<PAGE> 1
AIM EQUITY
FUNDS, INC.
Prospectus
- --------------------------------------------------------------------------------
INSTITUTIONAL AIM CHARTER FUND, AIM WEINGARTEN FUND and AIM
CLASSES CONSTELLATION FUND (collectively, the "Funds") are
three investment portfolios comprising series of AIM Equity
Funds, Inc. (the "Company"), an open-end, series, management
investment company. Each Fund offers different classes of
shares. The Company also offers shares of other investment
portfolios, AIM Aggressive Growth Fund ("Aggressive
Growth"), AIM Blue Chip Fund ("Blue Chip") and AIM Capital
Development Fund ("Capital Development"). Shares of
Aggressive Growth, Blue Chip, Capital Development and
other classes of the Funds are sold pursuant to separate
prospectuses. This Prospectus relates solely to the
Institutional Classes of the Funds.
AIM CHARTER AIM CHARTER FUND is a diversified portfolio which seeks to
FUND provide growth of capital, with current income as a
secondary objective. To accomplish its objectives, the Fund
invests primarily in dividend-paying common stocks which
have prospects for both growth of capital and dividend
income.
AIM WEINGARTEN AIM WEINGARTEN FUND is a diversified portfolio which seeks
FUND to provide growth of capital through investments primarily
in common stocks of leading U.S. companies considered by
management to have strong earnings momentum.
AIM CONSTELLATION AIM CONSTELLATION FUND is a diversified portfolio which
FUND seeks to provide capital appreciation through
investments in common stocks, with emphasis on medium-sized
and smaller emerging growth companies.
FEBRUARY 27, 1998 Shares of the Institutional Classes of the Funds are
offered exclusively to clients of banks and other financial
institutions. All shares of common stock of the
Institutional Classes of the Funds are sold and redeemed
without any purchase or redemption charges imposed by the
Funds. Banks and other financial institutions may charge a
recordkeeping, account maintenance or other fee to their
customers. Fund Management Company is the distributor of the
shares of common stock of the Institutional Classes of the
Funds.
This Prospectus sets forth concisely the information about
the Funds that prospective investors should know before
investing. It should be read and retained for future
reference. A Statement of Additional Information, dated
February 27, 1998, has been filed with the United States
Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. The Statement of
Additional Information is available without charge upon
written request to the Company at the address shown below or
by calling (800) 347-4246. The SEC maintains a Web site at
http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other
information regarding the Funds.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUNDS' SHARES
ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE
FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[LOGO APPEARS HERE]
Fund Management Company
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
(800) 659-1005
<PAGE> 2
SUMMARY
THE FUNDS AND THEIR INVESTMENT OBJECTIVES
AIM Equity Funds, Inc. (the "Company") is a Maryland corporation organized as
an open-end, diversified, series, management investment company. Currently, the
Company offers six series comprising six separate investment portfolios, three
of which are offered pursuant to this Prospectus: AIM Charter Fund ("Charter"),
AIM Weingarten Fund ("Weingarten") and AIM Constellation Fund ("Constellation")
(collectively, the "Funds"), each of which pursues unique investment objectives.
The investment objectives of Charter are to seek growth of capital with current
income as a secondary objective. To accomplish its objectives, Charter invests a
substantial portion of its assets in dividend-paying common stocks. The
investment objective of Weingarten is to provide growth of capital through
investments primarily in common stocks of leading U.S. companies considered by
management to have strong earnings momentum. The investment objective of
Constellation is to seek capital appreciation primarily through investments in
common stocks with emphasis on medium-sized and smaller emerging growth
companies. There is no assurance that the investment objective of any of the
Funds will be achieved. For more complete information on each Funds' investment
policies, see "Investment Programs."
Each Fund offers different classes of shares, designed to meet the needs of
different categories of investors. The Institutional Classes are offered
exclusively to clients of banks and other institutions. This Prospectus relates
only to the Institutional Classes of the Funds. The Company offers the other
Classes of the Funds pursuant to separate prospectuses. The other classes of
shares of the Funds have different sales charges and expenses which affect
performance. For more information about the other classes of the Funds call
(713) 626-1919, Extension 5001 (in Houston) or (800) 347-4246 (elsewhere). See
"General Information."
The assets of each Fund are invested in a separate portfolio. The classes of
shares of each Fund share a common investment objective and portfolio of
investments. The income from the investment portfolio of a Fund is allocated to
each class of the Fund based on the net assets of such class as of the close of
business on the previous business day, as adjusted for current day's shareholder
activity. Each class bears proportionately those expenses, such as the advisory
fee, that are allocated to the Fund as a whole and bears separately certain
expenses, such as those associated with the distribution of their shares.
Consequently, the amounts available for payment of dividends and the net asset
value per share of each class will vary. See "General Information."
INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM") serves as each Fund's investment advisor pursuant
to a Master Investment Advisory Agreement (the "Master Advisory Agreement").
AIM, together with its affiliates, advises or manages over 50 investment company
portfolios encompassing a broad range of investment objectives. Under the Master
Advisory Agreement dated February 28, 1997, AIM receives a fee for its services
based on each Fund's average daily net assets. Under the Master Administrative
Services Agreement (the "Master Administrative Services Agreement") dated
February 28, 1997, between the Company and AIM, AIM may receive reimbursement of
its costs to perform certain accounting, shareholder servicing and other
administrative services to the Funds. Under a Transfer Agency and Service
Agreement, A I M Fund Services, Inc. ("Transfer Agent" or "AFS"), AIM's wholly
owned subsidiary and a registered transfer agent, receives a fee for its
provision of transfer agency, dividend distribution and disbursement, and
shareholder services to the Institutional Classes of the Funds. Under the Master
Sub-Advisory Agreement (the "Master Sub-Advisory Agreement") dated as of
February 28, 1997, between AIM and A I M Capital Management, Inc. ("AIM
Capital"), AIM Capital, a wholly owned subsidiary of AIM, serves as sub-advisor
to the Funds and receives compensation equal to 50% of the amount paid by the
Funds to AIM. The total advisory fees paid by the Funds are higher than those
paid by many other investment companies of all sizes and investment objectives.
However, the effective fee paid by the Funds at their respective current size is
lower than the fees paid by many other funds with similar investment objectives.
See "Management."
INVESTORS IN THE FUNDS
The Institutional Classes of the Funds are designed to be convenient and
economical vehicles in which institutions, particularly banks, acting for
themselves or in a fiduciary or other similar capacity, can invest in a
portfolio of equity securities. See "Suitability for Investors."
SHARE PURCHASE
Shares of the Institutional Class of each Fund are offered by this Prospectus
at their respective net asset value without a sales charge. The minimum initial
investment in any of the Funds is $100,000. There is no minimum amount for
subsequent investments. See "Purchase of Shares."
2
<PAGE> 3
SHARE REDEMPTION
Redemptions may be made at any time without charge at net asset value.
Redemption orders received prior to 4:00 p.m. Eastern time will be confirmed at
the price next determined as of that day. See "Redemption of Shares."
DISTRIBUTIONS
The Funds currently declare and pay dividends from net investment income, if
any, on a quarterly basis with respect to Charter and on an annual basis with
respect to Weingarten and Constellation. Each Fund makes distributions of
realized capital gains, if any, on an annual basis. See "Dividends and
Distributions."
DISTRIBUTOR
Fund Management Company ("FMC") acts as the exclusive distributor of the
shares of the Institutional Classes of the Funds. FMC does not receive any fee
from the Funds. See "Management."
THE AIM FAMILY OF FUNDS, THE AIM FAMILY OF FUNDS AND DESIGN (I.E., THE AIM
LOGO), AIM AND DESIGN, AIM, AIM LINK, AIM INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA
FAMILIA AIM DE FONDOS AND LA FAMILIA AIM DE FONDOS AND DESIGN ARE REGISTERED
SERVICE MARKS AND INVEST WITH DISCIPLINE AND AIM BANK CONNECTION ARE SERVICE
MARKS OF A I M MANAGEMENT GROUP INC.
3
<PAGE> 4
TABLE OF FEES AND EXPENSES
The following table is designed to help an investor in the Institutional Class
of any of the Funds understand the various costs that an investor will bear,
both directly and indirectly. The fees and expenses of the Funds set forth in
the table are based on the average net assets of each Fund for its 1997 fiscal
year.
<TABLE>
<CAPTION>
CHARTER WEINGARTEN CONSTELLATION
------- ---------- -------------
<S> <C> <C> <C>
Shareholder Transaction Expenses (Institutional
Class)
Maximum sales load imposed on purchase of shares
(as a percentage of offering price)............ None None None
Maximum sales load imposed on reinvested dividends
and distributions.............................. None None None
Deferred sales load............................... None None None
Redemption fees................................... None None None
Exchange fee...................................... None None None
Annual Fund Operating Expenses (Institutional Class)
(as a percentage of average net assets)
Management fee (after fee waiver)................. .62% .60% .61%
Distribution fees................................. None None None
Other expenses.................................... .05% .04% .04%
---- ---- ----
Total fund operating expenses..................... .67% .64% .65%
==== ==== ====
</TABLE>
Charter's, Weingarten's and Constellation's investment advisor is currently
waiving a portion of its fees. Had there been no fee waivers during the year,
management fees would have been 0.63%, 0.63% and 0.63%, and total expenses would
have been 0.68%, 0.68% and 0.67%, of average net assets. There can be no
assurance that any future waivers of fees (if any) will not vary from the
figures reflected in the fee table. Beneficial owners of shares of the Funds
should also consider the effect of any charges imposed by the institution
maintaining their accounts.
EXAMPLE
An investor in each of the Funds would pay the following expenses on a $1,000
investment, assuming (a) a 5% annual return and (b) redemption at the end of
each time period:
<TABLE>
<CAPTION>
CHARTER WEINGARTEN CONSTELLATION
------- ---------- -------------
<S> <C> <C> <C>
1 year........................................... $ 7 $ 7 $ 7
3 years.......................................... $21 $20 $21
5 years.......................................... $37 $36 $36
10 years.......................................... $83 $80 $81
</TABLE>
THE EXAMPLES SHOWN IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE PERFORMANCE AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN. IN ADDITION, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, A FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
THAT IS GREATER OR LESS THAN 5%. THE EXAMPLES ASSUME REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AND THAT THE PERCENTAGE AMOUNTS FOR TOTAL FUND
OPERATING EXPENSES REMAIN THE SAME FOR EACH YEAR.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
Shown below are the per share data, ratios and supplemental data
(collectively, "data") for the fiscal years ended October 31, 1997, 1996, 1995,
1994, 1993, 1992 and the period July 30, 1991 (date operations commenced)
through October 31, 1991 for the Institutional Class of Charter, for the fiscal
years ended October 31, 1997, 1996, 1995, 1994, 1993, 1992 and the period
October 8, 1991 (date operations commenced) through October 31, 1991 for the
Institutional Class of Weingarten and for the fiscal years ended October 31,
1997, 1996, 1995, 1994, 1993 and the period April 8, 1992 (date operations
commenced) through October 31, 1992 for the Institutional Class of
Constellation. The data with respect to the Institutional Class of Charter for
the fiscal years ended October 31, 1997, 1996, 1995 and 1994 has been audited by
KPMG Peat Marwick LLP, independent auditors, whose unqualified report thereon
appears in the Statement of Additional Information and is available upon
request. The data with respect to the Institutional Class of Charter for the
periods prior to the October 31, 1994 fiscal year has been audited by Tait,
Weller & Baker, independent auditors. The data with respect to the Institutional
Classes of Weingarten and Constellation have been audited by KPMG Peat Marwick
LLP, independent auditors, whose unqualified report thereon appears in the
Statement of Additional Information and is available upon request.
(PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
AIM CHARTER FUND
<TABLE>
<CAPTION>
JULY 30, 1991
YEAR ENDED OCTOBER 31, THROUGH
----------------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 11.24 $ 10.66 $ 8.93 $ 9.48 $ 8.38 $ 8.42 $7.92
Income from investment operations:
Net investment income........... 0.16 0.24 0.23 0.25 0.19 0.20 0.05
Net gains (losses) on securities
(both realized and
unrealized)................... 2.91 1.44 2.07 (0.44) 1.23 0.16 0.45
------- ------- ------- ------- ------- ------ -----
Total from investment
operations.................... 3.07 1.68 2.30 (0.19) 1.42 0.36 0.50
------- ------- ------- ------- ------- ------ -----
Less distributions:
Dividends from net investment
income........................ (0.16) (0.20) (0.24) (0.20) (0.32) (0.17) --
Distributions from net realized
gains......................... (0.67) (0.90) (0.33) (0.16) -- (0.23) --
------- ------- ------- ------- ------- ------ -----
Total distributions............. (0.83) (1.10) (0.57) (0.36) (0.32) (0.40) --
------- ------- ------- ------- ------- ------ -----
Net asset value, end of period.... $ 13.48 $ 11.24 $ 10.66 $ 8.93 $ 9.48 $ 8.38 $8.42
======= ======= ======= ======= ======= ====== =====
Total return(a)................... 29.05% 17.29% 27.45% (2.02)% 17.39% 4.53% 6.31%
======= ======= ======= ======= ======= ====== =====
Ratios/supplemental data:
Net assets, end of period (000s
omitted)...................... $40,191 $29,591 $25,538 $21,840 $24,196 $7,800 $ 775
======= ======= ======= ======= ======= ====== =====
Ratio of expenses to average net
assets(b)..................... 0.67%(c)(d) 0.69% 0.74% 0.73% 0.79% 0.87% 1.00%(e)
======= ======= ======= ======= ======= ====== =====
Ratio of net investment income
to average net assets......... 1.21%(c) 2.24% 1.98% 2.76% 2.26% 2.44% 2.43%(e)
======= ======= ======= ======= ======= ====== =====
Portfolio turnover rate......... 170% 164% 161% 126% 144% 95% 144%
======= ======= ======= ======= ======= ====== =====
Average broker commission
rate(f)....................... $0.0615 $0.0638 NA NA NA NA NA
======= ======= ======= ======= ======= ====== =====
</TABLE>
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(a) For periods less than one year, total returns are not annualized.
(b) After reduction of advisory fees. 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.
(c) Ratios are based on average net assets of $35,307,526.
(d) Ratios include indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have remained the same.
(e) Annualized.
(f) 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.
5
<PAGE> 6
AIM WEINGARTEN FUND
<TABLE>
<CAPTION>
OCTOBER 8, 1991
YEAR ENDED OCTOBER 31, THROUGH
----------------------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 20.46 $ 20.48 $ 17.94 $ 17.69 $ 16.73 $ 15.77 $15.15
Income from investment
operations:
Net investment income........ 0.08 0.17 0.10 0.17 0.16 0.14 0.01
Net gains (losses) on
securities (both realized
and unrealized)............ 4.90 2.52 4.35 0.58 0.93 0.99 0.61
------- ------- ------- ------- ------- ------- ------
Total from investment
operations................. 4.98 2.69 4.45 0.75 1.09 1.13 0.62
------- ------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net investment
income..................... (0.15) -- (0.13) (0.17) (0.13) (0.08) --
Distributions from net
realized gains............. (2.24) (2.71) (1.78) (0.33) -- (0.09) --
------- ------- ------- ------- ------- ------- ------
Total distributions.......... (2.39) (2.71) (1.91) (0.50) (0.13) (0.17) --
------- ------- ------- ------- ------- ------- ------
Net asset value, end of
period....................... $ 23.05 $ 20.46 $ 20.48 $ 17.94 $ 17.69 $ 16.73 $15.77
======= ======= ======= ======= ======= ======= ======
Total return(a)................ 27.37% 15.34% 28.69% 4.37% 6.53% 7.16% 4.09%
======= ======= ======= ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)............. $62,124 $60,483 $54,332 $40,486 $39,821 $16,519 $3,926
======= ======= ======= ======= ======= ======= ======
Ratio of expenses to average
net assets(b).............. 0.64%(c)(d) 0.65% 0.70% 0.65% 0.78% 0.82% 0.90%(e)
======= ======= ======= ======= ======= ======= ======
Ratio of net investment
income to average net
assets(f).................. 0.50%(c) 0.80% 0.45% 1.00% 0.97% 0.91% 1.00%(e)
======= ======= ======= ======= ======= ======= ======
Portfolio turnover rate...... 128% 159% 139% 136% 109% 37% 46%
======= ======= ======= ======= ======= ======= ======
Average broker commission
rate(g).................... $0.0618 $0.0615 N/A N/A N/A N/A N/A
======= ======= ======= ======= ======= ======= ======
Borrowings for the period:
Amount of debt outstanding at
end of period (000s
omitted)................... -- -- -- -- -- -- --
Average amount of debt
outstanding during the
period (000s omitted)(h)... -- -- $ 6 -- -- -- --
Average number of shares
outstanding during the
period (000s omitted)(h)... 3,146 2,908 2,526 2,256 1,826 707 249
Average amount of debt per
share during period........ -- -- $0.0024 -- -- -- --
</TABLE>
- ---------------
(a) For periods less than one year, total return is not annualized.
(b) 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 years 1997-1993, respectively.
(c) Ratios are based on average net assets of $66,222,553.
(d) Ratios include indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have remained the same.
(e) Annualized.
(f) After waiver of advisory fees. 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 years 1997-1993, respectively.
(g) 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.
(h) Averages computed on a daily basis.
6
<PAGE> 7
AIM CONSTELLATION FUND
<TABLE>
<CAPTION>
YEAR ENDED APRIL 8, 1992
OCTOBER 31, THROUGH
----------------------------------------------------- OCTOBER 31,
1997 1996 1995 1994 1993 1992
-------- -------- -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 26.01 $ 24.05 $ 18.49 $ 17.13 $ 13.27 $12.29
Income from investment
operations:
Net investment income
(loss)................... 0.02 0.04 0.02 0.03 -- (0.01)
Net gains (losses) on
securities (both realized
and unrealized).......... 4.86 2.67 6.06 1.33 3.86 0.99
-------- -------- -------- ------- ------- ------
Total from investment
operations............... 4.88 2.71 6.08 1.36 3.86 0.98
-------- -------- -------- ------- ------- ------
Less distributions:
Dividends from net
investment
income................... -- -- -- -- -- --
Distributions from net
realized gains........... (0.89) (0.75) (0.52) -- -- --
-------- -------- -------- ------- ------- ------
Total distributions......... (0.89) (0.75) (0.52) -- -- --
-------- -------- -------- ------- ------- ------
Net asset value, end of
period...................... $ 30.00 $ 26.01 $ 24.05 $ 18.49 $ 17.13 $13.27
======== ======== ======== ======= ======= ======
Total return(a)............... 19.42% 11.81% 34.09% 7.94% 29.09% 7.97%
======== ======== ======== ======= ======= ======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)........... $188,109 $293,035 $138,918 $39,847 $12,338 $3,087
======== ======== ======== ======= ======= ======
Ratio of expenses to average
net assets(b)............ 0.65%(c)(d) 0.66% 0.66% 0.69% 0.87% 0.91%(e)
======== ======== ======== ======= ======= ======
Ratio of net investment
income (loss) to average
net assets(f)............ 0.06%(d) 0.21% 0.18% 0.36% 0.04% (0.12)%(e)
======== ======== ======== ======= ======= ======
Portfolio turnover rate..... 67% 58% 45% 79% 70% 62%
======== ======== ======== ======= ======= ======
Average broker commission
rate(g).................. $ 0.0576 $ 0.0596 N/A N/A N/A N/A
======== ======== ======== ======= ======= ======
</TABLE>
- ---------------
(a) For periods less than one year, total return is not annualized.
(b) 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.
(c) Ratios are based on average net assets of $271,723,352.
(d) Ratios include indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have remained the same.
(e) Annualized.
(f) 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.
7
<PAGE> 8
SUITABILITY FOR INVESTORS
The Institutional Classes of the Funds are intended for use by institutions,
particularly banks, acting for themselves or in a fiduciary or similar capacity.
Shares of the Institutional Classes of the Funds are available for collective
and common trust funds of banks, banks investing for their own account and banks
investing for the account of a public entity (e.g., Taft-Hartley funds, states,
cities, or government agencies) which does not pay commissions or distribution
fees. Prospective investors should determine if an investment in the Funds is
consistent with the objectives of an account and with applicable state and
federal laws and regulations. FMC will review each application for purchase of
the Institutional Classes and reserves the right to reject any order to purchase
based upon a review of the suitability of the investor.
The Institutional Classes of the Funds are designed to be convenient and
economical vehicles in which institutions can invest in a portfolio of equity
securities. An investment in the Funds may relieve the institution of many of
the investment and administrative burdens encountered when investing in equity
securities directly. These include: selection and diversification of portfolio
investments; surveying the market for the best price at which to buy and sell;
valuation of portfolio securities; receipt, delivery and safekeeping of
securities; and portfolio recordkeeping. It is anticipated that most investors
will perform their own sub-accounting.
INVESTMENT PROGRAMS
Each of the Funds has its own investment objectives and investment program.
There can, of course, be no assurance that any Fund will in fact achieve its
objectives since all investments are inherently subject to market risks. The
Board of Directors of the Company reserves the right to change any of the
investment policies, strategies or practices of any of the Funds, as described
in this Prospectus and the Statement of Additional Information, without
shareholder approval, except in those instances where shareholder approval is
expressly required.
Each of the Funds may invest, for temporary or defensive purposes, in
investment grade (high quality) corporate bonds, commercial paper, U.S.
Government obligations or taxable municipal securities. In addition, a portion
of each Fund's assets may be held, from time to time, in cash, time deposits,
master notes, repurchase agreements or other debt securities, when such
positions are deemed advisable in light of economic or market conditions.
AIM CHARTER FUND
The primary investment objective of Charter is to seek growth of capital, with
current income as a secondary objective. Although the amount of Charter's
current income will vary from time to time, it is anticipated that the current
income realized by Charter will generally be greater than that realized by
mutual funds whose sole objective is growth of capital. Charter seeks to achieve
its objective by generally investing at least 65% of its net assets in stocks of
companies believed by management to have the potential for above average growth
in revenues and earnings. Charter generally will also invest at least 80% of its
net assets in securities which pay income to Charter.
AIM WEINGARTEN FUND
The investment objective of Weingarten is to seek growth of capital
principally through investment in common stocks of seasoned and better
capitalized companies. Current income will not be an important criterion of
investment selection, and any such income should be considered incidental. It is
anticipated that common stocks will be the principal form of investment by the
Fund. Weingarten's portfolio is primarily comprised of securities of two basic
categories of companies: (a) "core" companies, which Fund management considers
to have experienced above-average and consistent long-term growth in earnings
and to have excellent prospects for outstanding future growth, and (b) "earnings
acceleration" companies which Fund management believes are currently enjoying a
dramatic increase in profits. See "Investment Program and Restrictions" in the
Statement of Additional Information.
AIM CONSTELLATION FUND
The investment objective of Constellation is to seek capital appreciation.
Constellation aggressively seeks to increase shareholders' capital by investing
principally in common stocks, with emphasis on medium-sized and smaller emerging
growth companies. Management of the Fund will be particularly interested in
companies that are likely to benefit from new or innovative products, services
or processes that should enhance such companies' prospects for future growth in
earnings. As a result of this policy, the market prices of many of the
securities purchased and held by the Fund may fluctuate widely. Any income
received from securities held by the Fund will be incidental, and an investor
should not consider a purchase of shares of the Fund as equivalent to a complete
investment program. Constellation's portfolio is primarily comprised of
securities of two basic categories of companies: (a) "core" companies, which
Fund management considers to have experienced above-average and consis-
8
<PAGE> 9
tent long-term growth in earnings and to have excellent prospects for
outstanding future growth, and (b) "earnings acceleration" companies which Fund
management believes are currently enjoying a dramatic increase in profits. See
"Certain Investment Strategies and Policies" and "Investment Restrictions" below
and "Investment Program and Restrictions" in the Statement of Additional
Information.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
In pursuit of its objectives and policies, each of the Funds may employ one or
more of the following strategies in order to enhance investment results:
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase agreements.
A repurchase agreement is an instrument under which the Fund acquires ownership
of a debt security and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby determining the
yield during the Fund's holding period. With regard to repurchase transactions,
in the event of a bankruptcy or other default of a seller of a repurchase
agreement, a Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) a possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights. Repurchase
agreements are considered to be loans by the Portfolio under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Consistent with Charter's policy on borrowings,
Charter may invest in reverse repurchase agreements with banks, which involve
the sale of securities held by the Fund, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date. The Fund may employ
reverse repurchase agreements (i) for temporary emergency purposes, such as to
meet unanticipated net redemptions so as to avoid liquidating other portfolio
securities during unfavorable market conditions; (ii) to cover short-term cash
requirements resulting from the timing of trade settlements; or (iii) to take
advantage of market situations where the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. At the time it enters into a reverse repurchase
agreement, the Fund will segregate liquid securities having a dollar value equal
to the repurchase price. Reverse repurchase agreements are considered borrowings
by the Fund under the 1940 Act.
U.S. GOVERNMENT SECURITIES. Charter Fund may invest in U.S. Government
securities, including, but not limited to, U.S. Treasury obligations, such as
Treasury Bills (maturities of one year or less) or Treasury Notes (maturities of
less than three years). The market value of U.S. Government securities will
fluctuate with changes in interest rate levels. Thus, if interest rates increase
from the time the security was purchased, the market value of the security will
decrease. Conversely, if interest rates decrease, the market value of the
security will increase.
STOCK INDEX FUTURES CONTRACTS. Each of the Funds may purchase and sell stock
index futures contracts as a hedge against changes in market conditions. A stock
index futures contract is an agreement pursuant to which two parties agree to
take delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
Charter, Constellation and Weingarten will only enter into domestic stock index
futures. No physical delivery of the underlying stocks in the index is made.
Each of the Funds may purchase and sell futures contracts in order to hedge the
value of its portfolio against changes in market conditions. Generally, a Fund
may elect to close a position in a futures contract by taking an opposite
position which will operate to terminate the Fund's position in the futures
contract. See the Statement of Additional Information for a description of the
Funds' investments in futures contracts, including certain related risks. The
Funds may each purchase or sell futures contracts if, immediately thereafter,
the sum of the amount of margin deposits and premiums on open positions with
respect to futures contracts would not exceed 5% of the market value of a Fund's
total assets.
There are risks associated with investments in stock index futures contracts.
During certain market conditions, purchases and sales of futures contracts may
not completely offset a decline or rise in the value of a Fund's portfolio. In
the futures markets, it may not always be possible to execute a buy or sell
order at the desired price, or to close out an open position due to market
conditions, limits on open positions and/or daily price fluctuations. Changes in
the market value of a Fund's portfolio may differ substantially from the changes
anticipated by the Fund when hedged positions were established, and
unanticipated price movements in a futures contract may result in a loss
substantially greater than a Fund's initial investment in such contract.
Successful use of futures contracts is dependent upon AIM's ability to predict
correctly movements in the direction of the applicable markets. No assurance can
be given that AIM's judgment in this respect will be correct.
WRITING COVERED CALL OPTION CONTRACTS. Charter, Weingarten and Constellation
may write (sell) covered call options. The purpose of such transactions is to
hedge against changes in the market value of a Fund's portfolio securities
caused by fluctuating interest rates, fluctuating currency exchange rates and
changing market conditions, and to close out or offset existing positions in
such options or futures contracts as described below. None of the Funds will
engage in such transactions for speculative purposes.
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Charter, Constellation and Weingarten may each write (sell) call options, but
only if such options are covered and remain covered as long as the Fund is
obligated as a writer of the option (seller). A call option is "covered" if a
Fund owns the underlying security covered by the call. If a "covered" call
option expires unexercised, the writer realizes a gain in the amount of the
premium received. If the covered call option is exercised, the writer realizes
either a gain or loss from the sale or purchase of the underlying security with
the proceeds to the writer being increased by the amount of the premium. Prior
to its expiration, a call option may be closed out by means of a purchase of an
identical option. Any gain or loss from such transaction will depend on whether
the amount paid is more or less than the premium received for the option plus
related transaction costs.
Charter and Weingarten may also purchase puts. By purchasing a put option, a
Fund obtains the right (but not the obligation) to sell the option's underlying
security at a fixed strike price.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and a Fund's other investments and the risk that
there might not be a liquid secondary market for the option when the Fund seeks
to hedge against adverse market movements. In general, options whose strike
prices are close to their underlying securities' current values will have the
highest trading volume, while options whose strike prices are further away may
be less liquid. The liquidity of options may also be affected if options
exchanges impose trading halts, particularly when markets are volatile.
The investment policies of each of Charter, Weingarten and Constellation
permit the writing of call options on securities comprising no more than 25% of
the value of each Fund's net assets. Each Fund's policies with respect to the
writing of call options may be changed by the Company's Board of Directors,
without shareholder approval.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. Each Fund may
purchase securities on a "when-issued" basis, that is, delivery of and payment
for the securities is not fixed at the date of purchase, but is set after the
securities are issued (normally within forty-five days after the date of the
transaction). Each Fund also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed delivery securities are fixed at the time the buyer
enters into the commitment. A Fund will only make commitments to purchase
when-issued or delayed delivery securities with the intention of actually
acquiring such securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. For further information regarding
securities issued on a when-issued or delayed delivery basis see the caption
"Investment Program and Restrictions" in the Statement of Additional
Information.
ILLIQUID SECURITIES. None of the Funds will invest more than 15% of their net
assets in illiquid securities, including repurchase agreements with maturities
in excess of seven days.
RULE 144A SECURITIES. Each of the Funds may invest in securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). These securities are sometimes
referred to as private placements. Although securities which may be resold only
to "qualified institutional buyers" in accordance with the provisions of Rule
144A under the 1933 Act are unregistered securities, the Funds may each purchase
Rule 144A securities without regard to the limitation on investments in illiquid
securities described above under "Illiquid Securities," provided that a
determination is made that such securities have a readily available trading
market. AIM will determine the liquidity of Rule 144A securities under the
supervision of the Company's Board of Directors. The liquidity of Rule 144A
securities will be monitored by AIM and, if as a result of changed conditions,
it is determined that a Rule 144A security is no longer liquid, a Fund's
holdings of illiquid securities will be reviewed to determine what, if any,
action is required to assure that the Fund does not exceed its applicable
percentage limitation for investments in illiquid securities.
INVESTMENT IN UNSEASONED ISSUERS. Charter may purchase securities in
unseasoned issuers. Securities in such issuers may provide opportunities for
long term capital growth. Greater risks are associated with investments in
securities of unseasoned issuers than in the securities of more established
companies because unseasoned issuers have only a brief operating history and may
have more limited markets and financial resources.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each of the Funds may invest in
other investment companies to the extent permitted by the Investment Company Act
of 1940, and rules and regulations thereunder, and, if applicable, exemptive
orders granted by the SEC.
FOREIGN SECURITIES. To the extent consistent with their respective investment
objectives, each of the Funds may invest in foreign securities. It is not
anticipated that such foreign securities, which may be payable in foreign
currencies and traded abroad, will constitute more than 20% of the value of the
Funds' total assets. For purposes of calculating such limitation, American
Depositary Receipt ("ADRs"), European Depositary Receipts ("EDRs") and other
securities representing underlying securities of foreign issuers are treated as
foreign securities. To the extent a Fund invests in securities denominated in
foreign currencies, each Fund bears the risk of changes in the exchange rates
between U.S. currency and the foreign currency, as well as the availability and
status of foreign securities markets. These securities will be marketable equity
securities (including common and preferred stock, depositary receipts for stock
and fixed income or equity securities exchangeable for or convertible into
stock) of foreign companies which generally are listed on a recognized foreign
securities exchanges or traded in a foreign over-the-counter mar-
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ket. Each of the Funds may also invest in foreign securities listed on
recognized U.S. securities exchanges or traded in the U.S. over-the-counter
market. Such foreign securities may be issued by foreign companies located in
developing countries in various regions of the world. A "developing country" is
a country in the initial stages of its industrial cycle. As compared to
investment in the securities markets of developed countries, investment in the
securities markets of developing countries involves exposure to markets that may
have substantially less trading volume and greater price volatility, economic
structures that are less diverse and mature, and political systems that may be
less stable. For a discussion of the risks pertaining to investments in foreign
obligations, see "Risk Factors" below.
RISK FACTORS REGARDING FOREIGN SECURITIES. Investments by a Fund in foreign
securities, including Eurodollar, Yankee dollar and other foreign obligations,
may entail all of the risks set forth below. Investments by a Fund in ADRs may
entail certain political and economic risks and regulatory risks as set forth
below.
Currency Risk. The value of each Fund's foreign investments will be affected
by changes in currency exchange rates. The U.S. dollar value of a foreign
security decreases when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and increases when the value of
the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in which
the Funds may invest are not as developed as the United States economy and may
be subject to significantly different forces. Political or social instability,
expropriation or confiscatory taxation, and limitations on the removal of funds
or other assets could also adversely affect the value of each Fund's
investments.
Regulatory Risk. Foreign companies are not registered with the SEC and are
generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Funds may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the
Funds invest will have substantially less trading volume than the major United
States markets. As a result, the securities of some foreign companies may be
less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds
reinvested, whenever such action is deemed prudent from the viewpoint of a
Fund's investment objectives, regardless of the holding period of that security.
Each Fund's historical portfolio turnover rates are included in the Financial
Highlights tables above. A higher rate of portfolio turnover may result in
higher transaction costs, including brokerage commissions. Also, to the extent
that higher portfolio turnover results in a higher rate of net realized capital
gains to a Fund, the portion of the Fund's distributions constituting taxable
capital gains may increase. For a discussion of AIM's brokerage allocation
policies and practices, see "Portfolio Transactions and Brokerage" in the
Statement of Additional Information. In accordance with policies established by
the Board of Directors, AIM may take into account sales of shares of the Funds
and other funds advised by AIM in selecting broker-dealers to effect portfolio
transactions on behalf of the Funds.
The investment objectives and policies stated above are not fundamental
policies of the Funds and may be changed by the Board of Directors of the
Company without shareholder approval. Shareholders will be notified before any
material change in the investment policies stated above become effective.
INVESTMENT RESTRICTIONS
Each of the Funds has adopted a number of investment restrictions, including
the following:
BORROWING. Each of the Funds may borrow money to a limited extent from banks
(including the Funds' custodian bank) for temporary or emergency purposes.
Charter and Weingarten may each borrow amounts of up to 10% of their respective
total assets and may each pledge amounts of up to 20% of their respective total
assets to secure such borrowings. Currently, Charter, Weingarten and
Constellation each have a committed credit facility with Chemical Bank.
Constellation may borrow amounts to purchase or carry securities only if,
immediately after such borrowing, the value of its assets, including the amount
borrowed, less its liabilities, is equal to at least 300% of the amount
borrowed, plus all outstanding borrowings. In addition, the Fund has adopted a
non-fundamental policy stating that the Fund will not purchase additional
securities when any borrowings exceed 5% of the Fund's total assets.
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<PAGE> 12
In addition to the ability to borrow money for temporary or emergency
purposes, Constellation may, but has no current intention to, borrow money from
banks to purchase or carry securities. The amount of such borrowings is limited
by provisions of the Investment Company Act of 1940 (the "1940 Act"). Any
investment gains made by Constellation with the borrowed monies in excess of
interest paid by the Fund will cause the net asset value of the Fund's shares to
rise faster than would otherwise be the case. On the other hand, if the
investment performance of the additional securities purchased with the proceeds
of such borrowings fails to cover the interest paid on the money borrowed by the
Fund, the net asset value of the Fund will decrease faster than would otherwise
be the case. This speculative factor is known as "leveraging."
LENDING OF FUND SECURITIES. Each of the Funds may also lend its portfolio
securities in amounts up to 33-1/3% of the total assets of the respective Funds.
Such loans would involve risks of delay in receiving additional collateral in
the event the value of the collateral decreased below the value of the
securities loaned or of delay in recovering the securities loaned or even loss
of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by AIM to be
of good standing and only when, in AIM's judgment, the income to be earned from
the loans justifies the attendant risks.
The foregoing investment restrictions are matters of fundamental policy and
may not be changed without shareholder approval. For additional investment
restrictions applicable to the Funds, see the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Institutional Classes of the Funds are sold on a continuing
basis at their respective net asset values. Although no sales charge is imposed
in connection with the purchase of shares, banks or other financial institutions
may charge a recordkeeping, account maintenance or other fee to their customers,
and beneficial holders of shares of the Funds should consult with such
institutions to obtain a schedule of such fees. In order to maximize its income,
each Fund attempts to remain as fully invested as practicable. Accordingly, in
order to be accepted for execution, purchase orders must be submitted in proper
form and received prior to the close of the New York Stock Exchange, which is
generally 4:00 p.m. Eastern Time on a business day of the Funds, and such orders
will be confirmed at the net asset value determined as of the close of that day
("trade date"). A "business day of the Funds" means any day on which the New
York Stock Exchange is open for trading. It is expected that the New York Stock
Exchange will be closed during the next twelve months on Saturdays and Sundays
and on the days on which New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day are observed by the New York Stock Exchange.
Payments for shares purchased must be in the form of federal funds or other
funds immediately available to the Funds and must be made on the "settlement
date," which shall be the next business day of the Funds following the trade
date. Federal Reserve wires should be sent as early as possible on the
settlement date in order to facilitate crediting to the shareholder's account.
Any funds received in respect of an order which is not accepted by a Fund and
any funds received for which an order has not been received will be returned to
the sending institution. An order to purchase shares must specify which Fund is
being purchased, otherwise any funds received will be returned to the sending
institution.
The minimum initial investment in any of the Funds is $100,000. Institutions
may be requested to maintain separate Master Accounts in each Fund for shares
held by the institution (a) for its own account, for the account of other
institutions and for accounts for which the institution acts as a fiduciary, and
(b) for accounts for which the institution acts in some other capacity. An
institution's Master Account(s) and sub-accounts with a Fund may be aggregated
for the purpose of the minimum investment requirement. No minimum amount is
required for subsequent investments in a Fund nor are minimum balances required.
Prior to the initial purchase of shares, an Account Application must be
completed and sent to FMC at 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173. An Account Application may be obtained from FMC.
In the interest of economy and convenience, certificates representing shares
of the Funds will not be issued except upon written request to the applicable
Fund. Certificates (in full shares only) will be issued without charge and may
be redeposited at any time.
The Company, FMC and their agents reserve the right at any time (a) to
withdraw all or any part of the offering made by this Prospectus; (b) to reject
any purchase or exchange order or to cancel any purchase due to nonpayment of
the purchase price; (c) to increase, waive or lower the minimum investment
requirements; or (d) to modify any of the terms or conditions of purchases of
shares of a Fund.
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REDEMPTION OF SHARES
A shareholder may redeem any or all of its shares at the net asset value next
determined after receipt of the redemption request in proper form by the
applicable Fund. See "Determination of Net Asset Value." Redemption requests
with respect to shares for which certificates have not been issued are normally
made by calling FMC.
Payment for redeemed shares is normally made by Federal Reserve wire to the
commercial bank account designated in the shareholder's Account Application, but
may be remitted by check upon request by a shareholder. If a redemption request
is received prior to NYSE Close on a business day of such Fund, the redemption
will be effected at the net asset value determined as of the close of that day
(the "redemption date"). The proceeds of a redemption request will be wired on
the next business day following the redemption date.
Shareholders may request a redemption by telephone. The Transfer Agent and FMC
will not be liable for any loss, expense or cost arising out of any telephone
redemption request effected in accordance with the authorization set forth in
the account application if they reasonably believe such request to be genuine,
but may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), and mailings
of confirmation promptly after the transaction.
Payment for shares redeemed by mail and payment for telephone redemptions in
amounts under $1,000 may, at the option of a Fund, be made by check mailed
within seven days after receipt of the redemption request in proper form. A Fund
may make payment for telephone redemptions in excess of $1,000 by check when it
is considered to be in the Fund's best interest to do so.
A Fund's shares are not redeemable at the option of the Fund unless the Board
of Directors of the Fund determines in its sole discretion that failure to so
redeem may have materially adverse consequences to the shareholder of such Fund.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's current policy is to pay dividends from net investment income, if
any, on a quarterly basis with respect to Charter and on an annual basis with
respect to Weingarten and Constellation. In addition, each Fund's current policy
is to make distributions of any realized capital gains before the end of each
calendar year. In determining the amount of capital gains, if any, available for
distribution, net capital gains are offset against available net capital losses,
if any, carried forward from previous fiscal periods. All dividends and
distributions of a Fund are automatically reinvested on the payment date in full
and fractional shares of such Fund, calculated at their net asset value on the
ex-dividend date for the dividend or distribution, unless the shareholder has
elected, by written notice to FMC, to receive such distributions, or the
dividend portion thereof, in cash, or to invest such dividends and distributions
in shares of an Institutional Class of one of the other Funds offered pursuant
to this Prospectus. If a shareholder has redeemed or exchanged all of the shares
in his account between the record date and the payment date for a dividend or
distribution, such dividend or distribution is paid in cash regardless of
whether the shareholder has previously elected to reinvest such dividends or
distributions.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by written notice to FMC and are effective as to any
subsequent payment if such notice is received by FMC prior to the record date of
such payment. Any dividend and distribution election remains in effect until FMC
receives a revised written election by the shareholder.
Any dividend or distribution paid by a Fund has the effect of reducing the net
asset value per share on the ex-dividend date by the amount of the dividend or
distribution. Therefore, a dividend or distribution declared shortly after a
purchase of shares by an investor would represent, in substance, a return of
capital to the shareholder with respect to such shares even though it would be
subject to income taxes, as discussed below.
FEDERAL TAXES
Each Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under Sub-chapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As long as each Fund qualifies for this tax
treatment, it is not subject to federal income taxes on amounts distributed to
shareholders. Each Fund, for purposes of determining taxable income,
distribution requirements and other requirements of Subchapter M, is treated as
a separate corporation. Therefore, no Fund may offset its gains against another
Fund's losses and each Fund must individually comply with all of the provisions
of the Code which are applicable to its operations.
Because each Fund intends to distribute substantially all of its net
investment income and net realized capital gains to its respective shareholders,
it is not expected that the Funds will be required to pay any federal income
tax. Each Fund also intends to meet the distribution requirements of the Code to
avoid the imposition of a 4% excise tax. Nevertheless, shareholders normally are
subject to federal income taxes, and any applicable state and local income
taxes, on the dividends and distributions
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<PAGE> 14
received by them from a Fund whether in the form of cash or additional shares of
a Fund. Shareholders are notified annually of the federal tax status of
dividends and capital gains distributions. Dividends paid by a Fund (other than
long-term capital gain distributions) generally will qualify for the federal 70%
dividends received deduction for corporate shareholders to the extent of the
qualifying dividends received by the Fund from domestic corporations.
For each sale of a Funds' shares by a shareholder who is not an exempt payee,
the Fund or the securities dealer effecting the transaction is required to file
an information return with the IRS.
Distributions may be subject to treatment under foreign, state or local tax
laws which differs from the federal income tax consequences discussed herein.
Shareholders are advised to consult with their own tax advisers concerning the
application of state, local, or foreign taxes. Additional information about
taxes is set forth in the Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of the shares of the
Institutional Class of each of the Funds is determined as of 4:00 p.m. Eastern
Time on each business day of the Funds, as previously defined. In the event the
New York Stock Exchange closes early (i.e. before 4:00 p.m. Eastern Time) on a
particular day, the net asset value will be determined as of the close of the
New York Stock Exchange on such day. For purposes of determining net asset value
per share, futures and options contract closing prices which are available 15
minutes after the close of trading of the New York Stock Exchange will generally
be used. The net asset values per share of the Institutional Class and the
Retail Class of a Fund will differ because of different expenses attributable to
each class. The income or loss and the expenses common to both classes of a Fund
are allocated to each class on the basis of the net assets of each such class
calculated as of the close of business on the previous business day of the Fund,
as adjusted for current day's shareholder activity of each class. In addition to
certain expenses which are allocated to both classes of a Fund, certain
expenses, such as those related to the distribution of shares of a class, are
allocated only to the class to which such expenses relate. The net asset value
per share of a class is determined by subtracting the liabilities (e.g., the
expenses) allocated to the class from the assets allocated to the class and
dividing the results by the total number of shares outstanding of such class.
The determination of net asset value per share of each class is made in
accordance with generally accepted accounting principles. Among other items, a
Fund's liabilities include accrued expenses and dividends payable, and its total
assets include portfolio securities valued at their market value as well as
income accrued but not yet received. Securities for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the supervision of the Company's officers and in accordance with methods
which are specifically authorized by the Board of Directors of the Company.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which approximates market value.
PERFORMANCE
The performance of the Institutional Class of each Fund may be quoted in
advertising in terms of yield or total return. Performance information can be
obtained by calling the Company at (800) 659-1005. See the Statement of
Additional Information for further details concerning performance comparisons
used in advertisements by the Funds. Further information regarding each Fund's
performance is contained in that Fund's annual report to shareholders which is
available upon request and without charge.
The total return shows the overall change in value of a Fund's Institutional
Class, including changes in share price assuming all dividends and capital gain
distributions attributable to such Fund's Institutional Class are reinvested. A
cumulative total return reflects the performance of a Fund's Institutional Class
over a stated period of time. An average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative total return if the performance of a Fund's Institutional Class had
been constant over the entire period. Investors should recognize that average
annual returns are not the same as actual year-by-year results because they tend
to even out variations in the total returns. To illustrate the components of
overall performance, the Institutional Class of a Fund may separate its
cumulative and average annual returns into income results and capital gain or
loss.
From time to time and in its discretion, AIM may waive all or a portion of its
advisory fees and/or assume certain expenses of any Fund. Such a practice will
have the effect of increasing the Fund's yield and total return.
The performance of the Institutional Class of each Fund will vary from time to
time and past results are not necessarily indicative of future results. The
performance of the Institutional Class of a Fund is a function of its portfolio
management in selecting the type and quality of portfolio securities and is
affected by operating expenses of the Institutional Class and market conditions.
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REPORTS TO SHAREHOLDERS
The Company furnishes shareholders with semi-annual reports containing
information about the Company and its operations, including a list of the
investments held in the Funds and financial statements. The annual financial
statements of each Fund are audited by the Fund's independent auditors. A copy
of the current list of the investments of each Fund will be sent to shareholders
upon request.
Each shareholder will be provided with a written confirmation for each
transaction. Institutions establishing sub-accounts will receive a written
confirmation for each transaction in a sub-account. Duplicate confirmations may
be transmitted to the beneficial owner of the sub-account if requested by the
institution. The institution will receive a monthly statement setting forth, for
each sub-account, the share balance, income earned for the month, income earned
for the year to date and the total current value of the account.
MANAGEMENT
The overall management of the business and affairs of the Funds is vested with
the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company and persons or companies furnishing
services to a Fund, including the Master Advisory Agreement with AIM, the Master
Sub-Advisory Agreement between AIM and AIM Capital, the Master Administrative
Services Agreement with AIM, the Transfer Agency and Service Agreement with AFS,
the Funds' agreement with FMC as the distributor of the shares of its
Institutional Class, and the Funds' agreement with State Street Bank and Trust
Company serving as custodian to the Funds. The day-to-day operations of each
Fund are delegated to its officers and to AIM, subject always to the objectives
and policies of the Fund and to the general supervision of the Company's Board
of Directors. Information concerning the Board of Directors may be found in the
Statement of Additional Information. Certain directors and officers of the
Company are affiliated with AIM and A I M Management Group Inc. ("AIM
Management"), the parent corporation of AIM. AIM Management is a holding company
engaged in the financial services business and is an indirect wholly owned
subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent
investment management group engaged in institutional investment management and
retail mutual fund businesses in the United States, Europe and the Pacific
Region.
For a discussion of AIM Management and its subsidiaries' Year 2000 Compliance
Project, see "General Information -- Year 2000 Compliance Project."
INVESTMENT ADVISOR
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, serves as the
investment advisor to each Fund pursuant to the Master Advisory Agreement. AIM
was organized in 1976 and, through its affiliates, advises or manages over 50
investment company portfolios (including the Funds) encompassing a broad range
of investment objectives. AIM is a wholly owned subsidiary of AIM Management.
Under the terms of the Master Advisory Agreement, AIM supervises all aspects
of the Funds' operations and provides investment advisory services to the Funds.
The Master Advisory Agreement also provides that, upon the request of the
Company's Board of Directors, AIM may perform certain accounting, shareholder
servicing and other administrative services for each Fund which are not required
to be performed by AIM under the Master Advisory Agreement. For such services
AIM, pursuant to the Master Administrative Services Agreement between the
Company and AIM, is entitled to receive from each Fund reimbursement of its
costs or such reasonable compensation as may be approved by the Company's Board
of Directors. See "Summary -- Material Events." Currently, AIM is reimbursed for
the services of each Fund's principal financial officer and his staff, and any
expenses related to such services. Under the Transfer Agency and Service
Agreement between the Company and AFS, 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173, a wholly owned subsidiary of AIM and a registered transfer
agent, AFS receives a fee for its provision of transfer agency, dividend
distribution and disbursement, and shareholder services to the Institutional
Classes of the Funds. AIM obtains and evaluates economic, statistical and
financial information to formulate and implement investment programs for the
Funds. AIM will not be liable to the Funds or their shareholders except in the
case of AIM's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty; provided, however that AIM may be liable for certain breaches
of duty under the 1940 Act.
SUB-ADVISOR
AIM Capital, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, serves
as sub-advisor to each Fund pursuant to the Master Sub-Advisory Agreement
between AIM and AIM Capital. Under the terms of the Master Sub-Advisory
Agreement, AIM has appointed AIM Capital to provide certain investment advisory
services for each Fund, subject to overall supervision by AIM and
15
<PAGE> 16
the Company's Board of Directors. AIM Capital is a wholly owned subsidiary of
AIM. Certain of the directors and officers of AIM Capital are also executive
officers of the Company.
FEE WAIVERS
AIM may in its discretion from time to time agree to waive voluntarily all or
any portion of its advisory fee and/or assume certain expenses of any Fund but
will retain its ability to be reimbursed prior to the end of the fiscal year.
ADVISORY FEES
As compensation for its services AIM is paid an investment advisory fee, which
is calculated separately for each Fund. AIM received total advisory fees from
Charter, Weingarten and Constellation for the fiscal year ended October 31,
1997, which represented 0.62%, 0.60% and 0.61%, respectively, of each of such
Fund's average daily net assets. For the fiscal year ended October 31, 1997,
with respect to Charter, Constellation and Weingarten, AIM voluntarily waived
0.01%, 0.03% and 0.02%, respectively, of each such Fund's advisory fee. Had
there been no fee waivers during the year, advisory fees would have been 0.63%,
0.63% and 0.63%, respectively, of average daily net assets. AIM received
reimbursement of administrative services costs from Charter, Weingarten and
Constellation for the fiscal year ended October 31, 1997, which represented
0.003%, 0.003% and 0.002%, respectively, of each of such Fund's average daily
net assets. Total expenses of the Institutional Class of Charter, Weingarten and
Constellation for the fiscal year ended October 31, 1997, stated as a percentage
of average net assets were 0.67%, 0.64% and 0.65%, respectively. As compensation
for its services, AIM Capital receives a fee equal to 50% of the fees received
by AIM under the Master Advisory Agreement on behalf of the Funds.
DISTRIBUTOR
The Company has entered into a Master Distribution Agreement dated February
28, 1997, on behalf of the Institutional Class of each of the Funds (the "Master
Distribution Agreement") with FMC, a registered broker-dealer and a wholly owned
subsidiary of AIM, to act as the distributor of the shares of the Funds. The
address of FMC is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
Certain directors and officers of the Funds are affiliated with FMC. The Master
Distribution Agreement provides that FMC has the exclusive right to distribute
Institutional Shares of the Funds either directly or through other broker-
dealers. FMC receives no fee for its services as distributor. FMC is the
distributor of several of the mutual funds administered or advised by AIM.
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to dealers or banks who sell a minimum dollar amount of the shares
of the Funds during a specific period of time. In some instances, these
incentives may be offered only to certain dealers or institutions who have sold
or may sell significant amounts of shares. The total amount of such additional
bonus payments or other consideration shall not exceed 0.10% of the net asset
value of the shares of the Funds sold. Any such bonus or incentive programs will
not change the price paid by investors for the purchase of shares of the Funds
or the amount received as proceeds from such sales. Dealers or institutions may
not use sales of the shares of the Funds to qualify for any incentives to the
extent that such incentives may be prohibited by the laws of any jurisdiction.
PORTFOLIO MANAGERS
AIM uses a team approach and a disciplined investment process in providing
investment advisory services to all of its accounts, including the Funds. AIM's
investment staff consists of approximately 135 individuals. While individual
members of AIM's investment staff are assigned primary responsibility for the
day-to-day management of each of AIM's accounts, all accounts are reviewed on a
regular basis by AIM's Investment Policy Committee to ensure that they are being
invested in accordance with the account's and AIM's investment policies. The
individuals who are primarily responsible for the day-to-day management of the
Funds and their titles, if any, with AIM or its affiliates and the Fund, the
length of time they have been responsible for the management, and their years of
investment experience and prior experience (if they have been with AIM for less
than five years) are shown below.
Lanny H. Sachnowitz and Brant H. DeMuth and are primarily responsible for
day-to-day management of Charter. Mr. Sachnowitz is Vice President of AIM
Capital and has been responsible for the Fund since 1991. He has been associated
with AIM and/or its subsidiaries and has been an investment professional since
1987. Mr. DeMuth has been responsible for the Fund since 1998. He has been
associated with AIM and/or its subsidiaries since 1996 and has been an
investment professional since 1987. Prior to 1996, he served as a portfolio
manager for the Colorado Public Employee Retirement Association.
Jonathan C. Schoolar, Monika H. Degan and David P. Barnard are primarily
responsible for the day-to-day management of Weingarten. Mr. Schoolar is Senior
Vice President of AIM Capital, Vice President of AIM and Senior Vice President
of the Company and has been responsible for the Fund since 1987. He has been
associated with AIM and/or its subsidiaries since 1986 and
16
<PAGE> 17
has been an investment professional since 1983. Ms. Degan has been responsible
for the Fund since 1998. She has been associated with AIM and/or its
subsidiaries since 1995 and has been an investment professional since 1991.
Prior to 1995, Ms. Degan was a Senior Financial Analyst for Shell Oil Co.
Pension Trust. Mr. Barnard is Vice President of AIM Capital and has been
responsible for the Fund since 1986. He has been associated with AIM and/or its
subsidiaries since 1982 and has been an investment professional since 1974.
Robert M. Kippes, Kenneth A. Zschappel, Charles D. Scavone, and David P.
Barnard are primarily responsible for the day-to-day management of
Constellation. Mr. Kippes is Vice President of AIM Capital. He currently serves
as manager for Constellation and has been responsible for the Fund since 1993.
He has been associated with AIM and/or its subsidiaries since he began working
as an investment professional in 1989. Mr. Zschappel is Assistant Vice President
of AIM Capital and has been responsible for the Fund since 1996. He has been
associated with AIM and/or its subsidiaries since he began working as an
investment professional in 1990. Mr. Scavone is Vice President of AIM Capital
and has been responsible for the Fund since 1996. He has been associated with
AIM and/or its subsidiaries since 1996 and has been an investment professional
since 1991. Prior to 1996, he was Associate Portfolio Manager for Van Kampen
American Capital Asset Management, Inc. from 1994 to 1996. From 1991 to 1994, he
worked in the investments department at Texas Commerce Investment Management
Company, with his last position being Equity Research Analyst/Assistant
Portfolio Manager. Mr. Barnard is Vice President of AIM Capital and has been
responsible for the Fund since 1990. He has been associated with AIM and/or its
subsidiaries since 1982 and an investment professional since 1974.
GENERAL INFORMATION
ORGANIZATION OF THE COMPANY
The Company was organized in 1988 as a Maryland corporation, and is registered
with the Securities and Exchange Commission as a diversified, open-end, series,
management investment company. The Company consists of six separate operating
portfolios: Charter, Constellation and Weingarten, each of which has retail
classes of shares consisting of Class A, Class B and Class C shares and an
Institutional Class; Aggressive Growth, which has a Retail Class of Class A
shares and Blue Chip and Capital Development, each of which have retail classes
of shares consisting of Class A, Class B and Class C shares. The Company's
common stock is classified into nineteen different classes. Each class
represents an interest in one of six portfolios.
Each class of shares of the same Fund represent interests in that Fund's
assets and have identical voting, dividend, liquidation and other rights on the
same terms and conditions, except that each class of shares bears differing
class-specific expenses, such as those associated with the shareholder servicing
of their shares, is subject to differing sales loads, conversion features and
exchange privileges, and has exclusive voting rights on matters pertaining to
that class' distribution plan.
Except as specifically noted above, shareholders of each Fund are entitled to
one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the different classes of shares,
where applicable, of a Fund. However, on matters affecting one portfolio of the
Company or one class of shares, a separate vote of shareholders of that
portfolio or class is required. Shareholders of a portfolio or class are not
entitled to vote on any matter which does not affect that portfolio or class but
which requires a separate vote of another portfolio or class. An example of a
matter which would be voted on separately by shareholders of a portfolio is the
approval of an advisory agreement, and an example of a matter which would be
voted on separately by shareholders of a class of shares is approval of a
distribution plan. When issued, shares of each Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are fully
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights. Shares do not have cumulative voting
rights, which means that in situations in which shareholders elect directors,
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors of the Company, and the holders of less than 50% of
the shares voting for the election of directors will not be able to elect any
directors.
The holders of shares of the Institutional Class of each Fund are entitled to
such dividends payable out of the net assets allocable to such class as may be
declared by the Board of Directors of the Company. In the event of liquidation
or dissolution of the Company, the holders of shares of the Institutional Class
of a Fund will be entitled to receive pro rata, subject to the rights of
creditors, the net assets of the Fund allocable to the Institutional Class.
Fractional shares of each Fund have the same rights as full shares to the extent
of their proportionate interest.
Under Maryland law and the Company's By-Laws, the Company need not hold an
annual meeting of shareholders unless a meeting is required under the 1940 Act
to elect directors. Shareholders may remove directors from office, and a meeting
of shareholders may be called at the request of the holders of 10% or more of
the Company's outstanding shares. As of February 2, 1998, Commonwealth of
Massachusetts was the owner of record of 94.81% of the outstanding shares of the
Institutional Class of Charter. As long as Commonwealth of Massachusetts owns
over 25% of such shares, it may be presumed to be in "control" of the
Institutional Class of Charter, as defined in the 1940 Act. As of February 2,
1998, Commonwealth of Massachusetts was the owner of record of 87.17% of the
outstanding shares of the Institutional Class of Weingarten. As long as
Commonwealth of
17
<PAGE> 18
Massachusetts owns over 25% of such shares, it may be presumed to be in
"control" of the Institutional Class of Weingarten, as defined in the 1940 Act.
As of February 2, 1998, Commonwealth of Massachusetts was the owner of 29.27%
and Nationwide was the owner of 60.12% of the outstanding shares of the
Institutional Class of Constellation. As long as Commonwealth of Massachusetts
and Nationwide own over 25% of such shares, they may be presumed to be in
"control" of the Institutional Class of Constellation, as defined in the 1940
Act.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as custodian for the Funds' portfolio securities and
cash.
A I M Fund Services, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, a wholly owned subsidiary of AIM and a registered transfer agent,
acts as transfer agent and dividend paying agent for the Funds' Institutional
Classes.
LEGAL COUNSEL
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania, serves as counsel to the Company and passes upon the legality of
the shares offered pursuant to this Prospectus.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning their account should be directed to FMC at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or may be made by calling
(800) 659-1005.
YEAR 2000 COMPLIANCE PROJECT
In providing services to the AIM Funds, AIM Management and its subsidiaries
rely on both internal software systems as well as external software systems
provided by third parties. Many software systems in use today are unable to
distinguish between the year 2000 and the year 1900. This defect if not cured
will likely adversely affect the services that AIM Management, its subsidiaries
and other service providers provide the AIM Funds and their shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases, namely
(i) inventorying every software application in use at AIM Management and its
subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and phase (iii) has
commenced. The Project is scheduled to be completed during the fourth quarter of
1998. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm Year 2000 compliance
upon installation.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Funds prior to investing. A Statement of Additional Information has been
filed with the SEC and is available upon request and without charge by writing
or calling FMC. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration statement,
including items omitted from this Prospectus, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
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<PAGE> 19
<TABLE>
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======================================= =================================================
AIM EQUITY FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(800) 659-1005 February 2, 1998
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 AIM EQUITY FUNDS, INC.
(713) 626-1919 (INSTITUTIONAL CLASSES)
AIM CHARTER FUND
INVESTMENT SUB-ADVISOR AIM WEINGARTEN FUND
A I M CAPITAL MANAGEMENT, INC.
11 Greenway Plaza, Suite 100 AIM CONSTELLATION FUND
Houston, Texas 77046-1173
(713) 626-1919
DISTRIBUTOR
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(800) 659-1005
TRANSFER AGENT
A I M FUND SERVICES, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(800) 340-4246
AUDITORS
KPMG PEAT MARWICK LLP
700 Louisiana
Houston, Texas 77002
CUSTODIAN TABLE OF CONTENTS
STATE STREET BANK AND TRUST COMPANY PAGE
225 Franklin Street Summary..................................... 2
Boston, Massachusetts 02110 Table of Fees and Expenses.................. 4
Financial Highlights........................ 5
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY Suitability For Investors................... 8
INFORMATION OR TO MAKE ANY REPRESENTATIONS Investment Programs......................... 8
NOT CONTAINED IN THIS PROSPECTUS IN Purchase of Shares.......................... 12
CONNECTION WITH THE OFFERING MADE BY THIS Redemption of Shares........................ 13
PROSPECTUS, AND IF GIVEN OR MADE, SUCH Dividends and Distributions................. 13
INFORMATION OR REPRESENTATIONS MUST NOT BE Federal Taxes............................... 13
RELIED UPON AS HAVING BEEN AUTHORIZED BY Determination of Net Asset Value............ 14
THE FUNDS OR THE DISTRIBUTOR. THIS Performance................................. 14
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING Reports to Shareholders..................... 15
IN ANY JURISDICTION TO ANY PERSON TO WHOM Management.................................. 15
SUCH OFFERING MAY NOT LAWFULLY BE MADE. General Information......................... 17
========================================== ===============================================
</TABLE>
<PAGE> 20
STATEMENT OF
ADDITIONAL INFORMATION
INSTITUTIONAL CLASSES OF
AIM CHARTER FUND
AIM WEINGARTEN FUND
AIM CONSTELLATION FUND
(SERIES PORTFOLIOS OF
AIM EQUITY FUNDS, INC.)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 659-1005
-------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IT SHOULD BE READ IN CONJUNCTION WITH
A PROSPECTUS OF THE ABOVE-NAMED FUNDS,
A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE
FROM AUTHORIZED DEALERS OR BY WRITING
FUND MANAGEMENT COMPANY,
11 GREENWAY PLAZA, SUITE 100,
HOUSTON, TEXAS 77046-1173
OR BY CALLING (800) 659-1005
-------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 27, 1998
RELATING TO PROSPECTUS DATED FEBRUARY 27, 1998
<PAGE> 21
TABLE OF CONTENTS
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INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INFORMATION ABOUT THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company and its Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Remuneration of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
AIM Funds Retirement Plan for Eligible Directors/Trustees . . . . . . . . . . . . . . . . . . . . . . 7
Deferred Compensation Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Advisor, Sub-Advisor and Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PURCHASES AND REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Net Asset Value Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Suspension of Redemption Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Total Return Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Yield Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Historical Portfolio Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INVESTMENT PROGRAM AND RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Investment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Rule 144A Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Special Situations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Short Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Writing Covered Call Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Stock Index Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Risks as to Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Securities Issued on a When-Issued or Delayed Delivery Basis . . . . . . . . . . . . . . . . . . . . . . . . 26
Investment in Unseasoned Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
General Brokerage Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Allocation of Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 28(e) Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Transactions with Regular Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Brokerage Commissions Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Reinvestment of Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Qualification as a Regulated Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Determination of Taxable Income of a Regulated Investment Company . . . . . . . . . . . . . . . . . . . . . 33
Excise Tax on Regulated Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Fund Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Sale or Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Effect of Future Legislation; Local Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Description of Commercial Paper Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Description of Corporate Bond Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS
</TABLE>
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INTRODUCTION
AIM Equity Funds, Inc. (the "Company") is a series mutual fund. The
rules and regulations of the United States Securities and Exchange Commission
(the "SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the fund being considered for
investment. This information is included in a Prospectus dated February 27,
1998 (the "Prospectus"), which relates to the Institutional Classes of the
following portfolios of the Company: AIM Charter Fund ("Charter"), AIM
Weingarten Fund ("Weingarten") and AIM Constellation Fund ("Constellation")
(individually, a "Fund" and collectively, the "Funds"). Additional copies of
the Prospectus and this Statement of Additional Information may be obtained
without charge by writing the principal distributor of the Funds' shares, Fund
Management Company ("FMC"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173 or by calling (800) 659-1005. Investors must receive a Prospectus
before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some
of the information required to be in this Statement of Additional Information
is also included in the Prospectus; and, in order to avoid repetition,
reference will be made to sections of the Prospectus. Additionally, the
Prospectus and this Statement of Additional Information omits certain
information contained in a Registration Statement filed with the SEC. Copies
of the Registration Statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized in 1988 as a Maryland series corporation,
and is registered with the SEC as a diversified open-end series management
investment company. The Company consists of six separate portfolios: Charter,
Constellation and Weingarten, each of which has retail classes of shares
consisting of Class A, Class B and Class C shares and an Institutional Class;
AIM Aggressive Growth Fund ("Aggressive Growth"), which has a Retail Class of
Class A shares; and AIM Blue Chip Fund ("Blue Chip") and AIM Capital
Development Fund ("Capital Development"), each of which has retail classes of
shares consisting of Class A, Class B and Class C shares. Prior to October 15,
1993, Aggressive Growth was a portfolio of AIM Funds Group ("AFG"), a
Massachusetts business trust. Pursuant to an Agreement and Plan of
Reorganization between the Company and AFG, Aggressive Growth was
redomesticated as a portfolio of the Company effective as of October 15, 1993.
Blue Chip acquired the investment portfolio of Baird Blue Chip Fund, Inc. (the
"BBC Fund") a registered management investment company, on June 3, 1996, in a
corporate reorganization. Capital Development acquired substantially all of
the assets of Baird Capital Development Fund, Inc., a registered management
investment company, on August 12, 1996 in a corporate reorganization.
This Statement of Additional Information relates solely to the
Institutional Classes of the Funds.
The term "majority of the outstanding shares" of the Company, of a
particular Fund or of a particular class of a Fund means, respectively, the
vote of the lessor of (a) 67% or more of the shares of the Company, such Fund
or such class present at a meeting of the Company's shareholders, if the
holders of more than 50% of the outstanding shares of the Company, such Fund or
such class are present or represented by proxy, or (b) more than 50% of the
outstanding shares of the Company, such Fund or such class.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all
portfolios of the Company voting together for election of directors may elect
all of the members of the Board of Directors of the Company. In such event,
the remaining holders cannot elect any members of the Board of Directors of the
Company.
1
<PAGE> 24
Each class of shares of each Fund has equal rights and privileges.
Each share of a particular class is entitled to one vote, to participate
equally in dividends and distributions declared by the Board of Directors with
respect to that class and, upon liquidation of the Fund, to participate
proportionately in the net assets of the Fund allocable to that class remaining
after satisfaction of outstanding liabilities of the Fund allocable to that
Class. Fund shares are fully paid, non-assessable and fully transferable when
issued and have no preemptive, conversion or exchange rights. Fractional
shares have proportionately the same rights, including voting rights, as are
provided for a full share.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
indicated, the address of each director and officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173. All of the Company's executive officers hold
similar offices with some or all of the other AIM Funds.
<TABLE>
<CAPTION>
Positions Held
Name, Address and Age with Registrant Principal Occupation During Past 5 Years
--------------------- --------------- ----------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (78) Director and Chairman of the Board of Directors, A I M Management
Chairman Group Inc.; A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M Fund
Services, Inc., and Fund Management Company; and Vice
Chairman and Director, AMVESCAP PLC.
BRUCE L. CROCKETT (53) Director Director, ACE Limited (insurance company). Formerly,
906 Frome Lane Director, President and Chief Executive Officer,
McLean, VA 22102 COMSAT Corporation; and Chairman, Board of Governors
of INTELSAT (international communications company).
OWEN DALY II (73) Director Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental
Baltimore, MD 21210 Life Insurance Company and Monumental General
Insurance Company; and Chairman of the Board of
Equitable Bancorporation.
JACK FIELDS (45) Director Chief Executive Officer, Texana Global, Inc.
8810 Will Clayton Parkway (foreign trading company) Formerly, Member of
Jetero Plaza, Suite E the U.S. House of Representatives.
Humble, Texas 77398
</TABLE>
- ------------------------
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
2
<PAGE> 25
<TABLE>
<CAPTION>
Positions Held
Name, Address and Age with Registrant Principal Occupation During Past 5 Years
--------------------- --------------- ----------------------------------------
<S> <C> <C>
**CARL FRISCHLING (61) Director Partner, Kramer, Levin, Naftalis & Frankel (law firm).
919 Third Avenue Director, ERD Waste, Inc. (waste management company),
New York, NY 10022 Aegis Consumer Finance (auto leasing company) and
Lazard Funds, Inc. (investment companies). Formerly
Partner, Reid & Priest (law firm); and prior thereto,
Partner, Spengler Carlson Gubar Brodsky & Frischling
(law firm).
*ROBERT H. GRAHAM (51) Director and Director, President and Chief Executive Officer, A I M
President Management Group Inc.; Director and President, A I M
Advisors, Inc.; Director and Senior Vice President,
A I M Capital Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc., and Fund Management
Company; Director, AMVESCAP PLC; and Chairman of the
Board of Directors of AIM Funds Group Canada, Inc.
JOHN F. KROEGER (73) Director Director, Flag Investors International Fund, Inc.,
37 Pippins Way Flag Investors Emerging Growth Fund, Inc., Flag
Morristown, NJ 07960 Investors Telephone Income Fund, Inc., Flag Investors
Equity Partners Fund, Inc., Total Return U.S. Treasury
Fund, Inc., Flag Investors Intermediate Term Income
Fund, Inc., Managed Municipal Fund, Inc., Flag
Investors Value Builder Fund, Inc., Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc., Flag
Investors Real Estate Securities Fund, Inc., Alex.
Brown Cash Reserve Fund, Inc. and North American
Government Bond Fund, Inc. (investment companies).
Formerly, Consultant, Wendell & Stockel Associates,
Inc. (consulting firm).
LEWIS F. PENNOCK (55) Director Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
</TABLE>
- ------------------------
** A director who is an "interested person" of the Company as defined in
the 1940 Act.
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
3
<PAGE> 26
<TABLE>
<CAPTION>
Positions Held
Name, Address and Age with Registrant Principal Occupation During Past 5 Years
--------------------- --------------- ----------------------------------------
<S> <C> <C>
IAN W. ROBINSON (74) Director Formerly, Executive Vice President and Chief Financial
183 River Drive Officer, Bell Atlantic Management Services, Inc.
Tequesta, FL 33469 (provider of centralized management services to
telephone companies); Executive Vice President, Bell
Atlantic Corporation (parent of seven telephone
companies); and Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and
Diamond State Telephone Company.
LOUIS S. SKLAR (58) Director Executive Vice President, Development and Operations,
Transco Tower, 50th Floor Hines Interests Limited Partnership (real
2800 Post Oak Blvd. estate development).
Houston, TX 77056
***JOHN J. ARTHUR (53) Senior Vice Director, Senior Vice President and Treasurer, A I M
President and Advisors, Inc.; and Vice President and Treasurer,
Treasurer A I M Management Group Inc., A I M Capital Management,
Inc., A I M Distributors, Inc., A I M Fund Services,
Inc., and Fund Management Company.
GARY T. CRUM (50) Senior Vice Director and President, A I M Capital Management,
President Inc.; Director and Senior Vice President, A I M
Management Group Inc. and A I M Advisors, Inc.; and
Director, A I M Distributors, Inc. and AMVESCAP PLC.
***CAROL F. RELIHAN (43) Senior Vice Director, Senior Vice President, General Counsel and
President Secretary, A I M Advisors, Inc.; Vice President,
and Secretary General Counsel and Secretary, A I M Management Group
Inc.; Director, Vice President and General Counsel,
Fund Management Company; General Counsel and Vice
President, A I M Fund Services, Inc.; and Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc.
JONATHAN C. SCHOOLAR (36) Senior Vice Senior Vice President, A I M Capital Management Inc.;
President and Vice President, A I M Advisors, Inc.
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc., and
Fund Management Company.
DANA R. SUTTON (39) Vice President and Vice President and Fund Controller, A I M Advisors,
Assistant Treasurer Inc.; and Assistant Vice President and Assistant
Treasurer, Fund Management Company.
</TABLE>
- ------------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
4
<PAGE> 27
The standing committees of the Board of Directors are the Audit Committee,
the Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit
Committee is responsible for meeting with the Company's auditors to review
audit procedures and results and to consider any matters arising from an audit
to be brought to the attention of the directors as a whole with respect to the
Company's fund accounting or its internal accounting controls, and considering
such matters as may from time to time be set forth in a charter adopted by the
Board of Directors and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The
Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividends
and distributions issues, and considering such matters as may from time to time
be set forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not
interested persons as long as the Company maintains a distribution plan
pursuant to Rule 12b-1 under the 1940 Act, reviewing from time to time the
compensation payable to the disinterested directors, and considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such committee.
All of the Company's directors also serve as directors or trustees of some
or all of the other investment companies managed or advised by A I M Advisors,
Inc. ("AIM Funds"). All of the Company's executive officers hold similar
offices with some or all of the other AIM Funds.
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. Each director who
is not also an officer of the Company is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director or trustee of other AIM Funds. Each such director
receives a fee, allocated among the AIM Funds for which he serves as a director
or trustee, which consists of an annual retainer component and a meeting fee
component.
5
<PAGE> 28
Set forth below is information regarding compensation paid or accrued for
each director of the Company:
<TABLE>
<CAPTION>
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM BY ALL AIM FROM ALL
DIRECTOR COMPANY(1) FUNDS(2) AIM FUNDS(3)
-------- ------------ ---------- ------------
<S> <C> <C> <C>
CHARLES T. BAUER $ 0 $ 0 $ 0
BRUCE L. CROCKETT 21,879 67,774 84,000
OWEN DALY II 21,879 103,542 84,000
JACK FIELDS 14,595 0 71,000
CARL FRISCHLING 21,879 96,520 84,000(4)
ROBERT H. GRAHAM 0 0 0
JOHN F. KROEGER 21,879 94,132 82,500
LEWIS F. PENNOCK 21,879 55,777 84,000
IAN W. ROBINSON 21,879 85,912 84,000
LOUIS S. SKLAR 21,602 84,370 83,500
</TABLE>
- ------------------------
(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended October 31, 1997, including
interest earned thereon, was $94,952.
(2) During the fiscal year ended October 31, 1997, the total amount of
expenses allocated to the Company in respect of such retirement
benefits was $163,466. Data reflects compensation for the calendar
year ended December 31, 1997.
(3) Each Director serves as a director or trustee of a total of 11
registered Investment Companies advised by AIM (comprised of over 50
portfolios). Data reflects total compensation for the calendar year
ended December 31, 1997.
(4) See also page 8 regarding fees earned by Mr. Frischling's law firm.
6
<PAGE> 29
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any
of the AIM Funds, A I M Management Group Inc. or any of their affiliates) may
be entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the calendar
quarter coincident with or following his date of retirement equal to 75% of the
retainer paid or accrued by the Applicable AIM Funds for such director during
the twelve-month period immediately preceding the director's retirement
(including amounts deferred under a separate agreement between the AIM Funds
and the director) for the number of such director's years of service (not in
excess of ten (10) years of service) completed with respect to any of the AIM
Funds. Such benefit is payable to each eligible director in quarterly
installments. If an eligible director dies after attaining the normal
retirement date but before receipt of any benefits under the Plan commences,
the director's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased director, for no
more than ten (10) years beginning the first day of the calendar quarter
following the date of the director's death. Payments under the Plan are not
secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming a specified level of
compensation and years of service classifications. The estimated credited
years of service for Messrs. Crockett, Daly, Fields, Frischling, Kroeger,
Pennock, Robinson and Sklar are 10, 10, 0, 10, 19, 16, 10, and 8 years,
respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
NUMBER OF YEARS AIM ANNUAL
OF SERVICE WITH RETAINER PAID
THE AIM FUNDS BY ALL AIM FUNDS
--------------- ----------------
<S> <C>
$80,000
10 $60,000
9 $54,000
8 $48,000
7 $42,000
6 $36,000
5 $30,000
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the
7
<PAGE> 30
deferring directors may select various AIM Funds in which all or part of their
deferral account shall be deemed to be invested. Distributions from the
deferring directors' deferral accounts will be paid in cash, in generally equal
quarterly installments over a period of five (5) to ten (10) years (depending
on the Agreement) beginning on the date the deferring director's retirement
benefits commence under the Plan. The Company's Board of Directors, in its
sole discretion, may accelerate or extend the distribution of such deferral
accounts after the deferring director's termination of service as a director of
the Company. If a deferring director dies prior to the distribution of amounts
in his deferral account, the balance of the deferral account will be
distributed to his designated beneficiary in a single lump sum payment as soon
as practicable after such deferring director's death. The Agreements are not
funded and, with respect to the payments of amounts held in the deferral
accounts, the deferring directors have the status of unsecured creditors of the
Company and of each other AIM Fund from which they are deferring compensation.
The Company paid the law firm of Kramer, Levin, Naftalis & Frankel
$12,872, $15,778 and $34,413 in legal fees for services provided to Charter,
Weingarten and Constellation, respectively, during the fiscal year ended
October 31, 1997. Mr. Carl Frischling, a director of the Company, is a partner
in such firm.
INVESTMENT ADVISOR, SUB-ADVISOR AND ADMINISTRATOR
A I M Advisors, Inc. ("AIM") is a wholly owned subsidiary of A I M
Management Group Inc. ("AIM Management"), a holding company that has been
engaged in the financial services business since 1976. The address of AIM is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. AIM was organized in 1976
and, through its affiliates, manages or advises over 50 investment company
portfolios encompassing a broad range of investment objectives. AIM Management
is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire Square,
London EC2M 4YR, United Kingdom. AMVESCAP PLC and its subsidiaries are an
independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Certain of the directors and officers of AIM are also
executive officers of the Company and their affiliations are shown under
"Directors and Officers". AIM Capital Management, Inc. ("AIM Capital"), a
wholly owned subsidiary of AIM, is engaged in the business of providing
investment advisory services to investment companies, corporations,
institutions and other accounts.
AIM and the Company have adopted a Code of Ethics (the "Code") which
requires investment personnel and certain other employees (a) to pre-clear
personal securities transactions subject to the Code, (b) to file reports
regarding such transactions, (c) to refrain from personally engaging in (i)
short-term trading of a security, (ii) transactions involving a security within
seven (7) days of an AIM Fund transaction involving the same security, and
(iii) transactions involving securities being considered for investment by an
AIM Fund, and (d) abide by certain other provisions under the Code. The Code
also prohibits personnel and other employees from purchasing securities in an
initial public offering. Personal trading reports are reviewed periodically by
AIM, and the Board of Directors reviews quarterly and annual reports (including
information on any substantial violations of the Code). Violations of the Code
may result in sanctions which may include censure, monetary penalties,
suspension or termination of employment.
The Funds have entered into a Master Investment Advisory Agreement,
dated February 28, 1997, (the "Master Advisory Agreement") and a Master
Administrative Services Agreement, dated February 28, 1997, (the "Master
Administrative Services Agreement") with AIM, and AIM has entered into a Master
Sub-Advisory Agreement, dated as of February 28, 1997 (the "Master Sub-Advisory
Agreement"), with AIM Capital with respect to the Funds.
Both the Master Advisory Agreement and the Master Sub-Advisory
Agreement provide that each Fund will pay or cause to be paid all expenses of
such Fund not assumed by AIM or AIM Capital, including, without limitation:
brokerage commissions, taxes, legal, auditing or governmental fees, the cost of
preparing share certificates, custodian, transfer and shareholder service agent
costs, expenses of issue, sale, redemption and repurchase of shares, expenses
of registering and qualifying shares for sale, expenses relating to directors
and
8
<PAGE> 31
shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Company on
behalf of the Funds in connection with membership in investment company
organizations, the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders, and all other
charges and costs of the Funds' operations unless otherwise explicitly
provided.
The Master Advisory Agreement and the Master Sub-Advisory Agreement
each provide that if, for any fiscal year, the total of all ordinary business
expenses of any Fund, including all investment advisory fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses,
such as litigation, exceed the applicable expense limitations imposed by state
securities regulations in any state in which such Fund's shares are qualified
for sale, as such limitations may be raised or lowered from time to time, the
aggregate of all such investment advisory fees with respect to such Fund shall
be reduced by the amount of such excess. The amount of any such reduction to
be borne by AIM shall be deducted from the monthly investment advisory fees
otherwise payable to AIM with respect to such Fund during such fiscal year. If
required pursuant to such state securities regulations, AIM will reimburse the
Funds, no later than the last day of the first month of the next succeeding
fiscal year, for any such annual operating expenses (after reduction of all
investment advisory fees in excess of such limitation).
The Master Advisory Agreement and the Master Sub-Advisory Agreement
became effective on February 28, 1997 and will continue in effect until
February 28, 1999 and from year to year thereafter only if such continuance is
specifically approved at least annually by (i) the Company's Board of Directors
or the vote of a "majority of the outstanding voting securities" of the Funds
(as defined in the 1940 Act), and (ii) the affirmative vote of a majority of
the directors who are not parties to the agreements or "interested persons" of
any such party (the "Non-Interested Directors") by votes cast in person at a
meeting called for such purpose. The Master Advisory Agreement and the Master
Sub-Advisory Agreement provide that the Funds, AIM (in the case of the Master
Advisory Agreement) or AIM Capital (in the case of the Master Sub-Advisory
Agreement) may terminate such agreements on sixty (60) days' written notice
without penalty. Each agreement terminates automatically in the event of its
assignment.
AIM may from time to time waive or reduce its fee. Fee waivers or
reductions, other than those set forth in the Master Advisory Agreement, may be
rescinded, however, at any time without further notice to investors, provided,
however, that the discontinuance of each fee waiver described below will be
approved by the Board of Directors of AIM.
AIM has initiated a voluntary reduction of advisory fees for Charter,
Constellation and Weingarten at net asset levels higher than those currently
incorporated in the advisory fee schedule. Accordingly, with respect to each
of Charter and Constellation, AIM receives a fee calculated at an annual rate
of 1.0% of the first $30 million of such Fund's average daily net assets, plus
0.75% of such Fund's average daily net assets in excess of $30 million to and
including $150 million, plus 0.625% of such Fund's average daily net assets in
excess of $150 million. With respect to Weingarten, AIM's fee is calculated at
an annual rate of 1.0% of the first $30 million of the Fund's average daily net
assets, plus 0.75% of the Fund's average daily net assets in excess of $30
million up to and including $350 million, plus 0.625% of the Fund's average
daily net assets in excess of $350 million. As compensation for its services,
AIM Capital receives a fee from AIM equal to 50% of the fee received by AIM
from Charter, Weingarten and Constellation pursuant to the Master Advisory
Agreement.
9
<PAGE> 32
Each Fund paid to AIM the following advisory fees net of any fee
waivers for the years ended October 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Charter . . . . . . . . . . $24,725,606 $16,529,891 $10,890,335
Weingarten . . . . . . . . . 35,300,671 29,960,379 25,448,131
Constellation . . . . . . . 80,116,284 57,614,412 31,042,229
</TABLE>
For the fiscal years ended October 31, 1997, 1996 and 1995, AIM
waived advisory fees for each Fund as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Charter . . . . . . . . . . $ 498,463 $ 156,975 -0-
Weingarten . . . . . . . . . 2,187,021 1,458,804 $843,494
Constellation . . . . . . . 2,805,955 1,869,383 761,655
</TABLE>
AIM, in turn, paid the following sub-advisory fees to AIM Capital, as
sub-advisor for each Fund, for the years ended October 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Charter . . . . . . . . . . $12,362,803 $ 8,264,946 $ 5,445,168
Weingarten . . . . . . . . . 17,650,335 14,980,190 12,724,066
Constellation . . . . . . . . 40,058,142 28,807,206 15,521,115
</TABLE>
The Master Administrative Services Agreement provides that AIM may
perform or arrange for the performance of certain accounting and other
administrative services to each Fund which are not required to be performed by
AlM under the Master Advisory Agreement. For such services, AIM would be
entitled to receive from each Fund reimbursement of its costs or such
reasonable compensation as may be approved by the Company's Board of Directors.
The Master Administrative Services Agreement became effective on February 28,
1997 and will continue in effect until February 28, 1999 and from year to year
thereafter only if such continuance is specifically approved at least annually
by (i) the Company's Board of Directors or the vote of a "majority of the
outstanding voting securities" of the Funds (as defined in the 1940 Act), and
(ii) the affirmative vote of a majority of the Non-Interested Directors by
votes cast in person at a meeting called for such purpose.
The Funds paid AIM the following amounts as reimbursement of
administrative services costs for the years ended October 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Charter . . . . . . . . . . $127,908 $ 114,489 $ 109,054
Weingarten . . . . . . . . . 163,243 132,643 182,595
Constellation . . . . . . . 251,513 212,800 173,257
</TABLE>
In addition, a sub-contract dated September 16, 1994 between AIM and
A I M Institutional Fund Services, Inc. ("AIFS"), a registered transfer agent
and wholly owned subsidiary of AIM, provided that AIFS would perform certain
shareholder services for the Funds which are not required to be performed by
AIM under the Master Advisory Agreement. For such services, AIFS was entitled
to receive from AIM such reimbursement of its costs associated with providing
those services. For the eight month period ended June 30, 1995 (date the
sub-contract was terminated), AIFS received shareholder services fees from AIM
with respect to Charter, Weingarten and Constellation in the amount of $587,
$1,260 and $2,790, respectively.
10
<PAGE> 33
In addition, the Transfer Agency and Service Agreement between the
Company and AIFS, which became effective July 1, 1995, provided that AIFS would
perform certain shareholder services for the Funds and would receive a fee per
account plus out-of-pocket expenses to process orders for purchases,
redemptions and exchanges of shares, prepare and transmit payments for
dividends and distributions, maintain shareholder accounts and provide
shareholders with information regarding the Funds and their accounts. On
September 19, 1997, the Board of Directors of the Funds approved the
appointment of A I M Fund Services, Inc. as transfer agent of the Funds,
effective December 29, 1997.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Funds. The custodian attends to the collection of principal and income,
pays and collects all monies for securities bought and sold by the Funds and
performs certain other ministerial duties. A I M Fund Services, Inc., a wholly
owned subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, serves as transfer agent and dividend disbursing agent for the
Funds' Institutional Classes. These services do not include any supervisory
function over management or provide any protection against any possible
depreciation of assets. The Funds pay the custodian and the transfer agent
such compensation as may be agreed upon from time to time.
AUDIT REPORTS
The Board of Directors will issue semi-annual reports of the
transactions of the Funds to the shareholders. Financial statements, audited
by independent auditors, will be issued annually. The firm of KPMG Peat
Marwick LLP has served as the auditors for the Funds for the fiscal year ended
October 31, 1997.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street,
Philadelphia, Pennsylvania, serves as counsel to the Company.
On October 25, 1996 a shareholder of Aggressive Growth filed a
lawsuit in United States District Court, Southern District of Texas, against
the Company, A I M Advisors, Inc., A I M Distributors, Inc., and Aggressive
Growth as a nominal defendant. The action was instituted under Section 36(b)
of the Investment Company Act of 1940 and seeks to recover damages allegedly
suffered by Aggressive Growth in connection with fees paid for marketing and
shareholder services after Aggressive Growth was closed to new investors.
11
<PAGE> 34
PRINCIPAL HOLDERS OF SECURITIES
BLUE CHIP
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A, Class B and Class C
shares of Blue Chip as of February 2, 1998, and the amount of the outstanding
shares held of record and beneficially owned by such holders are set forth
below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 7.35%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 11.88%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 28.22%**
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
- -------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
12
<PAGE> 35
CHARTER
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A, Class B and Class C
shares of Charter as of February 2, 1998, and the Institutional Class of
Charter as of February 2, 1998, and the amount of the outstanding shares held
of record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 11.39%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
Great-West Life and Annuity Insurance 7.27% -0-
401(k) Unit Valuations
Attn: Rod Switzer 2T2
8515 E. Orchard
Englewood, CO 80111
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 9.34%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 22.25%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
- -------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
13
<PAGE> 36
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
INSTITUTIONAL CLASS
- -------------------
Commonwealth of Massachusetts 94.81%** -0-
One Ashburton Place
12th Floor
Boston, MA 02108
</TABLE>
WEINGARTEN
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A, Class B and Class C
shares of Weingarten as of February 2, 1998, and the Institutional Class of
Weingarten as of February 2, 1998, and the amount of the outstanding shares
held of record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 17.55%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
Great-West Life and Annuity Insurance 5.14% - 0 -
401(k) Unit Valuations
Attn: Rod Switzer 2T2
8515 E. Orchard
Englewood, CO 80111
</TABLE>
- -------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined
in the 1940 Act.
14
<PAGE> 37
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 10.98%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 22.35%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
INSTITUTIONAL CLASS
- -------------------
Commonwealth of Massachusetts 87.17%** -0-
One Ashburton Place
12th Floor
Boston, MA 02108
Nationwide Ohio Variable Account - 0 - 5.14%
P. O. Box 182029
Columbus, OH 43218
Peoples Two Ten Company 5.28% -0-
Attn: Trust Operations, 7th Floor
C/O Summit Bank
P. O. Box 821
Hackensack, NJ 07602
</TABLE>
- -------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined
in the 1940 Act.
15
<PAGE> 38
CONSTELLATION
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A, Class B and Class C
shares of Constellation as of February 2, 1998, and of the Institutional Class
of Constellation as of February 2, 1998, and the amount of the outstanding
shares held of record and beneficially owned by such holders are set forth
below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 14.18%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 8.78%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 31.18%**
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
- -------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined
in the 1940 Act.
16
<PAGE> 39
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
INSTITUTIONAL CLASS
- -------------------
Nationwide Ohio Variable Account 60.12%** -0-
P.O. Box 182029
Columbus, Ohio 43218
Commonwealth of Massachusetts 29.27%** -0-
One Ashburton Place
12th Floor
Boston, MA 02108
</TABLE>
AGGRESSIVE GROWTH
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A shares of Aggressive
Growth as of February 2, 1998, and the amount of the outstanding shares held
of record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 18.20%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
- -------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined
in the 1940 Act.
17
<PAGE> 40
CAPITAL DEVELOPMENT
To the best of the knowledge of the Company, the names and addresses
of the holders of 5% or more of the outstanding Class A, Class B and Class C
shares of Capital Development as of February 2, 1998, and the amount of the
outstanding shares held of record and beneficially owned by such holders are
set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ -------------
<S> <C> <C>
RETAIL CLASS A SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 16.00%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
- ---------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 19.68%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
REETAIL CLASS C SHARES
- ----------------------
Merrill Lynch Pierce Fenner & Smith - 0 - 32.42%**
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
As of February 2, 1998, the directors/trustees and officers of the
Company as a group owned beneficially less than 1% of the outstanding shares of
each of any class of Blue Chip, Charter, Weingarten, Constellation, Aggressive
Growth and Capital Development.
- -------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined
in the 1940 Act.
18
<PAGE> 41
PURCHASES AND REDEMPTIONS
NET ASSET VALUE DETERMINATION
Shares of the Institutional Classes of the Funds that are offered by
the Prospectus are sold at their net asset value. The investor's price for
purchase or redemption will be determined by the net asset value of the
Institutional Class of the applicable Fund's shares next determined following
the receipt of an order to purchase or a request to redeem such shares.
In accordance with the current rules and regulations of the SEC, the
net asset value of a share of each Fund is determined once daily as of 4:00
p.m. Eastern Time on each business day of the Fund. In the event the New York
Stock Exchange ("NYSE") closes early (i.e., before 4:00 p.m. Eastern Time) on a
particular day, the net asset value of a Fund's share is determined as of the
close of the NYSE on such day. For purposes of determining net asset value per
share, futures and options contract closing prices which are available 15
minutes after the close of trading of the NYSE will generally be used.
Determination of a Fund's net asset value per share is made in accordance with
generally accepted accounting principles. The net asset values per share of
the Institutional Class and the Retail Classes of a Fund will differ because
different expenses are attributable to each class. The income or loss and the
expenses common to all classes of a Fund are allocated to each class on the
basis of the net assets of the Fund allocable to each such class, calculated as
of the close of business on the previous business day, as adjusted for the
current day's shareholder activity of each class. In addition to certain common
expenses which are allocated to all classes of a Fund, certain expenses, such
as those related to the distribution of shares of a class, are allocated only
to the class to which such expenses relate. The net asset value per share of a
class is determined by subtracting the liabilities (e.g., the expenses) of the
Fund allocated to the class from the assets of the Fund allocated to the class
and dividing the result by the total number of shares outstanding of such
class.
Except as provided in the next sentence, a security listed or traded
on an exchange is valued at its last sales price on the exchange where the
security is principally traded or, lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on that
day. Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Option contracts are valued at the mean of the
closing bid and asked prices on the exchange where the contracts are
principally traded. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a last
sale, at the mean between the last bid and asked price on that day. Securities
for which market quotations are not readily available 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. (See also "How to Purchase
Shares," "How to Redeem Shares" and "Determination of Net Asset Value" in the
Prospectus.)
Generally, trading in foreign securities, as well as corporate
bonds, U.S. Government securities and money market instruments, is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the NYSE which will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value as
determined in good faith by or under the supervision of the Board of Directors.
19
<PAGE> 42
SUSPENSION OF REDEMPTION RIGHTS
The right of redemption may be suspended or the date of payment upon
redemption may be postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend or holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of the Fund not reasonably practicable.
THE DISTRIBUTION AGREEMENT
The Company, on behalf of the Institutional Class of each Fund, has
entered into a Master Distribution Agreement, effective as of February 28,
1997, (the "Distribution Agreement") with FMC, a registered broker-dealer and a
wholly owned subsidiary of AIM to act as the exclusive distributor of the
Institutional Classes of the Funds' shares. The address of FMC is 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173. See "Directors and Officers" and
"The Investment Advisor" for information as to the affiliation of certain
directors and officers of the Company with FMC and A I M Management Group Inc.
The Distribution Agreement provides that FMC has the exclusive right to
distribute the Institutional Classes of shares of the Funds either directly or
through other broker-dealers. The Distribution Agreement also provides that
FMC will pay promotional expenses, including the incremental costs of printing
prospectuses and statements of additional information, annual reports and other
periodic reports for distribution to persons who are not shareholders of the
Institutional Classes of the Funds and the costs of preparing and distributing
any other supplemental sales literature. FMC has not undertaken to sell any
specified number of shares of the Institutional Classes of the Funds. FMC does
not receive any fees from the Company on behalf of the Institutional Classes
pursuant to the Distribution Agreement.
FMC may, from time to time, at its expense, pay a bonus or other
consideration or incentive to dealers or banks who sell a minimum dollar amount
of the shares of the Institutional Class of a Fund during a specific period of
time. In some instances, these incentives may be offered only to certain
dealers or institutions who have sold or may sell significant amounts of
shares. The total amount of such additional bonus payments or other
consideration shall not exceed .10% of the net asset value of the shares sold
of such Institutional Class. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of shares or the amount
received as proceeds from such sales. Dealers or institutions may not use the
sale of shares of the Institutional Class of a Fund to qualify for any
incentives to the extent that such incentives may be prohibited by the laws of
any jurisdiction.
The Distribution Agreement became effective February 28, 1997 and
will continue in effect until February 28, 1999 and from year to year
thereafter only if such continuation is specifically approved at least annually
by (i) the Company's Board of Directors or the vote of a "majority of the
outstanding voting securities" of the Funds (as defined in the 1940 Act) and
(ii) the affirmative vote of a majority of the Non-Interested Directors by
votes cast in person at a meeting called for such purpose. The Company, on
behalf of a Fund, or FMC may terminate the Distribution Agreement on sixty
days' written notice without penalty. The Distribution Agreement will
terminate automatically in the event of its "assignment," as defined in the
1940 Act.
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
applicable Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in such Fund's net asset value per
share over the period. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical investment in a particular
Fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of growth
or decline in value
20
<PAGE> 43
had been constant over the period. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that a Fund's performance is not constant over time, but changes from year to
year, and that average annual returns do not represent the actual year-to-year
performance of such Fund.
In addition to average annual returns, the Institutional Class of
each Fund may quote unaveraged or cumulative total returns, reflecting the
simple change in value of an investment over a stated period. Average annual
and cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of investments,
and/or a series of redemptions, over any time period. Total returns may be
broken down into their components of income and capital (including capital gains
and changes in share price) in order to illustrate the relationship of these
factors and their contributions to total return. Total returns, yields, and
other performance information may be quoted numerically or in a table, graph, or
similar illustration.
From time to time, Fund sales literature and/or advertisements may
disclose (i) top holdings included in the Fund's portfolio, (ii) certain
selling group members, and/or (iii) certain institutional shareholders.
Each Fund's performance may also be compared in advertising and
other materials to the performance of comparative benchmarks such as the
Consumer Price Index, the Standard & Poor's 500 Stock Index, and fixed-price
investments such as bank certificates of deposit and/or savings accounts.
YIELD QUOTATIONS
The standard formula for calculating yield, as described in the
Prospectus, is as follows:
6
YIELD = 2[((a-b)/(c x d) + 1) -1]
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued rather
than recorded on the ex-dividend date. Interest earned under
this formula must generally be calculated based on the yield to
maturity of each obligation (or, if more appropriate, based on
yield to call date).
b = expenses accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the
period.
d = the maximum offering price per share on the last day of the
period.
HISTORICAL PORTFOLIO RESULTS
The average return of the Institutional Class of Charter was 29.05%
for the fiscal year ended October 31, 1997. The cumulative return of the
Institutional Class of Charter was 143.68% for the period of July 30, 1991
(date operations commenced) through October 31, 1997. The average return of
the Institutional Class of Weingarten was 27.37% for the fiscal year ended
October 31, 1997. The cumulative return of the Institutional Class of
Weingarten was 133.56% for the period of October 8, 1991 (date operations
commenced) through October 31, 1997. The average return of the Institutional
Class of Constellation was 19.42% for the fiscal year ended October 31, 1997.
The cumulative return of the Institutional Class of Constellation was 169.36%
for the period of April 8, 1992 (date operations commenced) through October 31,
1997.
21
<PAGE> 44
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
The following discussion of investment policies supplements the
discussion of the investment objectives and policies set forth in the
Prospectus under the heading "Investment Programs."
Each of the Funds may be invested, for temporary or defensive
purposes, with regard to all or substantially all of their assets, in
investment grade (high quality) corporate bonds, commercial paper, or U.S.
Government obligations. In addition, a portion of each Fund's assets may be
held, from time to time, in cash, repurchase agreements, or other debt
securities, when such positions are deemed advisable in light of economic or
market conditions. For a description of the various rating categories of
corporate bonds and commercial paper in which the Fund may invest, see the
Appendix to this Statement of Additional Information.
FOREIGN SECURITIES
Charter, Weingarten and Constellation may each invest up to 20% of its
total assets in foreign securities. For purposes of computing such limitation
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
other securities representing underlying securities of foreign issuers are
treated as foreign securities. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered form, are designed for use
in the United States securities markets, and EDRs, in bearer form, are designed
for use in European securities markets. ADRs and EDRs may be listed on stock
exchanges, or traded in OTC markets in the United States or Europe, as the case
may be. ADRs, like other securities traded in the United States, will be
subject to negotiated commission rates. Investments by the Fund in securities
of foreign corporations may involve considerations and risks that are different
in certain respects from an investment in securities of U.S. companies. Such
risks include possible imposition of withholding taxes on interest or dividends,
possible adoption of foreign governmental restrictions on repatriation of income
or capital invested, or other adverse political or economic developments.
Additionally, it may be more difficult to enforce the rights of a security
holder against a foreign corporation, and information about the operations of
foreign corporations may be more difficult to obtain and evaluate.
RULE 144A SECURITIES
The Funds may each purchase securities which, while privately placed,
are eligible for purchase and sale pursuant to Rule 144A under the Securities
Act of 1933 (the "1933 Act"). This Rule permits certain qualified institutional
buyers, such as a Fund, to trade in privately placed securities even though
such securities are not registered under the 1933 Act. AIM, under the
supervision of the Company's Board of Directors, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the
Fund's restriction of investing no more than 15% of its assets in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination AIM will consider the trading
markets for the specific security taking into account the unregistered nature
of a Rule 144A security. In addition, AIM could consider the (i) frequency of
trades and quotes, (ii) number of dealers and potential purchasers, (iii)
dealer undertakings to make a market, and (iv) nature of the security and of
market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities will also be monitored by AIM and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to
determine what, if any, action is required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
22
<PAGE> 45
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Fund may make
secured loans of portfolio securities amounting to not more than 33-1/3% of its
total assets. Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to the value of the
securities lent marked to market on a daily basis. The collateral received will
consist of cash, U.S. Government securities, letters of credit or such other
collateral as may be permitted under the Fund's investment program. While the
securities are being lent, the Fund will continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Fund has a right to call each loan and obtain the securities on five business
days' notice or, in connection with securities trading on foreign markets,
within such longer period of time which coincides with the normal settlement
period for purchases and sales of such securities in such foreign markets. The
Fund will not have the right to vote securities while they are being lent, but
it will call a loan in anticipation of any important vote. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will only be made to persons deemed by AIM to be of
good standing and will not be made unless, in the judgment of AIM, the
consideration to be earned from such loans would justify the risk.
REPURCHASE AGREEMENTS
The Funds may each enter into repurchase agreements. A repurchase
agreement is an instrument under which a Fund acquires ownership of a debt
security and the seller (usually a broker or bank) agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the Fund's holding period. In the event
of bankruptcy or other default of a seller of a repurchase agreement, the Fund
may experience both delays in liquidating the underlying securities and losses,
including: (a) a possible decline in the value of the underlying security
during the period in which the Fund seeks to enforce its rights thereto; (b) a
possible subnormal level of income and lack of access to income during this
period; and (c) expenses of enforcing its rights. A repurchase agreement is
collateralized by the security acquired by the Fund and its value is marked to
market daily in order to minimize the Fund's risk. Repurchase agreements
usually are for short periods, such as one or two days, but may be entered into
for longer periods of time.
Charter may enter into repurchase agreements (at any time, up to 50%
of its net assets), using only U.S. Government securities, for the sole
purpose of increasing its yield on idle cash. Charter will not invest in a
repurchase agreement of more than seven days' duration if, as a result of that
investment, the amount of repurchase agreements of more than seven days'
duration would exceed 15% of the assets of Charter.
REVERSE REPURCHASE AGREEMENTS
Consistent with Charter's policy on borrowings, Charter may invest in
reverse repurchase agreements with banks, which involve the sale of securities
held by the Fund, with an agreement that the Fund will repurchase the
securities at an agreed upon price and date. The Fund may employ reverse
repurchase agreements (i) for temporary emergency purposes, such as to meet
unanticipated net redemptions so as to avoid liquidating other portfolio
securities during unfavorable market conditions; (ii) to cover short-term cash
requirements resulting from the timing of trade settlements; or (iii) to take
advantage of market situations where the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. At the time it enters into a reverse repurchase
agreement, the Fund will segregate liquid securities having a dollar value
equal to the repurchase price. Reverse repurchase agreements are considered
borrowings by the Fund under the 1940 Act.
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<PAGE> 46
SPECIAL SITUATIONS
Although Constellation does not currently intend to do so, it may,
invest in "special situations." A special situation arises when, in the
opinion of the Fund's management, the securities of a particular company will,
within a reasonable estimable period of time, be accorded market recognition at
an appreciated value solely by reason of a development applicable to that
company, and regardless of general business conditions or movements of the
market as a whole. Developments creating special situations might include,
among others: liquidations, reorganizations, recapitalizations, mergers,
material litigation, technical breakthroughs and new management or management
policies. Although large and well known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Investments in unseasoned companies and special situations often involve much
greater risk than is inherent in ordinary investment securities.
SHORT SALES
Although Weingarten and Constellation do not currently intend to do
so, they may each enter into short sales transactions. Neither Weingarten nor
Constellation will make short sales of securities nor maintain a short position
unless at all times when a short position is open, the Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short. This is a technique
known as selling short "against the box." Such short sales will be used by
each of Weingarten and Constellation for the purpose of deferring recognition
of gain or loss for federal income tax purposes. In no event may more than 10%
of the value of either Fund's net assets be deposited or pledged as collateral
for such sales at any time.
WARRANTS
The Funds may, from time to time, invest in warrants. Warrants are,
in effect, longer-term call options. They give the holder the right to
purchase a given number of shares of a particular company at specified prices
within certain periods of time. The purchaser of a warrant expects that the
market price of the security will exceed the purchase price of the warrant plus
the exercise price of the warrant, thus giving him a profit. Of course, since
the market price may never exceed the exercise price before the expiration date
of the warrant, the purchaser of the warrant risks the loss of the entire
purchase price of the warrant. Warrants generally trade in the open market and
may be sold rather than exercised. Warrants are sometimes sold in unit form
with other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant varies with the exercise price of a warrant, the current market value
of the underlying security, the life of the warrant and various other
investment factors.
WRITING COVERED CALL OPTIONS
Charter, Weingarten and Constellation are authorized to write (sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to such options. Writing a call
option obligates Charter, Weingarten and Constellation to sell or deliver the
option's underlying security, in return for the strike price, upon exercise of
the option. By writing a call option, Charter, Weingarten and Constellation
receive an option premium from the purchaser of the call option. Writing
covered call options is generally a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, Charter, Weingarten and
Constellation would seek to mitigate the effects of a price decline. By
writing covered call options, however, Charter, Weingarten and Constellation
give up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option exercise price. In
addition, the Funds' ability to sell the underlying security will be limited
while the option is in effect unless Charter, Weingarten and Constellation
effect a closing purchase transaction.
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<PAGE> 47
FUTURES CONTRACTS
Each of the Funds may purchase futures contracts. In cases of
purchases of futures contracts, an amount of cash and cash equivalents, equal
to the cost of the futures contracts (less any related margin deposits), will
be segregated with the Funds' custodian to collateralize the position and
ensure that the use of such futures contracts is unleveraged. Unlike when a
Fund purchases or sells a security, no price is paid or received by a Fund upon
the purchase or sale of a futures contract. Initially, a Fund will be required
to deposit with its custodian for the account of the broker a stated amount, as
called for by the particular contract, of cash or U.S. Treasury bills. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in securities transactions in
that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
"variation margin," to and from the broker will be made on a daily basis as the
price of the futures contract fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as
"marking-to-market." For example, when a Fund has purchased a stock index
futures contract and the price of the underlying stock index has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment with respect to that increase in value. Conversely,
where a Fund has purchased a stock index futures contract and the price of the
underlying stock index has declined, that position would be less valuable and
the Fund would be required to make a variation margin payment to the broker.
Variation margin payments would be made in a similar fashion when a Fund has
purchased an interest rate futures contract. At any time prior to expiration
of the futures contract, a Fund may elect to close the position by taking an
opposite position which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund and the Fund
realizes a loss or gain.
A description of the type of futures contract that may be utilized by
the Funds is as follows:
Stock Index Futures Contracts
A stock index assigns relative values to the common stocks included in
the index and the index fluctuates with changes in the market values of the
common stocks so included. A stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. No physical delivery of
the underlying stocks in the index is made. Currently, stock index futures
contracts can be purchased or sold primarily with respect to broad based stock
indices such as the S&P's 500 Stock Index, the NYSE Composite Index, the
American Stock Exchange Major Market Index, the NASDAQ -- 100 Stock Index and
the Value Line Stock Index. The stock indices listed above consist of a
spectrum of stocks not limited to any one industry such as utility stocks.
Utility stocks, at most, would be expected to comprise a minority of the stocks
comprising the portfolio of the index. The Funds will only enter into stock
index futures contracts as a hedge against changes resulting from market
conditions in the values of the securities held or which it intends to
purchase. When a Fund anticipates a significant market or market sector
advance, the purchase of a stock index futures contract affords a hedge against
not participating in such advance. Conversely, in anticipation of or in a
general market or market sector decline that adversely affects the market
values of a Fund's portfolio of securities, the Fund may sell stock index
futures contracts.
RISKS AS TO FUTURES CONTRACTS
There are several risks in connection with the use of futures
contracts as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of hedging instruments and movements
in the price of the stock, debt security or foreign currency which are the
subject of the hedge. If the price of a hedging instrument moves less than the
price of the stock, debt security or foreign currency which is
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<PAGE> 48
the subject of the hedge, the hedge will not be fully effective. If the price
of a hedging instrument moves more than the price of the stock, debt security
or foreign currency, a Fund will experience either a loss or gain on the
hedging instrument which will not be completely offset by movements in the
price of the stock, debt security or foreign currency which is the subject of
the hedge.
Successful use of hedging instruments by the Funds is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures and options markets and because of the
imperfect correlation between movements in the prices of hedging instruments
and the investments being hedged, even a correct forecast by AIM of general
market trends may not result in a completely successful hedging transaction.
It is also possible that where a Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in its portfolio may decline. If
this occurred, a Fund would lose money on the futures contracts and also
experience a decline in the value of its portfolio securities. Similar risks
exist with respect to foreign currency hedges.
Positions in futures contracts may be closed out only on an exchange
on which such contracts are traded. Although the Funds intend to purchase or
sell futures contracts there is no assurance that a liquid market on an
exchange or a board of trade will exist for any particular contract at any
particular time. If there is not a liquid market, it may not be possible to
close a futures position at such time. In the event of adverse price movements
under those circumstances, the Fund would continue to be required to make daily
cash payments of maintenance margin on its futures positions. The extent to
which a Fund may engage in futures contracts will be limited by Internal
Revenue Code requirements for qualification as a regulated investment company
and a Fund's intent to continue to qualify as such. The result of a hedging
program cannot be foreseen and may cause a Fund to suffer losses which it would
not otherwise sustain.
The investment policies stated above are not fundamental policies of
the Funds and may be changed by the Board of Directors of the Company without
shareholder approval. Shareholders will be notified before any material change
in the investment policies stated above become effective.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
Investment in securities on a when-issued or delayed delivery basis
may increase a Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. A Fund will employ techniques designed to
reduce such risks. If a Fund purchases a when-issued security, the Fund's
custodian bank will segregate cash or other liquid assets in an amount equal to
the when-issued commitment. If the market value of such assets declines,
additional cash or securities will be segregated on a daily basis so that the
market value of the segregated assets will equal the amount of the Fund's
when-issued commitments. To the extent cash and securities are segregated,
they will not be available for new investments or to meet redemptions.
Securities purchased on a delayed delivery basis may require a similar
segregation of cash or other liquid assets.
INVESTMENT IN UNSEASONED ISSUERS
Charter may purchase securities in unseasoned issues. Securities in
such issuers may provide opportunities for long term capital growth. Greater
risks are associated with investments in securities of unseasoned issuers than
in the securities of more established companies because unseasoned issuers have
only a brief operating history and may have more limited markets and financial
resources. As a result, securities of unseasoned issuers tend to be more
volatile than securities of more established companies.
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<PAGE> 49
INVESTMENT RESTRICTIONS
The following fundamental policies and investment restrictions have
been adopted by each Fund as indicated and, except as noted, such policies
cannot be changed without the approval of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act.
CHARTER
Charter may not:
(a) purchase the securities of any one issuer (except securities
issued or guaranteed by the U.S. Government) if, immediately after and as a
result of such purchase, (i) the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total assets,
or (ii) the Fund owns more than 10% of the outstanding voting securities of any
one class of securities of such issuer, except that the Fund may purchase
securities of other investment companies to the extent permitted by applicable
law or exemptive order;
(b) concentrate its investments; that is, invest more than 25% of the
value of its assets in any particular industry;
(c) purchase or sell real estate or other interests in real estate
(except that this restriction does not preclude investments in marketable
securities of companies engaged in real estate activities);
(d) buy or sell physical commodities or physical commodity contracts,
including physical commodities, futures contracts or deal in oil, gas, or other
mineral exploration or development programs;
(e) make loans (except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or entering
into a repurchase agreement, is not considered to be a loan for purposes of
this restriction), provided that the Fund may lend its portfolio securities
provided the value of such loaned securities does not exceed 33-1/3% of its
total assets;
(f) purchase securities on margin or sell short;
(g) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's custodian bank)
amounts of up to 10% of the value of its total assets, and may pledge amounts
of up to 20% of its total assets to secure such borrowings;
(h) invest in companies for the purpose of exercising control or
management, except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(i) act as an underwriter of securities of other issuers;
(j) purchase from or sell to any officer, director or employee of the
Fund, or its advisors or distributor, or to any of their officers or directors,
any securities other than shares of the capital stock of Charter; or
(k) purchase or retain the securities of any issuer if those officers
and directors of the Company, its advisors or distributor owning individually
more than 1/2 of 1% of the securities of such issuer, together own more than 5%
of the securities of such issuer.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
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WEINGARTEN
Weingarten may not:
(a) issue bonds, debentures or senior equity securities;
(b) underwrite securities of other companies or purchase restricted
securities ("letter stock");
(c) invest in real estate, except that the Fund may purchase
securities of real estate investment trusts;
(d) lend money, except in connection with the acquisition of a portion
of an issue of publicly distributed bonds, debentures or other corporate or
governmental obligations, provided that the Fund may lend its portfolio
securities provided the value of such loaned securities does not exceed 33-1/3%
of its total assets;
(e) purchase securities on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;
(f) purchase shares in order to control management of a company,
except that the Fund may purchase securities of other investment companies to
the extent permitted by applicable law or exemptive order;
(g) buy or sell physical commodities or physical commodity contracts,
including physical commodities futures contracts;
(h) invest more than 25% of the value of its total assets in
securities of issuers all of which conduct their principal business activities
in the same industry; or
(i) borrow money or pledge its assets, except that, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's custodian bank)
amounts of up to 10% of the value of its total assets, and may pledge amounts
of up to 20% of its total assets to secure such borrowings.
In addition, Weingarten may not (a) invest more than 5% of the total
assets of the Fund (valued at market) in securities of any one issuer (other
than obligations of the U.S. Government and its instrumentalities); (b)
purchase more than 10% of the outstanding securities of any one issuer or more
than 10% of any class of securities of an issuer; or (c) deal in forward
contracts.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
CONSTELLATION
Constellation may not:
(a) invest for the purpose of exercising control over or management of
any company, except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or
exemptive order;
(b) engage in the underwriting of securities of other issuers;
(c) purchase and sell real estate or commodities or commodity
contracts;
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(d) make loans, except by the purchase of a portion of an issue of
publicly distributed bonds, debentures or other obligations, provided that the
Fund may lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(e) invest in interests in oil, gas or other mineral exploration or
development programs;
(f) invest more than 25% of the value of its total assets in
securities of issuers all of which conduct their principal business activities
in the same industry.
In addition, Constellation treats as fundamental its policy concerning
borrowing described under the caption "Investment Programs - Investment
Restrictions - Borrowing" in the Prospectus. In accordance with this policy,
the Fund may borrow funds from a bank (including its custodian bank) to
purchase or carry securities only if, immediately after such borrowing, the
value of the Fund's assets, including the amount borrowed, less its
liabilities, is equal to at least 300% of the amount borrowed, plus all
outstanding borrowings. For the purpose of determining this 300% asset
coverage requirement, the Fund's liabilities will not include the amount
borrowed but will include the market value, at the time of computation, of all
securities borrowed by the Fund in connection with short sales. The amount of
borrowing will also be limited by the applicable margin limitations imposed by
the Federal Reserve Board. If at any time the value of the Fund's assets
should fail to meet the 300% asset coverage requirement, the Fund will, within
three days, reduce its borrowings to the extent necessary. The Fund may be
required to eliminate partially or totally its outstanding borrowings at times
when it may not be desirable for it to do so.
Except for the borrowing policy, if a percentage restriction is
adhered to at the time of investment, a later change in the percentage of such
investment held by a Fund resulting solely from changes in values or assets,
will not be considered to be a violation of the restriction.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for each Fund, selects
broker-dealers, effects the Funds' investment portfolio transactions, allocates
brokerage fees in such transactions, and where applicable, negotiates
commissions and spreads on transactions. AIM's primary consideration in
effecting a security transaction is to obtain the most favorable execution of
the order, which includes the best price on the security and a low commission
rate. While AIM seeks reasonably competitive commission rates, the Funds may
not pay the lowest commission or spread available. See "Section 28(e)
Standards" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. In such transactions, a Fund deals directly with
dealers who make markets in the securities involved, except when better prices
are available elsewhere. Portfolio transactions placed through dealers who are
primary market makers are effected at net prices without commissions, but which
include compensation in the form of a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas
stock markets have adopted a system of negotiated rates, a number of markets
maintain an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or AIM
Capital (collectively, the "AIM Funds") in particular, including sales of the
Funds and of the other
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<PAGE> 52
AIM Funds. In connection with (3) above, the Funds' trades may be executed
directly by dealers that sell shares of the AIM Funds or by other
broker-dealers with which such dealers have clearing arrangements. AIM will
not use a specific formula in connection with any of these considerations to
determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which AIM can recapture are
the soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of a Fund, provided the conditions of an exemptive order received by
the Funds from the SEC are met. In addition, a Fund may purchase or sell a
security from or to another AIM Fund provided the Funds follow procedures
adopted by the Board of Directors/Trustees of the various AIM Funds, including
the Company. These inter-fund transactions do not generate brokerage
commissions but may result in custodial fees or taxes or other related
expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by
its cash position. If the purchase or sale of securities is consistent with
the investment policies of the Fund(s) and one or more of these accounts, and
is considered at or about the same time, AIM will fairly allocate transactions
in such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among
the various investment accounts advised by AIM could have an adverse effect on
the price or amount of securities available to a Fund. In making such
allocations, AIM considers the investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the judgments of the persons
responsible for recommending the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that
AIM, under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a
good faith determination that the commissions paid are "reasonable in relation
to the value of the brokerage and research services provided ... viewed in
terms of either that particular transaction or [AIM's] overall responsibilities
with respect to the accounts as to which it exercises investment discretion."
The services provided by the broker also must lawfully and appropriately assist
AIM in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
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strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Company's directors with respect to
the performance, investment activities, and fees and expenses of other mutual
funds. Broker-dealers may communicate such information electronically, orally
or in written form. Research services may also include the providing of
custody services, as well as the providing of equipment used to communicate
research information, the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other research services, the arranging of meetings with management
of companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services
provided to AIM by broker-dealers are available for the benefit of all accounts
managed or advised by AIM or by its affiliates. Some broker-dealers may
indicate that the provision of research services is dependent upon the
generation of certain specified levels of commissions and underwriting
concessions by AIM's clients, including the Funds. However, the Funds are not
under any obligation to deal with any broker-dealer in the execution of
transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research
services had they not been provided by broker-dealers, the expenses to AIM
could be considered to have been reduced accordingly.
TRANSACTIONS WITH REGULAR BROKERS
As of October 31, 1997, Charter and Weingarten held an amount of
common stock issued by Merrill Lynch & Co. having a market value of $47,337,500
and $13,764,100, respectively, and common stock issued by Morgan Stanley, Dean
Witter, Discover & Co. having a market value of $63,700,000 and $14,404,125,
respectively.
BROKERAGE COMMISSIONS PAID
For the fiscal years ended October 31, 1997, 1996 and 1995, Charter
paid brokerage commissions of $12,073,633, $9,213,125 and $14,960,600,
respectively. For the fiscal year ended October 31, 1997, AIM allocated certain
of Charter's brokerage transactions to certain broker-dealers that provided AIM
with certain research, statistical and other information. Such transactions
amounted to $756,761,085 and the related brokerage commissions were $692,584.
For the fiscal years ended October 31, 1997, 1996 and 1995, Weingarten
paid brokerage commissions of $17,413,682, $21,795,437 and $21,766,760,
respectively. For the fiscal year ended October 31, 1997, AIM allocated certain
of Weingarten's brokerage transactions to certain broker-dealers that provided
AIM with certain research, statistical and other information. Such transactions
amounted to $1,134,767,539 and the related brokerage commissions were
$1,144,152.
For the fiscal years ended October 31, 1997, 1996 and 1995,
Constellation paid brokerage commissions of $16,928,988, $13,032,299 and
$15,359,510, respectively. For the fiscal year ended October 31, 1997 AIM
allocated certain of Constellation's brokerage transactions to certain
broker-dealers that provided AIM with certain research, statistical and other
information. Such transactions amounted to $1,340,675,363 and the related
brokerage commissions were $1,611,545.
PORTFOLIO TURNOVER
The portfolio turnover rate of each Fund is shown under "Financial
Highlights" in the applicable Prospectus. Higher portfolio turnover increases
transaction costs to the Fund.
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the Institutional Class of the applicable
Fund unless the shareholder has requested in writing to receive such dividends
and distributions in cash or that they be invested in shares of the
Institutional Class of another Fund offered pursuant to the Prospectus. If a
shareholder's account does not have any shares in it on a dividend or capital
gains distribution payment date, the dividend or distribution will be paid in
cash whether or not the shareholder has elected to have such dividends or
distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, each Fund is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) for the
taxable year (the "Distribution Requirement"), and satisfies certain other
requirements of the Code that are described below. Distributions by a Fund
made during the taxable year or, under specified circumstances, within twelve
months after the close of the taxable year, will be considered distributions of
income and gains of the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the
sale or other disposition of stock or securities or foreign currencies (to the
extent such currency gains are directly related to the regulated investment
company's principal business of investing in stock or securities) and other
income (including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In addition to satisfying the requirement described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each
Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which
companies and securities of other issuers the Fund has not invested more than
5% of the value of the Fund's total assets in securities of such issuer and as
to which the Fund does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any other issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such
32
<PAGE> 55
Fund's current and accumulated earnings and profits. Such distributions
generally will be eligible for the dividends received deduction in the case of
corporate shareholders.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract or of foreign currency itself, will generally
be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (a) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (b) the
asset is otherwise held by the Fund as part of a "straddle" or (c) the asset is
stock and the Fund grants certain call options with respect thereto. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position. Any gain recognized by a Fund on
the lapse of, or any gain or loss recognized by a Fund from a closing
transaction with respect to, an option written by the Fund will be treated as a
short-term capital gain or loss.
Transactions that may be engaged in by certain of the Funds (such as
futures contracts and options on stock indexes and futures contracts) will be
subject to special tax treatment as "Section 1256 contracts." Section 1256
contracts are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date.
The net amount of such gain or loss for the entire taxable year from
transactions involving Section 1256 contracts (including gain or loss arising
as a consequence of the year-end deemed sale of Section 1256 contracts) is
treated as 60% long-term capital gain (taxable at 20%) or loss and 40%
short-term capital gain or loss. A Fund may elect not to have this special tax
treatment apply to Section 1256 contracts that are part of a "mixed straddle"
with other investments of the Fund that are not Section 1256 contracts.
Other hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under section 1259 of the Code if a Fund
holds certain "appreciated financial positions" (defined generally as any
interest (including a futures or forward contract, short sale or option) with
respect to stock, certain debt instruments, or partnership interests if there
would be a gain were such interest sold, assigned, or otherwise terminated at
its fair market value). Upon entering into a constructive sales transaction
with respect to an appreciated financial position, a Fund will be deemed to
have constructively sold such appreciated financial position and will recognize
gain as if such position were sold, assigned, or otherwise terminated at its
fair market value on the date of such constructive sale (and will take into
account any gain for the taxable year which includes such date unless the
closed transaction exception applies).
Because application of the rules governing Section 1256 contracts and
constructive sales may affect the character of gains or losses and/or
accelerate the recognition of gains or losses from the affected investment
positions, the amount which must be distributed to shareholders and which will
be taxed to shareholders as ordinary income or long-term capital gain may be
increased as compared to a fund that did not engage in transactions involving
Section 1256 contracts or constructive sales.
33
<PAGE> 56
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable
year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(a) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (b) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax.
However, investors should note that a Fund may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for federal
income tax purposes, but they will qualify for the 70% dividends-received
deduction for corporations only to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Under the Taxpayer Relief Act of 1997, the Internal
Revenue Service is authorized to issue regulations that will enable
shareholders to determine the tax rates applicable to such capital gain
distributions. Conversely, if a Fund elects to retain its net capital gain,
the Fund will be taxed thereon (except to the extent of any available capital
loss carryforwards) at the 35% corporate tax rate. If a Fund elects to retain
its net capital gain, it is expected that the Fund also will elect to have
shareholders treated as if each received a distribution of its pro rata share
of such gain, with the result that each shareholder will be required to report
its pro rata share of such gain on its tax return as long-term capital gain,
will receive a refundable tax credit for its share of tax paid by the Fund on
the gain, and will increase the tax basis for its shares by an amount equal to
the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends received deduction generally available
to corporations (other than corporations, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics and
other than for purposes of special taxes such as the accumulated earnings tax
and the personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend
(a) if it has been received with respect to any share of stock that the Fund
has held for less than 46 days (91 days in the case of certain preferred
stock), excluding for this purpose under the rules of Code Section 246(c)(3)
and (4) (i) any day more than 45 days (or 90 days in the case of certain
preferred stock) after the date on which the stock becomes ex-dividend, and
(ii) any period during which the Fund has an option to sell, is under a
contractual obligation to
34
<PAGE> 57
sell, has made and not closed a short sale of, has granted certain options to
buy or has otherwise diminished its risk of loss by holding other positions
with respect to, such (or substantially identical) stock; (b) to the extent
that the Fund is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar or
related property; or (c) to the extent the stock on which the dividend is paid
is treated as debt-financed under the rules of Code Section 246A. Moreover,
the dividends-received deduction for a corporate shareholder may be disallowed
or reduced (i) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund or (ii) by application of
Code Section 246(b) which in general limits the dividends received deduction to
70% of the shareholder's taxable income (determined without regard to the
dividends received deduction and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. The corporate dividends-received deduction is not itself an item of
tax preference that must be added back to taxable income or is otherwise
disallowed in determining a corporation's AMTI. However, corporate
shareholders will generally be required to take the full amount of any dividend
received from the Fund into account (without a dividends received deduction) in
determining their adjusted current earnings, which are used in computing an
additional corporate preference item (i.e., 75% of the excess of a corporate
taxpayer's adjusted current earnings over its AMTI (determined without regard
to this item and the AMT net operating loss deduction)) that is includable in
AMTI. For taxable years beginning after 1997, however, certain small
corporations are wholly exempt from the AMT.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be
invested in various countries is not known.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of a Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the Internal Revenue
Service.
The Funds will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares paid to any shareholder (a) who has
provided either an incorrect tax identification number or no number at all, (b)
who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income
35
<PAGE> 58
property, or (c) who has failed to certify to a Fund that it is not subject to
backup withholding or that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. Under the Taxpayer Relief Act of 1997, the Internal
Revenue Service is authorized to issue appropriate regulations that will enable
shareholders to determine the tax rates applicable to such recognized long-term
capital gain. However, any capital loss arising from the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section 246(c)(3)
and (4) (discussed above in connection with the dividends received deduction
for corporations) generally will apply in determining the holding period of
shares. Long-term capital gains of non-corporate taxpayers are currently taxed
at a maximum rate that in some cases may be 19.6% lower than the maximum rate
applicable to ordinary income. Capital losses in any year are deductible only
to the extent of capital gains plus, in the case of a non-corporate taxpayer,
$3,000 of ordinary income.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from a Fund is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, dividends and
return of capital distributions (other than capital gain dividends) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of a Fund, capital gain dividends and amounts retained by a Fund that
are designated as undistributed net capital gains.
If the income from a Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends and any gains realized upon the sale or
redemption of shares of the Fund will be subject to U.S. federal income tax at
the rates applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed
36
<PAGE> 59
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends and
capital gain dividends from regulated investment companies often differ from
the rules for U.S. federal income taxation described above. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Funds.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain Information contained in the Registration Statement which the Company
has filed with the SEC under the Securities Act of 1933 and reference is hereby
made to the Registration Statement for further information with respect to the
Funds and the securities offered hereby. The Registration Statement is
available for inspection by the public at the SEC in Washington. D.C.
37
<PAGE> 60
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated by Standard & Poor's Corporation has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well-established and the issuer has a
strong position within the industry. The reliability and quality of management
are unquestioned. The relative strength or weakness of the above factors
determines whether the issuer's Commercial Paper is rated A-1 or A-2. A-1
indicates the degree of safety regarding time of payment is very strong. A-2
indicates that the capacity for timely payment is strong, but that the relative
degree of safety is not as overwhelming as for issues designated A-1.
MOODY'S
Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. Among the factors considered by
Moody's in assigning ratings are the following: (a) evaluation of the
management of the issuer; (b) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (c) evaluation of the issuer's products in relation to
competition and customer acceptance; (d) liquidity; (e) amount and quality of
long-term debt; (f) trend of earnings over a period of ten years; (g) financial
strength of a parent company and the relationships which exist with the issuer;
and (h) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet
such obligations. Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated Prime-1 or Prime-2.
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
MOODY'S
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as "high-grade bonds." They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
38
<PAGE> 61
FINANCIAL STATEMENTS
FS
<PAGE> 62
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
FS-1
C H A R T E R
<PAGE> 63
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>
FS-2
C H A R T E R
<PAGE> 64
<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>
FS-3
C H A R T E R
<PAGE> 65
<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>
FS-4
C H A R T E R
<PAGE> 66
<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>
FS-5
C H A R T E R
<PAGE> 67
<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.
FS-6
C H A R T E R
<PAGE> 68
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.
FS-7
C H A R T E R
<PAGE> 69
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.
FS-8
C H A R T E R
<PAGE> 70
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.
FS-9
C H A R T E R
<PAGE> 71
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.
FS-10
C H A R T E R
<PAGE> 72
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.
FS-11
C H A R T E R
<PAGE> 73
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>
FS-12
C H A R T E R
<PAGE> 74
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.
FS-13
C H A R T E R
<PAGE> 75
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
FS-14
C O N S T E L L A T I O N
<PAGE> 76
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>
FS-15
C O N S T E L L A T I O N
<PAGE> 77
<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>
FS-16
C O N S T E L L A T I O N
<PAGE> 78
<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>
FS-17
C O N S T E L L A T I O N
<PAGE> 79
<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>
FS-18
C O N S T E L L A T I O N
<PAGE> 80
<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>
FS-19
C O N S T E L L A T I O N
<PAGE> 81
<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>
FS-20
C O N S T E L L A T I O N
<PAGE> 82
<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.
FS-21
C O N S T E L L A T I O N
<PAGE> 83
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.
FS-22
C O N S T E L L A T I O N
<PAGE> 84
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
FS-23
C O N S T E L L A T I O N
<PAGE> 85
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
FS-24
C O N S T E L L A T I O N
<PAGE> 86
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.
FS-25
C O N S T E L L A T I O N
<PAGE> 87
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.
FS-26
C O N S T E L L A T I O N
<PAGE> 88
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
FS-27
W E I N G A R T E N
<PAGE> 89
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>
FS-28
W E I N G A R T E N
<PAGE> 90
<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>
FS-29
W E I N G A R T E N
<PAGE> 91
<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>
FS-30
W E I N G A R T E N
<PAGE> 92
<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>
FS-31
W E I N G A R T E N
<PAGE> 93
<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>
FS-32
W E I N G A R T E N
<PAGE> 94
<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.
FS-33
W E I N G A R T E N
<PAGE> 95
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.
FS-34
W E I N G A R T E N
<PAGE> 96
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.
FS-35
W E I N G A R T E N
<PAGE> 97
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
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W E I N G A R T E N
<PAGE> 98
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
FS-37
W E I N G A R T E N
<PAGE> 99
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.
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W E I N G A R T E N
<PAGE> 100
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>
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W E I N G A R T E N
<PAGE> 101
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.
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W E I N G A R T E N
<PAGE> 102
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.
FS-41
W E I N G A R T E N
