will require large investments in information technology.
In software, we own such market leaders as Microsoft Corp. and BMC Software,
Inc.
Despite its volatility and potential negative effects of the recent turmoil
in Asia, we still think the technology sector's long-term growth prospects are
excellent and will continue to seek out individual companies whose earnings
performance justifies our investment. For example, while not included in the
technology sector, retailers of computers have been doing well recently. We
added CompUSA, Inc. to the portfolio since our last report.
Q. DO YOU OWN MANY RETAILERS OTHER THAN THE TECH SELLERS?
A. Discount stores selling brand-name merchandise at reduced prices--companies
like Consolidated Stores Corp., which operates closeout shops--have been very
attractive. Other discounters in the portfolio include Family Dollar Stores,
Inc.; this rapidly growing chain reports much better profit margins than the
retail industry in general.
The outlook for retailers remains good. Since many are domestically focused,
they could become even more attractive to investors concerned about the impact
of currency turmoil in foreign markets.
Q. WHAT IS YOUR OUTLOOK ON THE ECONOMY FOR THE NEAR FUTURE?
A. There are a few cautionary signs: a tight labor market that could put
inflationary pressure on wages, a drop in consumer confidence measured by The
Conference Board, a slip in new vehicle sales. Nevertheless, there is much
evidence of a favorable economic environment. Inflation is so well controlled
many economy watchers are more concerned about deflation. Because of monetary
turmoil and market declines overseas, few expect a rate hike by the Federal
Reserve, at least for the short term. And finally, corporate earnings continue
to grow. As of the third quarter of 1997, earnings for S&P 500 companies were up
more than 12% year over year.
Q. WHAT IS YOUR OUTLOOK FOR THE EQUITY MARKETS?
A. Earnings remain key to market performance, and earnings look as if they may
be coming down to more normal levels. Earnings for the companies in the S&P 500
have been very high: 20%-plus for three years in a row. As we just mentioned,
the most recent figure is about 12%. This is much closer to the historical norm,
which is about 8%. With interest rates stable, investors will focus more on
earnings and we believe AIM Weingarten Fund is well-positioned for this market.
As of 10/31/97
TOTAL NUMBER OF HOLDINGS: 246
TOP 10 INDUSTRIES
1. Electrical Equipment 4.32%
2. Financial (Diversified) 4.25
3. Health Care (Diversified) 3.68
4. Computers (Software & Services) 3.68
5. Health Care 3.25
(Medical Products & Supplies)
6. Health Care 3.14
(Drugs--Major Pharmaceuticals)
7. Electronics (Semiconductors) 3.05
8. Consumer Finance 2.87
9. Oil & Gas (Drilling & Equipment) 2.84
10. Computer (Hardware) 2.81
TOP 10 HOLDINGS
1. Chase Manhattan Corp. 1.44%
2. Service Corp. International 1.33
3. General Electric Co. 1.24
4. International Business 1.15
Machines Corp.
5. Philips Electronics N.V. - 1.10
ADR - New York Shares
6. Merck & Co., Inc. 1.05
7. Microsoft Corp. 1.02
8. Compaq Computer Corp. 1.00
9. Warner-Lambert Co. 0.99
10. SLM Holding Corp. 0.99
Please keep in mind that the Fund's portfolio composition is subject to change
and there is no assurance the Fund will continue to hold any particular
security.
---------------
As of the third quarter
of 1997, earnings for S&P 500
companies were up more than
12% year over year.
---------------
40
W E I N G A R T E N
<PAGE> 43
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-84.72%
AEROSPACE/DEFENSE-0.06%
Coltec Industries, Inc.(a) 183,600 $ 3,672,000
- ---------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.70%
DIMON, Inc. 675,000 17,507,813
- ---------------------------------------------------------------
Universal Corp. 700,000 26,906,250
- ---------------------------------------------------------------
44,414,063
- ---------------------------------------------------------------
AIR FREIGHT-0.26%
CNF Transportation Inc. 375,000 16,734,375
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.13%
Federal-Mogul Corp. 11,300 478,131
- ---------------------------------------------------------------
MascoTech, Inc. 416,400 7,911,600
- ---------------------------------------------------------------
8,389,731
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-1.05%
First Union Corp. 700,000 34,343,750
- ---------------------------------------------------------------
NationsBank Corp. 550,000 32,931,250
- ---------------------------------------------------------------
67,275,000
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-2.62%
BankAmerica Corp. 650,000 46,475,000
- ---------------------------------------------------------------
Chase Manhattan Corp. 800,000 92,300,000
- ---------------------------------------------------------------
Citicorp 225,000 28,139,063
- ---------------------------------------------------------------
166,914,063
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.06%
North Fork Bancorporation, Inc. 121,500 3,576,656
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.29%
PepsiCo, Inc. 500,000 18,406,250
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.44%
Chancellor Media Corp.(a) 200,000 10,975,000
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 400,000 16,750,000
- ---------------------------------------------------------------
27,725,000
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.46%
Crompton & Knowles Corp. 400,000 10,100,000
- ---------------------------------------------------------------
Cytec Industries Inc.(a) 25,000 1,218,750
- ---------------------------------------------------------------
Millennium Chemicals Inc. 750,000 17,625,000
- ---------------------------------------------------------------
28,943,750
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.37%
Lucent Technologies, Inc.(b) 600,000 49,462,500
- ---------------------------------------------------------------
Tellabs, Inc.(a) 700,000 37,800,000
- ---------------------------------------------------------------
87,262,500
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-2.81%
Compaq Computer Corp. 1,000,000 $ 63,750,000
- ---------------------------------------------------------------
Dell Computer Corp.(a) 300,000 24,037,500
- ---------------------------------------------------------------
Digital Equipment Corp.(a) 350,000 17,521,875
- ---------------------------------------------------------------
International Business Machines
Corp. 750,000 73,546,875
- ---------------------------------------------------------------
178,856,250
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.97%
Bay Networks, Inc.(a) 1,000,000 31,625,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 365,100 29,949,609
- ---------------------------------------------------------------
61,574,609
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.89%
Adaptec, Inc.(a) 700,000 33,906,250
- ---------------------------------------------------------------
EMC Corp.(a) 400,000 22,400,000
- ---------------------------------------------------------------
56,306,250
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-3.68%
America Online, Inc.(a) 100,000 7,700,000
- ---------------------------------------------------------------
BMC Software, Inc.(a) 290,000 17,508,750
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 300,000 15,975,000
- ---------------------------------------------------------------
Computer Associates
International, Inc. 550,000 41,009,375
- ---------------------------------------------------------------
Computer Sciences Corp.(a) 161,400 11,449,313
- ---------------------------------------------------------------
Compuware Corp.(a) 500,000 33,062,500
- ---------------------------------------------------------------
HBO & Co. 600,000 26,100,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 500,000 65,000,000
- ---------------------------------------------------------------
Unisys Corp.(a) 1,200,000 15,975,000
- ---------------------------------------------------------------
233,779,938
- ---------------------------------------------------------------
CONSUMER FINANCE-2.87%
ContiFinancial Corp.(a) 333,200 9,475,375
- ---------------------------------------------------------------
FIRSTPLUS Financial Group,
Inc.(a) 600,000 33,000,000
- ---------------------------------------------------------------
Green Tree Financial Corp. 725,000 30,540,625
- ---------------------------------------------------------------
Household International, Inc. 300,000 33,975,000
- ---------------------------------------------------------------
Money Store, Inc. 435,200 12,348,800
- ---------------------------------------------------------------
SLM Holding Corp. 450,000 63,168,750
- ---------------------------------------------------------------
182,508,550
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-1.14%
AmeriSource Health Corp.-Class A
(a) 575,000 34,140,625
- ---------------------------------------------------------------
Cardinal Health, Inc. 250,000 18,562,500
- ---------------------------------------------------------------
Sysco Corp. 500,000 20,000,000
- ---------------------------------------------------------------
72,703,125
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.57%
American Power Conversion
Corp.(a) 600,000 16,350,000
- ---------------------------------------------------------------
General Electric Co. 1,224,400 79,050,325
- ---------------------------------------------------------------
</TABLE>
41
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<PAGE> 44
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-(CONTINUED)
Honeywell, Inc. 200,000 $ 13,612,500
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 185,200 8,148,800
- ---------------------------------------------------------------
Solectron Corp.(a) 560,400 21,995,700
- ---------------------------------------------------------------
Symbol Technologies, Inc. 610,300 24,259,425
- ---------------------------------------------------------------
163,416,750
- ---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-0.83%
Perkin-Elmer Corp. 300,000 18,750,000
- ---------------------------------------------------------------
Waters Corp.(a) 775,000 34,100,000
- ---------------------------------------------------------------
52,850,000
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-2.76%
Analog Devices, Inc.(a) 425,000 12,989,063
- ---------------------------------------------------------------
Intel Corp. 625,000 48,125,000
- ---------------------------------------------------------------
Linear Technology Corp. 300,000 18,862,500
- ---------------------------------------------------------------
Maxim Integrated Products,
Inc.(a) 275,000 18,218,750
- ---------------------------------------------------------------
National Semiconductor Corp.(a) 550,000 19,800,000
- ---------------------------------------------------------------
Texas Instruments, Inc. 400,000 42,675,000
- ---------------------------------------------------------------
VLSI Technology, Inc.(a) 500,000 14,812,500
- ---------------------------------------------------------------
175,482,813
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-1.10%
Applied Materials, Inc.(a) 1,000,000 33,375,000
- ---------------------------------------------------------------
KLA-Tencor Corp.(a) 350,000 15,378,125
- ---------------------------------------------------------------
Teradyne, Inc.(a) 570,900 21,373,069
- ---------------------------------------------------------------
70,126,194
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.80%
American Express Co. 400,000 31,200,000
- ---------------------------------------------------------------
Amresco, Inc.(a) 500,000 15,687,500
- ---------------------------------------------------------------
Federal Home Loan Mortgage Corp. 875,000 33,140,625
- ---------------------------------------------------------------
Federal National Mortgage
Association 775,000 37,539,063
- ---------------------------------------------------------------
MBIA, Inc. 348,400 20,816,900
- ---------------------------------------------------------------
MGIC Investment Corp. 400,000 24,125,000
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 280,900 13,764,100
- ---------------------------------------------------------------
SunAmerica, Inc. 50,100 1,800,469
- ---------------------------------------------------------------
178,073,657
- ---------------------------------------------------------------
FOODS-0.85%
ConAgra, Inc. 450,000 13,556,250
- ---------------------------------------------------------------
Dean Foods Co. 529,300 25,042,506
- ---------------------------------------------------------------
Sara Lee Corp. 300,000 15,337,500
- ---------------------------------------------------------------
53,936,256
- ---------------------------------------------------------------
FOOTWEAR-0.17%
Wolverine World Wide, Inc. 500,000 11,000,000
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-3.35%
Abbott Laboratories 326,100 19,994,006
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-(CONTINUED)
American Home Products Corp. 500,000 $ 37,062,500
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 594,000 52,123,500
- ---------------------------------------------------------------
Johnson & Johnson 711,300 40,810,838
- ---------------------------------------------------------------
Warner-Lambert Co. 441,700 63,245,919
- ---------------------------------------------------------------
213,236,763
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.68%
Dura Pharmaceuticals, Inc.(a) 395,800 19,146,825
- ---------------------------------------------------------------
ICN Pharmaceuticals, Inc. 900,000 43,312,500
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 1,400,000 44,450,000
- ---------------------------------------------------------------
106,909,325
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-2.46%
Lilly (Eli) & Co. 450,000 30,093,750
- ---------------------------------------------------------------
Merck & Co., Inc. 750,000 66,937,500
- ---------------------------------------------------------------
Pfizer, Inc. 366,500 25,929,875
- ---------------------------------------------------------------
Schering-Plough Corp. 600,000 33,637,500
- ---------------------------------------------------------------
156,598,625
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.74%
Quorum Health Group, Inc.(a) 937,500 22,734,375
- ---------------------------------------------------------------
Tenet Healthcare Corp.(a) 386,300 11,806,294
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 290,600 12,804,563
- ---------------------------------------------------------------
47,345,232
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.82%
Health Care and Retirement
Corp.(a) 222,350 8,407,609
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 1,200,000 30,675,000
- ---------------------------------------------------------------
NovaCare, Inc.(a) 1,000,000 13,062,500
- ---------------------------------------------------------------
52,145,109
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.29%
MedPartners, Inc.(a) 725,000 18,442,188
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-3.25%
Arterial Vascular Engineering,
Inc.(a) 350,000 18,593,750
- ---------------------------------------------------------------
Baxter International Inc. 643,700 29,771,125
- ---------------------------------------------------------------
Becton, Dickinson & Co. 1,000,000 46,062,500
- ---------------------------------------------------------------
Boston Scientific Corp.(a) 250,000 11,375,000
- ---------------------------------------------------------------
DePuy, Inc.(a) 577,800 14,806,125
- ---------------------------------------------------------------
Guidant Corp. 400,000 23,000,000
- ---------------------------------------------------------------
Stryker Corp. 875,000 32,539,063
- ---------------------------------------------------------------
Sybron International Corp.(a) 757,500 30,394,688
- ---------------------------------------------------------------
206,542,251
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.07%
Physician Support Systems,
Inc.(a) 309,200 4,753,950
- ---------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.41%
Furniture Brands International,
Inc.(a) 559,900 9,378,325
- ---------------------------------------------------------------
</TABLE>
42
W E I N G A R T E N
<PAGE> 45
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD FURNITURE & APPLIANCES-(CONTINUED)
Maytag Corp. 502,700 $ 16,777,613
- ---------------------------------------------------------------
26,155,938
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.72%
Dial Corp. 1,000,000 16,875,000
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 430,000 29,240,000
- ---------------------------------------------------------------
46,115,000
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.45%
AFLAC Inc. 224,700 11,431,613
- ---------------------------------------------------------------
Conseco Inc. 425,000 18,540,625
- ---------------------------------------------------------------
Equitable Companies, Inc. 800,000 32,950,000
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 600,000 18,262,500
- ---------------------------------------------------------------
Torchmark Corp. 271,600 10,830,050
- ---------------------------------------------------------------
92,014,788
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.74%
Ace, Ltd. 400,000 37,175,000
- ---------------------------------------------------------------
Allmerica Financial Corp. 50,800 2,381,250
- ---------------------------------------------------------------
American International Group,
Inc. 352,600 35,987,238
- ---------------------------------------------------------------
Travelers Group, Inc. 500,000 35,000,000
- ---------------------------------------------------------------
110,543,488
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-1.91%
Allstate Corp. 565,300 46,884,569
- ---------------------------------------------------------------
Everest Re Holdings, Inc. 925,000 34,803,125
- ---------------------------------------------------------------
Exel Ltd. 353,800 21,382,788
- ---------------------------------------------------------------
Fremont General Corp. 400,000 18,650,000
- ---------------------------------------------------------------
121,720,482
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-0.53%
Merrill Lynch & Co., Inc. 213,000 14,404,125
- ---------------------------------------------------------------
Salomon, Inc. 250,000 19,421,875
- ---------------------------------------------------------------
33,826,000
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-1.07%
Franklin Resources, Inc. 388,800 34,943,400
- ---------------------------------------------------------------
T. Rowe Price Associates 500,000 33,125,000
- ---------------------------------------------------------------
68,068,400
- ---------------------------------------------------------------
LODGING-HOTELS-1.92%
Carnival Corp.-Class A 800,000 38,800,000
- ---------------------------------------------------------------
Doubletree Corp.(a) 203,600 8,474,850
- ---------------------------------------------------------------
Host Marriott Corp.(a) 208,500 4,352,438
- ---------------------------------------------------------------
ITT Corp. 350,000 26,140,625
- ---------------------------------------------------------------
Marriott International, Inc. 250,000 17,437,500
- ---------------------------------------------------------------
Patriot American Hospitality,
Inc. 630,000 20,790,000
- ---------------------------------------------------------------
Promus Hotel Corp.(a) 150,000 5,887,500
- ---------------------------------------------------------------
121,882,913
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-1.44%
Caterpillar Inc. 350,000 $ 17,937,500
- ---------------------------------------------------------------
Deere & Co. 550,000 28,943,750
- ---------------------------------------------------------------
Dover Corp. 376,200 25,393,500
- ---------------------------------------------------------------
Ingersoll-Rand Co. 501,150 19,513,528
- ---------------------------------------------------------------
91,788,278
- ---------------------------------------------------------------
MANUFACTURING
(DIVERSIFIED)-2.37%
AlliedSignal Inc. 275,000 9,900,000
- ---------------------------------------------------------------
Carlisle Companies, Inc. 87,800 3,797,350
- ---------------------------------------------------------------
Crane Co. 161,500 6,712,344
- ---------------------------------------------------------------
Eaton Corp. 175,000 16,909,375
- ---------------------------------------------------------------
Thermo Electron Corp.(a) 1,250,000 46,640,625
- ---------------------------------------------------------------
Tyco International Ltd. 800,000 30,200,000
- ---------------------------------------------------------------
U.S. Industries, Inc. 577,500 15,520,313
- ---------------------------------------------------------------
United Technologies Corp. 300,000 21,000,000
- ---------------------------------------------------------------
150,680,007
- ---------------------------------------------------------------
MANUFACTURING
(SPECIALIZED)-0.50%
Diebold, Inc. 450,150 19,834,734
- ---------------------------------------------------------------
U.S. Filter Corp.(a) 300,000 12,037,500
- ---------------------------------------------------------------
31,872,234
- ---------------------------------------------------------------
NATURAL GAS-0.13%
Coastal Corp. 132,700 7,978,587
- ---------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-0.48%
Exxon Corp. 500,000 30,718,750
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-2.84%
BJ Services Co.(a) 275,000 23,306,250
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 190,600 13,770,850
- ---------------------------------------------------------------
Halliburton Co. 800,000 47,700,000
- ---------------------------------------------------------------
Nabors Industries, Inc.(a) 1,075,000 44,209,375
- ---------------------------------------------------------------
Newpark Resources, Inc.(a) 198,400 8,233,600
- ---------------------------------------------------------------
Santa Fe International Corp. 176,800 8,696,350
- ---------------------------------------------------------------
Schlumberger Ltd. 400,000 35,000,000
- ---------------------------------------------------------------
180,916,425
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.43%
Bowater, Inc. 650,000 27,178,125
- ---------------------------------------------------------------
PERSONAL CARE-1.17%
Avon Products, Inc. 597,000 39,103,500
- ---------------------------------------------------------------
Gillette Co. 400,000 35,625,000
- ---------------------------------------------------------------
74,728,500
- ---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.74%
Xerox Corp. 589,900 46,786,444
- ---------------------------------------------------------------
</TABLE>
43
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<PAGE> 46
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
POWER PRODUCERS (INDEPENDENT)-0.31%
AES Corp.(a) 500,000 $ 19,812,500
- ---------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.53%
Gannett Co., Inc. 300,000 15,768,750
- ---------------------------------------------------------------
New York Times Co.-Class A 325,000 17,793,750
- ---------------------------------------------------------------
33,562,500
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUST-0.52%
Starwood Lodging Trust 550,000 32,896,875
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.33%
Home Depot, Inc. 375,000 20,859,375
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.77%
CompUSA, Inc.(a) 981,200 32,134,300
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 1,200,000 35,775,000
- ---------------------------------------------------------------
Tech Data Corp.(a) 1,000,000 44,500,000
- ---------------------------------------------------------------
112,409,300
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-1.50%
Federated Department Stores,
Inc.(a) 375,000 16,500,000
- ---------------------------------------------------------------
Fred Meyer, Inc.(a) 1,000,000 28,562,500
- ---------------------------------------------------------------
J.C. Penney Co., Inc. 300,000 17,606,250
- ---------------------------------------------------------------
Proffitt's, Inc.(a) 1,150,000 32,990,625
- ---------------------------------------------------------------
95,659,375
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.87%
Consolidated Stores Corp.(a) 618,125 24,647,734
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 466,200 10,955,700
- ---------------------------------------------------------------
Ross Stores, Inc. 525,000 19,621,875
- ---------------------------------------------------------------
55,225,309
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.70%
CVS Corp. 450,000 27,590,625
- ---------------------------------------------------------------
Rite Aid Corp. 290,000 17,218,750
- ---------------------------------------------------------------
44,809,375
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.49%
Kroger Co.(a) 1,125,000 36,703,125
- ---------------------------------------------------------------
Safeway, Inc.(a) 1,000,000 58,125,000
- ---------------------------------------------------------------
94,828,125
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-1.42%
Costco Companies, Inc.(a) 1,100,000 42,350,000
- ---------------------------------------------------------------
Dayton Hudson Corp. 425,000 26,695,313
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 601,800 21,138,225
- ---------------------------------------------------------------
90,183,538
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-1.18%
Barnes & Noble, Inc.(a) 138,600 3,542,962
- ---------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 475,000 15,081,250
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-(CONTINUED)
Office Depot, Inc.(a) 1,370,700 $ 28,270,687
- ---------------------------------------------------------------
Payless ShoeSource, Inc.(a) 217,500 12,125,625
- ---------------------------------------------------------------
Toys "R" Us, Inc.(a) 475,000 16,179,687
- ---------------------------------------------------------------
75,200,211
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.39%
Intimate Brands, Inc. 254,700 5,444,212
- ---------------------------------------------------------------
TJX Companies, Inc. (The) 650,000 19,256,250
- ---------------------------------------------------------------
24,700,462
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-1.44%
Ahmanson (H.F.) & Co. 800,000 47,200,000
- ---------------------------------------------------------------
Charter One Financial, Inc. 246,885 14,350,190
- ---------------------------------------------------------------
Washington Mutual, Inc. 440,000 30,112,500
- ---------------------------------------------------------------
91,662,690
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.68%
Interpublic Group of Companies,
Inc. 412,500 19,593,750
- ---------------------------------------------------------------
Outdoor Systems, Inc.(a) 405,100 12,456,825
- ---------------------------------------------------------------
Universal Outdoor Holdings,
Inc.(a) 269,000 11,365,250
- ---------------------------------------------------------------
43,415,825
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-2.14%
HFS, Inc.(a) 725,000 51,112,500
- ---------------------------------------------------------------
Service Corp. International 2,795,700 85,094,118
- ---------------------------------------------------------------
136,206,618
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.64%
Equifax, Inc. 1,789,800 55,595,662
- ---------------------------------------------------------------
First Data Corp. 400,000 11,625,000
- ---------------------------------------------------------------
Fiserv, Inc.(a) 482,100 21,573,975
- ---------------------------------------------------------------
National Data Corp. 425,000 15,698,438
- ---------------------------------------------------------------
104,493,075
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.37%
AccuStaff, Inc.(a) 761,200 21,741,775
- ---------------------------------------------------------------
Kelly Services, Inc.-Class A 46,900 1,664,950
- ---------------------------------------------------------------
23,406,725
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.50%
CIENA Corp.(a) 375,000 20,625,000
- ---------------------------------------------------------------
MCI Communications Corp. 500,000 17,750,000
- ---------------------------------------------------------------
WorldCom, Inc.(a) 1,690,800 56,853,150
- ---------------------------------------------------------------
95,228,150
- ---------------------------------------------------------------
TELEPHONE-0.55%
Bell Atlantic Corp. 233,300 18,634,837
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 600,000 16,200,000
- ---------------------------------------------------------------
34,834,837
- ---------------------------------------------------------------
</TABLE>
44
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<PAGE> 47
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-0.16%
Jones Apparel Group, Inc.(a) 200,000 $ 10,175,000
- ---------------------------------------------------------------
TOBACCO-0.53%
Philip Morris Companies, Inc. 849,900 33,677,288
- ---------------------------------------------------------------
TRUCKERS-0.33%
Caliber System, Inc. 400,000 20,850,000
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.98%
Browning-Ferris Industries, Inc. 1,000,000 32,500,000
- ---------------------------------------------------------------
USA Waste Services, Inc.(a) 800,000 29,600,000
- ---------------------------------------------------------------
62,100,000
- ---------------------------------------------------------------
Total Domestic Common Stocks 5,389,072,735
- ---------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS-1.38%
FINANCIAL (DIVERSIFIED)-1.06%
MGIC Investment Corp.-$3.12
Conv. Pfd. 400,000 40,800,000
- ---------------------------------------------------------------
SunAmerica, Inc.-Series E, $3.10
Dep. Conv. Pfd. 228,800 26,655,200
- ---------------------------------------------------------------
67,455,200
- ---------------------------------------------------------------
LODGING-HOTELS-0.32%
Host Marriott Corp., $3.375
Conv. Pfd. 310,800 20,318,550
- ---------------------------------------------------------------
Total Domestic Convertible
Preferred Stocks 87,773,750
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
DOMESTIC CONVERTIBLE BONDS & NOTES-0.74%
ELECTRICAL EQUIPMENT-0.64%
SCI Systems, Inc., Conv. Sub. Notes, 5.00%,
05/01/06
(acquired 10/31/96-12/06/96;
cost $27,581,905)(c) $22,050,000 40,709,371
- ---------------------------------------------------------------
MANUFACTURING
(SPECIALIZED)-0.10%
U.S. Filter Corp., Conv. Sub.
Notes, 6.00%, 09/15/05 2,700,000 6,005,205
- ---------------------------------------------------------------
Total Domestic Convertible
Bonds & Notes 46,714,576
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED FOREIGN
BONDS & NOTES-0.39%
SWITZERLAND-0.39%
Sandoz Capital BVI Ltd.
(Financial-Diversified),
Sr. Conv. Deb., 2.00%, 10/06/02
(acquired 11/01/96-11/05/96;
cost $18,721,100)(c) 17,000,000 24,990,000
- ---------------------------------------------------------------
SHARES
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-8.99%
CANADA-1.25%
Newbridge Networks Corp.
(Computers-Networking)(a) 220,000 11,660,000
- ---------------------------------------------------------------
CANADA-(CONTINUED)
Northern Telecom Ltd.
(Communications Equipment) 325,000 $ 29,148,438
- ---------------------------------------------------------------
Philip Services Corp. (Waste Management)(a) 2,200,000
- ---------------------------------------------------------------
79,308,438
- ---------------------------------------------------------------
FINLAND-0.33%
Nokia Oy A.B.-Class A-ADR
(Communications Equipment) 240,000 21,180,000
- ---------------------------------------------------------------
FRANCE-1.81%
Banque Nationale de Paris
(Banks-Major Regional) 670,000 29,619,035
- ---------------------------------------------------------------
Elf Aquitaine S.A. (Oil &
Gas-Refining & Marketing) 285,000 35,277,597
- ---------------------------------------------------------------
Renault S.A. (Automobiles)(a) 600,000 16,694,838
- ---------------------------------------------------------------
Societe Generale (Banks-Major
Regional) 245,000 33,554,370
- ---------------------------------------------------------------
115,145,840
- ---------------------------------------------------------------
GERMANY-0.32%
Adidas A.G. (Footwear) 78,800 11,414,985
- ---------------------------------------------------------------
VEBA A.G.
(Manufacturing-Diversified) 158,000 8,815,746
- ---------------------------------------------------------------
20,230,731
- ---------------------------------------------------------------
HONG KONG-0.46%
HSBC Holdings PLC (Banks-Major
Regional) 469,000 10,615,664
- ---------------------------------------------------------------
Sun Hung Kai Properties Ltd.
(Land Development) 2,505,000 18,467,955
- ---------------------------------------------------------------
29,083,619
- ---------------------------------------------------------------
IRELAND-0.26%
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 326,600 16,289,175
- ---------------------------------------------------------------
ISRAEL-0.15%
Teva Pharmaceutical Industries
Ltd.-ADR (Health
Care-Drugs-Generic & Other) 200,000 9,350,000
- ---------------------------------------------------------------
ITALY-0.67%
Telecom Italia Mobile S.p.A.
(Telecommunications-Cellular/Wireless) 6,000,000 22,150,030
- ---------------------------------------------------------------
Telecom Italia S.p.A.
(Telephone) 3,333,333 20,850,559
- ---------------------------------------------------------------
43,000,589
- ---------------------------------------------------------------
MEXICO-0.03%
Panamerican Beverages,
Inc.-Class A
(Beverages-Non-Alcoholic) 68,300 2,117,300
- ---------------------------------------------------------------
NETHERLANDS-1.77%
Akzo Nobel N.V.
(Chemicals-Diversified) 135,750 23,919,688
- ---------------------------------------------------------------
ASM Lithography Holding N.V.
(Electronics-Semiconductors)(a) 250,000 18,312,500
- ---------------------------------------------------------------
</TABLE>
45
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<PAGE> 48
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NETHERLANDS-(CONTINUED)
Philips Electronics N.V.-ADR-New
York Shares (Electrical
Equipment) 900,000 $ 70,537,500
- ---------------------------------------------------------------
112,769,688
- ---------------------------------------------------------------
SINGAPORE-0.13%
Asia Pulp & Paper Co. Ltd.-ADR
(Paper & Forest Products) 745,700 8,482,338
- ---------------------------------------------------------------
SWEDEN-0.52%
Telefonaktiebolaget LM
Ericsson-ADR (Communications
Equipment) 750,000 33,187,500
- ---------------------------------------------------------------
SWITZERLAND-0.33%
Novartis A.G. (Health
Care-Diversified) 13,300 20,829,779
- ---------------------------------------------------------------
UNITED KINGDOM-0.96%
Granada Group PLC (Leisure
Time-Products) 1,330,000 18,342,168
- ---------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
SmithKline Beecham PLC-ADR
(Health Care-Drugs-Major
Pharmaceuticals) 900,000 $ 42,862,500
- ---------------------------------------------------------------
61,204,668
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 572,179,665
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.24%(d)
5.093%, 01/02/98 $ 15,645,000(e) 15,520,153
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-3.32%(f)
CIBC Wood Gundy Securities
Corp., 5.75%, 11/03/97 (g) 100,000,000 100,000,000
- ---------------------------------------------------------------
Goldman, Sachs, & Co., 5.70%,
11/03/97(h) 111,011,779 111,011,779
- ---------------------------------------------------------------
Total Repurchase Agreements 211,011,779
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.78% 6,347,262,658
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.22% 13,874,661
- ---------------------------------------------------------------
TOTAL NET ASSETS-100.00% $6,361,137,319
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 10/31/97 was $65,699,371 which
represented 1.03% of the Fund's net assets.
(d) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(e) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 9.
(f) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(g) Joint repurchase agreement entered into on 10/31/97 with maturing value of
$400,191,667. Collateralized by $400,695,000 U.S. Government obligations, 0%
to 7.75% due 11/12/97 to 07/30/07 with an aggregate market value at 10/31/97
of $408,000,188.
(h) Joint repurchase agreement entered into on 10/31/97 with maturing value of
$700,332,500. Collateralized by $691,835,000 U.S. Government obligations, 0%
to 8.50% due 10/15/98 to 05/15/07 with an aggregate market value at 10/31/97
of $714,757,792.
Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debentures
Pfd. - Preferred
Sr. - Senior
Sub. - Subordinated
See Notes to Financial Statements.
46
W E I N G A R T E N
<PAGE> 49
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$4,878,060,355) $6,347,262,658
- --------------------------------------------------------
Foreign currencies, at market value
(cost $24,034) 23,692
- --------------------------------------------------------
Receivables for:
Investments sold 32,071,207
- --------------------------------------------------------
Capital stock sold 12,718,493
- --------------------------------------------------------
Dividends and interest 3,624,232
- --------------------------------------------------------
Variation margins 324,000
- --------------------------------------------------------
Investment for deferred compensation
plan 80,090
- --------------------------------------------------------
Other assets 133,271
- --------------------------------------------------------
Total assets 6,396,237,643
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 19,092,775
- --------------------------------------------------------
Options written 600,000
- --------------------------------------------------------
Capital stock reacquired 8,360,129
- --------------------------------------------------------
Deferred compensation 80,090
- --------------------------------------------------------
Accrued advisory fees 3,355,000
- --------------------------------------------------------
Accrued administrative service fees 13,321
- --------------------------------------------------------
Accrued distribution fees 1,981,745
- --------------------------------------------------------
Accrued transfer agent fees 878,386
- --------------------------------------------------------
Accrued operating expenses 738,878
- --------------------------------------------------------
Total liabilities 35,100,324
- --------------------------------------------------------
Net assets applicable to shares
outstanding $6,361,137,319
========================================================
NET ASSETS:
Class A $5,810,582,232
========================================================
Class B $ 486,105,308
========================================================
Class C $ 2,326,193
========================================================
Institutional Class $ 62,123,586
========================================================
CAPITAL STOCK, $.001 PAR VALUE PER
SHARE:
CLASS A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 255,794,618
========================================================
CLASS B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 21,757,228
========================================================
CLASS C:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 104,104
========================================================
INSTITUTIONAL CLASS:
Authorized 200,000,000
- --------------------------------------------------------
Outstanding 2,695,286
========================================================
CLASS A:
Net asset value and redemption price
per share $ 22.72
- --------------------------------------------------------
Offering price per share:
(Net asset value of
$22.72 divided by 94.50%) $ 24.04
========================================================
CLASS B:
Net asset value and offering price per
share $ 22.34
========================================================
CLASS C:
Net asset value and offering price per
share $ 22.34
========================================================
INSTITUTIONAL CLASS:
Net asset value, offering and
redemption price per share $ 23.05
========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $781,220 foreign
withholding tax) $ 53,208,013
- ----------------------------------------------------------
Interest 14,062,704
- ----------------------------------------------------------
Total investment income 67,270,717
- ----------------------------------------------------------
EXPENSES:
Advisory fees 37,487,692
- ----------------------------------------------------------
Administrative service fees 163,243
- ----------------------------------------------------------
Custodian fees 518,851
- ----------------------------------------------------------
Directors' fees 48,806
- ----------------------------------------------------------
Distribution fees-Class A 16,399,127
- ----------------------------------------------------------
Distribution fees-Class B 3,831,989
- ----------------------------------------------------------
Distribution fees-Class C 2,338
- ----------------------------------------------------------
Transfer agent fees-Class A 7,665,449
- ----------------------------------------------------------
Transfer agent fees-Class B 875,767
- ----------------------------------------------------------
Transfer agent fees-Class C 473
- ----------------------------------------------------------
Transfer agent fees-Institutional Class 5,963
- ----------------------------------------------------------
Other 1,473,922
- ----------------------------------------------------------
Total expenses 68,473,620
- ----------------------------------------------------------
Less: Fees waived by advisor (2,187,021)
- ----------------------------------------------------------
Expenses paid indirectly (116,775)
- ----------------------------------------------------------
Net expenses 66,169,824
- ----------------------------------------------------------
Net investment income 1,100,893
- ----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTION
CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 917,642,460
- ----------------------------------------------------------
Foreign currencies (2,376,476)
- ----------------------------------------------------------
Futures contracts 12,648,342
- ----------------------------------------------------------
Options contracts 5,967,683
- ----------------------------------------------------------
933,882,009
- ----------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 434,974,571
- ----------------------------------------------------------
Foreign currencies 14,469
- ----------------------------------------------------------
Futures contracts (264,000)
- ----------------------------------------------------------
Options contracts 3,811,862
- ----------------------------------------------------------
438,536,902
- ----------------------------------------------------------
Net gain on investment securities,
foreign currencies, futures and option
contracts 1,372,418,911
- ----------------------------------------------------------
Net increase in net assets resulting from
operations $1,373,519,804
==========================================================
</TABLE>
See Notes to Financial Statements.
47
W E I N G A R T E N
<PAGE> 50
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,100,893 $ 14,147,587
- ----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies, futures and options contracts 933,882,009 590,548,116
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and options contracts 438,536,902 79,138,554
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,373,519,804 683,834,257
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (14,688,010) --
- ----------------------------------------------------------------------------------------------
Institutional Class (444,894) --
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (552,547,910) (606,609,217)
- ----------------------------------------------------------------------------------------------
Class B (32,151,485) (7,814,517)
- ----------------------------------------------------------------------------------------------
Institutional Class (6,655,833) (7,332,667)
- ----------------------------------------------------------------------------------------------
Net equalization credits (charges):
Class A 436,828 2,368,957
- ----------------------------------------------------------------------------------------------
Class B 62,469 992,175
- ----------------------------------------------------------------------------------------------
Class C -- --
- ----------------------------------------------------------------------------------------------
Institutional Class (91,147) 65,590
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 126,373,106 362,344,237
- ----------------------------------------------------------------------------------------------
Class B 166,861,272 210,825,508
- ----------------------------------------------------------------------------------------------
Class C 2,401,569 --
- ----------------------------------------------------------------------------------------------
Institutional Class (7,373,537) 5,462,015
- ----------------------------------------------------------------------------------------------
Net increase in net assets 1,055,702,232 644,136,338
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 5,305,435,087 4,661,298,749
- ----------------------------------------------------------------------------------------------
End of period $6,361,137,319 $5,305,435,087
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $3,937,446,869 $3,649,184,459
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 28,516,289 44,516,626
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies, futures and options
contracts 925,614,568 580,711,311
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 1,469,559,593 1,031,022,691
- ----------------------------------------------------------------------------------------------
$6,361,137,319 $5,305,435,087
==============================================================================================
</TABLE>
See Notes to Financial Statements.
48
W E I N G A R T E N
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten Fund (the "Fund") is a series of AIM Equity Funds, Inc. (the
"Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six diversified portfolios:
AIM Weingarten Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund and AIM Constellation Fund. The Fund
currently offers four different classes of shares: the Class A shares, Class B
shares, Class C shares and the Institutional Class. Class C shares commenced
sales on August 4, 1997. Matters affecting each portfolio or class will be voted
on exclusively by such shareholders. The assets, liabilities and operations of
each portfolio are accounted for separately. The Fund's investment objective is
to seek growth of capital principally through investment in common stocks of
seasoned and better capitalized companies. Information presented in these
financial statements pertains only to the Fund.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as in the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market quotations are not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the Company's officers in a manner
specifically authorized by the Board of Directors of the Company. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which would not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
market value as determined in good faith by or under the supervision of the
Board of Directors.
B. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of that security. The Fund could be exposed to
risk if counterparties to the contracts are unable to meet the terms of
their contracts.
D. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized
gain or loss equal to the difference between the proceeds from, or cost of,
the closing transaction and the Fund's basis in the contract. Risks include
the possibility of an illiquid market and that the change in the value of
the contracts may not correlate with changes in the value of the securities
being hedged.
E. Covered Call Options--The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent
49
W E I N G A R T E N
<PAGE> 52
liability. The amount of the liability is subsequently "marked-to-market"
to reflect the current market value of the option written. The current
market value of a written option is the mean between the last bid and asked
prices on that day. If a written call option expires on the stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or a loss if the closing purchase transaction
exceeds the premium received when the option was written) without regard to
any unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised,
the Fund realizes a gain or a loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
F. Put options--The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or
a portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
G. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the specific identification of securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1997,
undistributed net investment income was decreased by $2,376,476 and
undistributed net realized gains increased by $2,376,476 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
H. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated between the
classes.
J. Equalization--The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and the costs of repurchases
of Fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
net income when the transaction is recorded so that undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). The terms of the master investment advisory agreement
provide that the Fund shall pay an advisory fee to AIM at an annual rate of 1.0%
of the first $30 million of the Fund's average daily net assets, plus 0.75% of
the Fund's average daily net assets in excess of $30 million to and including
$350 million, plus 0.625% of the Fund's average daily net assets in excess of
$350 million. AIM is currently voluntarily waiving a portion of its advisory
fees payable by the Fund to AIM to the extent necessary to reduce the fees paid
by the Fund at net asset levels higher than those currently incorporated in the
present advisory fee schedule. AIM will receive a fee calculated at the annual
rate of 1.0% of the first $30 million of the Fund's average daily net assets,
plus 0.75% of the Fund's average daily net assets in excess of $30 million to
and including $350 million, plus 0.625% of the Fund's average daily net assets
in excess of $350 million to and including $2 billion, plus 0.60% of the Fund's
average daily net assets in excess of $2 billion to and including $3 billion,
plus 0.575% of the Fund's average daily net assets in excess of $3 billion to
and including $4 billion, plus 0.55% of the Fund's average daily net assets in
excess of $4 billion. The waiver of fees is entirely voluntary but approval is
required by the Board of Directors of the Company for any decision by AIM to
discontinue the waiver. During the year ended October 31, 1997, AIM waived fees
of $2,187,021. Under the terms of a master sub-advisory agreement between AIM
and A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of
the amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to
50
W E I N G A R T E N
<PAGE> 53
the Fund. During the year ended October 31, 1997, AIM was reimbursed $163,243
for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Class A shares, Class B shares and Class C
shares. During the year ended October 31, 1997, AFS was reimbursed $4,656,522
for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Institutional Fund Services, Inc. ("AIFS") a fee for providing
transfer agent and shareholder services to the Fund. During the year ended
October 31, 1997, the Portfolio paid AIFS $5,963 for such services. On September
19, 1997, the Board of Directors of the Fund approved the appointment of AFS as
transfer agent of the Fund to be effective in late 1997 or early 1998.
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, Class B and Class C shares and a master distribution agreement with
Fund Management Company ("FMC") to serve as the distributor for the
Institutional Class. The Company has adopted distribution plans pursuant to Rule
12b-1 under the 1940 Act with respect to the Fund's Class A shares (the "Class A
Plan"), the Fund's Class B shares (the "Class B Plan"), and the Fund's Class C
shares (the "Class C Plan") (collectively, the "Plans"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.30% of the
average daily net assets of Class A shares and 1.00% of the average daily net
assets of Class C shares. The Plan is designed to compensate AIM Distributors
for certain promotional and other sales related costs, and to implement a dealer
incentive program which provides for periodic payments to selected dealers who
furnish continuing personal shareholder services to their customers who purchase
and own Class A or Class C shares of the Fund. The Fund, pursuant to the Class B
Plan, pays AIM Distributors compensation at an annual rate of 1.00% of the
average daily net assets attributable to the Class B shares. Of this amount, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
B shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own Class B
shares of the Fund. Any amounts not paid as a service fee under such Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the total
sales charges, including asset-based sales charges, that may be paid by the
respective classes. AIM Distributors may, from time to time, assign, transfer or
pledge to one or more designees, its rights to all or a designated portion of
(a) compensation received by AIM Distributors from the Fund pursuant to the
Class B Plan (but not AIM Distributors duties and obligations pursuant to the
Class B Plan) and (b) any contingent deferred sales charges received by AIM
Distributors related to the Class B shares. During the year ended October 31,
1997 for the Class A shares and Class B shares and the period August 4, 1997
(date sales commenced) through October 31, 1997, the Class C shares paid AIM
Distributors $16,399,127, $3,831,989 and $2,338, respectively, as compensation
under the Plans.
AIM Distributors received commissions of $1,521,630 from sales of the Class A
shares of the Fund during the year ended October 31, 1997. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1997,
AIM Distributors received commissions of $38,015 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, AIM Capital, AIM Distributors,
AFS, AIFS and FMC.
During the year ended October 31, 1997, the Fund paid legal fees of $15,778
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $21,962 during the year ended October 31, 1997. The Fund also
received reductions in transfer agency fees from AFS (an affiliate of AIM) and
reductions in custodian fees of $77,032 and $17,781, respectively, under expense
offset arrangements. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $116,775 during the year ended October
31, 1997.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lessor of (i) $325,000,000 or (ii) the limit set
by its prospectus for borrowings. During the year ended October 31, 1997, the
Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.05% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended October 31, 1997 was $7,275,089,932 and
$7,776,089,044, respectively.
51
W E I N G A R T E N
<PAGE> 54
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of October 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,533,476,526
- ----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (75,979,727)
- ----------------------------------------------------------------------------
Net unrealized appreciation of investment securities $1,457,496,799
============================================================================
</TABLE>
Cost of investments for tax purposes is $4,889,765,859.
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of period 55,804 $ 22,601,072
- ---------------------------------------------------------------------------------------
Written 86,525 29,354,760
- ---------------------------------------------------------------------------------------
Closed (91,359) (35,943,337)
- ---------------------------------------------------------------------------------------
Exercised (38,470) (10,831,639)
- ---------------------------------------------------------------------------------------
Expired (9,500) (3,963,917)
- ---------------------------------------------------------------------------------------
End of period 3,000 $ 1,216,939
=======================================================================================
</TABLE>
Open call option contracts written at October 31, 1997 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
CONTRACT STRIKE NUMBER OF PREMIUM 1997 UNREALIZED
MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
ISSUE -------- ------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lucent Technologies, Inc. November 85 3,000 $1,216,939 $600,000 $616,939
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8-PUT OPTIONS WRITTEN
Transactions in put options purchased during the year ended October 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS PAID
--------- -----------
<S> <C> <C>
Beginning of period -- --
- ---------------------------------------------------------------------------------------
Purchased 7,500 $ 1,053,750
- ---------------------------------------------------------------------------------------
Exercised (7,500) (1,053,750)
- ---------------------------------------------------------------------------------------
End of period 0 $ 0
- ---------------------------------------------------------------------------------------
</TABLE>
NOTE 9-OPEN FUTURES CONTRACTS
On October 31, 1997, $363,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF MONTH/ APPRECIATION
CONTRACT CONTRACTS COMMITMENT (DEPRECIATION)
-------- --------- ---------- --------------
<S> <C> <C> <C>
S&P 400 Midcap Index 96 Dec. '97 $(264,000)
</TABLE>
52
W E I N G A R T E N
<PAGE> 55
NOTE 10-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 36,066,523 $748,100,033 34,550,539 $648,183,624
- ---------------------------------------------------------------------------------------------------------------------
Class B 9,401,446 192,004,936 12,381,545 231,706,372
- ---------------------------------------------------------------------------------------------------------------------
Class C* 117,736 2,708,502 -- --
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 377,655 7,900,669 516,716 9,877,153
- ---------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 29,415,559 528,061,835 32,395,132 557,844,149
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,715,350 30,687,644 425,933 7,326,082
- ---------------------------------------------------------------------------------------------------------------------
Class C* -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 313,585 5,650,803 338,803 5,871,449
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (56,267,501) (1,149,788,762) (44,929,759) (843,683,536)
- ---------------------------------------------------------------------------------------------------------------------
Class B (2,748,694) (55,831,308) (1,500,861) (28,206,946)
- ---------------------------------------------------------------------------------------------------------------------
Class C* (13,632) (306,933) -- --
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class (951,830) (20,925,009) (552,275) (10,286,587)
- ---------------------------------------------------------------------------------------------------------------------
17,426,197 $288,262,410 33,625,773 $578,631,760
=====================================================================================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
53
W E I N G A R T E N
<PAGE> 56
NOTE 11-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
capital stock outstanding during each of the years in the five-year period ended
October 31, 1997.
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 20.46 $ 20.48 $ 17.94 $ 17.69 $ 16.73
- -------------------------------- ------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.08 0.17 0.10 0.17 0.16
- -------------------------------- ------- -------- -------- -------- --------
Net gains on securities (both
realized and unrealized) 4.90 2.52 4.35 0.58 0.93
- -------------------------------- ------- -------- -------- -------- --------
Total from investment
operations 4.98 2.69 4.45 0.75 1.09
- -------------------------------- ------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.15) -- (0.13) (0.17) (0.13)
- -------------------------------- ------- -------- -------- -------- --------
Distributions from capital
gains (2.24) (2.71) (1.78) (0.33) --
- -------------------------------- ------- -------- -------- -------- --------
Total distributions (2.39) (2.71) (1.91) (0.50) (0.13)
- -------------------------------- ------- -------- -------- -------- --------
Net asset value, end of period $ 23.05 $ 20.46 $ 20.48 $ 17.94 $ 17.69
================================ ======= ======== ======== ======== ========
Total return 27.37% 15.34% 28.69% 4.37% 6.53%
================================ ======= ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $62,124 $ 60,483 $ 54,332 $ 40,486 $ 39,821
================================ ======= ======== ======== ======== ========
Ratio of expenses to average net
assets(a) 0.64%(b)(c) 0.65% 0.70% 0.65% 0.78%
================================ ======= ======== ======== ======== ========
Ratio of net investment income
to average net assets(d) 0.50%(b) 0.80% 0.45% 1.00% 0.97%
================================ ======= ======== ======== ======== ========
Portfolio turnover rate 128% 159% 139% 136% 109%
================================ ======= ======== ======== ======== ========
Average broker commission rate
paid(e) $0.0618 $ 0.0615 N/A N/A N/A
================================ ======= ======== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) -- -- -- -- --
================================ ======= ======== ======== ======== ========
Average amount of debt
outstanding during the period
(000s omitted)(f) -- -- $ 6 -- --
================================ ======= ======== ======== ======== ========
Average number of shares
outstanding during the period
(000s omitted)(f) 3,146 2,908 2,526 2,256 1,826
================================ ======= ======== ======== ======== ========
Average amount of debt per share
during the period -- -- $ 0.0024 -- --
================================ ======= ======== ======== ======== ========
</TABLE>
(a) After waiver of advisory fees. Ratios of expenses to average net assets
prior to waiver of advisory fees were 0.68%, 0.68%, 0.72%, 0.68%, and 0.81%
for the periods 1997-1993, respectively.
(b) Ratios are based on average net assets of $66,222,553.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have remained the same.
(d) Ratios of net investment income to average net assets prior to waiver of
advisory fees were 0.46%, 0.77%, 0.43%, 0.98%, and 0.94%, for the periods
1997-1993, respectively.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
(f) Averages computed on a daily basis.
54
W E I N G A R T E N
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Weingarten Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Weingarten Fund (a portfolio of AIM
Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1997, the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended, and financial
highlights for each of the years or periods in the
five-year period then ended. These financial statements
and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an
opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1997, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM
Weingarten Fund as of October 31, 1997, the results of
its operations for the year then ended, the changes in
its net assets for each of the years in the two-year
period then ended, and the financial highlights for each
of the years or periods in the five-year period then
ended.
KPMG Peat Marwick LLP
Houston, Texas
December 5, 1997
55
W E I N G A R T E N
<PAGE> 58
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Weingarten Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital
Management, Inc.
(4) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(5) To approve the elimination of the fundamental investment policy prohibiting
or restricting the Fund's investments in puts, calls, straddles and spreads.
(6) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes Withhold/
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 N/A 19,923,485
Bruce L. Crockett........................................... 619,427,685 N/A 19,307,045
Owen Daly II................................................ 618,919,919 N/A 19,814,811
Carl Frischling............................................. 619,275,356 N/A 19,459,374
Robert H. Graham............................................ 619,431,576 N/A 19,303,154
John F. Kroeger............................................. 618,878,096 N/A 19,856,634
Lewis F. Pennock............................................ 619,272,998 N/A 19,461,732
Ian W. Robinson............................................. 618,944,840 N/A 19,789,890
Louis S. Sklar.............................................. 619,462,714 N/A 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 146,733,416 2,498,355 6,552,908
(3) Approval of Sub-Advisory Agreement.......................... 146,153,496 2,885,840 6,745,343
(4) Elimination of Fundamental Investment Policy Concerning
Investments in Other Investment Companies................... 111,841,005 5,168,602 6,908,560
(5) Elimination of Fundamental Investment Policy Concerning
Puts, Calls, Straddles and Spreads.......................... 110,091,179 6,531,415 7,295,571
(6) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
56
W E I N G A R T E N
<PAGE> 59
Directors & Officers
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Bruce L. Crockett Robert H. Graham
Director President INVESTMENT ADVISOR
ACE Limited; A I M Advisors, Inc.
Formerly Director, President, and John J. Arthur 11 Greenway Plaza
Chief Executive Officer Senior Vice President and Treasurer Suite 100
COMSAT Corporation Houston, TX 77046
Gary T. Crum
Owen Daly II Senior Vice President TRANSFER AGENT
Director A I M Institutional Fund
Cortland Trust Inc. Carol F. Relihan Services, Inc.
Senior Vice President and Secretary 11 Greenway Plaza
Jack Fields Suite 100
Formerly Member of the Jonathan C. Schoolar Houston, TX 77046
U.S. House of Representatives Senior Vice President
CUSTODIAN
Carl Frischling Melville B. Cox State Street Bank & Trust Company
Partner Vice President 225 Franklin Street
Kramer, Levin, Naftalis & Frankel Boston, MA 02110
Dana R. Sutton
Robert H. Graham Vice President and Assistant Treasurer COUNSEL TO THE FUND
President and Chief Executive Officer Ballard Spahr
A I M Management Group Inc. P. Michelle Grace Andrews & Ingersoll
Assistant Secretary 1735 Market Street
John F. Kroeger Philadelphia, PA 19103
Formerly Consultant Nancy L. Martin
Wendell & Stockel Associates, Inc. Assistant Secretary COUNSEL TO THE DIRECTORS
Kramer, Levin, Naftalis & Frankel
Lewis F. Pennock Ofelia M. Mayo 919 Third Avenue
Attorney Assistant Secretary New York, NY 10022
Ian W. Robinson Kathleen J. Pflueger DISTRIBUTOR
Consultant; Formerly Executive Vice President Assistant Secretary Fund Management Company
and Chief Financial Officer 11 Greenway Plaza
Bell Atlantic Management Samuel D. Sirko Suite 100
Services, Inc. Assistant Secretary Houston, TX 77046
Louis S. Sklar Stephen I. Winer AUDITORS
Executive Vice President Assistant Secretary KPMG Peat Marwick LLP
Hines Interests 700 Louisiana
Limited Partnership Mary J. Benson Houston, TX 77002
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Weingarten Fund Insitutional Class paid ordinary dividends in the amount of
$0.699 per share during the Fund's tax year ended October 31, 1997. Of this
amount 27.79% is eligible for the dividends received deduction for corporations.
The Fund also distributed long-term capital gains of $1.686 per share during the
Fund's tax year ended October 31, 1997.
REQUIRED STATE INCOME TAX INFORMATION
Of the total ordinary dividends paid, 5.29% was derived from U.S. Treasury
obligations.
<PAGE> 60
[AIM LOGO APPEARS HERE]
Fund Management Company
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1188
