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[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
RETAIL CLASS OF AIM EQUITY FUNDS, INC.
AIM AGGRESSIVE GROWTH FUND
(Growth)
PROSPECTUS
FEBRUARY 27, 1998
This Prospectus contains information about the AIM AGGRESSIVE GROWTH FUND
("AGGRESSIVE GROWTH" or the "Fund"), one of six separate investment portfolios
comprising series of AIM Equity Funds, Inc. (the "Company"), an open-end,
series, management investment company.
The Fund is a diversified portfolio which seeks to achieve long-term growth of
capital by investing primarily in common stocks, convertible bonds, convertible
preferred stocks and warrants of companies which in the opinion of the Fund's
investment advisor are expected to achieve earnings growth over time at a rate
in excess of 15% per year. The Fund has discontinued public sales of its shares
to new investors. See "Summary" and "Closure of the Fund to New Investors" in
this Prospectus for more complete information.
This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated
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 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173 or by calling
(800) 347-4246. The SEC maintains a Web site at http://www.sec.gov that contains
the Statement of Additional Information, material incorporated by reference, and
other information regarding the Fund. Additional information about the Fund may
also be obtained from http://www.aimfunds.com.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE FUND'S SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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.
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TABLE OF CONTENTS
<TABLE>
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PAGE PAGE
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<S> <C> <C> <C>
SUMMARY.................................. 2 Introduction to The AIM Family of
THE FUND................................. 4 Funds............................... A-1
Table of Fees and Expenses............. 4 How to Purchase Shares................. A-1
Financial Highlights................... 5 Terms and Conditions of Purchase of the
Performance............................ 6 AIM Funds........................... A-2
Investment Program..................... 6 Special Plans.......................... A-9
Management............................. 9 Exchange Privilege..................... A-11
Organization of the Company............ 11 How to Redeem Shares................... A-13
Closure of the Fund to New Investors... 12 Determination of Net Asset Value....... A-17
Legal Matters.......................... 12 Dividends, Distributions and Tax
INVESTOR'S GUIDE TO THE AIM FAMILY OF Matters............................. A-18
FUNDS--Registered Trademark--.......... A-1 General Information.................... A-20
APPLICATION INSTRUCTIONS................. B-1
</TABLE>
SUMMARY
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THE FUND
AIM Equity Funds, Inc. (the "Company") is a Maryland corporation organized as
an open-end, diversified, series, management investment company. Currently, the
Company offers six series comprising six separate investment portfolios, each of
which pursues unique investment objectives. This Prospectus relates only to
AGGRESSIVE GROWTH. The Fund's investment objective is to achieve long-term
growth of capital by investing primarily in common stocks, convertible bonds,
convertible preferred stocks and warrants of companies which, in the opinion of
the Fund's investment advisor, are expected to achieve earnings growth over time
at a rate in excess of 15% per year. There is no assurance that the investment
objective of the Fund will be achieved. For more complete information on the
Fund's investment policies, see "Investment Program."
The Company also offers other classes of shares in five other investment
portfolios, AIM BLUE CHIP FUND ("BLUE CHIP"), AIM CAPITAL DEVELOPMENT FUND
("CAPITAL DEVELOPMENT"), AIM CHARTER FUND ("CHARTER"), AIM CONSTELLATION FUND
("CONSTELLATION") and AIM WEINGARTEN FUND ("WEINGARTEN") each of which pursues
unique investment objectives. The other classes of shares of the other Funds of
the Company have different sales charges and expenses, which may affect
performance. To obtain information about the other shares of BLUE CHIP, CAPITAL
DEVELOPMENT, CHARTER, CONSTELLATION, or WEINGARTEN call (800) 347-4246. See
"General Information."
AGGRESSIVE GROWTH has discontinued public sales of its shares to new
investors. Shareholders who maintain an open account will be able to continue to
make investments in the Fund and reinvest any dividends and capital gains
distributions, as well as open additional accounts in the Fund under certain
conditions. If an account is closed, however, additional investments in the Fund
may not be possible. The Fund may resume sales of its shares to new investors at
some future date. See "Closure of the Fund to New Investors" in this Prospectus
for additional information.
The assets of each Fund are invested in a separate portfolio. The classes of
each Fund share a common investment objective and portfolio of investments. The
income from the investment portfolio of a Fund is allocated to each class of the
Fund based on the net assets of such class as of the close of business on the
previous business day, as adjusted for the current day's shareholder activity.
Each class bears proportionately those expenses, such as the advisory fee, that
are allocated to the Fund as a whole and bears separately certain expenses, such
as those associated with the distribution of the shares of such class.
Consequently, the amounts available for payment of dividends and the net asset
value per share of each class will vary. See "General Information."
THE ADVISOR. A I M Advisors, Inc. ("AIM") serves as the Fund's investment
advisor pursuant to a Master Investment Advisory Agreement dated as of February
28, 1997 (the "Master Advisory Agreement"). AIM, together with its subsidiaries,
manages or advises over 50 investment company portfolios (including the Fund)
encompassing a broad range of investment objectives. Under the Master Advisory
Agreement, AIM receives a fee for its services based on the Fund's average daily
net assets. Under the Master Administrative Services Agreement between the
Company and AIM dated as of February 28, 1997 (the "Master Administrative
Services Agreement"), AIM may receive reimbursement of its costs to perform
certain accounting and other administrative services to the Fund. Under a
Transfer Agency and Service Agreement, A I M Fund Services, Inc. ("AFS"), AIM's
wholly owned subsidiary and a registered transfer agent, receives a fee for its
provision of transfer agency, dividend distribution and disbursement, and
shareholder services to the Fund.
The total advisory fees paid by the Fund is higher than those paid by many
other investment companies of all sizes and investment objectives. However, the
effective fee paid by the Fund at its current size is lower than the fees paid
by many other funds with similar investment objectives. See "Management."
2
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PURCHASING SHARES. Class A shares of the Fund are offered by this Prospectus
at net asset value plus a sales charge of 5.50% of the public offering price
(5.82% of the net amount invested). The sales charge is reduced on purchases of
$25,000 or more. Initial investments must be at least $500 and additional
investments must be at least $50. The minimum initial investment is modified for
investments through tax-qualified retirement plans and accounts initially
established with an Automatic Investment Plan. The distributor of the Fund's
shares is A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston,
TX 77210-4739. See "How to Purchase Shares" and "Special Plans."
EXCHANGE PRIVILEGE. The Fund is among those mutual funds distributed by AIM
Distributors (collectively, "The AIM Family of Funds"). Shares of the Fund may
be exchanged for shares of other funds in The AIM Family of Funds in the manner
and subject to the policies and charges set forth herein. See "Exchange
Privilege."
REDEEMING SHARES. Shareholders may redeem all or a portion of their shares at
their net asset value on any business day, generally without charge. A
contingent deferred sales charge of 1.00% may apply to certain redemptions where
a purchase of more than $1 million is made at net asset value. See "How to
Redeem Shares."
DISTRIBUTIONS. The Fund currently declares and pays dividends from net
investment income, if any, on an annual basis. The Fund makes distributions of
realized capital gains, if any, on an annual basis. Dividends and distributions
of the Fund may be reinvested at net asset value without payment of a sales
charge in the Fund's shares or may be invested in shares of the other funds in
The AIM Family of Funds. See "Dividends, Distributions and Tax Matters" and
"Special Plans."
THE AIM FAMILY OF FUNDS, THE AIM FAMILY OF FUNDS AND DESIGN (I.E., THE AIM
LOGO), AIM AND DESIGN, AIM, AIM LINK, AIM INSTITUTIONAL FUNDS, 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
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THE FUND
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TABLE OF FEES AND EXPENSES
The following table is designed to help an investor in the Fund understand the
various costs that an investor will bear, both directly and indirectly. The fees
and expenses set forth in the table are based on the average net assets of the
Fund for its 1997 fiscal year. The rules of the SEC require that the maximum
sales charge be reflected in the table, even though certain investors may
qualify for reduced sales charges. See "How to Purchase Shares."
<TABLE>
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Shareholder Transaction Expenses (Retail Class)
Maximum sales load imposed on purchase of shares (as a
percentage of offering price).......................... 5.50%
Maximum sales load imposed on reinvested dividends and
distributions.......................................... None
Deferred sales load(1).................................... None
Redemption fees........................................... None
Exchange fee.............................................. None
Annual Fund Operating Expenses (Retail Class) (as a
percentage of average net assets)
Management fee............................................ .63%
12b-1 fees(2)............................................. .25%
Other expenses:
Transfer agent fees and costs.......................... .13%
Other.................................................. .05%
----
Total other expenses................................... .18%
----
Total fund operating expenses............................. 1.06%
====
</TABLE>
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1 Purchases of $1 million or more are not subject to an initial sales charge.
However, a contingent deferred sales charge of 1% applies to certain
redemptions made within 18 months from the date such shares were purchased.
See the Investor's Guide, under the caption "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases."
2 As a result of 12b-1 fees, a long-term shareholder may pay more than the
economic equivalent of the maximum front-end sales charges permitted by the
rules of the National Association of Securities Dealers, Inc. Given the Rule
12b-1 fee of the Fund, however, it is estimated that it would take a
substantial number of years for a shareholder to exceed such maximum
front-end sales charges.
EXAMPLES. An investor would pay the following expenses on a $1,000 investment,
assuming (a) a 5% annual return and (b) redemption at the end of each time
period:
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1 year..................................................... $65
3 years.................................................... $87
5 years.................................................... $110
10 years.................................................... $177
</TABLE>
The above examples assume payment of a sales charge at the time of purchase;
actual expenses may vary for purchases of $1 million or more, which are made at
net asset value and subject to a contingent deferred sales charge for 18 months
following the date such shares were purchased.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF ACTUAL OR FUTURE
EXPENSES, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN. IN ADDITION, WHILE THE
EXAMPLE ASSUMES A 5% ANNUAL RETURN, ACTUAL PERFORMANCE WILL VARY AND MAY RESULT
IN AN ACTUAL RETURN THAT IS GREATER OR LESS THAN 5%. THE EXAMPLE ASSUMES
REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND THAT THE PERCENTAGE AMOUNTS
FOR TOTAL FUND OPERATING EXPENSES REMAIN THE SAME FOR EACH YEAR.
4
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FINANCIAL HIGHLIGHTS
Shown below for the periods indicated are per share data, ratios and
supplemental data of the Fund. The data for the fiscal years ended October 31,
1997, 1996, 1995, 1994 and the ten months ended October 31, 1993 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose unqualified report
thereon appears in the Statement of Additional Information and is available upon
request from AIM Distributors, and the data for the five years ended December
31, 1992 has been derived from financial statements audited by Price Waterhouse
LLP.
(PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
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<TABLE>
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TEN
FISCAL YEAR MONTHS
ENDED OCTOBER 31, ENDED YEAR ENDED DECEMBER 31,
--------------------------------------------------- OCTOBER 31, --------------------------
1997 1996 1995 1994 1993 1992(a) 1991 1990
---------- ---------- ---------- -------- ----------- ------- ------- ------
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Net asset value, beginning of
period........................ $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06 $ 11.85 $13.30
Income from investment
operations:
Net investment income
(loss)...................... (0.26) (0.32) (0.04) (0.05) (0.02) (0.03) (0.04) 0.08
Net gains (losses) on
securities (both realized
and unrealized)............. 7.60 6.09 11.80 4.57 5.35 3.41 7.29 (0.95)
---------- ---------- ---------- -------- -------- ------- ------- ------
Total from investment
operations.................. 7.34 5.77 11.76 4.52 5.33 3.38 7.25 (0.87)
---------- ---------- ---------- -------- -------- ------- ------- ------
Less distributions:
Dividends from net investment
income...................... -- -- -- -- -- -- -- (0.09)
Distributions from net
realized gains.............. (2.30) (0.97) -- -- -- (0.92) (3.04) (0.49)
---------- ---------- ---------- -------- -------- ------- ------- ------
Total distributions........... (2.30) (0.97) -- -- -- (0.92) (3.04) (0.58)
---------- ---------- ---------- -------- -------- ------- ------- ------
Net asset value, end of
period........................ $ 49.97 $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06 $11.85
========== ========== ========== ======== ======== ======= ======= ======
Total return(b)................ 17.35% 14.77% 41.45% 18.96% 28.78% 21.34% 63.90% (6.50)%
========== ========== ========== ======== ======== ======= ======= ======
Ratios/supplemental data:
Net assets, end of period
(000s omitted).............. $3,864,257 $2,750,564 $2,245,554 $687,238 $217,256 $38,238 $16,218 $9,234
========== ========== ========== ======== ======== ======= ======= ======
Ratio of expenses to average
net assets(c)............... 1.06%(d)(e) 1.11% 1.08% 1.07% 1.00%(g) 1.25% 1.25% 1.25%
========== ========== ========== ======== ======== ======= ======= ======
Ratio of net investment income
(loss) to average net
assets(f)................... (0.65)%(d) (0.76)% (0.19)% (0.26)% (0.24)%(g) (0.59)% (0.31)% 0.62%
========== ========== ========== ======== ======== ======= ======= ======
Portfolio turnover rate....... 73% 79% 52% 75% 61% 164% 165% 137%
========== ========== ========== ======== ======== ======= ======= ======
Average broker commission rate
paid(h)..................... $ 0.0540 $ 0.0545 N/A N/A N/A N/A N/A N/A
========== ========== ========== ======== ======== ======= ======= ======
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1989 1988 1987
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Net asset value, beginning of
period........................ $ 11.07 $ 9.86 $ 12.10
Income from investment
operations:
Net investment income
(loss)...................... 0.03 0.05 --
Net gains (losses) on
securities (both realized
and unrealized)............. 2.28 1.21 (1.38)
------- ------- -------
Total from investment
operations.................. 2.31 1.26 (1.38)
------- ------- -------
Less distributions:
Dividends from net investment
income...................... (0.03) (0.05) --
Distributions from net
realized gains.............. (0.05) -- (0.86)
------- ------- -------
Total distributions........... (0.08) (0.05) (0.86)
------- ------- -------
Net asset value, end of
period........................ $ 13.30 $ 11.07 $ 9.86
======= ======= =======
Total return(b)................ 20.89% 12.77% (11.52)%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted).............. $11,712 $12,793 $13,991
======= ======= =======
Ratio of expenses to average
net assets(c)............... 1.25% 1.22% 1.20%
======= ======= =======
Ratio of net investment income
(loss) to average net
assets(f)................... 0.24% 0.38% 0.01%
======= ======= =======
Portfolio turnover rate....... 69% 56% 118%
======= ======= =======
Average broker commission rate
paid(h)..................... N/A N/A N/A
======= ======= =======
</TABLE>
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(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and, for periods less than one year, total
returns are not annualized.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.15%, 1.09%, 1.17% (annualized), and 1.65%, for 1995-92, respectively.
(d) Ratios are based on average net assets of $3,037,859,800.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been 1.05%.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.26)%, (0.28)%, (0.41)% (annualized) and (0.99)%, for
1995-92, respectively.
(g) Annualized.
(h) 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
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PERFORMANCE
The Fund's performance may be quoted in advertising in terms of yield or total
return. All advertisements of the Fund will disclose the maximum sales charge
imposed on purchases of the Fund's shares. If any advertised performance data
does not reflect the maximum sales charge, if any, such advertisement will
disclose that the sales charge has not been deducted in computing the
performance data, and that, if reflected, the maximum sales charge would reduce
the performance quoted. See the Statement of Additional Information for further
details concerning performance comparisons used in advertisements by the Fund.
Further information regarding the Fund's performance is contained in the annual
report to shareholders which is available upon request and without charge.
Total return shows the overall change in value, including changes in share
price and assuming all the dividends and capital gain distributions are
reinvested and that all charges and expenses are deducted. A cumulative total
return reflects the Fund's performance over a stated period of time. An average
annual total return reflects the hypothetical annually compounded return that
would have produced the same cumulative total return if the Fund's performance
had been constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO
EVEN OUT VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH
RETURNS ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the
components of overall performance, the Fund may separate its cumulative and
average annual returns into income results and capital gain or loss.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information and can be expected to fluctuate from time
to time and is not necessarily indicative of future results. Accordingly, yield
information may not provide a basis for comparison with investments which pay a
fixed rate of interest for a stated period of time. Yield is a function of the
type and quality of investments, the maturity and the operating expense ratio of
the Fund.
From time to time and in its discretion, AIM may waive all or a portion of its
advisory fees and/or assume certain expenses of the Fund. Such a practice will
have the effect of increasing the Fund's total return. The performance will vary
from time to time and past results are not necessarily indicative of future
results. Performance is a function of its portfolio management in selecting the
type and quality of portfolio securities and is affected by operating expenses
of the Fund and market conditions. A shareholder's investment is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment.
Additional performance information is contained in the Statement of Additional
Information and in the Company's Annual Report to Shareholders, both of which
are available upon request without charge.
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INVESTMENT PROGRAM
The Company has six series, each of which is a separate investment
portfolio -- BLUE CHIP, CAPITAL DEVELOPMENT, CHARTER, WEINGARTEN, AGGRESSIVE
GROWTH and CONSTELLATION. BLUE CHIP, CAPITAL DEVELOPMENT, CHARTER, WEINGARTEN
and CONSTELLATION are offered to investors pursuant to separate prospectuses.
The investment objective of the Fund is to achieve long-term growth of capital
by investing primarily in common stocks, convertible bonds, convertible
preferred stocks and warrants of companies which in the opinion of the Fund's
investment advisor are expected to achieve earnings growth over time at a rate
in excess of 15% per year. Many of these companies are in the small to
medium-sized category. Management of the Fund will be particularly interested in
companies that are likely to benefit from new or innovative products, services
or processes that should enhance such companies' prospects for future growth in
earnings. As a result of this policy, the market prices of many of the
securities purchased and held by the Fund may fluctuate widely. Any income
received from securities held by the Fund will be incidental, and an investor
should not consider a purchase of shares of the Fund as equivalent to a complete
investment program. The Fund's portfolio is primarily comprised of securities of
two basic categories of companies: (a) "core" companies, which Fund management
considers to have experienced above-average and consistent long-term growth in
earnings and to have excellent prospects for outstanding future growth, and (b)
"earnings acceleration" companies which Fund management believes are currently
enjoying a dramatic increase in profits. See "Certain Investment Strategies and
Policies" below and "Investment Objectives and Policies" in the Statement of
Additional Information. The Fund's strategy does not preclude investment in
large, seasoned companies which in the judgment of AIM possess superior
potential returns similar to companies with formative growth profiles. The Fund
will also invest in established smaller companies (under $500 million in market
capitalization) which offer exceptional value based upon substantially above
average earnings growth potential relative to market value. Investors should
realize that equity securities of small to medium-sized companies may involve
greater risk than is associated with investing in more established companies.
Small to medium-sized companies often have limited product and market
diversification, fewer financial resources or may be dependent on a few key
managers. Any one of the foregoing may change suddenly and have an immediate
impact on the value of the company's securities. Furthermore, whenever the
securities markets are experiencing rapid price changes due to national economic
trends, secondary growth securities have historically been subject to
exaggerated price changes. The Fund may invest in non-equity securities, such as
corporate bonds or U.S. Government obligations during periods when, in the
opinion of AIM, prevailing market, financial, or economic conditions warrant, as
well as when such holdings are advisable in light of a change in circumstances
of a particular company or within a particular industry.
6
<PAGE> 7
There can, of course, be no assurance that the Fund will in fact achieve its
objectives since all investments are inherently subject to market risks. The
Board of Directors of the Company reserves the right to change any of the
investment policies, strategies or practices of the Fund, as described in this
Prospectus and in the Statement of Additional Information, without shareholder
approval, except in those instances where shareholder approval is expressly
required.
CERTAIN INVESTMENT STRATEGIES AND POLICIES. In pursuit of its objectives and
policies, the Fund may employ one or more of the following strategies in order
to enhance investment results:
TEMPORARY DEFENSIVE MEASURES. A portion of the Fund's assets may be held, from
time to time, in cash, repurchase agreements, commercial paper, U.S. government
obligations, taxable municipal securities, investment grade (high quality)
corporate bonds or other debt securities, when such positions are deemed
advisable in light of economic or market conditions or for daily cash management
purposes. In addition, the Fund may invest, for temporary defensive purposes,
all or a substantial portion of its assets in the securities described above. To
the extent that the Fund invests to a significant degree in these instruments,
its ability to achieve its investment objective may be adversely affected.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. A
repurchase agreement is an instrument under which the Fund acquires ownership of
a debt security and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby determining the
yield during the Fund's holding period. With regard to repurchase transactions,
in the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) a possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights. Repurchase
agreements are considered to be loans by the Fund under the 1940 Act.
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase and
sell stock index futures contracts and may also purchase options on stock index
futures as a hedge against changes in market conditions. A stock index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar or other currency
amount times the difference between the stock index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying stocks in the index is
made. The Fund may purchase and sell futures contracts and may purchase related
options in order to hedge the value of its portfolio against changes in market
conditions. Generally, the Fund may elect to close a position in a futures
contract by taking an opposite position which will operate to terminate the
Fund's position in the futures contract. See the Statement of Additional
Information for a description of the Fund's investments in futures contracts and
options on futures contracts, including certain related risks. The Fund may
purchase or sell futures contracts or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits and premiums on open
positions with respect to futures contracts and related options would not exceed
5% of the market value of the Fund's total assets.
There are risks associated with investments in stock index futures contracts
and options on such contracts. During certain market conditions, purchases and
sales of futures contracts may not completely offset a decline or rise in the
value of a Fund's portfolio. In the futures markets, it may not always be
possible to execute a buy or sell order at the desired price, or to close out an
open position due to market conditions, limits on open positions and/or daily
price fluctuations. Changes in the market value of a Fund's portfolio may differ
substantially from the changes anticipated by the Fund when hedged positions
were established, and unanticipated price movements in a futures contract may
result in a loss substantially greater than a Fund's initial investment in such
contract. Successful use of futures contracts and related options is dependent
upon AIM's ability to predict correctly movements in the direction of the
applicable markets. No assurance can be given that AIM's judgment in this
respect will be correct.
WRITING COVERED CALL OPTION CONTRACTS. The Fund may write (sell) covered call
options. The purpose of such transactions is to hedge against changes in the
market value of the Fund's portfolio securities caused by fluctuating interest
rates, fluctuating currency exchange rates and changing market conditions, and
to close out or offset existing positions in such options or futures contracts
as described below. The Fund will not engage in such transactions for
speculative purposes.
The Fund may write (sell) call options, but only if such options are covered
and remain covered as long as the Fund is obligated as a writer of the option
(seller). A call option is "covered" if the Fund owns the underlying security
covered by the call. If a "covered" call option expires unexercised, the writer
realizes a gain in the amount of the premium received. If the covered call
option is exercised, the writer realizes either a gain or loss from the sale or
purchase of the underlying security with the proceeds to the writer being
increased by the amount of the premium. Prior to its expiration, a call option
may be closed out by means of a purchase of an identical option. Any gain or
loss from such transaction will depend on whether the amount paid is more or
less than the premium received for the option plus related transaction costs.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Fund's other investments and the risk
that there might not be a liquid secondary market for the option when the Fund
seeks to hedge against adverse market movements. In general, options whose
strike prices are close to their underlying securities' current values will have
the highest trading 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.
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<PAGE> 8
The investment policies of the Fund permit the writing of call options on
securities comprising no more than 25% of the value of the Fund's net assets.
The Fund's policies with respect to the writing of call options may be changed
by the Company's Board of Directors, without shareholder approval.
ILLIQUID SECURITIES. The Fund will not invest more than 15% of its net assets
in illiquid securities, including repurchase agreements with maturities in
excess of seven days.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Fund may invest in other
investment companies to the extent permitted by the Investment Company Act of
1940, and rules and regulations thereunder, and, if applicable, exemptive orders
granted by the SEC.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. The Fund may
purchase securities on a "when-issued" basis, that is, delivery of and payment
for the securities is not fixed at the date of purchase, but is set after the
securities are issued (normally within forty-five days after the date of the
transaction). The Fund also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed delivery securities are fixed at the time the buyer
enters into the commitment. The Fund will only make commitments to purchase
when-issued or delayed delivery securities with the intention of actually
acquiring such securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. For further information regarding
securities issued on a when-issued or delayed delivery basis see the caption
"Investment Objectives and Policies" in the Statement of Additional Information.
RULE 144A SECURITIES. The Fund may invest in securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933 (the "1933 Act"). These securities are sometimes referred
to as private placements. Although securities which may be resold only to
"qualified institutional buyers" in accordance with the provisions of Rule 144A
under the 1933 Act are unregistered securities, the Fund may purchase Rule 144A
securities without regard to the limitation on investments in illiquid
securities described above under "Illiquid Securities," provided that a
determination is made that such securities have a readily available trading
market. AIM will determine the liquidity of Rule 144A securities under the
supervision of the Company's Board of Directors. The liquidity of Rule 144A
securities will be monitored by AIM and, if as a result of changed conditions,
it is determined that a Rule 144A security is no longer liquid, the Fund's
holdings of illiquid securities will be reviewed to determine what, if any,
action is required to assure that the Fund does not exceed its applicable
percentage limitation for investments in illiquid securities.
FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in
foreign securities which may be payable in U.S. or foreign currencies and
publicly traded in the United States or abroad. For purposes of computing such
limitation, American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") and other securities representing underlying securities of
foreign issuers are treated as foreign securities. To the extent the Fund
invests in securities denominated in foreign currencies, the Fund bears the risk
of changes in the exchange rates between U.S. currency and the foreign currency,
as well as the availability and status of foreign securities markets. These
securities will be marketable equity securities (including common and preferred
stock, depositary receipts for stock and fixed income or equity securities
exchangeable for or convertible into stock) of foreign companies which generally
are listed on a recognized foreign securities exchange or traded in a foreign
over-the-counter market. The Fund may also invest in foreign securities listed
on recognized U.S. securities exchanges or traded in the U.S. over-the-counter
market. Such foreign securities may be issued by foreign companies located in
developing countries in various regions of the world. A "developing country" is
a country in the initial stages of its industrial cycle. As compared to
investment in the securities markets of developed countries, investment in the
securities markets of developing countries involves exposure to markets that may
have substantially less trading volume and greater price volatility, economic
structures that are less diverse and mature, and political systems that may be
less stable. For a discussion of the risks pertaining to investments in foreign
obligations, see "Risk Factors Regarding Foreign Securities" below.
FOREIGN EXCHANGE TRANSACTIONS. The Fund has authority to deal in foreign
exchange between currencies of the different countries in which it will invest
as a hedge against possible variations in the foreign exchange rate between
those currencies. This may be accomplished through direct purchases or sales of
foreign currency, purchases of options on futures contracts with respect to
foreign currency, and contractual agreements to purchase or sell a specified
currency at a specified future date (up to one year) at a price set at the time
of the contract. Such contractual commitments may be forward contracts entered
into directly with another party or exchange-traded futures contracts. The Fund
may purchase and sell options on futures contracts or forward contracts which
are denominated in a particular foreign currency to hedge the risk of
fluctuations in the value of another currency. The Fund's dealings in foreign
exchange will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of foreign
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase or sale of its portfolio securities, the sale
and redemption of shares of the Fund, or the payment of dividends and
distributions by the Fund. Position hedging is the purchase or sale of foreign
currency with respect to portfolio security positions denominated or quoted in a
foreign currency. The Fund will not speculate in foreign exchange, nor commit
more than 10% of its total assets to foreign exchange hedges.
8
<PAGE> 9
RISK FACTORS REGARDING FOREIGN SECURITIES. Investments by the Fund in foreign
securities, whether denominated in U.S. currencies or foreign currencies, may
entail all of the risks set forth below. Investments in ADRs, EDRs or similar
securities also may entail some or all of the risks as set forth below.
Currency Risk. The value of the Fund's foreign investments will be affected by
changes in currency exchange rates. The U.S. dollar value of a foreign security
decreases when the value of the U.S. dollar rises against the foreign currency
in which the security is denominated, and increases when the value of the U.S.
dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in which
the Fund may invest are not as developed as the United States economy and may be
subject to significantly different forces. Political or social instability,
expropriation or confiscatory taxation, and limitations on the removal of funds
or other assets could also adversely affect the value of the Fund's investments.
Regulatory Risk. Foreign companies are not registered with the SEC and are
generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Fund may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the Fund
invests will have substantially less trading volume than the major United States
markets. As a result, the securities of some foreign companies may be less
liquid and experience more price volatility than comparable domestic securities.
Increased custodian costs as well as administrative costs (such as the need to
use foreign custodians) may be associated with the maintenance of assets in
foreign jurisdictions. There is generally less government regulation and
supervision of foreign stock exchanges, brokers and issuers which may make it
difficult to enforce contractual obligations. In addition, transaction costs in
foreign securities markets are likely to be higher, since brokerage commission
rates in foreign countries are likely to be higher than in the United States.
PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds
reinvested, whenever such action is deemed prudent from the viewpoint of the
Fund's investment objectives, regardless of the holding period of that security.
The historical portfolio turnover rates are included in the Financial Highlights
table herein. A higher rate of portfolio turnover may result in higher
transaction costs, including brokerage commissions. Also, to the extent that
higher portfolio turnover results in a higher rate of net realized capital gains
to the Fund, the portion of the Fund's distributions constituting taxable
capital gains may increase. 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 Fund and may be changed by the Board of Directors of the Company
without shareholder approval. Shareholders will be notified before any material
change in the investment policies stated above become effective.
INVESTMENT RESTRICTIONS. The Fund has adopted a number of investment
restrictions, including the following:
BORROWING. The Fund may borrow money to a limited extent from banks (including
the Fund's custodian bank) for temporary or emergency purposes. The Fund may
borrow amounts from banks provided that no borrowing may exceed one-third of the
value of its total assets, including the proceeds of such borrowing, and may
secure such borrowings by pledging up to one-third of the value of its total
assets. In addition, the Fund has adopted a non-fundamental policy stating that
the Fund will not purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets.
LENDING OF FUND SECURITIES. The Fund may also lend its portfolio securities in
amounts up to one-third of the total assets of the Fund. Such loans could
involve risks of delay in receiving additional collateral in the event the value
of the collateral decreased below the value of the securities loaned or of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially. However, loans will be
made only to borrowers deemed by AIM to be of good standing and only when, in
AIM's judgment, the income to be earned from the loans justifies the attendant
risks.
Except as otherwise noted, the foregoing investment restrictions are matters
of fundamental policy and may not be changed without shareholder approval. For
additional investment restrictions applicable to the Fund, see the Statement of
Additional Information.
- --------------------------------------------------------------------------------
MANAGEMENT
The overall management of the business and affairs of the Fund is vested with
the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company and persons or companies furnishing
services to the Fund, including the Master Advisory Agreement with AIM, the
Master Administrative Services Agreement with AIM, the Master Distribution
Agreement with AIM Distributors as the distributor of the shares of the Fund,
the Custodian Agreement with State Street Bank and Trust Company as custodian
and the Transfer Agency and Service Agreement with AFS as transfer agent. The
day-to-day operations of
9
<PAGE> 10
the Fund are delegated to its officers and to AIM, subject always to the
objectives and policies of the Fund and to the general supervision of the
Company's Board of Directors. Information concerning the Board of Directors may
be found in the Statement of Additional Information. Certain directors and
officers of the Company are affiliated with AIM and A I M Management Group Inc.
("AIM Management"), the parent 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 the Fund pursuant to the Master
Advisory Agreement. AIM was organized in 1976, and, together with its
subsidiaries, advises or manages over 50 investment company portfolios
(including the Fund) 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 Fund's operations and provides investment advisory services to the Fund.
AIM obtains and evaluates economic, statistical and financial information to
formulate and implement investment programs for the Fund. AIM will not be liable
to the Fund or its shareholders except in the case of AIM's willful misfeasance,
bad faith, gross negligence or reckless disregard of duty; provided, however,
that AIM may be liable for certain breaches of duty under the 1940 Act.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information. In accordance with policies established by the directors, AIM may
take into account sales of shares of the Fund and other funds advised by AIM in
selecting broker-dealers to effect portfolio transactions on behalf of the Fund.
ADMINISTRATOR. The Company has entered into a Master Administrative Services
Agreement effective as of February 28, 1997, with AIM, pursuant to which AIM has
agreed to provide or arrange for the provision of certain accounting and other
administrative services to the Fund, including the services of a principal
financial officer and related staff. As compensation to AIM for its services
under the Master Administrative Services Agreements, the Fund reimburses AIM for
expenses incurred by AIM or its subsidiaries in connection with such services.
FEE WAIVERS. AIM may in its discretion, from time to time, agree to
voluntarily waive all or any portion of its advisory fee and/or assume certain
expenses of the Fund but will retain its ability to be reimbursed prior to the
end of the fiscal year.
ADVISORY FEES. As compensation for its services AIM is paid an investment
advisory fee. For the fiscal year ended October 31, 1997, AIM received total
advisory fees of $19,244,957 which represented 0.63% of the Fund's average daily
net assets.
AIM received reimbursement of administrative services costs for the fiscal
year ended October 31, 1997, which represented 0.003% of the Fund's average net
assets.
In addition, the Company and AFS, P.O. Box 4739, Houston, TX 77210-4739, a
wholly owned subsidiary of AIM and registered transfer agent, have entered into
the Transfer Agency and Service Agreement, pursuant to which AFS provides
transfer agency, dividend distribution and disbursement, and shareholder
services to the Fund.
DISTRIBUTOR. The Company has entered into a Master Distribution Agreement,
dated as of August 2, 1997, on behalf of Class A shares of the Fund (the
"Distribution Agreement") with AIM Distributors, a registered broker-dealer and
a wholly owned subsidiary of AIM, to act as the distributor of the shares of the
Fund. The address of AIM Distributors is 11 Greenway Plaza, Suite 100, Houston,
TX 77046-1173. The Distribution Agreement provides that AIM Distributors has the
exclusive right to distribute shares of the Fund through affiliated
broker-dealers and through other broker-dealers with whom AIM Distributors has
entered into selected dealer agreements. Certain directors and officers of the
Company are affiliated with AIM Distributors.
DISTRIBUTION PLAN. The Company has adopted a Master Distribution Plan
applicable to Class A shares of the Fund (the "Class A Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Class A Plan, the Company may compensate AIM
Distributors an aggregate amount of 0.25% of the average daily net assets of the
Fund on an annualized basis for the purpose of financing any activity that is
intended to result in the sale of shares of the Fund. The Class A Plan is
designed to compensate AIM Distributors, on a quarterly basis, for certain
promotional and other sales-related costs, and to implement a dealer incentive
program which provides for periodic payments to selected dealers who furnish
continuing personal shareholder services to their customers who purchase and own
shares of the Fund. In addition, certain banks who have entered into a Bank
Shareholder Service Agreement and who sell shares of a Fund on an agency basis,
may receive payments pursuant to the Class A Plan. Administrators of retirement
plans may also be paid fees to offset costs of services. The Company will obtain
a representation from financial institutions that they will be licensed as
dealers as required under applicable state law, or that they will not engage in
activities which would constitute acting as a "dealer" as defined under
applicable state law. Activities appropriate for financing under the Class A
Plan include, but are not limited to, the following: preparation and
distribution of advertising material and sales literature; expenses of
organizing and conducting sales seminars; overhead of AIM Distributors; printing
of prospectuses and statements of additional information (and supplements
thereto) and reports for other than existing shareholders; supplemental payments
to dealers under a dealer incentive program; and costs of administering the
Class A
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<PAGE> 11
Plan. The fees payable to selected dealers, banks and retirement plan
administrators who participate in the program are calculated at the annual rate
of 0.25% of the average daily net asset value of the Fund's shares that are held
in such institution's customers' accounts which were purchased on or after a
prescribed date set forth in the Class A Plan.
The Class A Plan conforms to the amended rules of the National Association of
Securities Dealers, Inc., by providing that, of the aggregate amount payable
under the Class A Plan, payments to dealers and other financial institutions
that provide continuing personal shareholder services to their customers who
purchase and own shares of the Fund, in amounts of up to 0.25% of the average
net assets of the Fund attributable to the customers of such dealers or
financial institutions may be characterized as a service fee, and that payments
to dealers and other financial institutions in excess of such amount and
payments to AIM Distributors would be characterized as an asset-based sales
charge pursuant to the Class A Plan. The Class A Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund. The Class A Plan does not obligate
the Fund to reimburse AIM Distributors for the actual expenses AIM Distributors
may incur in fulfilling its obligations under the Class A Plan on behalf of the
Fund. Thus, under the Class A Plan, even if AIM Distributors' actual expenses
exceed the fee payable to AIM Distributors thereunder at any given time, the
Fund will not be obligated to pay more than that fee. If AIM Distributors'
expenses are less than the fee it receives, AIM Distributors will retain the
full amount of the fee. Payments pursuant to the Plans are subject to any
applicable limitations imposed by rules of the National Association of
Securities Dealers, Inc.
Under the Class A Plan, AIM Distributors may in its discretion from time to
time agree to waive voluntarily all or any portion of its fee, while retaining
its ability to be reimbursed for such fee prior to the end of each fiscal year.
The Plan may be terminated at any time by a vote of the majority of those
directors who are not interested "interested persons" of the Company or by a
vote of the majority of the outstanding shares.
PORTFOLIO MANAGERS
AIM uses a team approach and a disciplined investment process in providing
investment advisory services to all of its accounts, including the Funds. AIM's
investment staff consists of approximately 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.
Robert M. Kippes, Kenneth A. Zschappel and Charles D. Scavone are primarily
responsible for the day-to-day management of AGGRESSIVE GROWTH. Mr. Kippes is
Vice President of A I M Capital Management, Inc. ("AIM Capital"), a wholly owned
subsidiary of AIM, and has been responsible for the Fund since 1992. 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 1991, 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.
- --------------------------------------------------------------------------------
ORGANIZATION OF THE COMPANY
The Company was organized in 1988 as a Maryland corporation, and is registered
with the SEC as a diversified, open-end, series, management investment company.
The Company currently consists of six separate portfolios: CHARTER,
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 shares consisting of Class A
shares; and BLUE CHIP and CAPITAL DEVELOPMENT, each of which has 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. Prior to October 15, 1993, the
Fund was a portfolio of AIM Funds Group, a Massachusetts business trust.
Pursuant to an Agreement and Plan of Reorganization between the Company and AIM
Funds Group, the Fund was redomesticated as a portfolio of the Company effective
as of October 15, 1993.
Each class of shares of the same Fund represent interests in that Fund's
assets and have identical voting, dividend, liquidation and other rights on the
same terms and conditions, except that each class of shares bears differing
class-specific expenses, such as those associated with the shareholder servicing
of their shares, is subject to differing sales loads, conversion features and
exchange privileges, and has exclusive voting rights on matters pertaining to
that class' distribution plan.
Except as specifically noted above, shareholders of each Fund are entitled to
one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the different classes of shares,
where applicable, of a Fund. However, on matters affecting one portfolio of the
Company or one class of shares, a separate vote of shareholders of that
portfolio or class is re-
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<PAGE> 12
quired. 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 holder of shares of the Fund is entitled to such dividends payable out of
the net assets allocable to the Fund as may be declared by the Board of
Directors of the Company. In the event of liquidation or dissolution of the
Company, the holders of shares of the Fund will be entitled to receive pro rata,
subject to the rights of creditors, the net assets of the Company allocable to
the Fund. Fractional shares of the Fund have the same rights as full shares to
the extent of their proportionate interest.
Under Maryland law and the Company's By-Laws, the Company need not hold an
annual meeting of shareholders unless a meeting is required under the 1940 Act
to elect directors. Shareholders may remove directors from office, and a meeting
of shareholders may be called at the request of the holders of 10% or more of
the Company's outstanding shares.
- --------------------------------------------------------------------------------
CLOSURE OF THE FUND TO NEW INVESTORS
The Fund reached a size in assets under management where, due to the limited
size of the market of common stocks of small capitalized companies, it became
increasingly difficult to satisfy the investment objective and guidelines. For
this reason, the Board of Directors of the Fund determined that it would be
advisable under the then current market conditions to close AGGRESSIVE GROWTH to
new investors effective as of the close of business June 5, 1997.
Shareholders who maintain open accounts in the Fund will be able to continue
to make additional investments in the Fund. Please note applicable minimum
account balance requirements in the Investor's Guide. Notwithstanding the right
to reinstatement described in the Investor's Guide, no shareholder of AGGRESSIVE
GROWTH who redeems their account in full will have the right of reinstatement.
The Fund may resume sales of shares to new investors at some future date if
the Board of Directors determines that it would be in the best interests of
shareholders.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania, serves as counsel to the Company.
On October 25, 1996 a shareholder of the Fund filed a lawsuit in United States
District Court, Southern District of Texas, against the Company, AIM, AIM
Distributors and Aggressive Growth as a nominal defendant. The action was
instituted under Section 36(b) of the Investment Company Act of 1940 and seeks
to recover damages allegedly suffered by the Fund in connection with fees paid
for marketing and shareholder services after the Fund was closed to new
investors.
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THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND SHAREHOLDER
ASSISTANCE IS
(800) 959-4246 (7:30 A.M. TO 6:00 P.M. CENTRAL TIME).
INVESTOR'S GUIDE
TO THE AIM FAMILY OF FUNDS--Registered Trademark--
- --------------------------------------------------------------------------------
INTRODUCTION TO THE AIM FAMILY OF FUNDS
THE AIM FAMILY OF FUNDS consists of the following mutual funds:
<TABLE>
<S> <C>
AIM ADVISOR FLEX FUND(*) AIM GLOBAL UTILITIES FUND
AIM ADVISOR INTERNATIONAL VALUE FUND(*) AIM GROWTH FUND
AIM ADVISOR LARGE CAP VALUE FUND(*) AIM HIGH INCOME MUNICIPAL FUND
AIM ADVISOR MULTIFLEX FUND(*) AIM HIGH YIELD FUND
AIM ADVISOR REAL ESTATE FUND(*) AIM INCOME FUND
AIM AGGRESSIVE GROWTH FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM ASIAN GROWTH FUND AIM INTERNATIONAL EQUITY FUND
AIM BALANCED FUND AIM LIMITED MATURITY TREASURY FUND
AIM BLUE CHIP FUND AIM MONEY MARKET FUND(**)
AIM CAPITAL DEVELOPMENT FUND AIM MUNICIPAL BOND FUND
AIM CHARTER FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM CONSTELLATION FUND AIM TAX-EXEMPT CASH FUND(**)
AIM EUROPEAN DEVELOPMENT FUND AIM TAX-FREE INTERMEDIATE FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM VALUE FUND
AIM GLOBAL GROWTH FUND AIM WEINGARTEN FUND
AIM GLOBAL INCOME FUND
</TABLE>
(*) Class B Shares of AIM ADVISOR FLEX FUND, AIM ADVISOR INTERNATIONAL VALUE
FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND and AIM
REAL ESTATE FUND will not be available until on or about March 3, 1998.
(**) Class A shares of AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of
AIM MONEY MARKET FUND are offered to investors at net asset value, without
payment of a sales charge, as described below. Other funds, including the
Class A, Class B and Class C shares of AIM MONEY MARKET FUND, are sold with
an initial sales charge or subject to a contingent deferred sales charge
upon redemption, as described below.
IT IS IMPORTANT FOR SHAREHOLDERS CONSIDERING AN EXCHANGE TO CAREFULLY REVIEW
THE PROSPECTUS OF THE FUND WHOSE SHARES WILL BE ACQUIRED IN AN EXCHANGE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SHARES OF ANY FUND OTHER THAN
THE FUND(S) NAMED ON THE COVER PAGE OF THIS PROSPECTUS.
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HOW TO PURCHASE SHARES
HOW TO OPEN AN ACCOUNT. In order to purchase shares of any of The AIM Family
of Funds ("AIM Funds"), an investor must submit a fully completed new Account
Application form directly to A I M Fund Services, Inc. ("AFS" or the "Transfer
Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM
Distributors") to sell shares of the AIM Funds.
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form
W-9 (certifying exempt status) accompanying the registration information will be
subject to backup withholding. See the Account Application for applicable
Internal Revenue Service penalties. The minimum initial investment is $500,
except for accounts initially established through an Automatic Investment Plan,
which requires a special authorization form (see "Special Plans") and for
certain retirement accounts. The minimum initial investment for accounts
established with an Automatic Investment Plan is $50. The minimum initial
investment for an Individual Retirement Arrangement ("IRA") or Roth IRA is $250.
There are no minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, Simplified Employee Pension
("SEP") accounts, Salary Reduction ("SARSEP") accounts, Savings Incentive Match
Plans for Employee IRA ("SIMPLE IRA") accounts, 403(b) plans or 457 (state
deferred compensation) plans (except that the minimum initial investment for
salary deferrals for such plans is $25), or for investment of dividends and
distributions of any of the AIM Funds into any existing AIM Funds account.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
MCF-02/98
A-1
<PAGE> 14
For additional information or assistance, investors should call the Client
Services Department of AFS at:
(800) 959-4246
Shares of any AIM Funds not named on the cover of this Prospectus are offered
pursuant to separate prospectuses. Copies of other prospectuses may be obtained
by calling (800) 347-4246.
INITIAL AND SUBSEQUENT PURCHASES BY WIRE: To insure prompt credit to his
account, an investor or his dealer should call AFS' Client Services Department
at (800) 959-4246 prior to sending a wire to receive a reference number for the
wire. The following wire instructions should be used:
<TABLE>
<S> <C>
Beneficiary Bank ABA/Routing #: 113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund Services, Inc.
RFB: Fund name, Reference Number (16 character limit)
OBI: Shareholder Name, Shareholder Account Number
(70 character limit)
</TABLE>
HOW TO PURCHASE ADDITIONAL SHARES. Additional shares may be purchased directly
through AIM Distributors or through any dealer who has entered into an agreement
with AIM Distributors. The minimum investment for subsequent purchases is $50.
The minimum employee salary deferral investment for participants in
money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or 457 plans is
$25. There are no such minimum investment requirements for investment of
dividends and distributions of any of the AIM Funds into any other existing AIM
Funds account.
BY MAIL: Investors must indicate their account number and the name of the Fund
being purchased. The remittance slip from a confirmation statement should be
used for this purpose, and sent to AFS.
BY AIM BANK CONNECTION--SM--: To purchase additional shares by electronic
funds transfer, please contact the Client Services Department of AFS for detail.
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS
Shares of the AIM Funds, including Class A shares (the "Class A shares") of
AIM ADVISOR FLEX FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE
CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND, AIM ADVISOR REAL ESTATE FUND, AIM
AGGRESSIVE GROWTH FUND, AIM ASIAN GROWTH FUND, AIM BALANCED FUND, AIM BLUE CHIP
FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND,
AIM EUROPEAN DEVELOPMENT FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL INCOME FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND,
AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM LIMITED
MATURITY TREASURY FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-FREE INTERMEDIATE FUND, AIM VALUE
FUND and AIM WEINGARTEN FUND, collectively (other than AIM AGGRESSIVE GROWTH
FUND, AIM LIMITED MATURITY TREASURY FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM TAX-FREE INTERMEDIATE FUND), the "Multiple Class Funds," may
be purchased at their respective net asset value plus a sales charge as
indicated below, except that Class A shares of AIM TAX-EXEMPT CASH FUND and AIM
Cash Reserve Shares of AIM MONEY MARKET FUND are sold without a sales charge and
Class B shares (the "Class B shares") and Class C shares ("Class C shares") of
the Multiple Class Funds are sold at net asset value subject to a contingent
deferred sales charge payable upon certain redemptions. These contingent
deferred sales charges are described under the caption "How to Redeem
Shares -- Multiple Distribution System." Securities dealers and other persons
entitled to receive compensation for selling or servicing shares of a Multiple
Class Fund may receive different compensation for selling or servicing one
particular class of shares over another class in the same Multiple Class Fund.
Factors an investor should consider prior to purchasing Class A, Class B or
Class C shares (or, if applicable, AIM Cash Reserve Shares) of a Multiple Class
Fund are described below under "Special Information Relating to Multiple Class
Funds." For information on purchasing any of the AIM Funds and to receive a
prospectus, please call (800) 347-4246. As described below, the sales charge
otherwise applicable to a purchase of shares of a fund may be reduced if certain
conditions are met. In order to take advantage of a reduced sales charge, the
prospective investor or his dealer must advise AIM Distributors that the
conditions for obtaining a reduced sales charge have been met. Net asset value
is determined in the manner described under the caption "Determination of Net
Asset Value." The following tables show the sales charge and dealer concession
at various investment levels for the AIM Funds.
MCF-02/98
A-2
<PAGE> 15
SALES CHARGES AND DEALER CONCESSIONS
GROUP I. Certain AIM Funds are currently sold with a sales charge ranging from
5.50% to 2.00% of the offering price on purchases of less than $1,000,000. These
AIM Funds include Class A shares of each of AIM ADVISOR FLEX FUND, AIM ADVISOR
INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, AIM AGGRESSIVE GROWTH FUND, AIM ASIAN GROWTH FUND, AIM BLUE CHIP
FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND,
AIM EUROPEAN DEVELOPMENT FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM
INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM VALUE FUND and AIM
WEINGARTEN FUND.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
GROUP II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM ADVISOR REAL ESTATE FUND,
AIM BALANCED FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND,
AIM GLOBAL INCOME FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM
INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM MUNICIPAL BOND FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
MCF-02/98
A-3
<PAGE> 16
GROUP III. Certain AIM Funds are currently sold with a sales charge ranging
from 1.00% to 0.50% of the offering price on purchases of less than $1,000,000.
These AIM Funds are the Class A shares of each of AIM LIMITED MATURITY TREASURY
FUND and AIM TAX-FREE INTERMEDIATE FUND.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than Class A shares of each of AIM LIMITED MATURITY TREASURY FUND and AIM
TAX-FREE INTERMEDIATE FUND as follows: 1% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. See "Contingent Deferred Sales Charge Program for
Large Purchases." AIM Distributors may make payments to dealers and institutions
who are dealers of record for purchases of $1 million or more of Class A shares
(or shares which normally involve payment of initial sales charges), and which
are sold at net asset value and are not subject to a contingent deferred sales
charge, in an amount up to 0.10% of such purchases of Class A shares of AIM
LIMITED MATURITY TREASURY FUND, and in an amount up to 0.25% of such purchases
of Class A shares of AIM TAX-FREE INTERMEDIATE FUND.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record on April 30, 1995 who purchase additional shares in any of the Funds
on or after May 1, 1995, and in circumstances where AIM Distributors grants an
exemption on particular transactions.
MCF-02/98
A-4
<PAGE> 17
TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund
(other than AIM MONEY MARKET FUND, as described below) received prior to the
close of the New York Stock Exchange ("NYSE"), which is generally 4:00 p.m.
Eastern Time (and which is hereinafter referred to as "NYSE Close") on any
business day of an AIM Fund will be confirmed at the price next determined.
Orders received after NYSE Close will be confirmed at the price determined on
the next business day of the AIM Fund. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent.
Any loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. Please see "How to Purchase
Shares -- Purchases by Wire" for information on obtaining a reference number for
wire orders, which will facilitate the handling of such orders and ensure prompt
credit to an investor's account. A "business day" of an AIM Fund is any day on
which the NYSE is open for business. It is expected that the NYSE will be closed
during the next twelve months on Saturdays and Sundays and on the days on which
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.
SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class Funds
currently offer two or more classes of shares through separate distribution
systems (the "Multiple Distribution System"). Although each class of shares of a
particular Multiple Class Fund represents an interest in the same portfolio of
investments, each class is subject to a different distribution structure and, as
a result, differing expenses. This Multiple Distribution System allows investors
to select the class that is best suited to the investor's needs and objectives.
In considering the options afforded by the Multiple Distribution System,
investors should consider both the applicable initial sales charge or contingent
deferred sales charge, as well as the ongoing expenses borne by each class of
shares and other relevant factors, such as whether his or her investment goals
are long-term or short-term.
CLASS A SHARES are sold subject to the initial sales charges described
above and are subject to the other fees and expenses described herein.
Class A shares of AIM MONEY MARKET FUND are designed to meet the needs of
an investor who wishes to establish a dollar cost averaging program,
pursuant to which Class A shares an investor owns may be exchanged at net
asset value for Class A shares of another Multiple Class Fund or shares of
another AIM Fund which is not a Multiple Class Fund, subject to the terms
and conditions described under the caption "Exchange Privilege -- Terms and
Conditions of Exchanges."
CLASS B SHARES are sold without an initial sales charge. Thus, the entire
purchase price of Class B shares is immediately invested in Class B shares.
Class B shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class B shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class B shares redeemed
within six years from the date such shares were purchased are subject to a
contingent deferred sales charge ranging from 5% for redemptions made
within the first year to 1% for redemptions made within the sixth year. No
contingent deferred sales charge will be imposed if Class B shares are
redeemed after six years from the date such shares were purchased.
Redemptions of Class B shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class B shares will automatically convert into Class A shares of the same
Multiple Class Fund (together with a pro rata portion of all Class B shares
acquired through the reinvestment of dividends and distributions) eight
years from the end of the calendar month in which the purchase of Class B
shares was made. Following such conversion of their Class B shares,
investors will be relieved of the higher Rule 12b-1 Plan payments
associated with Class B shares. See "Management -- Distribution Plans."
CLASS C SHARES are sold without an initial sales charge. Thus the entire
purchase price of Class C shares is immediately invested in Class C shares.
Class C shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class C shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class C shares redeemed
within one year from the date such shares were purchased are subject to a
1.00% contingent deferred sales charge. No contingent deferred sales charge
will be imposed if Class C shares are redeemed after one year from the date
such shares were purchased. Redemptions of Class C shares and associated
charges are further described under the caption "How to Redeem
Shares -- Multiple Distribution System."
AIM Cash Reserve Shares of AIM MONEY MARKET FUND are sold without an
initial sales charge and are not subject to a contingent deferred sales
charge; however, they are subject to the other fees and expenses described
in the prospectus for AIM MONEY MARKET FUND.
TIMING OF PURCHASE, EXCHANGE AND REDEMPTION ORDERS (AIM MONEY MARKET FUND
ONLY). Orders for purchases, exchanges and redemptions of shares of AIM MONEY
MARKET FUND received prior to 12:00 noon Eastern Time or NYSE Close on any
business day of the Fund will be confirmed at the price next determined. Net
asset value is normally determined at 12:00 noon Eastern Time and NYSE Close on
each business day of AIM MONEY MARKET FUND.
MCF-02/98
A-5
<PAGE> 18
SPECIAL INFORMATION RELATING TO AIM MONEY MARKET FUND AND AIM TAX-EXEMPT CASH
FUND (THE "MONEY MARKET FUNDS"). Because each Money Market Fund uses the
amortized cost method of valuing the securities it holds and rounds its per
share net asset value to the nearest whole cent, it is anticipated that the net
asset value of the shares of such funds will remain constant at $1.00 per share.
However, there is no assurance that each Money Market Fund can maintain a $1.00
net asset value per share. In order to earn dividends with respect to AIM MONEY
MARKET FUND on the same day that a purchase is made, purchase payments in the
form of federal funds must be received by the Transfer Agent before 12:00 noon
Eastern Time on that day. Purchases made by payments in any other form, or
payments in the form of federal funds received after such time but prior to NYSE
Close, will begin to earn dividends on the next business day following the date
of purchase. The Money Market Funds generally will not issue share certificates
but will record investor holdings in noncertificate form and regularly advise
the shareholder of his ownership position.
SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon
written request by a shareholder to AIM Distributors or the Transfer Agent.
Otherwise, such shares will be held on the shareholder's behalf by the
applicable AIM Fund(s) and be recorded on the books of such fund(s). See
"Exchange Privilege -- Exchanges by Telephone" and "How to Redeem
Shares -- Redemptions by Telephone" for restrictions applicable to shares issued
in certificate form. Please note that certificates will not be issued for shares
held in prototype retirement plans.
MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect
for at least one year and the shareholder has not made an additional purchase in
that account within the preceding six calendar months and (2) the value of such
account drops below $500 for three consecutive months as a result of redemptions
or exchanges, the fund has the right to redeem the account, after giving the
shareholder 60 days' prior written notice, unless the shareholder makes
additional investments within the notice period to bring the account value up to
$500. If a fund determines that a shareholder has provided incorrect information
in opening an account with a fund or in the course of conducting subsequent
transactions with the fund related to such account, the fund may, in its
discretion, redeem the account and distribute the proceeds of such redemption to
the shareholder.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
TAX-EXEMPT CASH FUND, AIM Cash Reserve Shares of AIM MONEY MARKET FUND and Class
B and Class C shares of the Multiple Class Funds will not be taken into account
in determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), provided that:
a. the employer/sponsor must submit contributions for all participating
employees in a single contribution transmittal (i.e., the funds will
not accept contributions submitted with respect to individual
participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by submitting
an application on behalf of each new participant with the
contribution transmittal;
- a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension ("SEP"), Salary Reduction and other Elective
Simplified Employee Pension account ("SARSEP"), a Savings Incentive Match
Plans for Employees IRA ("SIMPLE IRA") where the employer has notified AIM
Distributors in writing that all of its related employee SEP, SARSEP or
SIMPLE IRA accounts should be linked;
- any other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase at a discount of redeemable securities of a
registered investment company; or
- the discretionary advised accounts of A I M Advisors, Inc. ("AIM") or A I M
Capital Management, Inc. ("AIM Capital").
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine whether
any purchaser is entitled, by vir-
MCF-02/98
A-6
<PAGE> 19
tue of the foregoing definition, to the reduced sales charge. No person or
entity may distribute shares of the AIM Funds without payment of the applicable
sales charge other than to persons or entities who qualify for a reduction in
the sales charge as provided herein.
(1) LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for
(i) Class A shares of AIM TAX-EXEMPT CASH FUND, and AIM Cash Reserve Shares of
AIM MONEY MARKET FUND and (ii) Class B and Class C shares of the Multiple Class
Funds) within the following 13 consecutive months. By marking the LOI section on
the account application and by signing the account application, the purchaser
indicates that he understands and agrees to the terms of the LOI and is bound by
the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the Transfer Agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the Transfer Agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date, he
irrevocably constitutes and appoints the Transfer Agent as his attorney to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
(2) RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) Class A shares of
AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of AIM MONEY MARKET FUND
and (ii) Class B and Class C shares of the Multiple Class Funds) at the time of
the proposed purchase. Rights of Accumulation are also available to holders of
the Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992. To determine
whether or not a reduced initial sales charge applies to a proposed purchase,
AIM Distributors takes into account not only the money which is invested upon
such proposed purchase, but also the value of all shares of the AIM Funds
(except for (i) Class A shares of AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve
Shares of AIM MONEY MARKET FUND and (ii) Class B and Class C shares of the
Multiple Class Funds) owned by such purchaser, calculated at their then current
public offering price. If a purchaser so qualifies for a reduced sales charge,
the reduced sales charge applies to the total amount of money then being
invested by such purchaser and not just to the portion that exceeds the
breakpoint above which a reduced sales charge applies. For example, if a
purchaser already owns qualifying shares of any AIM Fund with a value of $20,000
and wishes to invest an additional $20,000 in a fund with a maximum initial
sales charge of 5.50%, the reduced initial sales charge of 5.25% will apply to
the full $20,000 purchase and not just to the $15,000 in excess of the $25,000
breakpoint. To qualify for obtaining the discount applicable to a particular
purchase, the purchaser or his dealer must furnish AFS with a list of the
account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a fund
(see "Dividends,
MCF-02/98
A-7
<PAGE> 20
Distributions and Tax Matters"); (b) exchanges of shares of certain other funds
(see "Exchange Privilege"); (c) use of the reinstatement privilege (see "How to
Redeem Shares"); or (d) a merger, consolidation or acquisition of assets of a
fund.
Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM
CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A
shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A
shares of the particular AIM Fund(s) whose shares they owned on such date, at
net asset value (without payment of a sales charge) for as long as they
continuously own Class A shares of such AIM Fund(s) having a market value of at
least $500. In addition, discretionary advised clients of any investment
advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM
CHARTER FUND on November 17, 1986, and have held such Class A shares at all
times subsequent to such date, may purchase Class A shares of the applicable AIM
Fund(s) at the net asset value of such shares.
The following persons may purchase shares of the AIM Funds through AIM
Distributors without payment of an initial sales charge: (a) A I M Management
Group Inc. ("AIM Management") and its affiliated companies; (b) any current or
retired officer, director, trustee or employee, or any member of the immediate
family (including spouse, children, parents and parents of spouse) of any such
person, of AIM Management or its affiliates or of certain mutual funds which are
advised or managed by AIM, or any trust established exclusively for the benefit
of such persons; (c) any employee benefit plan established for employees of AIM
Management or its affiliates; (d) any current or retired officer, director,
trustee or employee, or any member of the immediate family (including spouse,
children, parents and parents of spouse) of any such person, or of CIGNA
Corporation or of any of its affiliated companies, or of First Data Investor
Services Group (formerly The Shareholders Services Group, Inc.); (e) any
investment company sponsored by CIGNA Investments, Inc. or any of its affiliated
companies for the benefit of its directors' deferred compensation plans; (f)
discretionary advised clients of AIM or AIM Capital; (g) registered
representatives and employees of dealers who have entered into agreements with
AIM Distributors (or financial institutions that have arrangements with such
dealers with respect to the sale of shares of the AIM Funds) and any member of
the immediate family (including spouse, children, parents and parents of spouse)
of any such person, provided that purchases at net asset value are permitted by
the policies of such person's employer; (h) certain broker-dealers, investment
advisers or bank trust departments that provide asset allocation, similar
specialized investment services or investment company transaction services for
their customers, that charge a minimum annual fee for such services, and that
have entered into an agreement with AIM Distributors with respect to their use
of the AIM Funds in connection with such services; and (i) employees of
Triformis Inc.
In addition, shares of any AIM Fund may be purchased at net asset value,
without payment of a sales charge, by pension, profit-sharing or other employee
benefit plans created pursuant to a plan qualified under Section 401 of the Code
or plans under Section 457 of the Code, or employee benefit plans created
pursuant to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the total amount invested in the
plan is at least $1,000,000, (2) the sponsor signs a $1,000,000 LOI, (3) such
shares are purchased by an employer-sponsored plan with at least 100 eligible
employees, or (4) all of the plan's transactions are executed through a single
financial institution or service organization who has entered into an agreement
with AIM Distributors with respect to their use of the AIM Funds in connection
with such accounts. Section 403(b) plans sponsored by public educational
institutions will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees.
Participants in such plans will be eligible for reduced sales charges based
solely on the aggregate value of their individual investments in the applicable
AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR
SUCH PLANS. AIM Distributors may pay investment dealers or other financial
service firms for share purchases of the Load Funds (as defined on page A-10
herein) sold at net asset value to an employee benefit plan in accordance with
this paragraph as follows: 1% of the first $2 million of such purchases, plus
0.80% of the next $1 million of such purchases, plus 0.50% of the next $17
million of such purchases, plus 0.25% of amounts in excess of $20 million of
such purchases and up to 0.10% of the net asset value of any Class A shares of
AIM LIMITED MATURITY TREASURY FUND sold at net asset value to an employee
benefit plan in accordance with this paragraph.
Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be
deposited at net asset value, without payment of a sales charge, in G/SET series
unit investment trusts, whose portfolios consist exclusively of Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States
Treasury issued notes or bonds bearing no current interest ("Treasury
Obligations"). Class A shares of such funds may also be purchased at net asset
value by other unit investment trusts approved by the Board of Directors of AIM
Equity Funds, Inc. Unit holders of such trusts may elect to invest cash
distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, including: (a) distributions of any
dividend income or other income received by such trusts; (b) distributions of
any net capital gains received in respect of Class A shares of AIM WEINGARTEN
FUND or AIM CONSTELLATION FUND and proceeds of the sale of Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such trusts;
and (c) proceeds from the maturity of the Treasury Obligations at the
termination dates of such trusts. Prior to the termination dates of such trusts,
a unit holder may invest the proceeds from the redemption or repurchase of his
units in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net
asset value, provided: (a) that the investment in Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND is effected within 30 days of such
redemption or repurchase; and (b) that the unit holder or his dealer provides
AIM Distributors with a letter which: (i) identifies the name, address and
telephone number of the dealer who sold to the unit holder the units to be
redeemed or repurchased; and (ii) states that the investment in Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is being funded exclusively by
the proceeds from the redemption or repurchase of units of such trusts.
MCF-02/98
A-8
<PAGE> 21
FOR ANY FUND NAMED ON THE COVER PAGE OF THIS PROSPECTUS, AIM DISTRIBUTORS AND
ITS AGENTS RESERVE THE RIGHT AT ANY TIME (1) TO WITHDRAW ALL OR ANY PART OF THE
OFFERING MADE BY THIS PROSPECTUS; (2) TO REJECT ANY PURCHASE OR EXCHANGE ORDER
OR TO CANCEL ANY PURCHASE DUE TO NONPAYMENT OF THE PURCHASE PRICE; (3) TO
INCREASE, WAIVE OR LOWER THE MINIMUM INVESTMENT REQUIREMENTS; OR (4) TO MODIFY
ANY OF THE TERMS OR CONDITIONS OF PURCHASE OF SHARES OF SUCH FUND. For any fund
named on the cover page, AIM Distributors and its agents will use their best
efforts to provide notice of any such actions through correspondence with
broker-dealers and existing shareholders, supplements to the AIM Funds'
prospectuses, or other appropriate means, and will provide sixty (60) days'
notice in the case of termination or material modification to the exchange
privilege discussed under the caption "Exchange Privilege."
- --------------------------------------------------------------------------------
SPECIAL PLANS
Except as noted below, each AIM Fund provides the special plans described
below for the convenience of its shareholders. Once established, there is no
obligation to continue to invest through a plan, and a shareholder may terminate
a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. IT IS RECOMMENDED THAT A SHAREHOLDER CONSIDERING ANY OF THE
PLANS DESCRIBED HEREIN CONSULT A TAX ADVISOR BEFORE COMMENCING PARTICIPATION IN
SUCH A PLAN.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, a shareholder
who owns shares which are not subject to a contingent deferred sales charge, can
arrange for monthly, quarterly or annual amounts (but not less than $50) to be
drawn against the balance of his account in the designated AIM Fund.
Shareholders who own shares subject to a contingent deferred sales charge, can
only arrange for monthly or quarterly withdrawals under a Systematic Withdrawal
Plan. Payment of this amount can be made on any day of the month the shareholder
specifies, except the thirtieth or thirty-first day of each month in which a
payment is to be made. A minimum account balance of $5,000 is required to
establish a Systematic Withdrawal Plan, but there is no requirement thereafter
to maintain any minimum investment. With respect to shares subject to a
contingent deferred sales charge (all classes) no contingent deferred sales
charge will be imposed on withdrawals made under a Systematic Withdrawal Plan,
provided that the amounts withdrawn under such a plan do not exceed on an annual
basis 12% of the account value at the time the shareholder elects to participate
in the Systematic Withdrawal Plan. Systematic Withdrawal Plans with respect to
shares subject to a contingent deferred sales charge that exceed on an annual
basis 12% of such account will be subject to a contingent deferred sales charge
on the amounts exceeding 12% of the account value at the time the shareholder
elects to participate in the Systematic Withdrawal Plan.
Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer
Agent and all dividends and distributions are reinvested in shares of the
applicable AIM Fund by the Transfer Agent. To provide funds for payments made
under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full
and fractional shares at their net asset value in effect at the time of each
such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the Multiple Class Funds and AIM Cash
Reserve Shares of AIM MONEY MARKET FUND), it is disadvantageous to effect such
purchases while a Systematic Withdrawal Plan is in effect.
The Systematic Withdrawal Plan may be terminated at any time upon 10 days'
prior notice to AFS. Each AIM Fund bears its share of the cost of operating the
Systematic Withdrawal Plan. Each AIM Fund reserves the right to initiate a fee
for each withdrawal (not to exceed its cost), but there is no present intent to
do so.
AUTOMATIC INVESTMENT PLAN. Shareholders who wish to make regular systematic
investments may establish an Automatic Investment Plan. Under this plan each
withdrawal is made from the shareholder's bank account in the amount specified
by the shareholder (minimum $50 per investment, per account) and on a day or
date(s) specified by the shareholder. The proceeds are invested in shares of the
designated AIM Fund at the applicable offering price determined on the date of
the withdrawal. An Automatic Investment Plan may be discontinued upon 10 days'
prior notice to the Transfer Agent or AIM Distributors.
AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all
dividends and distributions declared by an AIM Fund paid in cash or invested at
net asset value, without payment of an initial sales charge, either in shares of
the same AIM Fund or invested in shares of another AIM Fund. For each of the
Multiple Class Funds, dividends and distributions attributable to Class A shares
may be reinvested in Class A shares of the same fund, in Class A shares of
another Multiple Class Fund or in shares of another AIM Fund which is not a
Multiple Class Fund; dividends and distributions attributable to Class B shares
may be reinvested in Class B shares of the same fund or in Class B shares of
another Multiple Class Fund; dividends and distributions attributable to Class C
shares may be reinvested in Class C shares of the same fund or in Class C shares
of another Multiple Class Fund; and dividends and distributions attributable to
AIM Cash Reserve Shares of AIM MONEY MARKET FUND may be reinvested in additional
shares of such fund, in Class A shares of another Multiple Class Fund or in
shares of another AIM Fund which is not a Multiple Class Fund. See "Dividends,
Distributions and
MCF-02/98
A-9
<PAGE> 22
Tax Matters -- Dividends and Distributions" for a description of payment dates
for these options. In order to qualify to have dividends and distributions of
one AIM Fund invested in shares of another AIM Fund, the following conditions
must be satisfied: (a) the shareholder must have an account balance in the
dividend paying fund of at least $5,000; (b) the account must be held in the
name of the shareholder (i.e., the account may not be held in nominee name); and
(c) the shareholder must have requested and completed an authorization relating
to the reinvestment of dividends into another AIM Fund. An authorization may be
given on the account application or on an authorization form available from AIM
Distributors. An AIM Fund will waive the $5,000 minimum account value
requirement if the shareholder has an account in the fund selected to receive
the dividends and distributions with a value of at least $500.
DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly (on or about the 10th or
25th day of the applicable month), from one of their accounts into one or more
AIM Funds, subject to the terms and conditions described under the caption
"Exchange Privilege -- Terms and Conditions of Exchanges." The account from
which exchanges are to be made must have a value of at least $5,000 when a
shareholder elects to begin this program, and the exchange minimum is $50 per
transaction. All of the accounts that are part of this program must have
identical registrations. The net asset value of shares purchased under this
program may vary, and may be more or less advantageous than if shares were not
exchanged automatically. There is no charge for entering the Dollar Cost
Averaging program. Sales charges may apply, as described under the caption
"Exchange Privilege."
PROTOTYPE RETIREMENT PLANS. The AIM Funds (except for AIM HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM
TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT) have made the
following prototype retirement plans available to corporations, individuals and
employees of non-profit organizations and public schools: combination
money-purchase/profit-sharing plans; 403(b) plans; IRA plans; Roth IRA plans;
SARSEP plans; SEP plans; and SIMPLE IRA plans (collectively, "retirement
accounts"). Information concerning these plans, including the custodian's fees
and the forms necessary to adopt such plans, can be obtained by calling or
writing the AIM Funds or AIM Distributors. Shares of the AIM Funds are also
available for investment through existing 401(k) plans (for both individuals and
employers) adopted under the Code. The plan custodian currently imposes an
annual $10 maintenance fee with respect to each retirement account for which it
serves as the custodian. This fee is generally charged in December. Each AIM
Fund and/or the custodian reserve the right to change this maintenance fee and
to initiate an establishment fee (not to exceed its cost).
MCF-02/98
A-10
<PAGE> 23
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may
participate in an exchange privilege as described below. The exchange privilege
is also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. AIM Distributors acts as distributor for the AIM Funds,
which represent a range of different investment objectives and policies. As set
forth under the caption "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM
Funds, including the Class A shares of the Multiple Class Funds, listed below
and referred to herein as the "Load Funds," are sold at a public offering price
that includes a maximum sales charge of 5.50% or 4.75% of the public offering
price of such shares; Class A shares (or shares which normally involve the
payment of initial sales charges) of certain of the AIM Funds, listed below and
referred to herein as the "Lower Load Funds," are sold at a public offering
price that includes a maximum sales charge of 1.00% of the public offering price
of such shares; and Class A shares or shares of certain other funds, listed
below and referred to herein as the "No Load Funds," are sold at net asset
value, without payment of a sales charge.
<TABLE>
<S> <C> <C>
LOAD FUNDS: LOWER LOAD FUNDS:
---------- -----------------
AIM ADVISOR FLEX FUND -- AIM GLOBAL GROWTH AIM LIMITED MATURITY TREASURY FUND
CLASS A FUND -- CLASS A -- CLASS A
AIM ADVISOR INTERNATIONAL AIM GLOBAL INCOME AIM TAX-FREE INTERMEDIATE FUND
VALUE FUND -- CLASS A FUND -- CLASS A -- CLASS A
AIM ADVISOR LARGE CAP AIM GLOBAL UTILITIES NO LOAD FUNDS:
VALUE FUND -- CLASS A FUND -- CLASS A --------------
AIM ADVISOR MULTIFLEX AIM GROWTH FUND -- CLASS A AIM MONEY MARKET FUND
FUND -- CLASS A AIM HIGH INCOME MUNICIPAL -- AIM CASH RESERVE SHARES
AIM ADVISOR REAL ESTATE FUND -- CLASS A AIM TAX-EXEMPT CASH FUND -- CLASS A
FUND -- CLASS A AIM HIGH YIELD FUND -- CLASS A
AIM AGGRESSIVE GROWTH AIM INCOME FUND -- CLASS A
FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT
AIM ASIAN GROWTH FUND -- CLASS A FUND -- CLASS A
AIM BALANCED FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM BLUE CHIP FUND -- CLASS A FUND -- CLASS A
AIM CAPITAL DEVELOPMENT AIM MONEY MARKET
FUND -- CLASS A FUND -- CLASS A
AIM CHARTER FUND -- CLASS A AIM MUNICIPAL BOND
AIM CONSTELLATION FUND -- CLASS A
FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM EUROPEAN DEVELOPMENT OF CONNECTICUT -- CLASS A
FUND -- CLASS A AIM VALUE FUND -- CLASS A
AIM GLOBAL AGGRESSIVE GROWTH AIM WEINGARTEN FUND -- CLASS A
FUND -- CLASS A
</TABLE>
Shares of any AIM Fund may be exchanged for shares of any other AIM Fund on
the terms described on the chart below, except that (i) Load Fund share
purchases of $1,000,000 or more which are subject to a contingent deferred sales
charge may not be exchanged for Lower Load Funds or for AIM TAX-EXEMPT CASH
FUND; (ii) LOWER LOAD FUND SHARE PURCHASES OF $1,000,000 OR MORE AND AIM Cash
Reserve Shares of AIM MONEY MARKET FUND and AIM TAX-EXEMPT CASH FUND PURCHASES
MAY BE EXCHANGED FOR LOAD FUND SHARES IN AMOUNTS OF $1,000,000 OR MORE WHICH
WILL THEN BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE; HOWEVER, FOR
PURPOSES OF CALCULATING THE CONTINGENT DEFERRED SALES CHARGE ON THE LOAD FUND
SHARES ACQUIRED, THE 18-MONTH PERIOD SHALL BE COMPUTED FROM THE DATE OF SUCH
EXCHANGE; (iii) Class A shares may be exchanged for Class A shares, (iv) Class B
shares may be exchanged only for Class B shares; (v) Class C shares may only be
exchanged for Class C shares; and (vi) AIM Cash Reserve Shares of AIM MONEY
MARKET FUND may not be exchanged for Class A shares of AIM MONEY MARKET FUND or
for Class B or Class C shares.
MCF-02/98
A-11
<PAGE> 24
DEPENDING UPON THE FUND FROM WHICH AND INTO WHICH AN EXCHANGE IS BEING MADE,
SHARES BEING ACQUIRED IN AN EXCHANGE MAY BE ACQUIRED AT THEIR OFFERING PRICE OR
AT THEIR NET ASSET VALUE (WITHOUT PAYMENT OF A SALES CHARGE) AS SET FORTH IN THE
TABLE BELOW FOR SHARES INITIALLY PURCHASED PRIOR TO MAY 1, 1994:
<TABLE>
<CAPTION>
MULTIPLE CLASS FUNDS:
LOWER LOAD NO LOAD ------------------------------
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B CLASS C
----- -------------- ----------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Funds..........
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund or any Fund or any Lower Load
Lower Load Fund. Fund; otherwise,
Offering Price.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
FOR SHARES INITIALLY PURCHASED ON OR AFTER MAY 1, 1994, THE FOREGOING TABLE IS REVISED AS FOLLOWS:
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable Not Applicable
Funds.......... acquired upon exchange of any
Load Fund. Otherwise, difference
in sales charge will apply.
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund. Fund or any Lower Load
Difference in sales charge will Fund; otherwise, Of-
apply if No Load shares were fering Price.
acquired upon exchange of Lower
Load Fund shares.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
Class C........ Not Applicable Not Applicable Not Applicable Not Applicable Net Asset Value
</TABLE>
An exchange is permitted only in the following circumstances: (a) if the funds
offer more than one class of shares, the exchange must be between the same class
of shares (e.g., Class A, Class B and Class C shares of a Multiple Class Fund
cannot be exchanged for each other), except that AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may be exchanged for Class A, Class B, or Class C shares of
another Multiple Class Fund; (b) the dollar amount of the exchange must be at
least equal to the minimum investment applicable to the shares of the fund
acquired through such exchange; (c) the shares of the fund acquired through
exchange must be qualified for sale in the state in which the shareholder
resides; (d) the exchange must be made between accounts having identical
registrations and addresses; (e) the full amount of the purchase price for the
shares being exchanged must have already been received by the fund; (f) the
account from which shares have been exchanged must be coded as having a
certified taxpayer identification number on file or, in the alternative, an
appropriate Internal Revenue Service ("IRS") Form W-8 (certificate of foreign
status) or Form W-9 (certifying exempt status) must have been received by the
fund; (g) newly acquired shares (through either an initial or subsequent
investment) are held in an account for at least ten business days, and all other
shares are held in an account for at least one day, prior to the exchange; and
(h) certificates representing shares must be returned before shares can be
exchanged. There is no fee for exchanges among the AIM Funds.
THE CURRENT PROSPECTUS OF EACH OF THE AIM FUNDS AND CURRENT INFORMATION
CONCERNING THE OPERATION OF THE EXCHANGE PRIVILEGE ARE AVAILABLE THROUGH AIM
DISTRIBUTORS OR THROUGH ANY DEALER WHO HAS EXECUTED AN APPLICABLE AGREEMENT WITH
AIM DISTRIBUTORS. BEFORE EXCHANGING SHARES, INVESTORS SHOULD REVIEW THE
PROSPECTUSES OF THE FUNDS WHOSE SHARES WILL BE ACQUIRED THROUGH EXCHANGE.
EXCHANGES OF SHARES ARE CONSIDERED TO BE SALES FOR FEDERAL AND STATE INCOME TAX
PURPOSES AND MAY RESULT IN A TAXABLE GAIN OR LOSS TO A SHAREHOLDER.
THE EXCHANGE PRIVILEGE IS NOT AN OPTION OR RIGHT TO PURCHASE SHARES BUT IS
PERMITTED UNDER THE RESPECTIVE POLICIES OF THE PARTICIPATING FUNDS, AND MAY BE
MODIFIED OR DISCONTINUED BY ANY OF SUCH FUNDS OR BY AIM DISTRIBUTORS AT ANY
TIME, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WITHOUT NOTICE.
Shares of any AIM Fund (other than AIM MONEY MARKET FUND) to be exchanged are
redeemed at their net asset value as determined at NYSE Close on the day that an
exchange request in proper form (described below) is received. Exchange requests
received
MCF-02/98
A-12
<PAGE> 25
after NYSE Close will result in the redemption of shares at their net asset
value at NYSE Close on the next business day. See "Terms and Conditions of
Purchase of the AIM Funds -- Timing of Purchase, Exchange and Redemption Orders
(AIM MONEY MARKET FUND only)" for information regarding the timing of exchange
orders for AIM MONEY MARKET FUND. Normally, shares of an AIM Fund to be acquired
by exchange are purchased at their net asset value or applicable offering price,
as the case may be, determined on the date that such request is received, but
under unusual market conditions such purchases may be delayed for up to five
business days if it is determined that a fund would be materially disadvantaged
by an immediate transfer of the proceeds of the exchange. If a shareholder is
exchanging into a fund paying daily dividends (See "Dividends, Distributions and
Tax Matters -- Dividends and Distributions," below), and the release of the
exchange proceeds is delayed for the foregoing five-day period, such shareholder
will not begin to accrue dividends until the sixth business day after the
exchange. Shares purchased by check may not be exchanged until it is determined
that the check has cleared, which may take up to ten business days from the date
that the check is received. See "Terms and Conditions of Purchase of the AIM
Funds -- Timing of Purchase Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.
EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a
written request to AFS. The request should contain the account registration and
account number, the dollar amount or number of shares to be exchanged, and the
names of the funds from which and into which the exchange is to be made. The
request should comply with all of the requirements for redemption by mail,
except those required for redemption of IRAs. See "How to Redeem Shares."
EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange
by telephone. If a shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline that option on the account application.
AIM Distributors has made arrangements with certain dealers and investment
advisory firms to accept telephone instructions to exchange shares between any
of the AIM Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
funds, including the condition that any such dealer or investment advisor enter
into an agreement (which contains additional conditions with respect to
exchanges of shares) with AIM Distributors. To exchange shares by telephone, a
shareholder, dealer or investment advisor who has satisfied the foregoing
conditions must call AFS at (800) 959-4246. If a shareholder is unable to reach
AFS by telephone, he may also request exchanges by telegraph or use overnight
courier services to expedite exchanges by mail, which will be effective on the
business day received by the Transfer Agent as long as such request is received
prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request that
they reasonably believe to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions if they do not follow
reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
EXCHANGES OF CLASS B AND CLASS C SHARES. A contingent deferred sales charge
will not be imposed in connection with exchanges among Class B shares or among
Class C shares. For purposes of determining a shareholder's holding period of
Class B or Class C shares in the calculation of the applicable contingent
deferred sales charge, the period of time during which Class B or Class C shares
were held prior to an exchange will be added to the holding period of the
applicable Class B or Class C shares acquired in an exchange.
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares of the AIM Funds may be redeemed directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors. In
addition to the obligation of the fund(s) named on the cover page to redeem
shares, AIM Distributors also repurchases shares. Although a contingent deferred
sales charge may be applicable to certain redemptions, as described below, there
is no redemption fee imposed when shares are redeemed or repurchased; however,
dealers may charge service fees for handling repurchase transactions.
MULTIPLE DISTRIBUTION SYSTEM. Class B shares. Class B shares purchased under
the Multiple Distribution System may be redeemed on any business day of a
Multiple Class Fund at the net asset value per share next determined following
receipt of the redemption order, as described under the caption "Timing and
Pricing of Redemption Orders," less the applicable contingent deferred sales
charge shown in the table below. No deferred sales charge will be imposed (i) on
redemptions of Class B shares following six years from the date such shares were
purchased, (ii) on Class B shares acquired through reinvestments of dividends
and distributions attrib-
MCF-02/98
A-13
<PAGE> 26
utable to Class B shares or (iii) on amounts that represent capital appreciation
in the shareholder's account above the purchase price of the Class B shares.
<TABLE>
<CAPTION>
YEAR CONTINGENT DEFERRED
SINCE SALES CHARGE AS
PURCHASE % OF DOLLAR AMOUNT
MADE SUBJECT TO CHARGE
- -------- -------------------
<S> <C>
First...................................................... 5%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 3%
Fifth...................................................... 2%
Sixth...................................................... 1%
Seventh and Following...................................... None
</TABLE>
In determining whether a contingent deferred sales charge is applicable, it
will be assumed that a redemption is made first, of any shares held in the
shareholder's account that are not subject to such charge; second, of shares
derived from reinvestment of dividends and distributions; third, of shares held
for more than six years from the date such shares were purchased; and fourth, of
shares held less than six years from the date such shares were purchased. The
applicable sales charge will be applied against the lesser of the current market
value of shares redeemed or their original cost.
Class C Shares. Class C shares purchased under the Multiple Distribution
System may be redeemed on any business day of a Multiple Class Fund at the net
asset value per share next determined following receipt of the redemption order,
as described under the caption "Timing and Pricing of Redemption Orders," less a
1% contingent deferred sales charge. No deferred sales charge will be imposed
(i) on redemptions of Class C shares following one year from the date such
shares were purchased; (ii) on Class C shares acquired through reinvestment of
dividends and distributions attributable to Class C shares; (iii) on amounts
that represent capital appreciation in the shareholder's account above the
purchase price of the Class C shares; (iv) on redemptions of additional
purchases of shares of AIM ADVISOR FLEX FUND, AIM ADVISOR INTERNATIONAL VALUE
FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND, and AIM
ADVISOR REAL ESTATE FUND, by shareholders of record on April 30, 1995 of these
funds (shareholders whose broker/dealers maintain a single omnibus account with
the Transfer Agent on behalf of those shareholders, perform sub-accounting
functions with respect to those shareholders, and are unable to segregate
shareholders of record prior to April 30, 1995 from shareholders whose accounts
were opened after that date will be subject to a CDSC on all purchases made
after March 1, 1996).
Waivers. Contingent deferred sales charges on Class B and Class C shares will
be waived on redemptions (1) following the death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust (provided AIM Distributors is notified of such death or
post-purchase disability at the time of the redemption request and is provided
with satisfactory evidence of such death or post-purchase disability), (2) in
connection with certain distributions from individual retirement accounts,
custodial accounts maintained pursuant to Code Section 403(b), deferred
compensation plans qualified under Code Section 457 and plans qualified under
Code Section 401 (collectively, "Retirement Plans"), (3) pursuant to a
Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do
not exceed on an annual basis 12% of the value of the shareholder's investment
in Class B or Class C shares at the time the shareholder elects to participate
in the Systematic Withdrawal Plan, (4) effected pursuant to the right of a
Multiple Class Fund to liquidate a shareholder's account if the aggregate net
asset value of shares held in the account is less than the designated minimum
account size described in the prospectus of such Multiple Class Fund, (5)
effected by AIM of its investment in Class B or Class C shares and (6) of Class
C shares where such investor's dealer of record, due to the nature of the
investor's account, notifies AIM Distributors prior to the time of investment
that the dealer waives the payment otherwise payable to the dealer described in
the fifth paragraph under the caption "Terms and Conditions of Purchase of the
AIM Funds -- All Groups of AIM Funds."
Waiver category (1) above applies only to redemptions of Class B or Class C
shares held at the time of death or initial determination of post-purchase
disability.
Waiver category (2) above applies only to redemptions resulting from:
(i) required minimum distributions to plan participants or
beneficiaries who are age 70-1/2 or older, and only with respect to that
portion of such distributions which does not exceed 12% annually of the
participant's or beneficiary's account value in a particular AIM Fund;
(ii) in kind transfers of assets where the participant or beneficiary
notifies AIM Distributors of such transfer no later than the time such
transfer occurs;
(iii) tax-free rollovers or transfers of assets to another Retirement
Plan invested in Class B or Class C shares of one or more Multiple Class
Funds;
(iv) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(v) distributions upon the death or disability (as defined in the
Code) of the participant or beneficiary.
MCF-02/98
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<PAGE> 27
CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for
purchases of Class B and Class C shares of a Multiple Class Fund and purchases
of shares of the No Load Funds and Lower Load Funds, A CONTINGENT DEFERRED SALES
CHARGE OF 1% APPLIES TO PURCHASES OF $1,000,000 OR MORE THAT ARE REDEEMED WITHIN
18 MONTHS OF THE DATE OF PURCHASE. For a description of the AIM Funds
participating in this program, see "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions." This charge will be 1% of the
lesser of the value of the shares redeemed (excluding reinvested dividends and
capital gain distributions) or the total original cost of such shares. In
determining whether a contingent deferred sales charge is payable, and the
amount of any such charge, shares not subject to the contingent deferred sales
charge are redeemed first (including shares purchased by reinvested dividends
and capital gains distributions and amounts representing increases from capital
appreciation), and then other shares are redeemed in the order of purchase. No
such charge will be imposed upon exchanges unless the shares acquired by
exchange are redeemed within 18 months of the date the shares were originally
purchased. For purposes of computing this 18-MONTH PERIOD (i) shares of any Load
Fund or AIM Cash Reserve Shares of AIM MONEY MARKET FUND which were acquired
through an exchange of shares which previously were subject to the 1% contingent
deferred sales charge will be credited with the period of time such exchanged
shares were held, and (ii) shares of any Load Fund which are subject to the 1%
contingent deferred sales charge and which were acquired through an exchange of
shares of a Lower Load Fund or a No Load Fund which previously were not subject
to the 1% contingent deferred sales charge will not be credited with the period
of time such exchanged shares were held. The charge will be waived in the
following circumstances: (1) redemptions of shares by employee benefit plans
("Plans") qualified under Sections 401 or 457 of the Code, or Plans created
under Section 403(b) of the Code and sponsored by nonprofit organizations as
defined under Section 501(c)(3) of the Code, where shares are being redeemed in
connection with employee terminations or withdrawals, and (a) the total amount
invested in a Plan is at least $1,000,000, (b) the sponsor of a Plan signs a
letter of intent to invest at least $1,000,000 in one or more of the AIM Funds,
or (c) the shares being redeemed were purchased by an employer-sponsored Plan
with at least 100 eligible employees; provided, however, that Plans created
under Section 403(b) of the Code which are sponsored by public educational
institutions shall qualify under (a), (b) or (c) above on the basis of the value
of each Plan participant's aggregate investment in the AIM Funds, and not on the
aggregate investment made by the Plan or on the number of eligible employees;
(2) redemptions of shares following the death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust; (3) redemptions of shares purchased at net asset value by private
foundations or endowment funds where the initial amount invested was at least
$1,000,000; (4) redemptions of shares purchased by an investor in amounts of
$1,000,000 or more where such investor's dealer of record, due to the nature of
the investor's account, notifies AIM Distributors prior to the time of
investment that the dealer waives the payments otherwise payable to the dealer
as described in the third paragraph under the caption "Terms and Conditions of
Purchase of the AIM Funds -- All Groups of AIM Funds"; and (5) pursuant to a
Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do
not exceed on an annual basis 12% of the value of the shareholder's investment
in Class A shares at the time the shareholder elects to participate in the
Systematic Withdrawal Plan.
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59-1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or transferred electronically or wired
to the pre-authorized bank account; (b) there has been no change of address of
record on the account within the preceding 30 days; (c) the shares to be
redeemed are not in certificate form; (d) the person requesting the redemption
can provide proper identification information; and (e) the proceeds of the
redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM Distributors has made arrangements with
certain dealers and investment advisors to accept telephone instructions for the
redemption of shares. AIM Distributors reserves the right to impose conditions
on these dealers and investment advisors, including the condition that they
enter into agreements (which contain additional conditions with respect to the
redemption of shares) with AIM Distributors. The Transfer Agent and AIM
Distributors will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth in the appropriate form if they reasonably believe such request to be gen-
MCF-02/98
A-15
<PAGE> 28
uine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is
received prior to 11:30 a.m. Eastern Time, the redemption will be effective on
that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that
same business day. If the redemption order is received after 11:30 a.m. and
prior to NYSE Close, the redemption will be made at the next determined net
asset value and payment will generally be transmitted on the next business day.
REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of
AIM MONEY MARKET FUND). After completing the appropriate authorization form,
shareholders may use checks to effect redemptions from AIM TAX-EXEMPT CASH FUND
and the AIM Cash Reserve Shares of AIM MONEY MARKET FUND. This privilege does
not apply to retirement accounts or qualified plans. Checks may be drawn in any
amount of $250 or more. Checks drawn against insufficient shares in the account,
against shares held less than ten business days, or in amounts of less than the
applicable minimum will be returned to the payee. The payee of the check may
cash or deposit it in the same way as an ordinary bank check. When a check is
presented to the Transfer Agent for payment, the Transfer Agent will cause a
sufficient number of shares of such fund to be redeemed to cover the amount of
the check. Shareholders are entitled to dividends on the shares redeemed through
the day on which the check is presented to the Transfer Agent for payment.
TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds
(other than AIM MONEY MARKET FUND) are redeemed at their net asset value next
computed after a request for redemption in proper form (including signature
guarantees and other required documentation for written redemptions) is received
by the Transfer Agent, except that shares that are subject to a contingent
deferred sales charge, may be subject to the imposition of deferred sales
charges that will be deducted from the redemption proceeds. See "Multiple
Distribution System" and "Contingent Deferred Sales Charge Program for Large
Purchases." Orders for the redemption of shares received in proper form prior to
NYSE Close on any business day of an AIM Fund will be confirmed at the price
determined as of the close of that day. Orders received after NYSE Close will be
confirmed at the price determined on the next business day of an AIM Fund.
Redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or
NYSE Close on any business day of the Fund will be confirmed at the price next
determined. It is the responsibility of the dealer to ensure that all orders are
transmitted on a timely basis. Any resulting loss from the dealer's failure to
submit a request for redemption within the prescribed time frame will be borne
by that dealer. Telephone redemption requests must be made by NYSE Close on any
business day of an AIM Fund and will be confirmed at the price determined as of
the close of that day. No AIM Fund will accept requests which specify a
particular date for redemption or which specify any special conditions.
Payment of the proceeds of redeemed shares is normally made within seven days
following the redemption date. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders." A charge for special handling
(such as wiring of funds or expedited delivery services) may be made by the
Transfer Agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared, which
may take up to ten business days from the date that the check is received.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect the
investor, the AIM Funds, AIM Distributors, and their agents by verifying the
signature of each investor seeking to redeem, transfer, or exchange shares of an
AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent to other
than the bank of record for the account; (4) redemptions requesting proceeds to
be sent to a new address or an address that has been changed within the past 30
days; (5) requests to transfer the registration of shares to another owner; (6)
telephone exchange and telephone redemption authorization forms; (7) changes in
previously designated wiring or electronic funds transfer instructions; and (8)
written redemptions or exchanges of shares previously reported as lost, whether
or not the redemption amount is under $50,000 or the proceeds are to be sent to
the address of record. These requirements may be waived or modified upon notice
to shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the Securities and
Exchange Commission ("SEC"), and further provided that such guarantor
institution is listed in one of the reference guides contained in the Transfer
Agent's current Signature Guarantee Standards and Procedures, such as certain
domestic banks, credit unions, securities dealers, or securities exchanges. The
Transfer Agent will also accept signatures with either: (1) a signature
guaranteed with a medallion stamp of the STAMP Program, or (2) a signature
guaranteed with a medallion stamp of the NYSE Medallion Signature Program,
provided that in either event, the amount of the transaction involved does not
exceed
MCF-02/98
A-16
<PAGE> 29
the surety coverage amount indicated on the medallion. For information regarding
whether a particular institution or organization qualifies as an "eligible
guarantor institution," an investor should contact the Client Services
Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). Within 90 days of a redemption,
a shareholder may invest all or part of the redemption proceeds in Class A
shares of any AIM Fund at the net asset value next computed after receipt by the
Transfer Agent of the funds to be reinvested; provided, however, if the
redemption was made from Class A shares of either AIM LIMITED MATURITY TREASURY
FUND or AIM TAX-FREE INTERMEDIATE FUND, the reinvested proceeds will be subject
to the difference in sales charge between the shares redeemed and the shares the
proceeds are reinvested in. The shareholder must ask the Transfer Agent for such
privilege at the time of reinvestment. A realized gain on the redemption is
taxable, and reinvestment may alter any capital gains payable. If there has been
a loss on the redemption and shares of the same fund are repurchased, all of the
loss may not be tax deductible, depending on the timing and amount reinvested.
Under the Code, if the redemption proceeds of fund shares on which a sales
charge was paid are reinvested in (or exchanged for) shares of another AIM Fund
at a reduced sales charge within 90 days of the payment of the sales charge, the
shareholder's basis in the fund shares redeemed may not include the amount of
the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption; however, the shareholder's basis in the fund
shares purchased will include the sales charge. Each AIM Fund may amend, suspend
or cease offering this privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation. This privilege may only be
exercised once each year by a shareholder with respect to each AIM Fund.
Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of Class A shares and who subsequently reinvest a portion or
all of the value of the redeemed shares in Class A shares of any AIM Fund within
90 days after such redemption may do so at net asset value if such privilege is
claimed at the time of reinvestment. Such reinvested proceeds will not be
subject to either a front-end sales charge at the time of reinvestment or an
additional contingent deferred sales charge upon subsequent redemption. In order
to exercise this reinvestment privilege, the shareholder must notify the
Transfer Agent of his or her intent to do so at the time of reinvestment. This
reinvestment privilege does not apply to Class B or Class C shares.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon Eastern Time and NYSE Close with
respect to AIM MONEY MARKET FUND), on each "business day" of a fund as
previously defined. In the event the NYSE closes early (i.e. before 4:00 p.m.
Eastern Time) on a particular day, the net asset value of an AIM Fund's share
will be determined as of the close of the NYSE on such day. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE. The net asset
value per share is calculated by subtracting a class' liabilities from its
assets and dividing the result by the total number of class shares outstanding.
The determination of net asset value per share is made in accordance with
generally accepted accounting principles. Among other items, liabilities include
accrued expenses and dividends payable, and total assets include portfolio
securities valued at their market value, as well as income accrued but not yet
received. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the fund's officers and in accordance with methods which are specifically
authorized by its governing Board of Directors or Trustees. Short-term
obligations with maturities of 60 days or less, and the securities held by the
Money Market Funds, are valued at amortized cost as reflecting fair value. AIM
HIGH INCOME MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM TAX-FREE INTERMEDIATE FUND value variable rate securities
that have an unconditional demand or put feature exercisable within seven days
or less at par, which reflects the market value of such securities.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of an AIM Fund's shares are determined as of
such times. Foreign currency exchange rates are also generally determined prior
to the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which the
values of the securities are determined and the close of the NYSE which will not
be reflected in the computation of an AIM Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by or under the supervision of the Board of Directors or Trustees of the
applicable AIM Fund.
MCF-02/98
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<PAGE> 30
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Each AIM Fund's policy regarding the payment of dividends and distributions is
set forth below.
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
---- -------------- ------------- -------------
<S> <C> <C> <C>
AIM ADVISOR FLEX FUND..................... declared and paid quarterly quarterly annually
AIM ADVISOR INTERNATIONAL VALUE FUND...... declared and paid annually annually annually
AIM ADVISOR LARGE CAP VALUE FUND.......... declared and paid quarterly quarterly annually
AIM ADVISOR MULTIFLEX FUND................ declared and paid quarterly quarterly annually
AIM ADVISOR REAL ESTATE FUND.............. declared and paid quarterly quarterly annually
AIM AGGRESSIVE GROWTH FUND................ declared and paid annually annually annually
AIM ASIAN GROWTH FUND..................... declared and paid annually annually annually
AIM BALANCED FUND......................... declared and paid quarterly annually annually
AIM BLUE CHIP FUND........................ declared and paid annually annually annually
AIM CAPITAL DEVELOPMENT FUND.............. declared and paid annually annually annually
AIM CHARTER FUND.......................... declared and paid quarterly annually annually
AIM CONSTELLATION FUND.................... declared and paid annually annually annually
AIM EUROPEAN DEVELOPMENT FUND............. declared and paid annually annually annually
AIM GLOBAL AGGRESSIVE GROWTH FUND......... declared and paid annually annually annually
AIM GLOBAL GROWTH FUND.................... declared and paid annually annually annually
AIM GLOBAL INCOME FUND.................... declared daily; paid monthly annually annually
AIM GLOBAL UTILITIES FUND................. declared daily; paid monthly annually annually
AIM GROWTH FUND........................... declared and paid annually annually annually
AIM HIGH INCOME MUNICIPAL FUND............ declared daily; paid monthly annually annually
AIM HIGH YIELD FUND....................... declared daily; paid monthly annually annually
AIM INCOME FUND........................... declared daily; paid monthly annually annually
AIM INTERMEDIATE GOVERNMENT FUND.......... declared daily; paid monthly annually annually
AIM INTERNATIONAL EQUITY FUND............. declared and paid annually annually annually
AIM LIMITED MATURITY TREASURY FUND........ declared daily; paid monthly annually annually
AIM MONEY MARKET FUND..................... declared daily; paid monthly at least annually annually
AIM MUNICIPAL BOND FUND................... declared daily; paid monthly annually annually
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT... declared daily; paid monthly annually annually
AIM TAX-EXEMPT CASH FUND.................. declared daily; paid monthly at least annually annually
AIM TAX-FREE INTERMEDIATE FUND............ declared daily; paid monthly annually annually
AIM VALUE FUND............................ declared and paid annually annually annually
AIM WEINGARTEN FUND....................... declared and paid annually annually annually
</TABLE>
In determining the amount of capital gains, if any, available for
distribution, net capital gains are offset against available net capital losses,
if any, carried forward from previous fiscal periods.
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to a class are reinvested in additional
shares of such class, absent an election by a shareholder to receive cash or to
have such dividends and distributions reinvested in like shares of another
Multiple Class Fund, to the extent permitted. For funds that do not declare a
dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the ex-dividend date. For funds that declare
a dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the payable date. Shareholders may elect, by
written notice to the Transfer Agent, to receive such distributions, or the
dividend portion thereof, in cash, or to invest such dividends and distributions
in shares of another fund in the AIM Funds; provided that (i) dividends and
distributions attributable to Class B shares may only be reinvested in Class B
shares, (ii) dividends and distributions attributable to Class C shares may only
be reinvested in Class C shares (iii) dividends and distributions attributable
to Class A shares may not be reinvested in Class B or Class C shares, and (iv)
dividends and distributions attributable to the AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may not be reinvested in the Class A shares of that Fund or in
any Class B or Class C shares. Investors who have not previously selected such a
reinvestment option on the account application form may contact the Transfer
Agent at any time to obtain a form to authorize such reinvestments in another
AIM Fund. Such reinvestments into the AIM Funds are not subject to sales
charges, and shares so purchased are automatically credited to the account of
the shareholder.
Dividends on Class B and Class C shares are expected to be lower than those
for Class A shares or AIM Cash Reserve Shares because of higher distribution
fees paid by Class B and Class C shares. Dividends on all shares may also be
affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such
MCF-02/98
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<PAGE> 31
payment. Any dividend and distribution election remains in effect until the
Transfer Agent receives a revised written election by the shareholder.
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.
TAX MATTERS
Each AIM Fund has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Code. As long as a fund
qualifies for this tax treatment, it is not subject to federal income taxes on
net investment income and capital gains that are distributed to shareholders.
Each fund, for purposes of determining taxable income, distribution requirements
and other requirements of Subchapter M, is treated as a separate corporation.
Therefore, no fund may offset its gains against another fund's losses and each
fund must individually comply with all of the provisions of the Code which are
applicable to its operations.
TAX TREATMENT OF DISTRIBUTIONS -- GENERAL. Because each AIM Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders, it is not expected that any such fund will be
required to pay any federal income tax. Each AIM Fund also intends to meet the
distribution requirements of the Code to avoid the imposition of a
non-deductible 4% excise tax calculated as a percentage of certain undistributed
amounts of taxable ordinary income and capital gain net income. Nevertheless,
shareholders normally are subject to federal income taxes, and any applicable
state and local income taxes, on the dividends and distributions received by
them from a fund whether in the form of cash or additional shares of a fund,
except for tax-exempt dividends paid by AIM HIGH INCOME MUNICIPAL FUND, AIM
MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT
CASH FUND, and AIM TAX-FREE INTERMEDIATE FUND (the "Tax-Exempt Funds") which are
exempt from federal tax. Dividends paid by a fund (other than capital gain
distributions) may qualify for the federal 70% dividends received deduction for
corporate shareholders to the extent of the qualifying dividends received by the
fund on domestic common or preferred stock. It is not likely that dividends
received from AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR REAL ESTATE
FUND, AIM ASIAN GROWTH FUND, AIM EUROPEAN DEVELOPMENT FUND, AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH
INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE
GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM LIMITED MATURITY TREASURY
FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND or AIM TAX-FREE INTERMEDIATE FUND will
qualify for this dividends received deduction. Shortly after the end of each
year, shareholders will receive information regarding the amount and federal
income tax treatment of all distributions paid during the year. Certain
dividends declared in October, November or December of a calendar year are
taxable to shareholders as though received on December 31 of that year if paid
to shareholders during January of the following calendar year. No gain or loss
will be recognized by shareholders upon the automatic conversion of Class B
shares of a Multiple Class Fund into Class A shares of such Fund. With respect
to tax-exempt shareholders, distributions from the Funds will not be subject to
federal income taxation to the extent permitted under the applicable tax-
exemption.
For each redemption of a fund's shares by a non-exempt shareholder, the fund
or the securities dealer effecting the transaction is required to file an
information return with the IRS.
TO AVOID BEING SUBJECT TO FEDERAL INCOME TAX WITHHOLDING AT THE RATE OF 31% ON
DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, SHAREHOLDERS OF A FUND MUST
FURNISH THE FUND WITH THEIR TAXPAYER IDENTIFICATION NUMBER AND CERTIFY UNDER
PENALTIES OF PERJURY THAT THE NUMBER PROVIDED IS CORRECT AND THAT THEY ARE NOT
SUBJECT TO BACKUP WITHHOLDING FOR ANY REASON.
Under existing provisions of the Code, nonresident alien individuals, foreign
partnerships and foreign corporations may be subject to federal income tax
withholding at a 30% rate on ordinary income dividends and distributions (other
than exempt-interest dividends and capital gain dividends) and return of capital
distributions. Under applicable treaty law, residents of treaty countries may
qualify for a reduced rate of withholding or a withholding exemption.
DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE OR LOCAL TAX
LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN.
ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE STATEMENT OF ADDITIONAL
INFORMATION.
TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required
to include the "exempt-interest" portion of dividends paid by the Tax-Exempt
Funds in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns. Moreover,
exempt-interest dividends from the Tax-Exempt Funds may be subject to state
income taxes, may give rise to a federal alternative minimum tax liability, may
affect the amount of social security benefits subject to federal income tax, may
affect the deductibility of interest on certain indebtedness of the shareholder,
and may have other collateral federal income tax consequences. The Tax-Exempt
Funds may invest in Municipal Securities the interest on which will constitute
an item of tax preference and which therefore could give rise to a federal
alternative minimum tax liability for shareholders, and may invest up to 20% of
their net assets in such securities and
MCF-02/98
A-19
<PAGE> 32
other taxable securities. For additional information concerning the alternative
minimum tax and certain collateral tax consequences of the receipt of
exempt-interest dividends, see the Statements of Additional Information
applicable to the Tax-Exempt Funds.
The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but
will endeavor to avoid investments which would result in taxable dividends. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitute an item of tax preference, will be
determined annually. This percentage may differ from the actual percentages for
any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains, whether received in cash or additional shares, and regardless of
the length of time a particular shareholder may have held his shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.
AIM INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY
FUND -- SPECIAL TAX INFORMATION. Certain states exempt from state income taxes
dividends paid by mutual funds out of interest on U.S. Treasury and certain
other U.S. government obligations, and investors should consult with their own
tax advisors concerning the availability of such exemption.
AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ASIAN GROWTH FUND, AIM EUROPEAN
DEVELOPMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM GLOBAL AGGRESSIVE GROWTH
FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND AND AIM GLOBAL UTILITIES
FUND -- SPECIAL TAX INFORMATION. For taxable years in which it is eligible to do
so, each of these funds may elect to pass through to shareholders credits for
foreign taxes paid. If the fund makes such an election, a shareholder who
receives a distribution (1) will be required to include in gross income his
proportionate share of foreign taxes allocable to the distribution and (2) may
claim a credit or deduction for such share for his taxable year in which the
distribution is received, subject to the general limitations imposed on the
allowance of foreign tax credits and deductions. Shareholders should also note
that certain gains or losses attributable to fluctuations in exchange rates or
foreign currency forward contracts may increase or decrease the amount of income
of the fund available for distribution to shareholders, and should note that if
such losses exceed other income during a taxable year, the fund would not be
able to pay ordinary income dividends.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, serves as custodian for the
portfolio securities and cash of the AIM Funds other than AIM HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM LIMITED MATURITY TREASURY FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE
INTERMEDIATE FUND, for which The Bank of New York, 90 Washington Street, 11th
Floor, New York, New York 10286, serves as custodian. Chase Bank of Texas, N.A.,
P.O. Box 2558, Houston, Texas 77252-8084, serves as
Sub-Custodian for retail purchases of the AIM Funds.
A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, a wholly
owned subsidiary of AIM, serves as each AIM Fund's transfer agent and dividend
payment agent.
LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, LLP,
Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and passes upon
legal matters.
SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should
be directed to an A I M Fund Services, Inc. Client Services Representative by
calling (800) 959-4246. The Transfer Agent may impose certain copying charges
for requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
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 from 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.
MCF-02/98
A-20
<PAGE> 33
OTHER INFORMATION. This Prospectus sets forth basic information that investors
should know about the fund(s) named on the cover page prior to investing.
Recipients of this Prospectus will be provided with a copy of the annual report
of the fund(s) to which this Prospectus relates, upon request and without
charge. If several members of a household own shares of the same fund, only one
annual or semi-annual report will be mailed to that address. To receive
additional copies, please call (800) 347-4246, or write to A I M Distributors,
Inc., P.O. Box 4739, Houston, Texas 77210-4739. A Statement of Additional
Information has been filed with the SEC and is available upon request and
without charge, by writing or calling AIM Distributors. The SEC maintains a Web
site at http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
the Fund. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration statement,
including items omitted from this Prospectus, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
MCF-02/98
A-21
<PAGE> 34
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number (TIN) which appears in
Section 1 of the Application complies with the following guidelines:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
<S> <C> <C> <C>
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary
Joint Individual First individual listed in the
"Account Registration" portion
of the Application
Unif. Gifts to Minor Corporation, Partnership, Corporation, Partnership,
Minors/Unif. Other Organization Other Organization
Transfers to Minors
Legal Guardian Ward, Minor or
Incompetent
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
</TABLE>
- --------------------------------------------------------------------------------
Applications without a certified TIN will not be accepted unless the applicant
is a nonresident alien, foreign corporation or foreign partnership and has
attached a completed IRS Form W-8.
BACKUP WITHHOLDING. Each AIM Fund, and other payers, must, according to IRS
regulations, withhold 31% of redemption payments and reportable dividends
(whether paid or accrued) in the case of any shareholder who fails to provide
the Fund with a TIN and a certification that he is not subject to backup
withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject to backup
withholding because the investor failed to report all of the interest and
dividends on such investor's tax return (for reportable interest and
dividends only), or
(4) the investor fails to certify to the Fund that the investor is not subject
to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting and such entities should check the box "Exempt from Backup
Withholding" on the Application. A complete listing of such exempt entities
appears in the Instructions for the Requester of Form W-9 (which can be obtained
from the IRS) and includes, among others, the following:
- - a corporation
- - an organization exempt from tax under Section 501(a), an individual retirement
plan (IRA), or a custodial account under Section 403(b)(7)
- - the United States or any of its agencies or instrumentalities
- - a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- - a foreign government or any of its political subdivisions, agencies or
instrumentalities
- - an international organization or any of its agencies or instrumentalities
- - a foreign central bank of issue
- - a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- - a futures commission merchant registered with the Commodity Futures Trading
Commission
- - a real estate investment trust
- - an entity registered at all times during the tax year under the Investment
Company Act of 1940
- - a common trust fund operated by a bank under Section 584(a)
- - a financial institution
- - a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- - a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
MCF-02/98
B-1
<PAGE> 35
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
appropriate withholding as described in the Prospectus under "Dividends,
Distributions and Tax Matters."
SPECIAL INFORMATION REGARDING TELEPHONE EXCHANGE PRIVILEGE. By signing the new
Account Application form, an investor appoints the Transfer Agent as his true
and lawful attorney-in-fact to surrender for redemption any and all unissued
shares held by the Transfer Agent in the designated account(s), or in any other
account with any of the AIM Funds, present or future, which has the identical
registration as the designated account(s), with full power of substitution in
the premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption proceeds
to be applied to purchase shares in any one or more of the AIM Funds, provided
that such fund is available for sale and provided that the registration and
mailing address of the shares to be purchased are identical to the registration
of the shares being redeemed. An investor acknowledges by signing the form that
he understands and agrees that the Transfer Agent and AIM Distributors may not
be liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction. The Transfer Agent
reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone exchange privilege at any time without notice. An investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any exchanges must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "Exchange Privilege -- Exchanges
by Mail").
SPECIAL INFORMATION REGARDING TELEPHONE REDEMPTION PRIVILEGE. By signing the
new Account Application form, an investor appoints the Transfer Agent as his
true and lawful attorney-in-fact to surrender for redemption any and all
unissued shares held by the Transfer Agent in the designated account(s), present
or future, with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption. An investor acknowledges by signing the
form that he understands and agrees that the Transfer Agent and AIM Distributors
may not be liable for any loss, expense or cost arising out of any telephone
redemption requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. The Transfer
Agent reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone redemption privilege at any time without notice. An investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any redemptions must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "How to Redeem
Shares -- Redemptions by Mail").
MCF-02/98
B-2
<PAGE> 36
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
Investment Advisor
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Principal Underwriter
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Transfer Agent
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Accountants
KPMG Peat Marwick LLP
700 Louisiana
Houston, TX 77002
For more complete information about any other Fund in The AIM Family of Funds,
including charges and expenses, please call (800) 347-4246 or write to A I M
Distributors, Inc. and request a free prospectus. Please read the prospectus
carefully before you invest or send money.
AGRO-PRO-1
<PAGE> 37
STATEMENT OF
ADDITIONAL INFORMATION
RETAIL CLASSES OF
AIM AGGRESSIVE GROWTH FUND
AIM BLUE CHIP FUND
AIM CAPITAL DEVELOPMENT FUND
AIM CHARTER FUND
AIM CONSTELLATION FUND
AIM WEINGARTEN FUND
(SERIES PORTFOLIOS OF
AIM EQUITY FUNDS, INC.)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
---------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IT SHOULD BE READ IN CONJUNCTION WITH
A PROSPECTUS OF THE ABOVE-NAMED FUNDS,
A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE
FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TX 77210-4739
OR BY CALLING (800) 347-4246.
---------------
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 27, 1998
RELATING TO THE AIM AGGRESSIVE GROWTH FUND PROSPECTUS,
THE AIM BLUE CHIP FUND PROSPECTUS, AND THE AIM CAPITAL DEVELOPMENT
FUND PROSPECTUS EACH DATED FEBRUARY 27, 1998 AND TO THE
AIM CHARTER FUND, AIM CONSTELLATION FUND AND AIM WEINGARTEN FUND
PROSPECTUS DATED FEBRUARY 27, 1998
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION........................................................................................1
GENERAL INFORMATION ABOUT THE FUNDS.................................................................1
The Company and Its Shares.................................................................1
PERFORMANCE.........................................................................................2
Total Return Calculations..................................................................2
Yield Quotations...........................................................................3
Historical Portfolio Results...............................................................3
PORTFOLIO TRANSACTIONS AND BROKERAGE................................................................6
General Brokerage Policy...................................................................6
Allocation of Portfolio Transactions.......................................................7
Section 28(e) Standards....................................................................7
Transactions with Regular Brokers..........................................................8
Brokerage Commissions Paid.................................................................8
Portfolio Turnover.........................................................................9
INVESTMENT OBJECTIVES AND POLICIES..................................................................9
Foreign Securities........................................................................10
Foreign Exchange Transactions.............................................................11
Rule 144A Securities......................................................................11
Lending of Portfolio Securities...........................................................11
Repurchase Agreements.....................................................................12
Reverse Repurchase Agreements.............................................................12
Special Situations........................................................................12
Short Sales...............................................................................13
Warrants .................................................................................13
Options .................................................................................13
Combined Option Positions.................................................................14
Futures Contracts.........................................................................14
Stock Index Futures Contracts....................................................15
Foreign Currency Futures Contracts...............................................15
Options on Futures Contracts..............................................................15
Risks as to Futures Contracts and Related Options.........................................16
Securities Issued on a When-Issued or Delayed Delivery Basis..............................16
Investment in Unseasoned Issuers..........................................................17
INVESTMENT RESTRICTIONS............................................................................17
Blue Chip.................................................................................17
Charter .................................................................................18
Weingarten................................................................................19
Constellation.............................................................................19
Aggressive Growth.........................................................................20
Capital Development.......................................................................22
MANAGEMENT.........................................................................................22
Directors and Officers....................................................................22
Remuneration of Directors........................................................26
AIM Funds Retirement Plan for Eligible Directors/Trustees........................27
Deferred Compensation Agreements.................................................28
</TABLE>
i
<PAGE> 39
<TABLE>
<S> <C>
Investment Advisory, Administrative Services and Sub-Advisory Agreements..................29
DISTRIBUTION PLANS................................................................................32
The Class A and C Plan....................................................................32
The Class B Plan..........................................................................33
Both Plans................................................................................33
THE DISTRIBUTOR....................................................................................37
HOW TO PURCHASE AND REDEEM SHARES..................................................................39
NET ASSET VALUE DETERMINATION......................................................................40
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS...........................................................41
Reinvestment of Dividends and Distributions...............................................41
Tax Matters...............................................................................41
Qualification as a Regulated Investment Company...........................................41
Determination of Taxable Income of a Regulated Investment Company.........................42
Excise Tax on Regulated Investment Companies..............................................42
Fund Distributions........................................................................43
Sale or Redemption of Shares..............................................................45
Foreign Shareholders......................................................................45
Effect of Future Legislation; Local Tax Considerations....................................46
MISCELLANEOUS INFORMATION..........................................................................46
Shareholder Inquiries.....................................................................46
Audit Reports.............................................................................46
Legal Matters.............................................................................46
Custodian and Transfer Agent..............................................................46
Principal Holders of Securities...........................................................47
Other Information.........................................................................53
APPENDIX ..........................................................................................54
Description of Commercial Paper Ratings...................................................54
Description of Corporate Bond Ratings.....................................................54
FINANCIAL STATEMENTS...............................................................................FS
</TABLE>
ii
<PAGE> 40
INTRODUCTION
AIM Equity Funds, Inc. (the "Company") is a series mutual fund. The
rules and regulations of the United States Securities and Exchange Commission
(the "SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the fund being considered for
investment. This information for AIM Charter Fund ("Charter"), AIM Weingarten
Fund ("Weingarten") and AIM Constellation Fund ("Constellation") is included in
a Prospectus dated February 27, 1998 (the "Prospectus"), which relates to the
Retail Classes of the Funds (defined below). The information for the Retail
Class of AIM Aggressive Growth Fund ("Aggressive Growth") is contained in a
separate prospectus dated February 27, 1998. The information for the Retail
Class of AIM Blue Chip Fund ("Blue Chip") is contained in a separate prospectus
dated February 27, 1998. The information for the Retail Class of AIM Capital
Development Fund ("Capital Development") is contained in a separate prospectus
dated February 27, 1998. Additional copies of the Prospectuses and this
Statement of Additional Information may be obtained without charge by writing
the principal distributor of the Funds' shares, A I M Distributors, Inc. ("AIM
Distributors"), P.O. Box 4739, Houston, TX 77210-4739 or by calling (800)
347-4246. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Prospectus; and, in order to avoid repetition, reference
will be made to sections of the Prospectus. Additionally, the Prospectus and
this Statement of Additional Information omit certain information contained in
the Registration Statement filed with the SEC. Copies of the Registration
Statement, including items omitted from the Prospectus and this Statement of
Additional Information, may be obtained from the SEC by paying the charges
described under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized in 1988 as a Maryland corporation, and is
registered with the SEC as a diversified open-end series management investment
company. The Company currently consists of six separate portfolios: Aggressive
Growth, Blue Chip, Capital Development, Charter, Constellation, and Weingarten
(each a "Fund" and collectively, the "Funds"). Charter, Weingarten and
Constellation each have four separate classes: Class A, Class B and Class C and
an Institutional Class. Aggressive Growth has Class A shares only. Blue Chip and
Capital Development each have three classes of shares: Class A, Class B and
Class C shares. Class A shares (sold with a front-end sales charge) and Class B
and Class C shares (each sold with a contingent deferred sales charge) of the
Funds are also referred to as the Retail Classes. Prior to October 15, 1993,
Aggressive Growth was a portfolio of AIM Funds Group ("AFG"), a Massachusetts
business trust. Pursuant to an Agreement and Plan of Reorganization between AFG
and the Company, Aggressive Growth was redomesticated as a portfolio of the
Company. All historical financial and other information contained in this
Statement of Additional Information for periods prior to October 15, 1993,
relating to Aggressive Growth is that of AFG's Aggressive Growth. Blue Chip
acquired the investment portfolio of Baird Blue Chip Fund, Inc. (the "BBC
Fund"), a registered management investment company, on June 3, 1996, in a
corporate reorganization. All historical financial information contained in this
Statement of Additional Information for periods prior to June 3, 1996, relating
to Blue Chip is that of the BBC Fund. Capital Development acquired substantially
all of the assets of Baird Capital Development Fund, Inc., a registered
management investment company, on August 12, 1996 in a corporate reorganization.
This Statement of Additional Information relates solely to the Retail
Classes of the Funds.
The term "majority of the outstanding shares" of the Company, of a
particular Fund or of a particular class of a Fund means, respectively, the vote
of the lesser of (a) 67% or more of the shares of the Company, such Fund or such
class present at a meeting of the Company's shareholders, if the holders of more
than 50%
1
<PAGE> 41
of the outstanding shares of the Company, such Fund or such class are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Company, such Fund or such class.
Shares of the Retail Class and the Institutional Class of each Fund
have equal rights and privileges. Each share of a particular class is entitled
to one vote, to participate equally in dividends and distributions declared by
the Company's Board of Directors with respect to the class of such Fund and,
upon liquidation of the Fund, to participate proportionately in the net assets
of the Fund allocable to such class remaining after satisfaction of outstanding
liabilities of the Fund allocable to such class. Fund shares are fully paid,
non-assessable and fully transferable when issued and have no preemptive rights
and have such conversion and exchange rights as set forth in the Prospectus and
this Statement of Additional Information. Fractional shares have proportionately
the same rights, including voting rights, as are provided for a full share.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company.
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
applicable Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in such Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical investment in a particular Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that a Fund's performance is not constant over time, but changes from year to
year, and that average annual returns do not represent the actual year-to-year
performance of such Fund.
In addition to average annual returns, the Retail Class of each Fund
may quote unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions, over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph or similar
illustration. Total returns may be quoted with or without taking the applicable
Fund's maximum applicable Class A front-end sales charge or Class B or Class C
contingent deferred sales charge into account. Excluding sales charges from a
total return calculation produces a higher total return figure.
2
<PAGE> 42
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 = expense accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the period.
d = the maximum offering price per share on the last day of the period.
HISTORICAL PORTFOLIO RESULTS
Total returns for Class A shares of Blue Chip, Capital Development,
Charter, Weingarten, Aggressive Growth and Constellation for the one, five, ten,
fifteen and twenty (or since inception, if shorter) periods ended October 31,
1997 (which include the maximum sales charge of 5.50% and reinvestment of all
dividends and distributions), were as follows:
<TABLE>
<CAPTION>
CLASS A AVERAGE ANNUAL RETURNS
ONE FIVE TEN FIFTEEN TWENTY SINCE
YEAR YEARS YEARS YEARS YEARS INCEPTION*
---- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
BLUE CHIP 22.54% 16.74% 14.97% N/A N/A 13.20%
CAPITAL DEVELOPMENT 24.11% N/A N/A N/A N/A 26.25%
CHARTER 21.52% 15.45% 15.78% 15.18% 17.57% 13.92%
WEINGARTEN 19.83% 14.21% 15.97% 17.16% 20.04% 15.00%
CONSTELLATION 12.34% 18.17% 20.75% 18.59% 20.78% 18.65%
AGGRESSIVE GROWTH 10.91% 26.44% 22.36% N/A N/A 16.65%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CUMULATIVE RETURNS
ONE FIVE TEN FIFTEEN TWENTY SINCE
YEAR YEARS YEARS YEARS YEARS INCEPTION*
---- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
BLUE CHIP 22.54% 116.87% 303.67% N/A N/A 278.61%
CAPITAL DEVELOPMENT 24.11% N/A N/A N/A N/A 37.71%
CHARTER 21.52% 105.14% 332.92% 732.52% 2448.46% 4244.21%
WEINGARTEN 19.83% 94.35% 340.19% 975.94% 3759.64% 5177.71%
CONSTELLATION 12.34% 130.43% 559.22% 1189.89% 4263.54% 3857.33%
AGGRESSIVE GROWTH 10.91% 223.16% 652.46% N/A N/A 699.53%
</TABLE>
* The inception dates for the Class A shares of the Funds are February 4,
1987, June 17, 1996, November 26, 1968, June 17, 1969, April 30, 1976
and May 1, 1984, respectively.
Blue Chip acquired the investment portfolio of the BBC Fund on June 3,
1996. The performance data set forth above for Blue Chip includes performance
data of the BBC Fund for periods prior to June 3, 1996. The performance data is
not necessarily indicative of the future performance of Blue Chip.
3
<PAGE> 43
During the 10-year period ended October 31, 1997, a hypothetical $1,000
investment at the beginning of such period in Class A shares of Charter,
Weingarten, Constellation and Aggressive Growth would have been worth $4,329,
$4,402, $6,592 and $7,525, respectively, assuming all distributions were
reinvested.
During the 15-year period ended October 31, 1997, a hypothetical $1,000
investment at the beginning of such period in Class A shares of Charter,
Weingarten and Constellation would have been worth $8,325, $10,759 and $12,899,
respectively, assuming all dividends were reinvested.
During the 20-year period ended October 31, 1997 a hypothetical $1,000
investment at the beginning of such period in Class A shares of Charter,
Constellation and Weingarten would have been worth $25,485, $43,635 and $38,596,
respectively, assuming all distributions were reinvested. This was a period of
widely fluctuating stock and bond prices and interest rates, and should not
necessarily be considered a representation of the income or capital gain or loss
that may be realized from an investment in any of the Funds today.
Charter and Weingarten's total returns for Class B shares for the
period ended October 31, 1997 and the period June 26, 1995 (inception date for
Class B shares of Charter and Weingarten) through October 31, 1997 (which
include the maximum contingent deferred sales charge of 5% and reinvestment of
all dividends and distributions), and Blue Chip and Capital Development's total
returns for Class B shares for the period ended October 31, 1997 and the period
October 1, 1996 (inception date for Class B shares) through October 31, 1997
(which include the maximum contingent deferred sales charge of 5% and
reinvestment of all dividends and distributions) were as follows:
CLASS B AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
BLUE CHIP 23.81% 23.82%
CAPITAL DEVELOPMENT 25.51% 21.46%
CHARTER 22.54% 21.30%
WEINGARTEN 20.78% 20.06%
</TABLE>
CLASS B CUMULATIVE RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
BLUE CHIP 23.81% 26.02%
CAPITAL DEVELOPMENT 25.51% 23.42%
CHARTER 22.54% 57.35%
WEINGARTEN 20.78% 53.61%
</TABLE>
* The inception dates for the Class B shares of the Funds are October 1,
1996, October 1, 1996, June 26, 1995 and June 26, 1995, respectively.
Total returns are not available for Class B shares of Constellation as
the effective date of the Class B shares was November 3, 1997.
Total returns for Class C shares of Blue Chip, Capital Development,
Charter, Constellation and Weingarten, for the period August 2, 1997 (inception
date for Class C shares) through October 31, 1997 were as follows:
4
<PAGE> 44
CLASS C AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
BLUE CHIP N/A (4.03)%
CAPITAL DEVELOPMENT N/A 6.20%
CHARTER N/A (4.20)%
CONSTELLATION N/A (4.72)%
WEINGARTEN N/A (3.12)%
</TABLE>
CLASS C CUMULATIVE RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
BLUE CHIP N/A (4.03)%
CAPITAL DEVELOPMENT N/A 6.20%
CHARTER N/A (4.20)%
CONSTELLATION N/A (4.72)%
WEINGARTEN N/A (3.12)%
</TABLE>
* The inception date for the Class C shares of the Funds is August 4,
1997.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc. and other independent services
which monitor the performance of mutual funds. The Funds may also advertise
mutual fund performance rankings which have been assigned to each respective
Fund by such monitoring services.
Each Fund's performance may also be compared in advertising and other
materials to the performance of comparative benchmarks such as the Consumer
Price Index ("CPI"), the Standard & Poor's 500 Stock Index, and fixed-price
investments such as bank certificates of deposit and/or savings accounts.
The CPI, published by the U.S. Bureau of Labor Statistics, is a
statistical measure of changes, over time, in the prices of goods and services.
Standard & Poor's 500 Stock Index is a group of unmanaged securities widely
regarded by investors as representative of the stock market in general.
Comparisons assume the reinvestment of dividends. Fixed Price Investments, such
as bank certificates of deposits and savings accounts, are generally backed by
federal agencies for up to $100,000. Class A shares of Charter, Weingarten and
Constellation are not insured and their value will vary with market conditions.
In addition, each Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events. For
instance, Charter's Class A shares performance since its inception has been
accomplished through various years in which there have been recessions, a
presidential assassination attempt, a 20% prime rate, an 13% annual inflation
rate, and significant stock market declines. The performance of Class A shares
of Weingarten, Aggressive Growth and Constellation has been achieved through
years in which similar events occurred.
Each Fund's advertising may from time to time include discussions of
general economic conditions and interest rates. Each Fund's advertising may also
include references to the use of the Fund as part of an individual's overall
retirement investment program.
From time to time, Fund sales literature and/or advertisements may
disclose (i) top holdings included in the Fund's portfolio, (ii) certain selling
group members, and/or (iii) certain institutional shareholders.
5
<PAGE> 45
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. These topics
include, but are not limited to, literature addressing general information about
mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money
markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning and inflation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
A I M Advisors, Inc. ("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 A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other 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.
6
<PAGE> 46
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
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. Brokerdealers 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.
7
<PAGE> 47
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, Blue Chip. Charter and Weingarten held an
amount of common stock issued by Merrill Lynch & Co. having a market value
of $7,776,875, $47,337,500 and $13,764,100, respectively, and common stock
issued by Morgan Stanley, Dean Witter, Discover & Co. having a market value
of $8,575,000, $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.
For the fiscal years ended October 31, 1997, 1996 and 1995, Aggressive
Growth paid brokerage commissions of $4,026,523, $3,244,570 and $9,917,185,
respectively. For the fiscal year ended October 31, 1997, AIM allocated certain
of Aggressive Growth's brokerage transactions to certain broker-dealers that
provided AIM with certain research, statistical and other information. Such
transactions amounted to $325,627,524 and the related brokerage commissions were
$542,531.
For the fiscal years ended October 31, 1997, the fiscal period 1996 and
September 30, 1996, Blue Chip paid brokerage commissions of $858,396, $121,246
and $39,153, respectively. For the fiscal year ended October 31, 1997, AIM
allocated certain of Blue Chip's brokerage transactions to certain
broker-dealers that provide AIM with certain research, statistical and other
information. Such transactions amounted to $34,748,160 and the related brokerage
commissions were $32,887.
Brokerage commissions paid by the BBC Fund during the fiscal year ended
September 30, 1995, to brokers, other than its investment adviser Robert W.
Baird & Co. Incorporated ("Baird"), totaled $45,867. All of such brokers
provided research services to Baird. During such year, the BBC Fund did not pay
brokerage commissions to Baird.
For the fiscal years ended October 31, 1997 and the fiscal period 1996,
Capital Development paid brokerage commissions of $628,188 and $219,931. For the
fiscal year ended October 31, 1997, AIM allocated certain of Capital
Development's brokerage transactions to certain broker-dealers that provide AIM
with certain research, statistical and other information. Such transactions
amounted to $28,747,604 and the related brokerage commissions were $61,112.
8
<PAGE> 48
PORTFOLIO TURNOVER
The portfolio turnover rate of Aggressive Growth, Capital Development,
Charter, Constellation, Weingarten and Blue Chip is shown under "Financial
Highlights" in the applicable Prospectus. Higher portfolio turnover increases
transaction costs to the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion of investment policies supplements the
discussion of the investment objectives and policies set forth in the Prospectus
under the heading "Investment Program(s)."
Each of the Funds may invest, for temporary or defensive purposes, all
or substantially all of their assets in investment grade (high quality)
corporate bonds, commercial paper, or U.S. Government obligations. In addition,
a portion of each Fund's assets may be held, from time to time, in cash,
repurchase agreements or other short-term debt securities when such positions
are deemed advisable in light of economic or market conditions. For a
description of the various rating categories of corporate bonds and commercial
paper in which the Funds may invest, see the Appendix to this Statement of
Additional Information.
COMMON STOCKS -- The Funds will invest in common stocks. Common stocks
represent the residual ownership interest in the issuer and are entitled to the
income and increase in the value of the assets and business of the entity after
all of its obligations and preferred stocks are satisfied. Common stocks
generally have voting rights. Common stocks fluctuate in price in response to
many factors including historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCKS -- The Funds may invest in preferred stocks. Preferred
stock has a preference over common stock in liquidation (and generally dividends
as well) but is subordinated to the liabilities of the issuer in all respects.
As a general rule the market value of preferred stock with a fixed dividend rate
and no conversion element varies inversely with interest rates and perceived
credit risk, while the market price of convertible preferred stock generally
also reflects some element of conversion value. Because preferred stock is
junior to debt securities and other obligations of the issuer, deterioration in
the credit quality of the issuer will cause greater changes in the value of a
preferred stock than in a more senior debt security with similar stated yield
characteristics. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
CONVERTIBLE SECURITIES -- The Funds may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible income securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. Although each
Fund will only purchase convertible securities that AIM considers to have
adequate protection parameters, including an adequate capacity to pay interest
and repay principal in a timely manner, it invests without regard to corporate
bond ratings. Capital Development does not intend to invest more than 5% of its
net assets in convertible securities.
9
<PAGE> 49
CORPORATE DEBT SECURITIES -- The Funds may invest in corporate debt
securities. Corporations issue debt securities of various types, including bonds
and debentures (which are long-term), notes (which may be short- or long-term),
bankers acceptances (indirectly secured borrowings to facilitate commercial
transactions) and commercial paper (short-term unsecured notes). These
securities typically provide for periodic payments of interest, at a rate which
may be fixed or adjustable, with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise guaranteed. The
values of fixed rate income securities tend to vary inversely with changes in
interest rates, with longer-term securities generally being more volatile than
shorter-term securities. Corporate securities frequently are subject to call
provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a security
is called during a period of declining interest rates, the Fund may be required
to reinvest the proceeds in securities having a lower yield. In addition, in the
event that a security was purchased at a premium over the call price, a Fund
will experience a capital loss if the security is called. Adjustable rate
corporate debt securities may have interest rate caps and floors.
Blue Chip will not invest in non-convertible corporate debt securities
rated below investment grade by Standard and Poor's Ratings Services ("S&P") and
Moody's Investors Service ("Moody's") or in unrated non-convertible corporate
debt securities believed by the Fund's investment adviser to be below investment
grade quality. Securities rated in the four highest long-term rating categories
by S&P and Moody's are considered to be "investment grade." S&P's fourth highest
long-term rating category is "BBB", with BBB being the lowest investment grade
rating. Moody's fourth highest long-term rating category is "Baa", with Baa3
being the lowest investment grade rating. Publications of S&P indicate that it
assigns securities to the "BBB" rating category when such securities are
"regarded as having an adequate capacity to pay interest and repay principal.
Such securities normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay," whereas securities rated AAA by S&P are regarded as
having "capacity to pay interest and repay principal [that] is extremely
strong." Publications of Moody's indicate that it assigns securities to the "Baa
rating category when such securities are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well," whereas securities rated Aaa by
Moody's "are judged to be of the best quality" and "carry the smallest degree of
investment risk."
U.S. GOVERNMENT SECURITIES -- The Funds may invest in securities issued
or guaranteed by the United States government or its agencies or
instrumentalities. These include Treasury securities (bills, notes, bonds and
other debt securities) which differ only in their interest rates, maturities and
times of issuance. U.S. Government agency and instrumentality securities include
securities which are supported by the full faith and credit of the U.S.,
securities that are supported by the right of the agency to borrow from the U.S.
Treasury, securities that are supported by the discretionary authority of the
U.S. Government to purchase certain obligations of the agency or instrumentality
and securities that are supported only by the credit of such agencies. While the
U.S. Government may provide financial support to such U.S. government-sponsored
agencies or instrumentalities, no assurance can be given that it always will do
so. The U.S. government, its' agencies and instrumentalities do not guarantee
the market value of their securities and consequently the values of such
securities fluctuate.
FOREIGN SECURITIES
Each of Aggressive Growth, Blue Chip and Capital Development may invest
up to 25% of its total assets in foreign securities. Each of Charter, Weingarten
and Constellation may invest up to 20% of its total assets in foreign
securities. For purposes of computing such limitation American 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,
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ADRs, in registered form, are designed for use in the United States securities
markets, and EDRs, in bearer form, are designed for use in European securities
markets. ADRs and EDRs may be listed on stock exchanges, or traded in OTC
markets in the United States or Europe, as the case may be. ADRs, like other
securities traded in the United States, will be subject to negotiated commission
rates. Investments by the Fund in securities of foreign corporations may involve
considerations and risks that are different in certain respects from an
investment in securities of U.S. companies. Such risks include possible
imposition of withholding taxes on interest or dividends, possible adoption of
foreign governmental restrictions on repatriation of income or capital invested,
or other adverse political or economic developments. Additionally, it may be
more difficult to enforce the rights of a security holder against a foreign
corporation, and information about the operations of foreign corporations may be
more difficult to obtain and evaluate.
FOREIGN EXCHANGE TRANSACTIONS
Purchases and sales of foreign securities are usually made with foreign
currencies, and consequently the Funds may from time to time hold cash balances
in the form of foreign currencies and multinational currency units. Such foreign
currencies and multinational currency units will usually be acquired on a spot
(i.e. cash) basis at the spot rate prevailing in foreign exchange markets and
will result in currency conversion costs to the Funds. The Funds attempt to
purchase and sell foreign currencies on as favorable a basis as practicable;
however, some price spread on foreign exchange transactions (to cover service
charges) may be incurred, particularly when the Funds change investments from
one country to another, or when U.S. dollars are used to purchase foreign
securities. Certain countries could adopt policies which would prevent the Funds
from transferring cash out of such countries, and the Funds may be affected
either favorably or unfavorably by fluctuations in relative exchange rates while
the Funds hold foreign currencies.
RULE 144A SECURITIES
The Funds may each purchase securities which, while privately placed,
are eligible for purchase and sale pursuant to Rule 144A under the Securities
Act of 1933 (the "1933 Act"). This Rule permits certain qualified institutional
buyers, such as a Fund, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Company's Board of Directors, will consider whether securities purchased
under Rule 144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its assets in illiquid securities. Determination
of whether a Rule 144A security is liquid or not is a question of fact. In
making this determination AIM will consider the trading markets for the specific
security taking into account the unregistered nature of a Rule 144A security. In
addition, AIM could consider the (i) frequency of trades and quotes, (ii) number
of dealers and potential purchasers, (iii) dealer undertakings to make a market,
and (iv) nature of the security and of market place trades (for example, the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). The liquidity of Rule 144A securities will also be
monitored by AIM and, if as a result of changed conditions, it is determined
that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid
securities will be reviewed to determine what, if any, action is required to
assure that the Fund does not invest more than 15% of its assets in illiquid
securities. Investing in Rule 144A securities could have the effect of
increasing the amount of the Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Funds may each make
secured loans of portfolio securities amounting to not more than 33-1/3% of its
total assets. None of the Funds currently intend to engage in this investment
practice. Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times 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
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investment of the collateral or a fee from the borrower. The Fund has a right to
call each loan and obtain the securities on five business days' notice or, in
connection with securities trading on foreign markets, within such longer period
of time which coincides with the normal settlement period for purchases and
sales of such securities in such foreign markets. The Fund will not have the
right to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. Loans will only be made to persons deemed by
AIM to be of good standing and will not be made unless, in the judgment of AIM,
the consideration to be earned from such loans would justify the risk.
REPURCHASE AGREEMENTS
The Funds may each enter into repurchase agreements. A repurchase
agreement is an instrument under which a Fund acquires ownership of a debt
security and the seller (usually a broker or bank) agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the Fund's holding period. In the event of
bankruptcy or other default of a seller of a repurchase agreement, the Fund may
experience both delays in liquidating the underlying securities and losses,
including: (a) a possible decline in the value of the underlying security during
the period in which the Fund seeks to enforce its rights thereto; (b) a possible
subnormal level of income and lack of access to income during this period; and
(c) expenses of enforcing its rights. A repurchase agreement is collateralized
by the security acquired by the Fund and its value is marked to market daily in
order to minimize the Fund's risk. Repurchase agreements usually are for short
periods, such as one or two days, but may be entered into for longer periods of
time.
Charter may enter into repurchase agreements (at any time, up to 50% of
its net assets), using only U.S. Government securities, for the sole purpose of
increasing its yield on idle cash. Charter will not invest in a repurchase
agreement of more than seven days' duration if, as a result of that investment,
the amount of repurchase agreements of more than seven days' duration would
exceed 15% of the assets of Charter.
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.
SPECIAL SITUATIONS
Although Constellation does not currently intend to do so, it may
invest in "special situations." A special situation arises when, in the opinion
of the Fund's management, the securities of a particular company will, within a
reasonably estimable period of time, be accorded market recognition at an
appreciated value solely by reason of a development applicable to that company,
and regardless of general business conditions or movements of the market as a
whole. Developments creating special situations might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material litigation,
technical breakthroughs, and new management or management policies. Although
large and well-known companies may be involved, special situations more often
involve comparatively small or unseasoned companies. Investments in
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unseasoned companies and special situations often involve much greater risk than
is inherent in ordinary investment securities.
SHORT SALES
Although Blue Chip, Weingarten, Constellation and Aggressive Growth do
not currently intend to do so, they and Capital Development may each enter into
short sales transactions. None of Blue Chip, Weingarten, Constellation,
Aggressive Growth or Capital Development will make short sales of securities nor
maintain a short position unless at all times when a short position is open, the
Fund owns an equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." Such short sales will be
used by each of Blue Chip, Weingarten, Constellation, Aggressive Growth and
Capital Development for the purpose of deferring recognition of gain or loss for
federal income tax purposes. In no event may more than 10% of the value of the
respective Fund's net assets (10% of the value of total assets of Aggressive
Growth) be deposited or pledged as collateral for such sales at any time.
WARRANTS
The Funds may, from time to time, invest in warrants. Warrants are, in
effect, longer-term call options. They give the holder the right to purchase a
given number of shares of a particular company at specified prices within
certain periods of time. The purchaser of a warrant expects that the market
price of the security will exceed the purchase price of the warrant plus the
exercise price of the warrant, thus giving him a profit. Of course, since the
market price may never exceed the exercise price before the expiration date of
the warrant, the purchaser of the warrant risks the loss of the entire purchase
price of the warrant. Warrants generally trade in the open market and may be
sold rather than exercised. Warrants are sometimes sold in unit form with other
securities of an issuer. Units of warrants and common stock may be employed in
financing young, unseasoned companies. The purchase price of a warrant varies
with the exercise price of a warrant, the current market value of the underlying
security, the life of the warrant and various other investment factors.
OPTIONS
Each of the Funds is authorized to write (sell) covered call options on
the securities in which it may invest and to enter into closing purchase
transactions with respect to such options. A call option is "covered" if the
Fund owns or has the right to acquire the underlying security subject to the
call. Writing a call option obligates a Fund to sell or deliver the option's
underlying security, in return for the strike price, upon exercise of the
option. By writing a call option, the Fund receives an option premium from the
purchaser of the call option. Writing covered call options is generally a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, the Fund would seek to mitigate the effects of a price decline.
By writing covered call options, however, the Fund gives up the opportunity,
while the option is in effect, to profit from any price increase in the
underlying security above the option exercise price. In addition, the Fund's
ability to sell the underlying security will be limited while the option is in
effect unless the Fund effects a closing purchase transaction.
Charter, Capital Development, Blue Chip and Weingarten may purchase put
options. A put purchased by the Fund constitutes a hedge against a decline in
the price of a security owned by the Fund. It may be sold at a profit or loss
depending upon changes in the price of the underlying security. It may be
exercised at a profit provided that the amount of the decline in the price of
the underlying security below the exercise price during the option period
exceeds the option premium, or it may expire without value. A call constitutes a
hedge against an increase in the price of a security which the Fund has sold
short, it may be sold at a profit or loss depending upon changes in the price of
the underlying security, it may be exercised at a profit provided that the
amount of the increase in the price of the underlying security over the exercise
price during the option period exceeds the option premium, or it may expire
without value. The maximum loss exposure involved in
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the purchase of an option is the cost of the option contract. Capital
Development and Blue Chip may engage in strategies employing combinations of
covered put and call options.
The Funds do not intend to engage in such transactions for speculative
purposes and will engage in such transactions only for hedging purposes.
COMBINED OPTION POSITIONS
Each Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
Fund's overall position. For example, the Fund may purchase a put option and
write a covered call option on the same underlying instrument, in order to
construct a combined position. This technique, called a "collar," enables the
Fund to offset the cost of purchasing a put option with the premium received
from writing the call option. However, by selling the call option, the Fund
gives up the ability for potentially unlimited profit from the stock
appreciation. Another possible combined position would involve writing a covered
call option at one strike price and buying a call option at a higher price, in
order to reduce the risk of the written covered call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
FUTURES CONTRACTS
Each of the Funds may purchase and sell futures contracts in order to
hedge the value of its portfolio against changes in market conditions. In cases
of purchases of futures contracts, an amount of liquid assets, equal to the cost
of the futures contracts (less any related margin deposits), will be segregated
with the Funds' custodian to collateralize the position and ensure that the use
of such futures contracts is unleveraged. Unlike when a Fund purchases or sells
a security, no price is paid or received by a Fund upon the purchase or sale of
a futures contract. Initially, a Fund will be required to deposit with its
custodian for the account of the broker a stated amount, as called for by the
particular contract, of cash or U.S. Treasury bills. This amount is known as
"initial margin." The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent payments, called "variation margin,"
to and from the broker will be made on a daily basis as the price of the futures
contract fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as "marking-to-market." For example, when
a Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment with respect to
that increase in value. Conversely, where a Fund has purchased a stock index
futures contract and the price of the underlying stock index has declined, that
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. Variation margin payments would be made
in a similar fashion when a Fund has purchased an interest rate futures
contract. At any time prior to expiration of the futures contract, a Fund may
elect to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
A description of the various types of futures contracts that may be
utilized by the Funds is as follows:
Stock Index Futures Contracts
A stock index assigns relative values to the common stocks included in
the index and the index fluctuates with changes in the market values of the
common stocks so included. A stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar (or, in the case of Aggressive Growth or
Capital Development, other currency) amount times
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the difference between the stock index value at the close of the last trading
day of the contract and the price at which the futures contract is originally
struck. No physical delivery of the underlying stocks in the index is made.
Currently, stock index futures contracts can be purchased or sold primarily with
respect to broad based stock indices such as the Standard & Poor's 500 Stock
Index, the New York Stock Exchange Composite Index, the American Stock Exchange
Major Market Index, the NASDAQ -- 100 Stock Index and the Value Line Stock
Index. The stock indices listed above consist of a spectrum of stocks not
limited to any one industry such as utility stocks. Utility stocks, at most,
would be expected to comprise a minority of the stocks comprising the portfolio
of the index. The Funds will only enter into stock index futures contracts in
order to hedge the value of its portfolio against changes in market conditions.
When a Fund anticipates a significant market or market sector advance, the
purchase of a stock index futures contract affords a hedge against not
participating in such advance. Conversely, in anticipation of or in a general
market or market sector decline that adversely affects the market values of a
Fund's portfolio of securities, the Fund may sell stock index futures contracts.
Foreign Currency Futures Contracts
With respect to Aggressive Growth and Capital Development only, futures
contracts may also be used to hedge the risk of changes in the exchange rate of
foreign currencies.
OPTIONS ON FUTURES CONTRACTS
Blue Chip, Aggressive Growth and Capital Development may purchase
options on futures contracts. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
option exercise period. The writer of the option is required upon exercise to
assume an offsetting futures position (a short position if the option is a call
and a long position if the option is a put) at a specified exercise price at any
time during the period of the option. Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract. If an option on a futures contract is exercised on the last
trading date prior to the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the exercise price of the
option and the closing price of the futures contract on the expiration date.
Blue Chip, Aggressive Growth and Capital Development will purchase put
options on futures contracts to hedge against the risk of falling prices for
their respective portfolio securities. Blue Chip, Aggressive Growth and Capital
Development will purchase call options on futures contracts as a hedge against a
rise in the price of securities which it intends to purchase. Options on futures
contracts may also be used to hedge the risks of changes in the exchange rate of
foreign currencies. The purchase of a put option on a futures contract is
similar to the purchase of protective put options on a portfolio security or a
foreign currency. The purchase of a call option on a futures contract is similar
in some respects to the purchase of a call option on an individual security or a
foreign currency. Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price of the
underlying securities or currency, it may or may not be less risky than
ownership of the futures contract or underlying securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
There are several risks in connection with the use of futures contracts
and related options as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of hedging instruments and movements
in the price of the stock, debt security or foreign currency which are the
subject of the hedge. If the price of a hedging instrument moves less than the
price of the stock, debt security or foreign currency which is the subject of
the hedge, the hedge will not be fully effective. If the price of a hedging
instrument moves more than the price of the stock, debt security or foreign
currency, a Fund will experience
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either a loss or gain on the hedging instrument which will not be completely
offset by movements in the price of the stock, debt security or foreign currency
which is the subject of the hedge. The use of options on futures contracts
involves the additional risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option.
Successful use of hedging instruments by the Funds is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures and options markets and because of the
imperfect correlation between movements in the prices of hedging instruments and
the investments being hedged, even a correct forecast by AIM of general market
trends may not result in a completely successful hedging transaction.
It is also possible that where a Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in its portfolio may decline. If
this occurred, a Fund would lose money on the futures contracts and also
experience a decline in the value of its portfolio securities. Similar risks
exist with respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an
exchange on which such contracts are traded. Although the Funds intend to
purchase or sell futures contracts or, in the case of Blue Chip, Aggressive
Growth and Capital Development, purchase options only on exchanges or boards of
trade where there appears to be an active market, there is no assurance that a
liquid market on an exchange or a board of trade will exist for any particular
contract at any particular time. If there is not a liquid market, it may not be
possible to close a futures position or purchase an option at such time. In the
event of adverse price movements under those circumstances, the Fund would
continue to be required to make daily cash payments of maintenance margin on its
futures positions. The extent to which a Fund may engage in futures contracts
or, in the case of Blue Chip, Aggressive Growth and Capital Development, related
options, will be limited by Internal Revenue Code requirements for qualification
as a regulated investment company and a Fund's intent to continue to qualify as
such. The result of a hedging program cannot be foreseen and may cause a Fund to
suffer losses which it would not otherwise sustain.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
Investment in securities on a when-issued or delayed delivery basis may
increase a Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. A Fund will employ techniques designed to
reduce such risks. If a Fund purchases a when-issued security, the Fund's
custodian bank will segregate cash or other 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 issuers. Securities in
such issuers may provide opportunities for long term capital growth. Greater
risks are associated with investments in securities of unseasoned issuers than
in the securities of more established companies because unseasoned issuers have
only a brief operating history and may have more limited markets and financial
resources. As a result, securities of unseasoned issuers tend to be more
volatile than securities of more established companies.
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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.
BLUE CHIP
Blue Chip may not:
(a) issue bonds, debentures or senior equity securities;
(b) concentrate its investments; that is, invest 25% or more
of the value of its assets in issuers which conduct their business
operations in the same industry;
(c) invest in real estate, except that this restriction does
not preclude investments in real estate investment trusts;
(d) write, purchase, or sell puts, calls, straddles, spreads
or combinations thereof (other than covered put and call options), or
sell securities short (except against the box collateralized by not
more than 10% of its net assets) or deal in commodities;
(e) make loans, except that the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt
securities, or purchasing short-term obligations, is not considered to
be a loan for purposes of this restriction, provided that the Fund may
lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(f) purchase securities on margin, except that the Fund may
obtain such short term credits as may be necessary for the clearance of
purchases or sales of securities;
(g) borrow money or pledge its assets except that, as a
temporary measure for extraordinary or emergency purposes and not for
investment purposes, the Fund may borrow from banks (including the
Fund's custodian bank) amounts of up to 10% of the value of its total
assets, and may pledge amounts of up to 20% of its total assets to
secure such borrowings; or
(h) act as an underwriter of securities of other issuers.
In addition, Blue Chip may not (a) with respect to 75% of the Fund's
total assets, invest more than 5% of the total assets of the Fund (valued at
market) in securities of any one issuer (other than obligations of the U.S.
Government and its instrumentalities) or purchase more than 10% of the
outstanding securities of any one issuer or more than 10% of any class of
securities of an issuer; (b) deal in forward contracts; or (c) purchase
additional securities when any borrowings from banks exceed 5% of the Fund's
total assets. These additional restrictions are not fundamental, and may be
changed by the Board of Directors of the Company without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
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
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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 issuers, except that the Fund may
purchase securities of other investment companies to the extent permitted by
applicable law or exemptive order.
(b) concentrate its investments; that is, invest 25% or more of the
value of its assets in any particular industry;
(c) purchase or sell real estate or other interests in real estate
(except that this restriction does not preclude investments in marketable
securities of companies engaged in real estate activities);
(d) buy or sell physical commodities or physical commodity contracts,
including physical commodities futures contracts, or deal in oil, gas, or other
mineral exploration or development programs;
(e) make loans (except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or entering
into a repurchase agreement, is not considered to be a loan for purposes of this
restriction), provided that the Fund may lend its portfolio securities provided
the value of such loaned securities does not exceed 33-1/3% of its total assets;
(f) purchase securities on margin or sell short;
(g) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment purposes,
the Fund may borrow from banks (including the Fund's custodian bank) amounts of
up to 10% of the value of its total assets, and may pledge amounts of up to 20%
of its total assets to secure such borrowings;
(h) invest in companies for the purpose of exercising control or
management, except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(i) act as an underwriter of securities of other issuers;
(j) purchase from or sell to any officer, director or employee of the
Fund, or its advisors or distributor, or to any of their officers or directors,
any securities other than shares of the capital stock of Charter; or
(k) purchase or retain the securities of any issuer if those officers
and directors of the Company, its advisors or distributor owning individually
more than 1/2 of 1% of the securities of such issuer, together own more than 5%
of the securities of such issuer.
In addition, Charter may not (a) write covered call options in excess
of 25% of the value of the Fund's net assets, (b) purchase put options in excess
of 25% of the value of the Fund's net assets, (c) engage in the writing and sale
of put options and the writing, sale or purchase of uncovered call options,
straddles, spreads or combinations thereof, (d) issue senior securities, except
to the extent permitted by applicable law or exemptive order, or (e) purchase
additional securities when any borrowings from banks exceed 5% of the Fund's
total assets. These restrictions are not fundamental and may be changed by the
Board of Directors of the Company without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
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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 25% or more of the value of its total assets in securities
of issuers all of which conduct their principal business activities in the same
industry; or
(i) borrow money or pledge its assets, except that, as a temporary
measure for extraordinary or emergency purposes and not for investment purposes,
the Fund may borrow from banks (including the Fund's custodian bank) amounts of
up to 10% of the value of its total assets, and may pledge amounts of up to 20%
of its total assets to secure such borrowings.
In addition, Weingarten may not (a) 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; (c) deal in forward contracts; (d)
write covered call options in excess of 25% of the value of the Fund's net
assets; (e) purchase put options in excess of 25% of the value of the Fund's net
assets; (f) engage in the writing and sale of put options and the writing, sale
or purchase of uncovered call options, straddles, spreads or combinations
thereof; or (g) purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets. These additional restrictions are not
fundamental, and may be changed by the Board of Directors of the Company without
shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
CONSTELLATION
Constellation may not:
(a) invest for the purpose of exercising control over or management of
any company, except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(b) engage in the underwriting of securities of other issuers;
(c) purchase and sell real estate or commodities or commodity
contracts;
19
<PAGE> 59
(d) make loans, except by the purchase of a portion of an issue of
publicly distributed bonds, debentures or other obligations, provided that the
Fund may lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(e) invest in interests in oil, gas or other mineral exploration or
development programs; or
(f) invest 25% or more of the value of its total assets in securities
of issuers all of which conduct their principal business activities in the same
industry.
In addition, Constellation treats as fundamental its policy concerning
borrowing described under the caption "Investment Programs - Investment
Restrictions - Borrowing" in the Prospectus. In accordance with this policy, the
Fund may borrow funds from a bank (including its custodian bank) to purchase or
carry securities only if, immediately after such borrowing, the value of the
Fund's assets, including the amount borrowed, less its liabilities, is equal to
at least 300% of the amount borrowed, plus all outstanding borrowings. For the
purpose of determining this 300% asset coverage requirement, the Fund's
liabilities will not include the amount borrowed but will include the market
value, at the time of computation, of all securities borrowed by the Fund in
connection with short sales. The amount of borrowing will also be limited by the
applicable margin limitations imposed by the Federal Reserve Board. If at any
time the value of the Fund's assets should fail to meet the 300% asset coverage
requirement, the Fund will, within three days, reduce its borrowings to the
extent necessary. The Fund may be required to eliminate partially or totally its
outstanding borrowings at times when it may not be desirable for it to do so.
The Board of Directors of the Company has also adopted the following
limitations which are not matters of fundamental policy of Constellation and
which may be changed without shareholder approval:
(a) the Fund may not issue senior securities, except to the extent
permitted by applicable law or exemptive order; or
(b) the Fund may not purchase additional securities when any borrowings
from banks exceed 5% of the Fund's total assets.
Except for the borrowing policy, if a percentage restriction is adhered
to at the time of investment, a later change in the percentage of such
investment held by a Fund resulting solely from changes in values or assets,
will not be considered to be a violation of the restriction.
AGGRESSIVE GROWTH
Aggressive Growth may not:
(a) with respect to 75% of the total assets of the Fund, purchase the
securities of any issuer if such purchase would cause more than 5% of the value
of its assets to be invested in the securities of such issuer (except U.S.
Government securities including securities issued by its agencies and
instrumentalities and except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order);
(b) concentrate 25% or more of its investments in a particular
industry;
(c) make short sales of securities (unless at all times when a short
position is open it either owns an amount of such securities or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's total assets
(taken at current value) is held for such sales at any one time) or purchase
securities on margin, but it may obtain such short-term credit as is necessary
for the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in stock index futures contracts and
options thereon;
20
<PAGE> 60
(d) act as a securities underwriter under the 1933 Act;
(e) make loans, except (i) through the purchase of a portion of an
issue of bonds or other obligations of types commonly offered publicly and
purchased by financial institutions, and (ii) through the purchase of short-term
obligations (maturing within a year), including repurchase agreements, provided
that the Fund may lend its portfolio securities provided the value of such
loaned securities does not exceed 33-1/3% of its total assets;
(f) borrow, except that the Fund may enter into stock index futures
contracts and that the right is reserved to borrow from banks, provided that no
borrowing may exceed one-third of the value of its total assets (including the
proceeds of such borrowing) and may secure such borrowings by pledging up to
one-third of the value of its total assets. (For the purposes of this
restriction, neither collateral arrangements with respect to margin for a stock
index futures contracts nor the segregation of securities in connection with
short sales are deemed to be a pledge of assets); or
(g) buy or sell commodities, commodity contracts or real estate.
Aggressive Growth does not intend (a) to invest for the purposes of
influencing management or exercising control; or (b) to purchase additional
securities when any borrowings from banks exceed 5% of the Fund's total assets.
The investment policies stated in this paragraph are not fundamental policies of
the Funds and may be changed by the Board of Directors of the Company without
shareholder approval. Shareholders will be notified before any material change
in the investment policies stated above become effective.
Except for the borrowing policy, if a percentage restriction is adhered
to at the time of investment, a later change in the percentage of such
investment held by a Fund resulting solely from changes in values or assets will
not be considered to be a violation of the restriction.
CAPITAL DEVELOPMENT
Capital Development may not:
(a) with respect to 75% of the total assets of the Fund, purchase the
securities of any one issuer (except securities issued or guaranteed by the U.S.
Government) if, immediately after and as a result of such purchase, (i) the
value of the holdings of the Fund in the securities of such issuer exceeds 5% of
the value of the Fund's total assets, or (ii) the Fund owns more than 10% of the
outstanding voting securities of any one class of securities of such issuer,
except that the Fund may purchase securities of other investment companies to
the extent permitted by applicable law or exemptive order;
(b) concentrate its investments; that is, invest 25% or more of the
value of its total assets in issuers who conduct their business operations in
the same industry;
(c) buy or sell commodities or commodity contracts or purchase or sell
real estate or other interests in real estate including real estate limited
partnership interests, except that this restriction does not preclude
investments in marketable securities of companies engaged in real estate
activities or in master limited partnership interests that are traded on a
national securities exchange;
(d) make loans, except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or purchasing
short-term obligations, is not considered to be a loan for purposes of this
restriction, provided that the Fund may lend its portfolio securities provided
the value of such loaned securities does not exceed 33-1/3% of its total assets;
21
<PAGE> 61
(e) purchase securities on margin, except that the Fund may obtain such
short term credits as may be necessary for the clearance of purchases or sales
of securities, or sell securities short (except against the box and
collateralized by not more than 10% of its net assets);
(f) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment purposes,
the Fund may borrow from banks (including the Fund's custodian bank) provided
that no borrowing may exceed one-third of the value of its total assets,
including the proceeds of such borrowings, and may secure such borrowings by
pledging up to one-third of the value of its total assets;
(g) act as an underwriter of securities of other issuers; or
(h) issue bonds, debentures, or senior equity securities.
In addition, Capital Development may not (a) deal in forward contracts
(other than foreign exchange transactions for hedging purposes); or (b) purchase
additional securities when any borrowings from banks exceed 5% of the Fund's
total assets. These additional restrictions are not fundamental, and may be
changed by the Board of Directors of the Company without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
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, TX 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
Chairman Management Group Inc.; A I M Advisors, Inc., A I M
Capital Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., and Fund Management
Company; and Vice Chairman and Director,
AMVESCAP PLC.
BRUCE L. CROCKETT (53) Director Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief Executive
McLean, VA 22102 Officer, COMSAT Corporation; and Chairman, Board
of Governors of INTELSAT (international communi-
cations company).
</TABLE>
- -------------------
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
22
<PAGE> 62
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
<S> <C> <C>
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)
Jetero Plaza, Suite E Formerly, Member of the U.S. House of
Humble, Texas 77398 Representatives.
**CARL FRISCHLING (61) Director Partner, Kramer, Levin, Naftalis & Frankel (law firm).
919 Third Avenue Director, ERD Waste, Inc. (waste management
New York, NY 10022 company), 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., Flag
37 Pippins Way 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.
23
<PAGE> 63
<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
183 River Drive Financial Officer, Bell Atlantic Management Services,
Tequesta, FL 33469 Inc. (provider of centralized management services to
telephone companies); Executive Vice President, Bell
Atlantic Corporation (parent of seven telephone companies);
and Vice President and Chief Financial Officer, Bell
Telephone Company of Pennsylvania and Diamond State
Telephone Company.
LOUIS S. SKLAR (58) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, 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
President and 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
President Inc.; 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 Vice President and Fund Controller, A I M Advisors,
and Assistant Inc.; and Assistant Vice President and Assistant
Treasurer Treasurer, Fund Management Company.
</TABLE>
- -------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
24
<PAGE> 64
The standing committees of the Board of Directors are the Audit Committee,
the Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit Committee
is responsible for meeting with the Company's auditors to review audit
procedures and results and to consider any matters arising from an audit to be
brought to the attention of the directors as a whole with respect to the
Company's fund accounting or its internal accounting controls, and considering
such matters as may from time to time be set forth in a charter adopted by the
Board of Directors and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The
Investment Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not interested
persons as long as the Company maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested directors, and considering such matters as may from time to
time be set forth in a charter adopted by the Board of Directors and such
committee.
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 or she serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
25
<PAGE> 65
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 THE 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 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 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 28 regarding fees earned by Mr. Frischling's law firm.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the 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
26
<PAGE> 66
(including amounts deferred under a separate agreement between the Applicable
AIM Funds and the director) for the number of such director's years of service
(not in excess of 10 years of service) completed with respect to any of the
Applicable AIM Funds. Such benefit is payable to each eligible director in
quarterly installments. If an eligible director dies after attaining the normal
retirement date but before receipt of any benefits under the Plan commences, the
director's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased director for no more
than ten years beginning the first day of the calendar quarter following the
date of the director's death. Payments under the Plan are not secured or funded
by any Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming 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, 20, 19, 16, 10 and 8 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of
Years of Annual Compensation
Service With Paid By All AIM Funds
the AIM Funds $80,000
------------- ---------------------
<S> <C>
10 $60,000
9 $54,000
8 $48,000
7 $42,000
6 $36,000
5 $30,000
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of their deferral accounts shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Agreement) beginning on the date the
deferring director's retirement benefits commence under the Plan. The Company's
Board of Directors, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the deferring director's
termination of service as a director of the Company. If a deferring director
dies prior to the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
single lump sum payment as soon as practicable after such deferring director's
death. The Agreements are not funded and, with respect to the payments of
amounts held in the deferral accounts, the deferring directors have the status
of unsecured creditors of the Company and of each other AIM Fund from which they
are deferring compensation.
27
<PAGE> 67
The Company paid the law firm of Kramer, Levin, Naftalis & Frankel
$4,723, $4,956, $12,872, $15,778, $11,454 and $34,413 in legal fees for services
provided to Blue Chip, Capital Development, Charter, Weingarten, Aggressive
Growth 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 ADVISORY, ADMINISTRATIVE SERVICES AND SUB-ADVISORY AGREEMENTS
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, together with its
subsidiaries, advises or manages over 50 investment company portfolios
encompassing a broad range of investment objectives. AIM Management, 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 business 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". A I M
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 which requires
investment personnel and certain other employees (a) to pre-clear personal
securities transactions subject to the Code of Ethics, (b) to file reports or
duplicate confirmations regarding such transactions, (c) to refrain from
personally engaging in (i) short-term trading of a security, (ii) transactions
involving a security within seven days of an AIM Fund transaction involving the
same security, and (iii) transactions involving securities being considered for
investment by an AIM Fund, and (d) abide by certain other provisions under the
Code of Ethics. The Code of Ethics also prohibits investment personnel and all
other AIM employees from purchasing securities in an initial public offering.
Personal trading reports are reviewed periodically by AIM, and the Board of
Directors reviews quarterly and annual reports (including information on any
substantial violations of the Code of Ethics). Sanctions for violations of the
Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Funds have entered into a Master Investment Advisory Agreement
dated as of February 28, 1997 (the "Master Advisory Agreement") and a Master
Administrative Services Agreement dated as of February 28, 1997 (the "Master
Administrative Services Agreement") with AIM. In addition, AIM has entered into
a Master Sub-Advisory Agreement dated as of February 28, 1997 (the "Master
Sub-Advisory Agreement") with AIM Capital with respect to Charter, Weingarten
and Constellation. Prior to June 30, 1992, Aggressive Growth's investment
advisor was CIGNA Investments, Inc. ("CII") (such agreement hereinafter referred
to as the "CII Agreement").
Both the Master Advisory Agreement and the Master Sub-Advisory
Agreement provide that the Fund will pay or cause to be paid all expenses of the
Fund not assumed by AIM or AIM Capital, including, without limitation: brokerage
commissions, taxes, legal, auditing or governmental fees, the cost of preparing
share certificates, custodian, transfer and shareholder service agent costs,
expenses of issue, sale, redemption, and repurchase of shares, expenses of
registering and qualifying shares for sale, expenses relating to directors and
shareholder meetings, the cost of preparing and distributing reports and notices
to shareholders, the fees and other expenses incurred by the Company on behalf
of the Fund in connection with membership in investment company organizations,
the cost of printing copies of prospectuses and statements of additional
information distributed to the Funds' shareholders and all other charges and
costs of the Funds' operations unless otherwise explicitly provided.
The Master Advisory Agreement and the Master Sub-Advisory Agreement
each provide that if, for any fiscal year, the total of all ordinary business
expenses of any Fund, including all investment advisory fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses, such
as litigation, 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
28
<PAGE> 68
aggregate of all such investment advisory fees with respect to such Fund shall
be reduced by the amount of such excess. The amount of any such reduction to be
borne by AIM shall be deducted from the monthly investment advisory fees
otherwise payable to AIM with respect to such Fund during such fiscal year. If
required pursuant to such state securities regulations, AIM will reimburse each
Fund, no later than the last day of the first month of the next succeeding
fiscal year, for any such annual operating expenses (after reduction of all
investment advisory fees in excess of such limitation).
The Master Advisory Agreement and the Master Sub-Advisory Agreement
became effective on February 28, 1997, and will continue in effect until
February 28, 1999, and from year to year thereafter only if such continuance is
specifically approved at least annually by (i) the Company's Board of Directors
or the vote of a "majority of the outstanding voting securities" of the Funds
(as defined in the 1940 Act), and (ii) the affirmative vote of a majority of the
directors who are not parties to the agreements or "interested persons" of any
such party (the "Non-Interested Directors") by votes cast in person at a meeting
called for such purpose. Each agreement provides that the Funds, AIM (in the
case of the Master Advisory Agreement) or AIM Capital (in the case of the Master
Sub-Advisory Agreement) may terminate such agreement on 60 days' written notice
without penalty. Each agreement terminates automatically in the event of its
assignment.
AIM may from time to time waive or reduce its fee. Fee waivers or
reductions, other than those set forth in the Master Advisory Agreement, may be
rescinded, however, at any time without further notice to investors, provided
however, that the discontinuance of each fee waiver described below will be
approved by the Board of Directors of AIM. AIM has agreed to waive fees for two
years ending June 3, 1998 to the extent necessary to keep the expense ratio for
Class A shares of Blue Chip at 1.31%. AIM has agreed to waive fees for two years
ending August 12, 1998, to the extent necessary to keep the expense ratio for
Class A shares of Capital Development at 1.34%.
AIM has initiated a voluntary reduction of advisory fees for Charter,
Constellation and Weingarten at net asset levels higher than those currently
incorporated in the advisory fee schedule. Accordingly, with respect to each of
Charter and Constellation, AIM receives a fee calculated at an annual rate of
1.0% of the first $30 million of such Fund's average daily net assets, plus
0.75% of such Fund's average daily net assets in excess of $30 million to and
including $150 million, plus 0.625% of such Fund's average daily net assets in
excess of $150 million. With respect to Weingarten, AIM's fee is calculated at
an annual rate of 1.0% of the first $30 million of the Fund's average daily net
assets, plus 0.75% of the Fund's average daily net assets in excess of $30
million to and including $350 million, plus 0.625% of the Fund's average daily
net assets in excess of $350 million. With respect to Aggressive Growth, AIM's
fee is calculated at an annual rate of 0.80% of the first $150 million of the
Fund's average daily net assets, plus 0.625% of the Fund's average daily net
assets in excess of $150 million. With respect to Blue Chip and Capital
Development, AIM is entitled to receive a fee calculated at an annual rate of
0.75% of the first $350 million of such Fund's average daily net assets, plus
0.625% of such Fund's average daily net assets in excess of $350 million. As
compensation for its services, AIM pays 50% of the advisory fees it receives
pursuant to the Master Advisory Agreement with respect to Charter, Weingarten
and Constellation to AIM Capital.
29
<PAGE> 69
Each Fund paid to AIM the following advisory fees net of any expense
limitations (fee waivers) for the years ended October 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Blue Chip.............................. $ 3,154,473 $ 256,773* N/A
Capital Development.................... 3,371,80 280,248** N/A
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
Aggressive Growth...................... 19,244,957 16,492,564 6,974,263
</TABLE>
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $188,544, and for the period October 1, 1996
through October 31, 1996 it was $68,229.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
For the fiscal year ended October 31, 1997, 1996 and 1995, AIM waived
advisory fees for each Fund as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Blue Chip.............................. $ 100,380 $ 26,433* N/A
Capital Development.................... 262,189 144,946** N/A
Charter................................ 498,463 156,975 $ 0
Weingarten............................. 2,187,021 1,458,804 843,494
Constellation.......................... 2,805,955 1,869,383 761,655
Aggressive Growth...................... 0 0 788,943
</TABLE>
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $19,409, and for the period October 1, 1996
through October 31, 1996 it was $7,024.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
Prior to June 3, 1996, the investment advisor to Blue Chip was Baird.
Baird was also the Fund's distributor. Baird is an indirect partially-owned
subsidiary of, and controlled by, The Northwestern Mutual Life Insurance
Company. The BBC Fund and Baird entered into an investment advisory agreement
pursuant to which Baird furnished continuous investment advisory services to the
BBC Fund. That investment advisory agreement was terminated in connection with
the reorganization of the BBC Fund. For the period October 1, 1995 through June
3, 1996 and during the fiscal year ended September 30, 1995, the BBC Fund paid
Baird fees of $370,615 and $469,802, respectively.
AIM, in turn, paid the following sub-advisory fees to AIM Capital, as
sub-advisor for Charter, Constellation and Weingarten, for the years ended
October 31, 1977, 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, shareholder
services and other administrative services to each Fund which are not required
to be performed by AIM under the Master Advisory Agreement. For such services,
AIM
30
<PAGE> 70
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.
In addition, the Transfer Agency and Service agreement for the Fund
provides that A I M Fund Services, Inc. ("AFS"), a registered transfer agent and
wholly-owned subsidiary of AIM, will perform certain shareholder services for
the Fund for a fee per account serviced. The Transfer Agency and Service
Agreement provides that AFS will receive a per account fee plus out-of-pocket
expenses to process orders for purchases, redemptions and exchanges of shares,
prepare and transmit payments for dividends and distributions declared by the
Fund, maintain shareholder accounts and provide shareholders with information
regarding the Fund and their accounts. The Transfer Agency and Service Agreement
became effective on November 1, 1994.
The Funds paid AIM the following amounts as reimbursement of
administrative services costs for the years ended October 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C>
Blue Chip........................... $ 73,653 $ 20,545* N/A
Capital Development................. 74,810 19,841** N/A
Charter............................. 127,908 114,489 $ 109,054
Weingarten.......................... 163,243 132,643 182,595
Constellation....................... 251,513 212,800 173,257
Aggressive Growth................... 97,609 97,857 71,528
</TABLE>
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $16,236 and for the period October 1, 1996
through October 31, 1996 it was $4,309.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
Prior to June 3, 1996, FMI served as the administrator to the BBC Fund.
Pursuant to the administration agreement between FMI and the BBC Fund, FMI
prepared and maintained the books, accounts and other documents required by the
1940 Act, determined the fund's net asset value, responded to shareholder
inquiries, prepared the fund's financial statements and excise tax returns,
prepared reports and filings with the Securities and Exchange Commission,
furnished statistical and research data, clerical, accounting and bookkeeping
services and stationery and office supplies, and maintained the fund's financial
accounts and records and generally assisted in all aspects of the fund's
operations other than portfolio management. This administration agreement
terminated in connection with the corporate reorganization of the BBC Fund.
During the fiscal years ended September 30, 1995, the BBC Fund paid FMI fees of
$46,743.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN. The Company has adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to the Class A and Class
C shares of the Funds (the "Class A and C Plan"). The Class A and C Plan
provides that the Class A shares pay 0.35% per annum of their daily average net
assets in the case of Blue Chip and Capital Development, 0.30% per annum of
their average daily net assets in the case of Charter, Weingarten and
Constellation and 0.25% per annum of the average net assets of Aggressive Growth
as compensation to AIM Distributors for the purpose of financing any activity
which is primarily intended to result in the sale of Class A shares. Under the
Class A and C Plan, Class C shares of Blue Chip, Capital Development, Charter,
Constellation and Weingarten pay compensation to AIM Distributors at an annual
rate
31
<PAGE> 71
of 1.00% of the average daily net assets attributable to Class C shares. Of such
amount, Blue Chip, Capital Development, Charter, Constellation and Weingarten
pay a service fee of 0.25% of the average daily net assets attributable to Class
C shares to selected dealers and other institutions which furnish continuing
personal shareholder services to their customers who purchase and own Class C
shares. Activities appropriate for financing under the Class A and C Plan
include, but are not limited to, the following: printing of prospectuses and
statements of additional information and reports for other than existing
shareholders; overhead; preparation and distribution of advertising material and
sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class A and C Plan.
THE CLASS B PLAN. The Company has also adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of
Blue Chip, Capital Development, Charter, Weingarten and Constellation (the
"Class B Plan", and collectively with the Class A and C Plan, the "Plans").
Under the Class B Plan, Blue Chip, Capital Development, Charter, Weingarten and
Constellation pay compensation to AIM Distributors at an annual rate of 1.00% of
the average daily net assets attributable to Class B shares. Of such amount,
Charter, Weingarten and Constellation pay a service fee of 0.25% of the average
daily net assets attributable to Class B shares to selected dealers and other
institutions which furnish continuing personal shareholder services to their
customers who purchase and own Class B shares. Amounts paid in accordance with
the Class B Plan may be used to finance any activity primarily intended to
result in the sale of Class B shares, including, but not limited to, printing of
prospectuses and statements of additional information and reports for other than
existing shareholders; overhead; preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class B Plan. AIM
Distributors may transfer and sell its right under the Class B Plan in order to
finance distribution expenditures in respect of Class B shares.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may
enter into agreements ("Shareholder Service Agreements") with investment dealers
selected from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Funds. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: distributing sales literature;
answering routine customer inquiries concerning the Funds; assisting customers
in changing dividend options, account designations and addresses, and in
enrolling in any of several special investment plans offered in connection with
the purchase of the Fund's shares; assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and any capital gains
distributions automatically in the Fund's shares; and providing such other
information and services as the Funds or the customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding the Funds and
the Company; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing customer purchase and redemption transactions;
providing periodic statements showing a shareholder's account balance and the
integration of such statements with those of other transactions and balances in
the shareholder's other accounts serviced by the bank; forwarding applicable
prospectuses, proxy statements, reports and notices to bank clients who hold
shares of the Funds; and such other administrative services as the Funds
reasonably may request, to the extent permitted by applicable statute, rule or
regulation. Similar agreements may be permitted under the Plans for institutions
which provide recordkeeping for and administrative services to 401(k) plans.
32
<PAGE> 72
The Company may also enter into Variable Group Annuity Contractholder
Service Agreements ("Variable Contract Agreements") on behalf of Charter,
Weingarten and Constellation authorizing payments to selected insurance
companies offering variable annuity contracts to employers as funding vehicles
for retirement plans qualified under Section 401(a) of the Internal Revenue
Code. Services provided pursuant to such Variable Contract Agreements may
include some or all of the following: answering inquiries regarding the Fund and
the Company; performing sub-accounting; establishing and maintaining
Contractholder accounts and records; processing and bunching purchase and
redemption transactions; providing periodic statements of contract account
balances; forwarding such reports and notices to Contractholders relative to the
Fund as deemed necessary; generally, facilitating communications with
Contractholders concerning investments in a Fund on behalf of Plan participants;
and performing such other administrative services as deemed to be necessary or
desirable, to the extent permitted by applicable statute, rule or regulation to
provide such services.
Financial intermediaries and any other person entitled to receive
compensation for selling shares of the Funds may receive different compensation
for selling shares of one particular class over another.
Under a Shareholder Service Agreement, the Funds agree to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement generally will be calculated at the end of each payment period
for each business day of the Funds during such period at the annual rate of
0.25% of the average daily net asset value of the Funds' shares purchased or
acquired through exchange. Fees calculated in this manner shall be paid only to
those selected dealers or other institutions who are dealers or institutions of
record at the close of business on the last business day of the applicable
payment period for the account in which the Funds' shares are held.
The Plans are subject to any applicable limitations imposed from time
to time by rules of the National Association of Securities Dealers, Inc.
AIM Distributors does not act as principal, but rather as agent for the
Funds, in making dealer incentive and shareholder servicing payments under the
Plans. These payments are an obligation of the Funds and not of AIM
Distributors.
For the fiscal year ended October 31, 1997, with respect to Class A
shares, Blue Chip, Capital Development, Charter, Weingarten, Aggressive Growth
and Constellation paid AIM Distributors under the Class A and C Plan $1,128,115,
$1,321,521, $9,459,952, $16,399,127, $7,594,650 and $38,860,415, respectively,
or an amount equal to 0.35%, 0.35%, 0.30%, 0.30%, 0.25% and 0.30%, respectively,
of the Fund's Class A shares average daily net assets.
For the fiscal year ended October 31, 1997, with respect to Class B
shares, Blue Chip, Capital Development, Charter and Weingarten paid AIM
Distributors under the Class B Plan $1,268,502, $1,325,888, $8,046,181 and
$3,831,989, respectively, or an amount equal to 1.00%, 1.00%, 1.00% and 1.00%,
respectively, of the Fund's Class B shares average daily net assets.
For the period August 2, 1997 through October 31, 1997, with respect to
Class C shares, Blue Chip, Capital Development, Constellation, Charter and
Weingarten paid AIM Distributors under the Class A and C Plan $4,842, $12,721,
$26,490, $6,079 and $2,338, respectively, or an amount equal to 1.00%, 1.00%,
1.00%, 1.00% and 1.00%, respectively, of the Fund's Class C shares average daily
net assets on an annualized basis.
33
<PAGE> 73
An estimate by category of actual fees paid by the following Funds
under the Class A and C Plan during the year ended October 31, 1997 were
allocated as follows:
<TABLE>
<CAPTION>
AGGRESSIVE CAPITAL
GROWTH BLUE CHIP DEVELOPMENT CHARTER CONSTELLATION WEINGARTEN
----------- --------- ----------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Advertising $ 217,359 $ 167,557 $ 209,983 $ 1,090,516 $ 4,241,794 $ 1,554,174
Printing and mailing 19,431 14,800 19,083 99,280 387,650 142,106
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 59,312 46,404 54,900 296,907 1,156,713 424,344
Compensation to 0 0 0 80,108 0 1,093,207
Underwriters to partially
offset other marketing
expenses
Compensation to 7,298,548 899,353 1,037,555 7,893,141 33,074,257 13,185,297
Dealers including
finder's fees
Compensation to 0 0 0 0 0 0
Sales Personnel
Annual Report Total 7,594,650 1,128,114 1,321,521 9,459,952 38,860,414 16,399,128
</TABLE>
An estimate by category of actual fees paid by the following Funds under the
Class B Plan during the year ended October 31, 1996 were allocated as follows:
<TABLE>
<CAPTION>
CAPITAL
BLUE CHIP DEVELOPMENT CHARTER WEINGARTEN
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
CLASS B
Advertising $ 196,571 $ 214,298 $ 816,931 $ 359,666
Printing and mailing 17,338 19,292 73,741 32,616
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 52,539 57,711 221,297 99,005
Compensation to 951,377 994,416 6,034,636 2,873,992
Underwriters to partially
offset upfront dealer
commissions and other
marketing costs
Compensation to Dealers 50,677 40,171 899,576 466,710
Compensation to 0 0 0 0
Sales Personnel
Annual Report Total 1,268,502 1,325,888 8,046,181 3,831,989
</TABLE>
34
<PAGE> 74
An estimate by category of actual fees paid by the following Funds under the
Class A and C Plan during the period August 2, 1997 (inception date) through
October 31, 1997 were allocated as follows:
<TABLE>
<CAPTION>
CAPITAL
BLUE CHIP DEVELOPMENT CHARTER CONSTELLATION WEINGARTEN
--------- ----------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C>
CLASS C
Advertising $ 840 $ 2,352 $ 962 $ 4,889 $ 477
Printing and mailing 83 195 71 396 28
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 202 503 393 1,059 0
Compensation to 3,632 9,541 4,559 19,867 1,754
Underwriters to partially
offset other marketing
expenses
Compensation to 86 130 94 279 79
Dealers including
finder's fees
Compensation to 0 0 0 0 0
Sales Personnel
Annual Report Totals 4,843 12,721 6,079 26,490 2,338
</TABLE>
No fees were paid by the Class B shares of Constellation during the
fiscal year ended October 31, 1997, as operations commenced on November 3, 1997.
The Plans require AIM Distributors to provide the Board of Directors at
least quarterly with a written report of the amounts expended pursuant to the
Plans and the purposes for which such expenditures were made. The Board of
Directors reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Directors, including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of the Company and who have no direct or indirect financial interest in the
operation of the Plans or in any agreements related to the Plans ("Qualified
Directors"). In approving the Plans in accordance with the requirements of Rule
12b-1, the directors considered various factors and determined that there is a
reasonable likelihood that the Plans would benefit each class of the Fund and
its respective shareholders.
The Plans do not obligate the Fund to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless the Plans are terminated earlier in accordance with their terms,
the Class B Plan continues in effect until June 30, 1998, and thereafter, both
Plans continue as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors.
35
<PAGE> 75
The Plans may be terminated by the vote of a majority of the Qualified
Directors, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the directors, including a majority of the Qualified
Directors, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Directors is committed to the discretion of the
Qualified Directors. In the event the Class A and C Plan is amended in a manner
which the Board of Directors determines would materially increase the charges
paid by holders of Class A shares under the Class A and C Plan, the Class B
shares of the Fund will no longer convert into Class A shares of the Fund unless
the Class B shares, voting separately, approve such amendment. If the Class B
shareholders do not approve such amendment, the Board of Directors will (i)
create a new class of shares of the Fund which is identical in all material
respects to the Class A shares as they existed prior to the implementation of
the amendment, and (ii) ensure that the existing Class B shares of the Fund will
be exchanged or converted into such new class of shares no later than the date
the Class B shares were scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan and the Class
B Plan are: (i) the Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to .35% of average daily net assets of
Blue Chip and Capital Development Class A shares, .30% of average daily net
assets of Charter, Weingarten and Constellation's Class A shares and up to .25%
of average daily net assets of Aggressive Growth's Class A shares as compared to
1.00% of such assets of Blue Chip, Capital Development, Charter, Weingarten, and
Constellation's Class B shares; (ii) the Class B Plan obligates the Class B
shares to continue to make payments to AIM Distributors following termination of
the Class B shares Distribution Agreement with respect to Class B shares sold by
or attributable to the distribution efforts of AIM Distributors unless there has
been a complete termination of the Class B Plan (as defined in such Plan); and
(iii) the Class B Plan expressly authorizes AIM Distributors to assign, transfer
or pledge its rights to payments pursuant to the Class B Plan.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of
the Funds' shares is set forth in the Prospectus under the headings "How to
Purchase Shares" and "Terms and Conditions of Purchase of the AIM Funds." A
Master Distribution Agreement with AIM Distributors relating to the Class A
shares of the Funds and Class C shares of Blue Chip, Capital Development,
Charter, Constellation and Weingarten was approved by the Board of Directors on
June 11, 1997. A Master Distribution Agreement with AIM Distributors relating to
the Class B shares of Charter and Weingarten was also approved by the Board of
Directors on February 28, 1997, and the Board of Directors approved Amendment
No. 1, adding Constellation to the Master Distribution Agreement, on September
19, 1997. Both such Master Distribution Agreements are hereinafter collectively,
referred to as the "Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing prospectuses and
statements of additional information of the Funds relating to public offerings
made by AIM Distributors pursuant to the Distribution Agreements (other than
those prospectuses and statements of additional information distributed to
existing shareholders of the Funds), and any promotional or sales literature
used by AIM Distributors or furnished by AIM Distributors to dealers in
connection with the public offering of the Funds' shares, including expenses of
advertising in connection with such public offerings. AIM Distributors has not
undertaken to sell any specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B shares of Charter,
Weingarten, Blue Chip and Capital Development and Class C shares of Blue Chip,
Capital Development, Charter, Constellation and Weingarten at the time of such
sales. Payments with respect to Class B shares will equal 4.0% of the purchase
price of the Class B shares sold by the dealer or institution, and will consist
of a sales commission equal to 3.75% of the purchase price of the Class B shares
36
<PAGE> 76
sold plus an advance of the first year service fee of 0.25% with respect to such
shares. The portion of the payments to AIM Distributors under the Class B Plan
which constitutes an asset-based sales charge (0.75%) is intended in part to
permit AIM Distributors to recoup a portion of such sales commissions plus
financing costs. AIM Distributors anticipates that it will require a number of
years to recoup from Class B Plan payments the sales commissions paid to dealers
and institutions in connection with sales of Class B shares.
In the future, if multiple distributors serve Charter, Weingarten,
Constellation, Blue Chip or Capital Development, each such distributor (or its
assignee or transferee) would receive a share of the payments under the Class B
Plan based on the portion of such Fund's Class B shares sold by or attributable
to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record.
The Company (on behalf of any class of the Funds) or AIM Distributors
may terminate the Distribution Agreements on sixty (60) days' written notice
without penalty. The Distribution Agreements will terminate in the event of
their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B Plan (as defined in such Plan) would terminate all
payments to AIM Distributors. Termination of the Class B Plan or Distribution
Agreement does not effect the obligations of Class B shareholders to pay
contingent deferred sales charges.
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the years or periods ended October 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip $ 7,418,585 $ 1,139,512 $ 1,000,546 $ 144,343 N/A N/A
Capital Development 7,852,157 1,212,125 6,850,693 926,213 N/A N/A
Charter 13,683,388 2,129,799 16,469,061 2,705,618 $ 9,068,400 $ 1,316,019
Weingarten 9,534,039 1,521,630 13,202,260 2,259,328 11,992,225 1,767,515
Constellation 68,714,717 10,566,898 105,245,937 19,558,836 88,958,038 13,097,651
Aggressive Growth . 42,392,109 5,850,410 11,683,056 2,111,788 57,745,243 8,232,597
</TABLE>
The following chart reflects the contigent deferred sales charges paid
by Class A shareholders of Blue Chip, Charter, Constellation and Weingarten for
the fiscal years ended October 31, 1997, 1996 and 1995 and for the Class A
shareholders of Capital Development for the fiscal years ended October 31, 1997
and for the period June 17, 1996 (date operations commenced) through October 31,
1996, and by Class B shareholders of Charter and Weingarten for the fiscal years
ended October 31, 1997 and 1996 and for the period June 26, 1995 (inception date
of Class B shares) through October 31, 1995 and by Class B shareholders of Blue
Chip and Capital Development for the fiscal year ended October 31, 1997 and for
the period October 1, 1996
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<PAGE> 77
(inception date of Class B shares) through October 31, 1996, and for the Class C
shareholders of all Funds for the period August 4, 1997 (inception date for
Class C shares) through October 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Blue Chip $ 50,289 N/A N/A
Capital Development $ 14,049 $ 733 N/A
Charter $ 62,653 $ 32,497 $55
Weingarten $ 38,015 $ 34,185 $60
Constellation $253,473 N/A N/A
</TABLE>
Shares of the BBC Fund were sold at a public offering price which
included a sales charge. The BBC Fund waived its sales charge in connection with
sales to specified types of investors and on purchases of $1,000,000 or more,
but imposed a contingent deferred sales charge upon the redemption of certain
shares so purchased, which contingent deferred sales charge was paid to Baird.
During the fiscal year ended September 30, 1995, Baird received approximately
$126,853 in front-end sales commissions in connection with the sales of BBC Fund
shares, all of which it retained. During the fiscal year ended September 30,
1995, Baird received $346 in deferred sales commissions in connection with sales
of BBC Fund shares, all of which it retained.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Funds may
be purchased appears in the Prospectus under the caption "How to Purchase
Shares."
The sales charge normally deducted on purchases of Class A shares of
the Funds is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of such shares.
Since there is little expense associated with unsolicited orders placed directly
with AIM Distributors by persons, who because of their relationship with the
Funds or with AIM and its affiliates, are familiar with the Funds, or whose
programs for purchase involve little expense (e.g., because of the size of the
transaction and shareholder records required), AIM Distributors believes that it
is appropriate and in the Funds' best interests that such persons be permitted
to purchase Class A shares of the Funds through AIM Distributors without payment
of a sales charge. The persons who may purchase Class A shares of the Funds
without a sales charge are shown in the Prospectus.
Complete information concerning the method of exchanging shares of the
Funds for shares of the other mutual funds managed or advised by AIM is set
forth in the Prospectus under the caption "Exchange Privilege."
Information concerning redemption of the Funds' shares is set forth in
the Prospectus under the caption "How to Redeem Shares." AIM intends to redeem
all shares of the Funds in cash. In addition to the Funds' obligation to redeem
shares, AIM Distributors may also repurchase shares as an accommodation to
shareholders. To effect a repurchase, those dealers who have executed Selected
Dealer Agreements with AIM Distributors must phone orders to the order desk of
the Fund telephone: (713) 626-1919, Extension 5001 (in Houston) or (800)
347-4246 (elsewhere) and guarantee delivery of all required documents in good
order. A repurchase is effected at the net asset value of the Fund next
determined after such order is received. Such arrangement is subject to timely
receipt by A I M Fund Services, Inc. of all required documents in good order. If
such documents are not received within a reasonable time after the order is
placed, the order is subject to cancellation. While there is no charge imposed
by the Funds or by AIM Distributors (other than any applicable CDSC) when shares
are redeemed or repurchased, dealers may charge a fair service fee for handling
the transaction.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange is restricted, as
determined by applicable rules and regulations of the SEC, (b) the
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<PAGE> 78
New York Stock Exchange is closed for other than customary weekend and holiday
closings, (c) the SEC has by order permitted such suspension, or (d) an
emergency as determined by the SEC exists making disposition of portfolio
securities or the valuation of the net assets of the Fund not reasonably
practicable.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the
net asset value of a share of each Fund is determined once daily as of the close
of trading of the New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern
Time), on each business day of the Fund. In the event the NYSE closes early
(i.e., before 4:00 p.m. Eastern Time) on a particular day, the net asset value
of a Fund share is determined as of the close of the NYSE on such day. For
purposes of determining net asset value per share, futures and options contract
closing prices which are available fifteen (15) minutes after the close of
trading on the NYSE will generally be used. The net asset values per share of
the Retail Classes and the Institutional Class will differ because different
expenses are attributable to each class. The income or loss and the expenses
(except those listed below) 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. Distribution and service fees and
transfer agency fees (to the extent different rates are charged to different
classes) 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. Determination of each Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
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 lacking a last sale, at
the mean between the last bid and asked price on that day; option contracts are
valued at the mean between the closing bid and asked prices on the exchange
where the contracts are principally traded. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an independent
pricing service. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as yield, type of issue, 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 sixty (60)
days or less to maturity are valued at amortized cost, which approximates market
value. (See also "How to Purchase Shares," "How to Redeem Shares" and
"Determination of Net Asset Value" in the Prospectus.)
Generally, trading in foreign securities, as well as corporate bonds,
U.S. Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in computing the net asset value of a Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the NYSE which will not be reflected
in the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on
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<PAGE> 79
business days of the Fund, the net asset value per share of a Fund may be
significantly affected on days when an investor can not exchange or redeem
shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the same class of each Fund unless the
shareholder has requested in writing to receive such dividends and distributions
in cash or that they be invested in shares of another AIM Fund, subject to the
terms and conditions set forth in the Prospectus under the caption "Special
Plans - Automatic Dividend Investment Plan." If a shareholder's account does not
have any shares in it on a dividend or capital gains distribution payment date,
the dividend or distribution will be paid in cash whether or not the shareholder
has elected to have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
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 requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the
companies, and securities of other issuers, the Fund has not invested more than
5% of the value of the Fund's total assets in securities of such issuer and as
to which the Fund does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.
40
<PAGE> 80
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
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.
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.
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.
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<PAGE> 81
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 carry
forwards) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
treated as if each received a distribution of its pro rata share of such gain,
with the result that each shareholder will be required to report its pro rata
share of such gain on its tax return as long-term capital gain, will receive a
refundable tax credit for its share of tax paid by the Fund on the gain, and
will increase the tax basis for its shares by an amount equal to the deemed
distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends received deduction generally available
to corporations (other than corporations, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics and
other than for purposes of special taxes such as the accumulated earnings tax
and the personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend (a)
if it has been received with respect to any share of stock that the Fund has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3)and(4) (i)
any day more than 45 days (or 90 days in the case of certain preferred stock)
after the date on which the stock becomes ex-dividend, and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, has granted certain options to
buy or has otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (b) to the extent that the
Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property; or (c) to the extent the stock on which the dividend is paid is
treated as debt-financed under the rules of Code Section 246A. Moreover, the
dividends
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<PAGE> 82
received deduction for a corporate shareholder may be disallowed or reduced (a)
if the corporate shareholder fails to satisfy the foregoing requirements with
respect to its shares of the Fund, or (b) by application of Code Section 246(b)
which in general limits the dividends received deduction to 70% of the
shareholder's taxable income (determined without regard to the dividends
received deduction and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
The corporate dividends received deduction is not itself an item of tax
preference that must be added back to taxable income or is otherwise disallowed
in determining a corporation's AMTI. However, corporate shareholders will
generally be required to take the full amount of any dividend received from the
Fund into account (without a dividend received deduction) in determining their
adjusted current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMTI 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 Funds to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be invested
in various countries is not known.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
In addition, if the net asset value at the time a shareholder purchases
shares of a Fund reflects undistributed net investment income or recognized
capital gain net income, or unrealized appreciation in the value of the assets
of the Fund, distributions of such amounts will be taxable to the shareholder in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
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 properly, or (c) who has
failed to certify to a Fund that it is not subject to backup withholding or that
it is a corporation or other "exempt recipient."
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SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within thirty (30) days before or after the
sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. 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.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less then 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another Fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from a Fund is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, dividends and return
of capital distributions (other than distributions of long-term capital gain)
will be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate) upon the gross amount of the distribution. Such a foreign shareholder
would generally be exempt from U.S. federal income tax on gains realized on the
sale of shares of a Fund, capital gain dividends and amounts retained by a Fund
that are designated as undistributed net capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
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EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investment in the Funds.
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Directors will issue semi-annual reports of the
transactions of the Funds to the shareholders. Financial statements, audited by
independent auditors, will be issued annually. The firm of KPMG Peat Marwick
LLP, 700 Louisiana, NationsBank Building, Houston, Texas 77002, has served as
the auditors for Aggressive Growth, Blue Chip, Capital Development, Charter,
Constellation and Weingarten for the fiscal year ended October 31, 1996. Price
Waterhouse LLP served as the auditors for Baird Blue Chip Fund, Inc., the
predecessor of Blue Chip, for fiscal years ended September 30, 1995.
LEGAL MATTERS
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, AIM, AIM Distributors, the directors and certain officers of Aggressive
Growth, and the portfolio managers of Aggressive Growth. The action was
instituted under Section 36(b) of the Investment Company Act of 1940 and seeks
to recover damages allegedly suffered by Aggressive Growth in connection with
fees paid for marketing and shareholder services after Aggressive Growth was
closed to new investors.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Funds. The custodian attends to the collection of principal and income, pays
and collects all monies for securities bought and sold by the Funds and performs
certain other ministerial duties. A I M Fund Services, Inc., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173 (the
"Transfer Agent"), acts as transfer and dividend disbursing agent for the Funds.
These services do not include any supervisory function over management or
provide any protection against any possible depreciation of assets. The Funds
pay the Custodian and the Transfer Agent such compensation as may be agreed upon
from time to time.
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Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as
Sub-Custodian for retail purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
entered into an agreement with the Company (and certain other AIM Funds), First
Data Investor Service Group (formerly The Shareholder Services Group, Inc.) and
Financial Data Services, Inc., pursuant to which MLPF&S has agreed to perform
certain shareholder sub-accounting services for its customers who beneficially
own shares of the Fund(s).
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.
46
<PAGE> 86
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 Co. 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.
47
<PAGE> 87
<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 5.14% - 0 -
Insurance Co.
401(K) Unit Valuations
Attn: Rod Switzer 2T2
8515 E. Orchard
Englewood, CO 80111
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith - 0 - 10.98%
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.
48
<PAGE> 88
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ -------------
<S> <C> <C>
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
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.
49
<PAGE> 89
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
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>
- -----------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a
class may be presumed to be in "control" of such class of shares, as
defined in the 1940 Act.
50
<PAGE> 90
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>
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 0WNED 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
</TABLE>
- -----------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
51
<PAGE> 91
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ -------------
<S> <C> <C>
RETAIL 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 class of Blue Chip, Charter, Weingarten, Constellation, Aggressive Growth
and Capital Development.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Company
has filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Funds and the
securities offered hereby. The Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.
- --------
* The Funds have no knowledge as to whether all or any portion of the
shares owned or 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.
52
<PAGE> 92
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well-established, and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's Commercial Paper is rated A-1 or A-2. A-1 indicates the degree of
safety regarding time of payment is very strong. A-2 indicates that the capacity
for timely payment is strong, but that the relative degree of safety is not as
overwhelming as for issues designated A-1.
MOODY'S
Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service. Among the factors considered by Moody's
in assigning ratings are the following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and customer
acceptance; (d) liquidity; (e) amount and quality of long-term debt; (f) trend
of earnings over a period of ten years; (g) financial strength of a parent
company and the relationships which exist with the issuer; and (h) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1 or Prime-2.
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
MOODY'S
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as "high-grade bonds." They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
53
<PAGE> 93
FINANCIAL STATEMENTS
FS
<PAGE> 94
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Aggressive Growth Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Aggressive Growth Fund (a portfolio of
AIM Equity Funds, Inc.), including the schedule of
investments, as of October 31, 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 in the four-year period
then ended, the ten month period ended October 31, 1993
and the year ended December 31, 1992. 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
Aggressive Growth 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 in the four-year period then ended,
the ten month period ended October 31, 1993 and the year
ended December 31, 1992, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 5, 1997
FS-1
<PAGE> 95
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-95.19%
AEROSPACE/DEFENSE-0.41%
BE Aerospace, Inc.(a) 355,000 $ 9,984,375
- ---------------------------------------------------------------
Precision Castparts Corp. 100,000 5,881,250
- ---------------------------------------------------------------
15,865,625
- ---------------------------------------------------------------
AIR FREIGHT-0.70%
Air Express International Corp. 150,000 4,593,750
- ---------------------------------------------------------------
Airborne Freight Corp. 200,000 12,675,000
- ---------------------------------------------------------------
Expeditors International of
Washington, Inc. 262,500 9,646,875
- ---------------------------------------------------------------
26,915,625
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.45%
Borg-Warner Automotive, Inc. 150,000 8,175,000
- ---------------------------------------------------------------
Danaher Corp. 70,000 3,836,875
- ---------------------------------------------------------------
Keystone Automotive Industries,
Inc.(a) 250,000 5,531,250
- ---------------------------------------------------------------
17,543,125
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.65%
Bank United Corp.-Class A 175,000 7,350,000
- ---------------------------------------------------------------
First Savings Bank of Washington
Bancorp, Inc. 250,000 5,937,500
- ---------------------------------------------------------------
Imperial Bancorp(a) 150,000 6,543,750
- ---------------------------------------------------------------
Provident Bankshares Corp. 100,000 5,400,000
- ---------------------------------------------------------------
25,231,250
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-0.22%
First Republic Bank(a) 300,000 8,475,000
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.36%
Curative Technologies, Inc.(a) 225,000 6,778,125
- ---------------------------------------------------------------
Kos Pharmaceuticals, Inc.(a) 200,000 7,150,000
- ---------------------------------------------------------------
13,928,125
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-1.15%
Chancellor Media Corp.(a) 200,000 10,975,000
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 316,700 21,060,550
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 300,000 12,562,500
- ---------------------------------------------------------------
44,598,050
- ---------------------------------------------------------------
BUILDING MATERIALS-0.24%
Apogee Enterprises, Inc. 200,000 4,775,000
- ---------------------------------------------------------------
TJ International, Inc. 200,000 4,600,000
- ---------------------------------------------------------------
9,375,000
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.19%
Cambrex Corp. 150,000 7,190,625
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.93%
ADC Telecommunications, Inc.(a) 552,200 $ 18,291,625
- ---------------------------------------------------------------
Audiovox Corp.-Class A(a) 243,400 2,205,812
- ---------------------------------------------------------------
Boston Technology, Inc.(a) 250,000 6,781,250
- ---------------------------------------------------------------
Brightpoint, Inc.(a)(b) 700,106 23,103,498
- ---------------------------------------------------------------
Coherent Communications Systems
Corp.(a) 500,000 15,125,000
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 150,000 6,187,500
- ---------------------------------------------------------------
Davox Corp.(a) 250,000 8,937,500
- ---------------------------------------------------------------
Digital Microwave Corp.(a) 225,000 8,100,000
- ---------------------------------------------------------------
Discreet Logic, Inc.(a)(Canada) 350,000 6,846,875
- ---------------------------------------------------------------
Glenayre Technologies, Inc.(a) 250,000 3,250,000
- ---------------------------------------------------------------
Innova Corp.(a) 200,000 4,300,000
- ---------------------------------------------------------------
MasTec, Inc.(a) 200,000 6,487,500
- ---------------------------------------------------------------
NACT Telecommunications, Inc.(a) 225,000 3,065,625
- ---------------------------------------------------------------
P-COM, Inc.(a) 300,000 6,037,500
- ---------------------------------------------------------------
Premisys Communications, Inc.(a) 200,000 5,450,000
- ---------------------------------------------------------------
REMEC, Inc.(a) 250,000 6,343,750
- ---------------------------------------------------------------
Teledata Communication
Ltd.(a)(Israel) 170,100 5,273,100
- ---------------------------------------------------------------
TESSCO Technologies, Inc.(a)(b) 350,000 7,525,000
- ---------------------------------------------------------------
Tollgrade Communications,
Inc.(a)(b) 350,000 8,618,750
- ---------------------------------------------------------------
151,930,285
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-1.25%
Citrix Systems, Inc.(a) 250,000 18,359,375
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 725,000 21,523,437
- ---------------------------------------------------------------
Data General Corp.(a) 325,000 6,256,250
- ---------------------------------------------------------------
National Instruments Corp.(a) 50,000 2,275,000
- ---------------------------------------------------------------
48,414,062
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.43%
International Network Services(a) 100,000 2,200,000
- ---------------------------------------------------------------
MMC Networks, Inc.(a) 80,000 1,750,000
- ---------------------------------------------------------------
Premiere Technologies, Inc.(a) 375,000 12,750,000
- ---------------------------------------------------------------
16,700,000
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.33%
Creative Technology
Limited(a)(Singapore) 200,000 5,087,500
- ---------------------------------------------------------------
Encad, Inc.(a) 125,000 4,062,500
- ---------------------------------------------------------------
MicroTouch Systems, Inc.(a)(b) 525,000 12,665,625
- ---------------------------------------------------------------
Network Appliance, Inc.(a) 150,000 7,537,500
- ---------------------------------------------------------------
QLogic Corp.(a) 100,000 3,250,000
- ---------------------------------------------------------------
SanDisk Corp.(a) 294,300 7,026,412
- ---------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 96
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (PERIPHERALS)-(CONTINUED)
STB Systems, Inc.(a)(b) 400,000 $ 11,750,000
- ---------------------------------------------------------------
51,379,537
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-8.47%
Accelr8 Technology Corp.(a) 130,000 2,583,750
- ---------------------------------------------------------------
Advanced Fibre Communications,
Inc.(a) 250,000 7,265,625
- ---------------------------------------------------------------
Analysts International Corp. 200,000 9,025,000
- ---------------------------------------------------------------
Applied Voice Technology, Inc.(a) 200,000 5,200,000
- ---------------------------------------------------------------
Aspect Development, Inc.(a) 400,000 18,700,000
- ---------------------------------------------------------------
Avant! Corp.(a) 275,000 7,218,750
- ---------------------------------------------------------------
Axent Technologies, Inc.(a) 375,000 8,765,625
- ---------------------------------------------------------------
CBT Group PLC-ADR(a)(Ireland) 150,000 11,512,500
- ---------------------------------------------------------------
Check Point Software Technologies
Ltd.(a)(Israel) 250,000 10,656,250
- ---------------------------------------------------------------
Computer Task Group, Inc. 200,000 5,650,000
- ---------------------------------------------------------------
CyberMedia, Inc.(a) 200,000 5,950,000
- ---------------------------------------------------------------
DAOU Systems, Inc.(a) 250,000 6,593,750
- ---------------------------------------------------------------
Documentum, Inc.(a) 100,000 2,987,500
- ---------------------------------------------------------------
DSP Group, Inc.(a) 400,000 14,175,000
- ---------------------------------------------------------------
Engineering Animation, Inc.(a)(b) 310,100 13,683,162
- ---------------------------------------------------------------
HBO & Co. 250,000 10,875,000
- ---------------------------------------------------------------
IDX Systems Corp.(a) 300,000 10,125,000
- ---------------------------------------------------------------
Integrated Systems, Inc.(a) 200,000 3,525,000
- ---------------------------------------------------------------
Jack Henry & Associates 225,000 5,793,750
- ---------------------------------------------------------------
JDA Software Group, Inc.(a) 200,000 6,250,000
- ---------------------------------------------------------------
Legato Systems, Inc.(a) 250,000 10,687,500
- ---------------------------------------------------------------
Lycos, Inc.(a) 100,000 2,612,500
- ---------------------------------------------------------------
Midway Games Inc.(a) 300,000 6,281,250
- ---------------------------------------------------------------
Network General Corp.(a) 582,700 11,799,675
- ---------------------------------------------------------------
NOVA Corp.(a) 253,000 6,799,375
- ---------------------------------------------------------------
Peerless Systems Corp.(a) 500,000 6,500,000
- ---------------------------------------------------------------
PeopleSoft, Inc.(a) 100,000 6,287,500
- ---------------------------------------------------------------
Quadramed Corp.(a) 100,000 2,350,000
- ---------------------------------------------------------------
Quickturn Design Systems, Inc.(a) 380,200 4,990,125
- ---------------------------------------------------------------
RadiSys Corp.(a) 150,000 6,975,000
- ---------------------------------------------------------------
RWD Technologies, Inc.(a) 66,600 1,498,500
- ---------------------------------------------------------------
Sapient Corp.(a) 150,000 7,987,500
- ---------------------------------------------------------------
Security Dynamics Technologies,
Inc.(a) 300,000 10,162,500
- ---------------------------------------------------------------
Simulation Sciences, Inc.(a) 250,000 4,562,500
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 100,160 3,324,060
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 100,000 3,412,500
- ---------------------------------------------------------------
Technology Solutions Co.(a) 187,500 5,906,250
- ---------------------------------------------------------------
Tecnomatix Technologies Ltd.(a)
(Israel) 200,000 6,175,000
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
3Dfx Interactive, Inc.(a) 125,000 $ 2,125,000
- ---------------------------------------------------------------
Transaction Systems Architects,
Inc.-Class A(a) 200,000 7,825,000
- ---------------------------------------------------------------
Vantive Corp.(a) 150,000 3,787,500
- ---------------------------------------------------------------
Veritas Software Corp.(a) 375,000 15,609,375
- ---------------------------------------------------------------
Viasoft, Inc.(a) 166,500 6,826,500
- ---------------------------------------------------------------
Whittman-Hart, Inc.(a) 100,000 2,900,000
- ---------------------------------------------------------------
Wind River Systems(a) 150,000 5,756,250
- ---------------------------------------------------------------
Xpedite Systems, Inc.(a) 100,000 2,462,500
- ---------------------------------------------------------------
Yahoo! Inc.(a) 116,250 5,096,835
- ---------------------------------------------------------------
327,236,357
- ---------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES)-0.03%
Transcoastal Marine Services(a) 50,000 1,243,750
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES &
GIFTS)-0.55%
Action Performance Companies,
Inc.(a) 400,000 10,250,000
- ---------------------------------------------------------------
Blyth Industries, Inc.(a) 441,300 10,977,337
- ---------------------------------------------------------------
21,227,337
- ---------------------------------------------------------------
CONSUMER FINANCE-1.33%
AmeriCredit Corp.(a) 300,000 8,718,750
- ---------------------------------------------------------------
Delta Financial Corp.(a) 100,900 1,841,425
- ---------------------------------------------------------------
FIRSTPLUS Financial Group, Inc.(a) 450,000 24,750,000
- ---------------------------------------------------------------
IMC Mortgage Co.(a) 600,000 10,425,000
- ---------------------------------------------------------------
Money Store, Inc. (The) 200,000 5,675,000
- ---------------------------------------------------------------
51,410,175
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.10%
Patterson Dental Co.(a) 100,000 4,000,000
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-3.87%
Avid Technology, Inc.(a) 300,000 8,568,750
- ---------------------------------------------------------------
Black Box Corp.(a) 300,000 12,300,000
- ---------------------------------------------------------------
Chicago Miniature Lamp, Inc.(a) 250,000 8,000,000
- ---------------------------------------------------------------
Cohu, Inc. 95,000 3,556,562
- ---------------------------------------------------------------
Cyberoptics Corp.(a)(b) 300,000 8,250,000
- ---------------------------------------------------------------
Electro Scientific Industries,
Inc.(a) 100,000 4,850,000
- ---------------------------------------------------------------
HADCO Corp.(a) 150,000 8,306,250
- ---------------------------------------------------------------
Kemet Corp.(a) 350,000 7,612,500
- ---------------------------------------------------------------
Littelfuse, Inc.(a) 150,000 4,593,750
- ---------------------------------------------------------------
Pinnacle Systems, Inc.(a) 300,000 8,100,000
- ---------------------------------------------------------------
RF Monolithics, Inc.(a) 200,000 2,700,000
- ---------------------------------------------------------------
Robbins & Myers, Inc. 200,000 7,575,000
- ---------------------------------------------------------------
Sanmina Corp.(a) 225,000 16,818,750
- ---------------------------------------------------------------
Sawtek Inc.(a) 210,000 7,140,000
- ---------------------------------------------------------------
</TABLE>
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MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-(CONTINUED)
SCI Systems, Inc.(a) 300,000 $ 13,200,000
- ---------------------------------------------------------------
Symbol Technologies, Inc. 300,000 11,925,000
- ---------------------------------------------------------------
Technitrol, Inc. 250,000 7,718,750
- ---------------------------------------------------------------
Uniphase Corp.(a) 125,000 8,390,625
- ---------------------------------------------------------------
149,605,937
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.99%
Anicom, Inc.(a) 400,000 6,200,000
- ---------------------------------------------------------------
Benchmarq Microelectronics,
Inc.(a)(b) 425,000 8,818,750
- ---------------------------------------------------------------
Computer Products, Inc.(a) 600,000 16,350,000
- ---------------------------------------------------------------
Kent Electronics Corp.(a) 200,000 6,987,500
- ---------------------------------------------------------------
38,356,250
- ---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-1.04%
Aavid Thermal Technologies(a) 100,000 2,975,000
- ---------------------------------------------------------------
Alpha Industries, Inc.(a) 184,700 2,932,112
- ---------------------------------------------------------------
CellStar Corp.(a) 675,000 22,907,812
- ---------------------------------------------------------------
Thermo Optek Corp.(a) 350,000 5,928,125
- ---------------------------------------------------------------
ThermoQuest Corp.(a) 300,000 5,362,500
- ---------------------------------------------------------------
40,105,549
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-5.45%
Alliance Semiconductor Corp.(a) 300,000 2,250,000
- ---------------------------------------------------------------
ANADIGICS, Inc.(a) 300,000 11,100,000
- ---------------------------------------------------------------
ASE Test Ltd.(a)(Taiwan) 94,300 5,162,925
- ---------------------------------------------------------------
ATMI Inc.(a) 150,000 4,031,250
- ---------------------------------------------------------------
Burr-Brown Corp.(a) 350,000 10,587,500
- ---------------------------------------------------------------
Cypress Semiconductor Corp.(a) 550,000 6,187,500
- ---------------------------------------------------------------
Dallas Semiconductor Corp. 300,000 14,662,500
- ---------------------------------------------------------------
Flextronics International Ltd.(a) 500,000 19,000,000
- ---------------------------------------------------------------
General Scanning, Inc.(a) 150,000 3,871,875
- ---------------------------------------------------------------
Integrated Circuit Systems,
Inc.(a) 125,400 4,294,950
- ---------------------------------------------------------------
Integrated Device Technology,
Inc.(a) 450,000 5,203,125
- ---------------------------------------------------------------
International Rectifier Corp.(a) 185,100 2,533,556
- ---------------------------------------------------------------
Lattice Semiconductor Corp.(a) 175,000 8,760,938
- ---------------------------------------------------------------
Level One Communications, Inc.(a) 225,000 10,125,000
- ---------------------------------------------------------------
Micrel, Inc.(a) 200,000 7,175,000
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 350,000 9,231,250
- ---------------------------------------------------------------
Semtech Corp.(a) 150,000 6,984,375
- ---------------------------------------------------------------
Sipex Corp.(a)(b) 1,000,000 32,875,000
- ---------------------------------------------------------------
3Dlabs Inc., Ltd.(a) 400,000 8,500,000
- ---------------------------------------------------------------
Tower Semiconductor Ltd. (Israel) 250,000 2,937,500
- ---------------------------------------------------------------
Unitrode Corp.(a) 400,000 10,725,000
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 350,000 15,181,250
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-(CONTINUED)
VLSI Technology, Inc.(a) 300,000 $ 8,887,500
- ---------------------------------------------------------------
210,267,994
- ---------------------------------------------------------------
ENTERTAINMENT-0.30%
Cinar Films Inc.-Class
B(a)(Canada) 60,500 2,351,938
- ---------------------------------------------------------------
N2K Inc.(a) 350,000 9,209,374
- ---------------------------------------------------------------
11,561,312
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-1.59%
BMC Industries, Inc. 350,000 11,265,625
- ---------------------------------------------------------------
Credence Systems Corp.(a) 400,000 11,800,000
- ---------------------------------------------------------------
DuPont Photomasks, Inc.(a) 150,000 6,450,000
- ---------------------------------------------------------------
Electroglas, Inc.(a) 300,000 5,700,000
- ---------------------------------------------------------------
Integrated Process Equipment
Corp.(a) 200,000 4,437,500
- ---------------------------------------------------------------
Photronics, Inc.(a) 250,000 10,718,750
- ---------------------------------------------------------------
Silicon Valley Group, Inc.(a) 250,000 7,187,500
- ---------------------------------------------------------------
Speedfam International, Inc.(a) 100,000 3,712,500
- ---------------------------------------------------------------
61,271,875
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.63%
Amresco, Inc.(a) 350,000 10,981,250
- ---------------------------------------------------------------
Ocwen Financial Corp.(a) 150,000 8,240,625
- ---------------------------------------------------------------
United Companies Financial Corp. 200,000 5,062,500
- ---------------------------------------------------------------
24,284,375
- ---------------------------------------------------------------
FOOTWEAR-0.31%
Stride Rite Corp. 250,000 2,937,500
- ---------------------------------------------------------------
Wolverine World Wide, Inc. 400,000 8,800,000
- ---------------------------------------------------------------
11,737,500
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.01%
Alpharma, Inc.-Class A 495,834 10,939,338
- ---------------------------------------------------------------
Biovail Corp.
International(a)(Canada) 400,000 11,550,000
- ---------------------------------------------------------------
Columbia Laboratories, Inc.(a) 500,000 8,000,000
- ---------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 207,000 10,013,625
- ---------------------------------------------------------------
Jones Medical Industries, Inc. 250,000 7,531,250
- ---------------------------------------------------------------
Medicis Pharmaceutical Corp.(a) 405,000 19,490,625
- ---------------------------------------------------------------
Parexel International Corp.(a) 100,000 3,612,500
- ---------------------------------------------------------------
VIVUS, Inc.(a) 250,000 6,593,750
- ---------------------------------------------------------------
77,731,088
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.60%
Health Management Associates,
Inc.-Class A(a) 1,106,493 26,970,766
- ---------------------------------------------------------------
Quorum Health Group, Inc.(a) 450,000 10,912,500
- ---------------------------------------------------------------
Tenet Healthcare Corp.(a) 200,000 6,112,500
- ---------------------------------------------------------------
</TABLE>
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SHARES VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL MANAGEMENT)-(CONTINUED)
Universal Health Services,
Inc.-Class B(a) 400,000 $ 17,625,000
- ---------------------------------------------------------------
61,620,766
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-1.62%
Assisted Living Concepts, Inc.(a) 335,000 6,867,500
- ---------------------------------------------------------------
Atria Communities, Inc.(a) 250,000 4,156,250
- ---------------------------------------------------------------
CareMatrix Corp.(a) 400,000 10,900,000
- ---------------------------------------------------------------
Health Care and Retirement
Corp.(a) 325,000 12,289,062
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 750,000 19,171,875
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 244,800 9,088,200
- ---------------------------------------------------------------
62,472,887
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.97%
American Oncology Resources,
Inc.(a) 500,000 7,312,500
- ---------------------------------------------------------------
Concentra Managed Care, Inc.(a) 578,600 18,876,825
- ---------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 125,000 7,046,875
- ---------------------------------------------------------------
PhyCor, Inc.(a) 187,500 4,324,218
- ---------------------------------------------------------------
37,560,418
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-3.20%
ADAC Laboratories 250,000 4,875,000
- ---------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a) 300,000 15,937,500
- ---------------------------------------------------------------
Coopers Companies, Inc.(a) 100,000 3,581,250
- ---------------------------------------------------------------
Dentsply International, Inc. 300,000 8,512,500
- ---------------------------------------------------------------
Healthdyne Technologies(a) 300,000 6,000,000
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 200,000 6,575,000
- ---------------------------------------------------------------
MiniMed, Inc.(a) 150,000 5,850,000
- ---------------------------------------------------------------
Physician Sales & Service, Inc.(a) 500,000 12,250,000
- ---------------------------------------------------------------
ResMed, Inc.(a) 275,000 7,700,000
- ---------------------------------------------------------------
Respironics, Inc.(a) 350,000 9,843,750
- ---------------------------------------------------------------
Safeskin Corp.(a) 250,000 11,343,750
- ---------------------------------------------------------------
Sullivan Dental Products, Inc. 300,000 7,012,500
- ---------------------------------------------------------------
Sybron International Corp.(a) 600,000 24,075,000
- ---------------------------------------------------------------
123,556,250
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-3.08%
Access Health, Inc.(a) 200,000 6,950,000
- ---------------------------------------------------------------
American HomePatient, Inc.(a) 337,350 8,686,763
- ---------------------------------------------------------------
BioReliance Corp.(a) 150,000 3,337,500
- ---------------------------------------------------------------
Boron, LePore & Associates,
Inc.(a) 200,000 4,875,000
- ---------------------------------------------------------------
First Commonwealth, Inc.(a) 162,500 2,356,250
- ---------------------------------------------------------------
FPA Medical Management, Inc.(a) 500,000 12,062,500
- ---------------------------------------------------------------
Lincare Holdings, Inc.(a) 150,000 8,043,750
- ---------------------------------------------------------------
NCS HealthCare, Inc.-Class A(a) 125,000 2,921,875
- ---------------------------------------------------------------
Omnicare, Inc. 500,000 13,906,250
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-(CONTINUED)
Orthodontic Centers of America,
Inc.(a) 625,000 $ 10,820,312
- ---------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 200,000 8,450,000
- ---------------------------------------------------------------
Renal Care Group, Inc.(a) 174,050 5,830,675
- ---------------------------------------------------------------
Renal Treatment Centers, Inc.(a) 150,000 4,978,125
- ---------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 285,000 8,835,000
- ---------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 250,000 7,703,125
- ---------------------------------------------------------------
Transition Systems, Inc.(a) 450,000 9,112,500
- ---------------------------------------------------------------
118,869,625
- ---------------------------------------------------------------
HOME BUILDING-0.20%
American Homestar Corp.(a) 350,000 7,875,000
- ---------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.23%
Ethan Allen Interiors, Inc. 250,000 8,859,375
- ---------------------------------------------------------------
HOUSEWARES-1.05%
Central Garden and Pet Co.(a) 350,000 9,187,500
- ---------------------------------------------------------------
Day Runner, Inc.(a) 173,400 6,990,187
- ---------------------------------------------------------------
Helen of Troy Ltd.(a) 1,200,000 19,950,000
- ---------------------------------------------------------------
Windmere-Durable Holdings Inc. 200,000 4,525,000
- ---------------------------------------------------------------
40,652,687
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.31%
John Alden Financial Corp. 175,000 4,801,562
- ---------------------------------------------------------------
Penn Treaty American Corp.(a) 225,000 7,228,125
- ---------------------------------------------------------------
12,029,687
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-1.67%
CapMAC Holdings, Inc. 125,000 3,750,000
- ---------------------------------------------------------------
CMAC Investment Corp. 300,000 16,406,250
- ---------------------------------------------------------------
Executive Risk Inc. 185,000 12,186,875
- ---------------------------------------------------------------
Frontier Insurance Group, Inc. 200,000 6,737,500
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 650,000 15,193,750
- ---------------------------------------------------------------
Vesta Insurance Group, Inc. 178,500 10,375,313
- ---------------------------------------------------------------
64,649,688
- ---------------------------------------------------------------
INVESTMENTS-0.26%
Sirrom Capital Corp. 200,000 10,075,000
- ---------------------------------------------------------------
IRON & STEEL-0.45%
Northwest Pipe Co.(a) 170,000 4,122,500
- ---------------------------------------------------------------
NS Group, Inc.(a)(b) 500,000 13,375,000
- ---------------------------------------------------------------
17,497,500
- ---------------------------------------------------------------
LAND DEVELOPMENT-0.28%
Fairfield Communities, Inc.(a) 250,000 10,984,375
- ---------------------------------------------------------------
LEISURE & RECREATION-0.29%
North Face, Inc.(The)(a) 350,000 8,268,750
- ---------------------------------------------------------------
</TABLE>
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<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LEISURE & RECREATION-(CONTINUED)
Penske Motorsports, Inc.(a) 100,000 $ 2,962,500
- ---------------------------------------------------------------
11,231,250
- ---------------------------------------------------------------
LODGING (HOTELS)-0.39%
Prime Hospitality Corp.(a) 450,000 9,168,750
- ---------------------------------------------------------------
Suburban Lodges of America,
Inc.(a) 80,000 1,980,000
- ---------------------------------------------------------------
Wyndham Hotel Corp.(a) 83,300 3,743,294
- ---------------------------------------------------------------
14,892,044
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.67%
Applied Power, Inc.-Class A 125,000 7,734,375
- ---------------------------------------------------------------
DT Industries, Inc. 300,000 9,000,000
- ---------------------------------------------------------------
Gardner Denver Machinery Inc.(a) 250,000 8,968,750
- ---------------------------------------------------------------
25,703,125
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.34%
AMETEK, Inc. 200,000 4,712,500
- ---------------------------------------------------------------
Coflexip S.A.-ADR (France) 140,100 7,705,500
- ---------------------------------------------------------------
Halter Marine Group, Inc.(a) 350,000 18,309,375
- ---------------------------------------------------------------
Rock of Ages Corp.(a) 150,000 2,850,000
- ---------------------------------------------------------------
US Filter Corp.(a) 450,000 18,056,250
- ---------------------------------------------------------------
51,633,625
- ---------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-0.05%
ESC Medical Systems
Ltd.(a)(Israel) 47,850 1,878,113
- ---------------------------------------------------------------
NATURAL GAS-0.06%
Edge Petroleum Corp.(a) 160,000 2,340,000
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-1.09%
Boise Cascade Office Products
Corp.(a) 400,000 7,600,000
- ---------------------------------------------------------------
Daisytek International Corp.(a)(b) 250,000 9,531,250
- ---------------------------------------------------------------
Danka Business Systems PLC-ADR
(United Kingdom) 250,000 9,250,000
- ---------------------------------------------------------------
Herman Miller, Inc. 250,000 12,218,750
- ---------------------------------------------------------------
Mail-Well, Inc.(a) 100,000 3,462,500
- ---------------------------------------------------------------
42,062,500
- ---------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-9.16%
Camco International, Inc. 225,000 16,256,250
- ---------------------------------------------------------------
CE Franklin Ltd.(a) 365,900 4,939,650
- ---------------------------------------------------------------
Cliffs Drilling Co.(a) 225,000 16,354,688
- ---------------------------------------------------------------
Core Laboratories N.V.(a)
(Netherlands) 200,000 8,000,000
- ---------------------------------------------------------------
EVI, Inc.(a) 450,000 28,884,375
- ---------------------------------------------------------------
Friede Goldman International
Inc.(a) 150,000 5,971,875
- ---------------------------------------------------------------
Global Industries Ltd.(a) 800,000 16,100,000
- ---------------------------------------------------------------
Gulf Island Fabrication, Inc.(a) 161,200 5,239,000
- ---------------------------------------------------------------
Key Energy Group, Inc.(a) 125,000 3,921,875
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED)
Lone Star Technologies, Inc.(a) 250,000 $ 9,546,875
- ---------------------------------------------------------------
Marine Drilling Companies, Inc.(a) 350,000 10,368,750
- ---------------------------------------------------------------
Maverick Tube Corp.(a)(b) 455,000 16,038,750
- ---------------------------------------------------------------
Mitcham Industries, Inc.(a) 200,000 5,225,000
- ---------------------------------------------------------------
National-Oilwell, Inc.(a) 400,749 30,682,346
- ---------------------------------------------------------------
Newpark Resources, Inc.(a) 300,000 12,450,000
- ---------------------------------------------------------------
Oceaneering International, Inc.(a) 150,000 3,721,875
- ---------------------------------------------------------------
Patterson Energy, Inc.(a) 550,000 30,800,000
- ---------------------------------------------------------------
Pool Energy Services Co.(a) 200,000 6,787,500
- ---------------------------------------------------------------
Precision Drilling
Corp.(a)(Canada) 500,000 15,375,000
- ---------------------------------------------------------------
Pride International, Inc.(a) 400,000 13,200,000
- ---------------------------------------------------------------
Trico Marine Services, Inc.(a) 300,000 11,025,000
- ---------------------------------------------------------------
Tubos de Acero de Mexico
S.A.(a)(Mexico) 200,000 4,037,500
- ---------------------------------------------------------------
Tuboscope Vetco International
Corp.(a) 420,000 13,335,000
- ---------------------------------------------------------------
UNIFAB International, Inc.(a) 55,000 1,760,000
- ---------------------------------------------------------------
UTI Energy Corp.(a) 450,000 20,081,250
- ---------------------------------------------------------------
Varco International, Inc.(a) 250,000 15,234,375
- ---------------------------------------------------------------
Veritas DGC, Inc.(a) 500,000 20,468,750
- ---------------------------------------------------------------
Willbros Group, Inc.(a) 425,000 8,287,500
- ---------------------------------------------------------------
354,093,184
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-1.36%
Basin Exploration, Inc.(a) 141,000 2,784,750
- ---------------------------------------------------------------
Cabot Oil and Gas Corp.-Class A 255,800 6,139,200
- ---------------------------------------------------------------
Comstock Resources, Inc.(a) 150,000 2,512,500
- ---------------------------------------------------------------
Devon Energy Corp. 250,000 11,187,500
- ---------------------------------------------------------------
KCS Energy, Inc. 200,000 5,262,500
- ---------------------------------------------------------------
St. Mary Land & Exploration Co. 200,000 8,150,000
- ---------------------------------------------------------------
Stolt Comex Seaway, S.A.(a)(United
Kingdom) 100,000 6,000,000
- ---------------------------------------------------------------
Tom Brown, Inc.(a) 150,000 3,712,500
- ---------------------------------------------------------------
Vintage Petroleum, Inc. 300,000 6,862,500
- ---------------------------------------------------------------
52,611,450
- ---------------------------------------------------------------
PERSONAL CARE-0.67%
Rexall Sundown, Inc.(a) 800,000 17,500,000
- ---------------------------------------------------------------
Twinlab Corp.(a) 450,000 8,550,000
- ---------------------------------------------------------------
26,050,000
- ---------------------------------------------------------------
PUBLISHING-0.18%
Meredith Corp. 200,000 6,812,500
- ---------------------------------------------------------------
RAILROADS-0.17%
MotivePower Industries, Inc.(a) 250,000 6,656,250
- ---------------------------------------------------------------
RESTAURANTS-2.84%
Apple South, Inc. 799,962 14,899,293
- ---------------------------------------------------------------
</TABLE>
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<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RESTAURANTS-(CONTINUED)
Applebee's International, Inc. 250,000 $ 5,546,875
- ---------------------------------------------------------------
Cheesecake Factory (The)(a) 250,000 7,875,000
- ---------------------------------------------------------------
CKE Restaurants, Inc. 300,000 11,981,250
- ---------------------------------------------------------------
Dave & Buster's, Inc.(a) 450,000 11,812,500
- ---------------------------------------------------------------
Foodmaker, Inc.(a) 500,000 8,218,750
- ---------------------------------------------------------------
Landry's Seafood Restaurants,
Inc.(a) 375,000 10,500,000
- ---------------------------------------------------------------
Logan's Roadhouse, Inc.(a)(b) 452,000 8,079,500
- ---------------------------------------------------------------
Papa John's International, Inc.(a) 200,000 5,912,500
- ---------------------------------------------------------------
Rainforest Cafe, Inc.(a) 275,000 9,384,375
- ---------------------------------------------------------------
Showbiz Pizza Time, Inc.(a) 340,000 7,225,000
- ---------------------------------------------------------------
Sonic Corp.(a) 321,300 8,273,475
- ---------------------------------------------------------------
Starbucks Corp.(a) 6,000 198,000
- ---------------------------------------------------------------
109,906,518
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.26%
Eagle Hardware & Garden, Inc.(a) 600,000 10,200,000
- ---------------------------------------------------------------
RETAIL (COMPUTERS &
ELECTRONICS)-1.78%
Best Buy Co., Inc.(a) 250,000 6,984,375
- ---------------------------------------------------------------
CHS Electronics, Inc.(a) 675,000 16,495,313
- ---------------------------------------------------------------
CompUSA, Inc.(a) 600,000 19,650,000
- ---------------------------------------------------------------
MicroAge, Inc.(a) 350,000 7,700,000
- ---------------------------------------------------------------
Tech Data Corp.(a) 400,000 17,800,000
- ---------------------------------------------------------------
68,629,688
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.15%
Fred Meyer, Inc.(a) 200,000 5,712,500
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.48%
Ames Department Stores, Inc.(a) 500,000 7,781,250
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 285,900 11,578,950
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 250,000 5,875,000
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 500,000 19,375,000
- ---------------------------------------------------------------
99 Cents Only Stores(a) 144,100 5,412,757
- ---------------------------------------------------------------
Stein Mart, Inc.(a) 250,000 7,312,500
- ---------------------------------------------------------------
57,335,457
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.71%
Quality Food Centers, Inc.(a) 350,000 16,668,750
- ---------------------------------------------------------------
Whole Foods Market, Inc.(a) 275,000 10,793,750
- ---------------------------------------------------------------
27,462,500
- ---------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.53%
CDW Computer Centers, Inc.(a) 200,000 12,400,000
- ---------------------------------------------------------------
Micro Warehouse, Inc.(a) 550,000 8,250,000
- ---------------------------------------------------------------
20,650,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-3.13%
Finish Line, Inc. (The)-Class A(a) 600,000 $ 10,125,000
- ---------------------------------------------------------------
Garden Ridge Corp.(a) 741,000 9,910,875
- ---------------------------------------------------------------
Genesco Inc.(a) 700,000 8,881,250
- ---------------------------------------------------------------
Hollywood Entertainment Corp.(a) 400,000 4,900,000
- ---------------------------------------------------------------
Inacom Corp.(a) 375,000 11,554,688
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 200,000 7,187,500
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 400,000 12,025,000
- ---------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 250,000 6,093,750
- ---------------------------------------------------------------
Party City Corp.(a) 175,000 4,812,500
- ---------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 450,000 13,837,500
- ---------------------------------------------------------------
Pier 1 Imports, Inc. 450,000 8,212,500
- ---------------------------------------------------------------
Trans World Entertainment Corp.(a) 250,000 7,000,000
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 225,000 9,028,125
- ---------------------------------------------------------------
Zale Corp.(a) 300,000 7,575,000
- ---------------------------------------------------------------
121,143,688
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.71%
American Eagle Outfitters, Inc.(a) 46,700 1,354,300
- ---------------------------------------------------------------
Buckle, Inc. (The)(a) 340,000 9,180,000
- ---------------------------------------------------------------
Pacific Sunwear of California(a) 412,500 11,395,313
- ---------------------------------------------------------------
Paul Harris Stores, Inc.(a) 300,000 5,512,500
- ---------------------------------------------------------------
27,442,113
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.36%
TCF Financial Corp. 100,000 5,687,500
- ---------------------------------------------------------------
Webster Financial Corp. 135,000 8,319,375
- ---------------------------------------------------------------
14,006,875
- ---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-1.06%
Abacus Direct Corp.(a) 275,000 10,106,250
- ---------------------------------------------------------------
Catalina Marketing Corp.(a) 200,000 9,137,500
- ---------------------------------------------------------------
CKS Group, Inc.(a) 250,000 9,062,500
- ---------------------------------------------------------------
Market Facts, Inc. 200,000 4,050,000
- ---------------------------------------------------------------
Metris Companies Inc. 200,000 8,450,000
- ---------------------------------------------------------------
40,806,250
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-2.55%
ABR Information Services, Inc.(a) 250,000 5,875,000
- ---------------------------------------------------------------
Caribiner International, Inc.(a) 200,000 8,912,500
- ---------------------------------------------------------------
Cerner Corp.(a) 500,000 12,125,000
- ---------------------------------------------------------------
Children's Comprehensive Services,
Inc.(a)(b) 436,100 7,870,243
- ---------------------------------------------------------------
Computer Learning Centers, Inc.(a) 100,000 4,525,000
- ---------------------------------------------------------------
Equity Corp. International(a) 450,000 9,168,750
- ---------------------------------------------------------------
G & K Services, Inc.-Class A 150,000 5,400,000
- ---------------------------------------------------------------
IntelliQuest Information Group,
Inc.(a)(b) 525,000 8,925,000
- ---------------------------------------------------------------
</TABLE>
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<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)-(CONTINUED)
MSC Industrial Direct Co.,
Inc.-Class A(a) 125,000 $ 5,203,125
- ---------------------------------------------------------------
Rental Service Corp.(a) 100,000 2,675,000
- ---------------------------------------------------------------
Stewart Enterprises, Inc.- Class A 400,000 16,600,000
- ---------------------------------------------------------------
Strayer Education, Inc. 153,900 7,348,725
- ---------------------------------------------------------------
Wilmar Industries, Inc.(a) 150,000 3,937,500
- ---------------------------------------------------------------
98,565,843
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.46%
Cambridge Technology Partners,
Inc.(a) 300,000 10,950,000
- ---------------------------------------------------------------
Compucom Systems, Inc.(a) 600,000 5,662,500
- ---------------------------------------------------------------
Insight Enterprises, Inc.(a)(b) 525,000 20,540,625
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 600,000 14,175,000
- ---------------------------------------------------------------
Sykes Enterprises, Inc.(a) 200,000 4,975,000
- ---------------------------------------------------------------
56,303,125
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-2.66%
Affiliated Computer Services,
Inc.(a) 700,000 17,587,500
- ---------------------------------------------------------------
Computer Data Systems, Inc. 119,300 4,936,038
- ---------------------------------------------------------------
Computer Horizons Corp.(a) 150,000 4,556,250
- ---------------------------------------------------------------
CSG Systems International, Inc.(a) 339,400 13,300,238
- ---------------------------------------------------------------
Envoy Corp.(a) 300,000 8,400,000
- ---------------------------------------------------------------
Fair, Issac and Co., Inc. 100,000 4,343,750
- ---------------------------------------------------------------
4Front Software International,
Inc.(a) 46,400 461,100
- ---------------------------------------------------------------
Hyperion Software Corp.(a) 300,000 11,437,500
- ---------------------------------------------------------------
MedQuist, Inc.(a) 300,000 7,312,500
- ---------------------------------------------------------------
PMT Services, Inc.(a) 600,000 9,675,000
- ---------------------------------------------------------------
Saville Systems Ireland
PLC-ADR(a)(Ireland) 350,000 20,912,500
- ---------------------------------------------------------------
102,922,376
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-1.11%
Alternative Resources Corp.(a) 250,000 6,187,500
- ---------------------------------------------------------------
Norrell Corp. 225,000 6,553,125
- ---------------------------------------------------------------
RemedyTemp, Inc.- Class A(a) 165,000 3,795,000
- ---------------------------------------------------------------
Robert Half International, Inc.(a) 375,000 15,351,563
- ---------------------------------------------------------------
Romac International, Inc.(a) 400,000 8,000,000
- ---------------------------------------------------------------
Vincam Group, Inc. (The)(a) 100,000 3,137,500
- ---------------------------------------------------------------
43,024,688
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.09%
Cornell Corrections, Inc.(a) 200,000 3,600,000
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.40%
Consolidated Graphics, Inc.(a) 200,000 10,375,000
- ---------------------------------------------------------------
World Color Press, Inc.(a) 200,000 5,062,500
- ---------------------------------------------------------------
15,437,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.52%
Electromagnetic Sciences, Inc.(a) 250,000 $ 4,734,375
- ---------------------------------------------------------------
Powerwave Technologies, Inc.(a) 200,000 6,175,000
- ---------------------------------------------------------------
World Access, Inc.(a) 350,000 9,275,000
- ---------------------------------------------------------------
20,184,375
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.02%
ACC Corp. 200,000 7,925,000
- ---------------------------------------------------------------
Billing Information Concepts(a) 450,000 17,662,500
- ---------------------------------------------------------------
Tel-Save Holdings, Inc.(a) 39,700 853,550
- ---------------------------------------------------------------
USLD Communications Corp.(a) 650,000 12,878,125
- ---------------------------------------------------------------
39,319,175
- ---------------------------------------------------------------
TEXTILES (APPAREL)-0.96%
Ashworth, Inc.(a) 450,000 4,471,875
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 350,000 9,318,750
- ---------------------------------------------------------------
Quicksilver, Inc.(a) 200,000 6,150,000
- ---------------------------------------------------------------
St. John Knits, Inc. 300,000 12,056,250
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 125,000 4,945,313
- ---------------------------------------------------------------
36,942,188
- ---------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.41%
Mohawk Industries, Inc.(a) 250,000 7,687,500
- ---------------------------------------------------------------
WestPoint Stevens, Inc.(a) 200,000 8,200,000
- ---------------------------------------------------------------
15,887,500
- ---------------------------------------------------------------
TOBACCO-0.14%
Schweitzer-Mauduit International,
Inc. 125,000 5,265,625
- ---------------------------------------------------------------
TRUCKING-0.84%
Heartland Express, Inc.(a) 150,000 4,125,000
- ---------------------------------------------------------------
Hub Group, Inc.(a) 200,000 6,100,000
- ---------------------------------------------------------------
M.S. Carriers, Inc.(a) 150,000 3,801,563
- ---------------------------------------------------------------
Swift Transportation Co., Inc.(a) 300,000 9,600,000
- ---------------------------------------------------------------
US Xpress Enterprises, Inc.(a) 200,000 4,400,000
- ---------------------------------------------------------------
Werner Enerprises, Inc. 175,000 4,243,750
- ---------------------------------------------------------------
32,270,313
- ---------------------------------------------------------------
TRUCKS & PARTS-0.08%
Wabash National Corp. 100,000 2,987,500
- ---------------------------------------------------------------
WASTE MANAGEMENT-1.61%
Allied Waste Industries, Inc.(a) 500,000 10,187,500
- ---------------------------------------------------------------
American Disposal Services,
Inc.(a) 400,000 14,100,000
- ---------------------------------------------------------------
ITEQ, Inc.(a)(b) 650,000 8,125,000
- ---------------------------------------------------------------
KTI, Inc.(a) 300,000 4,350,000
- ---------------------------------------------------------------
</TABLE>
FS-8
<PAGE> 102
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WASTE MANAGEMENT-(CONTINUED)
Philip Services Corp.(a)(Canada) 400,000 $ 7,000,000
- ---------------------------------------------------------------
USA Waste Services, Inc.(a) 497,500 18,407,500
- ---------------------------------------------------------------
62,170,000
- ---------------------------------------------------------------
Total Common Stocks 3,678,428,904
- ---------------------------------------------------------------
PREFERRED STOCK -0.23%
HOTELS-0.23%
Royal Caribbean Cruises Ltd.-$3.63
Conv. Pfd. 115,000 8,740,000
- ---------------------------------------------------------------
CONVERTIBLE CORPORATE NOTES-0.25%
ADVERTISING/BROADCASTING-0.05%
Jacor Communications Inc., Conv.
Sr. LYON, 5.50%, 06/12/11(c) $3,200,000 $ 1,959,776
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.20%
Pier 1 Imports, Inc., Conv. Sub.
Notes, 5.75%, 10/01/03 $4,800,000 $ 7,789,968
- ---------------------------------------------------------------
Total Convertible Corporate
Notes 9,749,744
- ---------------------------------------------------------------
U.S. TREASURY SECURITIES-2.15%
U.S. TREASURY BILLS-2.15%
5.093%, 01/02/98(d)(e) 83,780,000 83,111,435
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-1.93%(f)
HSBC Securities, Inc., 5.65%,
11/03/97(g) 74,585,705 74,585,705
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.75% 3,854,615,788
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.25% 9,641,521
- ---------------------------------------------------------------
NET ASSETS-100.00% $3,864,257,309
===============================================================
</TABLE>
Investment Abbreviations:
ADR -- American Depository Receipt
Conv. -- Convertible
LYON -- Liquid Yield Option Notes
Pfd. -- Preferred
Sr. -- Senior
Sub. -- Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Co. Act of 1940) of
that issuer. The aggregate market value of affiliated issuers as of 10/31/97
was $175,116,278 which represented 4.53% of the Fund's net assets.
(c) Zero coupon bond. Interest rate shown represents the rate of original issue
discount.
(d) U.S. Treasury bills are traded on discount basis. In such cases the interest
rate shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(e) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See note 7.
(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 10/31/97 with a maturing value of
$350,164,792. Collateralized by $355,329,000, U.S. Government obligations,
7.00% to 9.875% due 11/15/15-10/01/27 with an aggregate market value at
10/31/97 of $359,463,470.
See Notes to Financial Statements.
FS-9
<PAGE> 103
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,754,595,749) $3,854,615,788
- --------------------------------------------------------
Receivables for:
Investments sold 14,238,069
- --------------------------------------------------------
Capital stock sold 29,386,400
- --------------------------------------------------------
Dividends and interest 344,855
- --------------------------------------------------------
Variation margin 1,776,500
- --------------------------------------------------------
Investment for deferred compensation
plan 34,679
- --------------------------------------------------------
Other assets 101,226
- --------------------------------------------------------
Total assets 3,900,497,517
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 25,526,261
- --------------------------------------------------------
Capital stock reacquired 7,082,703
- --------------------------------------------------------
Deferred compensation 34,679
- --------------------------------------------------------
Accrued advisory fees 2,187,579
- --------------------------------------------------------
Accrued administrative services fees 10,746
- --------------------------------------------------------
Accrued distribution fees 864,455
- --------------------------------------------------------
Accrued directors' fees 7,521
- --------------------------------------------------------
Accrued transfer agent fees 345,281
- --------------------------------------------------------
Accrued operating expenses 180,983
- --------------------------------------------------------
Total liabilities 36,240,208
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $3,864,257,309
========================================================
Capital stock, $.001 par value per
share:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 77,337,382
========================================================
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 49.97
========================================================
OFFERING PRICE PER SHARE:
(Net asset value of $49.97 divided by
94.50%) $ 52.88
========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 8,960,543
- --------------------------------------------------------
Dividends (net of $63,501 foreign
withholding tax) 3,185,128
- --------------------------------------------------------
Total investment income 12,145,671
- --------------------------------------------------------
EXPENSES:
Advisory fees 19,244,957
- --------------------------------------------------------
Administrative services fees 97,609
- --------------------------------------------------------
Custodian fees 258,042
- --------------------------------------------------------
Directors' fees 24,698
- --------------------------------------------------------
Distribution fees 7,594,650
- --------------------------------------------------------
Transfer agent fees 4,007,067
- --------------------------------------------------------
Other 846,694
- --------------------------------------------------------
Total expenses 32,073,717
- --------------------------------------------------------
Less: Expenses paid indirectly (187,716)
- --------------------------------------------------------
Net expenses 31,886,001
- --------------------------------------------------------
Net investment income (loss) (19,740,330)
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES AND FUTURES
CONTRACTS:
Net realized gain on sales of:
Investment securities 120,020,005
- --------------------------------------------------------
Futures contracts 23,220,678
- --------------------------------------------------------
143,240,683
- --------------------------------------------------------
Net unrealized appreciation
(depreciation) of:
Investment securities 445,142,391
- --------------------------------------------------------
Futures contracts (9,323,940)
- --------------------------------------------------------
435,818,451
========================================================
Net gain on investment
securities and futures
contracts 579,059,134
- --------------------------------------------------------
Net increase in net assets resulting from
operations $ 559,318,804
========================================================
</TABLE>
See Notes to Financial Statements.
FS-10
<PAGE> 104
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) $ (19,740,330) $ (19,703,976)
- ---------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities and
futures contracts 143,240,683 141,538,687
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
futures contracts 435,818,451 211,197,677
- ---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 559,318,804 333,032,388
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities (138,552,707) (54,512,548)
- ---------------------------------------------------------------------------------------------
Net increase from capital stock transactions 692,927,269 226,490,173
- ---------------------------------------------------------------------------------------------
Net increase in net assets 1,113,693,366 505,010,013
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,750,563,943 2,245,553,930
- ---------------------------------------------------------------------------------------------
End of period $3,864,257,309 $2,750,563,943
=============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $2,631,139,285 $1,957,915,109
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (81,400) (44,163)
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities and futures contracts 138,417,475 133,729,499
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 1,094,781,949 658,963,498
- ---------------------------------------------------------------------------------------------
$3,864,257,309 $2,750,563,943
=============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six diversified
portfolios: AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten
Fund. Matters affecting each portfolio or class will be voted on exclusively by
the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. The Fund has
temporarily discontinued public sales of its shares to new investors. The Fund
is a diversified portfolio which seeks to achieve long-term growth of capital by
investing primarily in common stocks, convertible bonds, convertible preferred
stocks and warrants of companies which in the opinion of the Fund's investment
advisor are expected to achieve earnings growth over time at a rate in excess of
15% per year.
Information presented in these financial statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last price on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market quotations are not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the Company's officers in a manner
specifically authorized by the Board of Directors of the Company. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
FS-11
<PAGE> 105
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Directors.
B. Securities Transactions, Investment Income and Distributions-- Securities
transactions are recorded on a trade date basis. Realized gains or losses on
sales are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1997,
$19,703,093 was reclassified from undistributed net investment income (loss)
to paid in capital as a result of net operating tax loss. Net assets were
unaffected by the reclassification discussed above.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the
Fund's basis in the contract. Risks include the possibility of an illiquid
market and that a change in the value of contracts may not correlate with
changes in the value of the securities being hedged.
E. Foreign Currency Transactions--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
F. Foreign Currency Contracts--A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward currency contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of that security. The Fund could be exposed to
risk if counterparties to the contracts are unable to meet the terms of
their contracts.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $150 million.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1997, AIM was
reimbursed $97,609 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the year ended October 31, 1997,
AFS was paid $979,015 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Company has adopted a plan pursuant to rule 12b-1 under the 1940 Act
(the "Plan"), whereby the Fund pays to AIM Distributors an annual rate of 0.25%
of the Fund's average daily net assets as compensation for services related to
the sales and distribution of the Fund's shares. The Plan provides that payments
to dealers and financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions, may be characterized as
a service fee. Any amounts not paid as a service fee under the Plan would
constitute an assets-based sales charge. The Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund's shares. During the year ended
October 31, 1997, the Fund paid AIM Distributors $7,594,650 as compensation
under the Plan.
AIM Distributors received commissions of $5,850,410 from sales of shares of
the Fund's capital stock 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 capital stock. During the year ended
October 31, 1997, AIM Distributors received $72,147 in contingent deferred sales
charges imposed on redemptions of the Fund's capital stock. Certain officers and
directors of the Company are officers and directors of AIM, AFS and AIM
Distributors.
During the year ended October 31, 1997, the Fund paid legal fees of $11,454
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
FS-12
<PAGE> 106
expenses were reduced by $13,018. The Fund also received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$39,453 and $135,245, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in reductions of the Fund's total
expenses of $187,716 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 during the year ended October 31, 1997 were $2,666,279,948
and $2,089,513,535, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 1,177,189,380
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (79,723,571)
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities $ 1,097,465,809
===========================================================
</TABLE>
Cost of investment for tax purposes is $2,757,149,979.
NOTE 7-FUTURES CONTRACTS
On October 31, 1997, $3,288,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for futures contracts.
Open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF MONTH/ APPRECIATION
CONTRACT CONTRACTS COMMITMENT (DEPRECIATION)
-------- ---------- ---------- --------------
<S> <C> <C> <C>
S&P 500 Index 170 Dec. 97 $(5,238,090)
</TABLE>
FS-13
<PAGE> 107
NOTE 8-CAPITAL STOCK
Changes in 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 41,558,826 $ 1,826,781,148 30,538,437 $ 1,334,476,880
- --------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 3,068,800 127,938,198 1,291,013 49,897,557
- --------------------------------------------------------------------------------------------------------------------------
Reacquired (28,514,602) (1,261,792,077) (26,568,998) (1,157,884,264)
- --------------------------------------------------------------------------------------------------------------------------
16,113,024 $ 692,927,269 5,260,452 $ 226,490,173
==========================================================================================================================
</TABLE>
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the four-year period ended October 31,
1997, the ten month period ended October 31, 1993 and the year ended December
31, 1992.
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993 1992(a)
---------- ---------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06
- ------------------------------------------------ ---------- ---------- ---------- -------- -------- -------
Income from investment operations:
Net investment income (loss) (0.26) (0.32) (0.04) (0.05) (0.02) (0.03)
- ------------------------------------------------ ---------- ---------- ---------- -------- -------- -------
Net gains (losses) on securities (both
realized and unrealized) 7.60 6.09 11.80 4.57 5.35 3.41
- ------------------------------------------------ ---------- ---------- ---------- -------- -------- -------
Total from investment operations 7.34 5.77 11.76 4.52 5.33 3.38
- ------------------------------------------------ ---------- ---------- ---------- -------- -------- -------
Less distributions:
Dividends from net investment income -- -- -- -- -- --
- ------------------------------------------------ ---------- ---------- ---------- -------- -------- -------
Distributions from net realized gains (2.30) (0.97) -- -- -- (0.92)
- ------------------------------------------------ ---------- ---------- ---------- -------- -------- -------
Total distributions (2.30) (0.97) -- -- -- (0.92)
- ------------------------------------------------ ---------- ---------- ---------- -------- -------- -------
Net asset value, end of period $ 49.97 $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52
================================================ ========== ========== ========== ======== ======== =======
Total return(b) 17.35% 14.77% 41.45% 18.96% 28.78% 21.34%
================================================ ========== ========== ========== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,864,257 $2,750,564 $2,245,554 $687,238 $217,256 $38,238
================================================ ========== ========== ========== ======== ======== =======
Ratio of expenses to average net assets(c) 1.06%(d)(e) 1.11% 1.08% 1.07% 1.00%(g) 1.25%
================================================ ========== ========== ========== ======== ======== =======
Ratio of net investment income (loss) to average
net assets(f) (0.65)%(d) (0.76)% (0.19)% (0.26)% (0.24)%(g) (0.59)%
================================================ ========== ========== ========== ======== ======== =======
Portfolio turnover rate 73% 79% 52% 75% 61% 164%
================================================ ========== ========== ========== ======== ======== =======
Average broker commission rate paid(h) $ 0.0540 $ 0.0545 N/A N/A N/A N/A
================================================ ========== ========== ========== ======== ======== =======
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(c) Prior to fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.15%, 1.09%, 1.17% (annualized), and 1.65%, for 1995-92, respectively.
(d) Ratios are based on average net assets of $3,037,859,800.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been 1.05%.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or and expense
reimbursements were (0.26)%, (0.28)%, (0.41)% (annualized), and (0.99)%,
for 1995-92, respectively.
(g) Annualized.
(h) 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.
NOTE 10-LEGAL PROCEEDINGS
A claim, Saltzberg v. AIM Equity Funds, Inc., et al., was filed in Southern
District Court in Texas in October 1996 against AIM and certain other
subsidiaries of AIM Management. The claim was instituted under section 36(b) of
the Investment Company Act of 1940 and seeks to recover damages allegedly
suffered by the Fund in connection with fees paid for marketing and shareholder
services after the Fund was closed to new investors. AIM Management is
investigating whether there is any basis at all for this claim and intends to
defend it vigorously.
NOTE 11-FUND REOPENING AND CLOSING
The Fund was reopened to new investors on June 4, 1997 and subsequently closed
to new investors effective as of the close of business June 5, 1997.
FS-14
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Blue Chip Fund:
We have audited the accompanying statements of assets and
liabilities of AIM Blue Chip 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 and financial highlights for the
year ended October 31, 1997, the one month period ended
October 31, 1996, and the year ended September 30, 1996.
These financial statements and financial highlights are
the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
The financial highlights for each of the years in the
three year period ended September 30, 1995 were audited by
other auditors whose report thereon, dated October 25,
1995, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 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 Blue
Chip Fund as of October 31, 1997, the results of its
operations for the year then ended, the changes in its net
assets and financial highlights for the year ended October
31, 1997, the one-month ended October 31, 1996, and the
year ended September 30, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 5, 1997
FS-15
<PAGE> 109
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-92.62%
AIR FREIGHT-0.48%
Federal Express Corp.(a) 55,000 $ 3,671,250
- --------------------------------------------------------------
AIRLINES-0.50%
Delta Air Lines, Inc. 38,000 3,828,500
- --------------------------------------------------------------
ALUMINUM-0.52%
Aluminum Company of America 55,000 4,015,000
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-1.48%
Fifth Third Bancorp 56,700 3,635,888
- --------------------------------------------------------------
NationsBank Corp. 64,000 3,832,000
- --------------------------------------------------------------
Norwest Corp. 120,000 3,847,500
- --------------------------------------------------------------
11,315,388
- --------------------------------------------------------------
BANKS (MONEY CENTER)-2.10%
Chase Manhattan Corp. 80,000 9,230,000
- --------------------------------------------------------------
Citicorp 55,000 6,878,438
- --------------------------------------------------------------
16,108,438
- --------------------------------------------------------------
BANKS (REGIONAL)-0.65%
State Street Corp. 90,000 5,017,500
- --------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-1.49%
Coca-Cola Co. (The) 170,000 9,605,000
- --------------------------------------------------------------
PepsiCo, Inc. 50,000 1,840,625
- --------------------------------------------------------------
11,445,625
- --------------------------------------------------------------
CHEMICALS-1.27%
Du Pont (E.I.) de Nemours & Co. 100,000 5,687,500
- --------------------------------------------------------------
Monsanto Co. 95,000 4,061,250
- --------------------------------------------------------------
9,748,750
- --------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.44%
Goodrich (B.F.) Co. 75,000 3,342,188
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.84%
Lucent Technologies, Inc. 70,000 5,770,625
- --------------------------------------------------------------
Motorola, Inc. 55,000 3,396,250
- --------------------------------------------------------------
Northern Telecom Ltd. (Canada) 55,000 4,932,813
- --------------------------------------------------------------
14,099,688
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-3.69%
Compaq Computer Corp.(a) 118,000 7,522,500
- --------------------------------------------------------------
Dell Computer Corp.(a) 81,600 6,538,200
- --------------------------------------------------------------
Hewlett-Packard Co. 60,000 3,701,250
- --------------------------------------------------------------
International Business Machines
Corp. 55,000 5,393,438
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-(CONTINUED)
Sun Microsystems, Inc.(a) 150,000 $ 5,137,500
- --------------------------------------------------------------
28,292,888
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-0.86%
Cisco Systems, Inc.(a) 80,000 6,562,500
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-1.98%
Computer Associates International,
Inc. 55,000 4,100,938
- --------------------------------------------------------------
Microsoft Corp.(a) 85,000 11,050,000
- --------------------------------------------------------------
15,150,938
- --------------------------------------------------------------
CONSUMER FINANCE-1.13%
Household International, Inc. 35,000 3,963,750
- --------------------------------------------------------------
SLM Holding Corp. 33,300 4,674,488
- --------------------------------------------------------------
8,638,238
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.77%
Cardinal Health, Inc. 80,000 5,940,000
- --------------------------------------------------------------
ELECTRIC COMPANIES-2.61%
Allegheny Energy, Inc. 185,000 5,226,250
- --------------------------------------------------------------
American Electric Power Co. 120,000 5,670,000
- --------------------------------------------------------------
CINergy Corp. 140,000 4,620,000
- --------------------------------------------------------------
Edison International 175,000 4,484,375
- --------------------------------------------------------------
20,000,625
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.14%
Emerson Electric Co. 71,000 3,723,063
- --------------------------------------------------------------
General Electric Co. 160,000 10,330,000
- --------------------------------------------------------------
Honeywell, Inc. 34,000 2,314,125
- --------------------------------------------------------------
16,367,188
- --------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION)-0.37%
Perkin-Elmer Corp. 45,000 2,812,500
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-2.31%
Altera Corp.(a) 70,000 3,106,250
- --------------------------------------------------------------
Intel Corp. 95,000 7,315,000
- --------------------------------------------------------------
Texas Instruments, Inc. 68,000 7,254,750
- --------------------------------------------------------------
17,676,000
- --------------------------------------------------------------
ENTERTAINMENT-0.80%
Walt Disney Co. (The) 75,000 6,168,750
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTORS)-0.77%
Applied Materials, Inc.(a) 176,000 5,874,000
- --------------------------------------------------------------
</TABLE>
FS-16
<PAGE> 110
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-3.51%
Federal Home Loan Mortgage Corp. 110,000 $ 4,166,250
- --------------------------------------------------------------
Federal National Mortgage Association 125,000 6,054,688
- --------------------------------------------------------------
MGIC Investment Corp. 135,000 8,142,187
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 175,000 8,575,000
- --------------------------------------------------------------
26,938,125
- --------------------------------------------------------------
FOODS-1.45%
ConAgra, Inc. 210,000 6,326,250
- --------------------------------------------------------------
Sara Lee Corp. 93,000 4,754,625
- --------------------------------------------------------------
11,080,875
- --------------------------------------------------------------
FOOTWEAR-0.57%
Adidas A.G. (Germany) 30,000 4,345,807
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-4.08%
Abbott Laboratories 65,000 3,985,313
- --------------------------------------------------------------
American Home Products Corp. 110,000 8,153,750
- --------------------------------------------------------------
Bristol-Myers Squibb Co. 60,000 5,265,000
- --------------------------------------------------------------
Johnson & Johnson 105,000 6,024,375
- --------------------------------------------------------------
Warner-Lambert Co. 55,000 7,875,313
- --------------------------------------------------------------
31,303,751
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-3.75%
Lilly (Eli) & Co. 125,000 8,359,375
- --------------------------------------------------------------
Merck & Co., Inc. 110,000 9,817,500
- --------------------------------------------------------------
Pfizer, Inc. 150,000 10,612,500
- --------------------------------------------------------------
28,789,375
- --------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.75%
HEALTHSOUTH Corp.(a) 225,000 5,751,562
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.24%
Baxter International Inc. 75,000 3,468,750
- --------------------------------------------------------------
Boston Scientific Corp.(a) 60,000 2,730,000
- --------------------------------------------------------------
Guidant Corp. 90,000 5,175,000
- --------------------------------------------------------------
Medtronic, Inc. 85,000 3,697,500
- --------------------------------------------------------------
Sybron International Corp.(a) 51,600 2,070,450
- --------------------------------------------------------------
17,141,700
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-2.02%
Colgate-Palmolive Co. 80,000 5,180,000
- --------------------------------------------------------------
Kimberly-Clark Corp. 80,000 4,155,000
- --------------------------------------------------------------
Procter & Gamble Co. (The) 90,000 6,120,000
- --------------------------------------------------------------
15,455,000
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.15%
Conseco Inc. 110,000 4,798,750
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-(CONTINUED)
Torchmark Corp. 100,000 $ 3,987,500
- --------------------------------------------------------------
8,786,250
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-2.82%
American International Group, Inc. 80,000 8,165,000
- --------------------------------------------------------------
CIGNA Corp. 35,000 5,433,750
- --------------------------------------------------------------
Travelers Group, Inc. 115,000 8,050,000
- --------------------------------------------------------------
21,648,750
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-1.68%
Allstate Corp. 105,000 8,708,437
- --------------------------------------------------------------
Progressive Corp. 40,000 4,170,000
- --------------------------------------------------------------
12,878,437
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-1.01%
Merrill Lynch & Co., Inc. 115,000 7,776,875
- --------------------------------------------------------------
INVESTMENT MANAGEMENT-1.00%
Franklin Resources, Inc. 85,000 7,639,375
- --------------------------------------------------------------
LODGING (HOTELS)-1.61%
Carnival Corp.-Class A 170,000 8,245,000
- --------------------------------------------------------------
ITT Corp.(a) 55,000 4,107,812
- --------------------------------------------------------------
12,352,812
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-1.80%
Caterpillar Inc. 55,000 2,818,750
- --------------------------------------------------------------
Deere & Co. 105,000 5,525,625
- --------------------------------------------------------------
Ingersoll-Rand Co. 139,500 5,431,781
- --------------------------------------------------------------
13,776,156
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-3.48%
Corning Inc. 85,000 3,835,625
- --------------------------------------------------------------
Thermo Electron Corp.(a) 210,000 7,835,625
- --------------------------------------------------------------
Tyco International Ltd. 230,000 8,682,500
- --------------------------------------------------------------
United Technologies Corp. 90,000 6,300,000
- --------------------------------------------------------------
26,653,750
- --------------------------------------------------------------
NATURAL GAS-0.98%
El Paso Natural Gas Co. 125,000 7,492,187
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.20%
Danka Business Systems PLC-ADR
(United Kingdom) 40,700 1,505,900
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-3.19%
Exxon Corp. 150,000 9,215,625
- --------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York shares (Netherlands) 160,000 8,420,000
- --------------------------------------------------------------
</TABLE>
FS-17
<PAGE> 111
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL (INTERNATIONAL INTEGRATED)-(CONTINUED)
Texaco, Inc. 120,000 $ 6,832,500
- --------------------------------------------------------------
24,468,125
- --------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-1.78%
Halliburton Co. 90,000 5,366,250
- --------------------------------------------------------------
Schlumberger Ltd. 95,000 8,312,500
- --------------------------------------------------------------
13,678,750
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.52%
Apache Corp. 95,000 3,990,000
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.90%
Bowater, Inc. 85,000 3,554,062
- --------------------------------------------------------------
Mead Corp. 55,000 3,327,500
- --------------------------------------------------------------
6,881,562
- --------------------------------------------------------------
PERSONAL CARE-1.09%
Avon Products, Inc. 60,000 3,930,000
- --------------------------------------------------------------
Gillette Co. 50,000 4,453,125
- --------------------------------------------------------------
8,383,125
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.98%
Xerox Corp. 95,000 7,534,687
- --------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.45%
CalEnergy, Inc.(a) 100,000 3,425,000
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.61%
New York Times Co.-Class A 85,000 4,653,750
- --------------------------------------------------------------
RAILROADS-0.42%
Canadian National Railway Co.
(Canada) 60,000 3,236,250
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.83%
Home Depot, Inc. 115,000 6,396,875
- --------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.14%
CompUSA, Inc.(a) 140,000 4,585,000
- --------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 140,000 4,173,750
- --------------------------------------------------------------
8,758,750
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.53%
Kohl's Corp.(a) 60,000 4,027,500
- --------------------------------------------------------------
RETAIL (DRUG STORES)-1.53%
CVS Corp. 85,000 5,211,562
- --------------------------------------------------------------
Rite Aid Corp. 110,000 6,531,250
- --------------------------------------------------------------
11,742,812
- --------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.32%
Kroger Co.(a) 150,000 4,893,750
- --------------------------------------------------------------
RETAIL (FOOD CHAINS)-(CONTINUED)
Safeway, Inc.(a) 90,000 $ 5,231,250
- --------------------------------------------------------------
10,125,000
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-1.54%
Costco Companies, Inc.(a) 160,000 6,160,000
- --------------------------------------------------------------
Wal-Mart Stores, Inc. 160,000 5,620,000
- --------------------------------------------------------------
11,780,000
- --------------------------------------------------------------
RETAIL (SPECIALTY)-0.38%
Toys "R" Us, Inc.(a) 85,000 2,895,312
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.54%
TJX Companies, Inc. (The) 140,000 4,147,500
- --------------------------------------------------------------
SAVINGS & LOAN COMPANIES-1.61%
Ahmanson (H.F.) & Co. 105,000 6,195,000
- --------------------------------------------------------------
Washington Mutual, Inc. 90,000 6,159,375
- --------------------------------------------------------------
12,354,375
- --------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.50%
Interpublic Group of Companies, Inc. 80,000 3,800,000
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-2.16%
HFS, Inc.(a) 105,000 7,402,500
- --------------------------------------------------------------
Service Corp. International 300,000 9,131,250
- --------------------------------------------------------------
16,533,750
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-2.33%
Equifax, Inc. 250,000 7,765,625
- --------------------------------------------------------------
First Data Corp. 165,000 4,795,312
- --------------------------------------------------------------
Fiserv, Inc.(a) 119,000 5,325,250
- --------------------------------------------------------------
17,886,187
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.32%
WorldCom, Inc.(a) 300,000 10,087,500
- --------------------------------------------------------------
TELEPHONE-2.41%
BellSouth Corp. 130,000 6,150,625
- --------------------------------------------------------------
Cincinnati Bell, Inc. 210,000 5,670,000
- --------------------------------------------------------------
SBC Communications, Inc. 105,000 6,680,625
- --------------------------------------------------------------
18,501,250
- --------------------------------------------------------------
TOBACCO-1.65%
Philip Morris Companies, Inc. 320,000 12,680,000
- --------------------------------------------------------------
WASTE MANAGEMENT-0.59%
Browning-Ferris Industries, Inc. 140,000 4,550,000
- --------------------------------------------------------------
Total Common Stocks 709,910,701
- --------------------------------------------------------------
</TABLE>
FS-18
<PAGE> 112
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY BILLS-4.61%(b)
5.093%, 01/02/98 $35,635,000(c) $ 35,350,632
- --------------------------------------------------------------
REPURCHASE AGREEMENT-2.03%(d)
SBC Warburg Inc., 5.65%,
11/03/97(e) 15,547,344 15,547,344
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.26% 760,808,677
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.74% 5,653,936
- --------------------------------------------------------------
NET ASSETS-100.00% $766,462,613
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) U. S. Treasury bills are traded on a discount. In such cases the interest
rate shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to insure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 10/31/97 with a maturing value of
$350,164,792. Collateralized by $355,329,000 U.S. Government obligations,
7.00% to 9.875% due 11/15/15 to 10/01/27 with an aggregate market value at
10/31/97 of $359,463,470.
See Notes to Financial Statements.
FS-19
<PAGE> 113
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$649,808,633) $760,808,677
- --------------------------------------------------------
Foreign currencies, at market value (cost
$8,858) 9,027
- --------------------------------------------------------
Receivables for:
Investments sold 82,523
- --------------------------------------------------------
Capital stock sold 8,460,104
- --------------------------------------------------------
Dividends and interest 436,117
- --------------------------------------------------------
Variation margin 783,750
- --------------------------------------------------------
Investment for deferred compensation plan 6,203
- --------------------------------------------------------
Other assets 64,526
- --------------------------------------------------------
Total assets 770,650,927
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,692,125
- --------------------------------------------------------
Capital stock reacquired 1,153,581
- --------------------------------------------------------
Deferred compensation 6,203
- --------------------------------------------------------
Accrued advisory fees 668,541
- --------------------------------------------------------
Accrued administrative service fees 7,205
- --------------------------------------------------------
Accrued directors' fees 3,732
- --------------------------------------------------------
Accrued distribution fees 377,470
- --------------------------------------------------------
Accrued transfer agent fees 178,284
- --------------------------------------------------------
Accrued operating expenses 101,173
- --------------------------------------------------------
Total liabilities 4,188,314
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $766,462,613
========================================================
NET ASSETS:
Class A $498,178,315
========================================================
Class B $264,337,181
========================================================
Class C $ 3,947,117
========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 16,091,502
========================================================
Class B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 8,594,415
========================================================
Class C:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 128,351
========================================================
CLASS A:
Net asset value and redemption price per
share $ 30.96
========================================================
OFFERING PRICE PER SHARE:
(Net asset value of $30.96 divided
by 94.50%) $ 32.76
========================================================
CLASS B:
Net asset value and offering price per
share $ 30.76
========================================================
CLASS C:
Net asset value and offering price per
share $ 30.75
========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $34,796 foreign
withholding tax) $ 5,144,832
- --------------------------------------------------------
Interest 2,993,589
- --------------------------------------------------------
Total investment income 8,138,421
- --------------------------------------------------------
EXPENSES:
Advisory fees 3,254,853
- --------------------------------------------------------
Custodian fees 69,458
- --------------------------------------------------------
Directors' fees 9,788
- --------------------------------------------------------
Distribution fees -- Class A 1,128,115
- --------------------------------------------------------
Distribution fees -- Class B 1,268,502
- --------------------------------------------------------
Distribution fees -- Class C 4,842
- --------------------------------------------------------
Transfer agent fees -- Class A 516,695
- --------------------------------------------------------
Transfer agent fees -- Class B 386,081
- --------------------------------------------------------
Transfer agent fees -- Class C 1,447
- --------------------------------------------------------
Administrative service fees 73,653
- --------------------------------------------------------
Other 272,781
- --------------------------------------------------------
Total expenses 6,986,215
- --------------------------------------------------------
Less: Fees waived by advisor (100,380)
- --------------------------------------------------------
Expenses paid indirectly (10,722)
- --------------------------------------------------------
Net expenses 6,875,113
- --------------------------------------------------------
Net investment income 1,263,308
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN
CURRENCIES AND FUTURES CONTRACTS:
Net realized gain on sales of:
Investment securities 11,511,488
- --------------------------------------------------------
Foreign currencies 8,772
- --------------------------------------------------------
Futures contracts 5,311,129
- --------------------------------------------------------
16,831,389
- --------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 83,738,179
- --------------------------------------------------------
Foreign currencies 157
- --------------------------------------------------------
Futures contracts (951,557)
- --------------------------------------------------------
82,786,779
- --------------------------------------------------------
Net gain on investment securities, foreign
currencies and futures contracts 99,618,168
- --------------------------------------------------------
Net increase in net assets resulting from
operations $100,881,476
========================================================
</TABLE>
See Notes to Financial Statements.
FS-20
<PAGE> 114
STATEMENT OF CHANGES IN NET ASSETS
For the year ended October 31, 1997, the one month ended October 31, 1996 and
the year ended September 30, 1996
<TABLE>
<CAPTION>
ONE MONTH
ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1997 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,263,308 $ 7,068 $ 413,986
- -----------------------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities,
foreign currencies and futures contracts 16,831,389 1,953,887 17,138,864
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies and futures contracts 82,786,779 254,588 (1,172,983)
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 100,881,476 2,215,543 16,379,867
- -----------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (271,127) -- (616,045)
- -----------------------------------------------------------------------------------------------------------
Class B (24,561) -- --
- -----------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (12,005,450) -- (8,878,928)
- -----------------------------------------------------------------------------------------------------------
Class B (1,655,534) -- --
- -----------------------------------------------------------------------------------------------------------
Capital stock transactions -- net:
Class A 314,611,429 11,821,515 28,205,736
- -----------------------------------------------------------------------------------------------------------
Class B 232,350,533 8,096,586 --
- -----------------------------------------------------------------------------------------------------------
Class C 4,027,493 -- --
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets 637,914,259 22,133,644 35,090,630
- -----------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 128,548,354 106,414,710 71,324,080
- -----------------------------------------------------------------------------------------------------------
End of period $766,462,613 $128,548,354 $106,414,710
===========================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $638,472,344 $ 87,482,889 $ 67,564,788
- -----------------------------------------------------------------------------------------------------------
Undistributed net investment income 1,185,397 209,005 201,937
- -----------------------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies and futures contracts 16,786,046 13,624,413 11,670,526
- -----------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 110,018,826 27,232,047 26,977,459
- -----------------------------------------------------------------------------------------------------------
$766,462,613 $128,548,354 $106,414,710
===========================================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc.
(the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six diversified portfolios:
AIM Blue Chip Fund, AIM Aggressive Growth Fund, AIM Capital Development Fund,
AIM Charter Fund, AIM Constellation Fund, and AIM Weingarten Fund. The Fund
currently offers three different classes of shares: the Class A shares, Class B
shares and the Class C shares. Class C shares commenced sales on August 4, 1997.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with a contingent deferred sales charge. 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 long-term growth of capital.
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.
FS-21
<PAGE> 115
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last price on the exchange where the
security is principally traded, or lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on
that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. If a mean is not available, as in the
case of some foreign markets, the closing bid will be used absent a last
sales price. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean of the closing bid and asked prices. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Company's officers in a manner specifically authorized
by the Board of Directors of the Company. Short-term obligations having 60
days or less to maturity are valued at amortized cost which approximates
market value. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New
York Stock Exchange. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they
are determined and the close of the New York Stock Exchange which will not 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 Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A 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. Securities Transactions, Investment Income and Distributions--Securities
transactions are recorded on a trade date basis. Realized gains or losses on
sales are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date paid annually. On October
31, 1997, undistributed net investment income was increased by $8,772 and
undistributed net realized gains decreased by $8,772 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.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
F. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities 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 a change in the value of contracts may not correlate with changes in
the value of the securities being hedged.
G. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated between the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $350 million. AIM has agreed to
waive advisory fees for two years to the extent necessary to keep the annual
expense ratio for Class A shares at 1.31% for such period. During the year ended
October 31, 1997, AIM voluntarily waived advisory fees in the amounts of
$100,380.
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 $73,653 for such services.
FS-22
<PAGE> 116
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the year ended October 31, 1997,
AFS was paid $497,304 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor 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 Plan, pays AIM Distributors compensation at the annual
rate of 0.35% 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 assignees, its
rights to all or a portion of (a) compensation received by AIM Distributors from
the Fund pursuant to the Class B Plan (but not AIM Distributors' duties and
obligations pursuant to the Class B Plan) and (b) any contingent deferred sales
charges payable to AIM Distributors related to the Class B shares. During the
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 $1,128,115, $1,268,502, and $4,842 respectively,
as compensation pursuant to the Plans.
AIM Distributors received commissions of $1,139,512 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 $50,289 in contingent deferred sales
charges imposed on redemption of Fund Shares. Certain officers and directors of
the Company are officers and directors of AIM, AFS and AIM Distributors.
During the year ended October 31, 1997, the Fund paid legal fees of $4,723,
respectively, for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-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 $2,729 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 custodial fees of $5,443 and $2,550, respectively, under expense
offset arrangements. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $10,722 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 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 $677,575,974 and
$167,965,875, respectively.
The amount of unrealized appreciation (depreciation) of investment securities on
a tax basis is as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate unrealized appreciation
of investment securities $119,477,923
- -------------------------------------------------
Aggregate unrealized (depreciation)
of investment securities (8,899,599)
- -------------------------------------------------
Net unrealized appreciation of
investment securities $110,578,324
=================================================
</TABLE>
Costs of investments for tax purposes is $650,230,353.
FS-23
<PAGE> 117
NOTE 7-FUTURES CONTRACTS
On October 31, 1997, $1,451,000 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
NO. OF MONTH/ APPRECIATION/
CONTRACT CONTRACTS COMMITMENT (DEPRECIATION)
-------- --------- ---------- --------------
<S> <C> <C> <C>
S&P 500 Index 75 Dec. '97 $ (981,375)
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in capital stock outstanding during the year ended October 31, 1997,
the one month ended October 31, 1996 and the year ended September 30, 1996 were
as follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1997 OCTOBER 31, 1996 SEPTEMBER 30, 1996
-------------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sold:
Class A 16,335,583 $ 455,558,096 620,358 $16,142,093 1,504,902 $36,636,393
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 8,938,415 251,600,263 313,256 8,163,778 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Class C* 130,145 4,084,511 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 475,797 11,419,078 -- -- 178,537 4,200,245
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 59,879 1,437,104 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (5,338,702) (152,365,745) (165,098) (4,320,578) (513,296) (12,630,902)
- ---------------------------------------------------------------------------------------------------------------------------------
Class B (714,558) (20,686,834) (2,577) (67,192) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Class C* (1,794) (57,018) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
19,884,765 $ 550,989,455 765,939 $19,918,101 1,170,143 $28,205,736
=================================================================================================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended October 31, 1997, the one month ended October
31, 1996 and each of the years in the four-year period ended September 30, 1996,
for a share of Class B capital stock outstanding during the year ended October
31, 1997 and the period October 1, 1996 (date sales commenced) through October
31, 1996, and for a share of Class C capital stock outstanding during the period
August 4, 1997 (date sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
-------------------------- ---------------------------------------------
1997 1996 1996(a) 1995 1994 1993
CLASS A: --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 26.08 $ 25.56 $ 23.83 $ 19.22 $ 18.89 $ 18.24
- ------------------------------------------------ --------- --------- --------- -------- -------- --------
Income from investment operations:
Net investment income 0.17(b) -- 0.33 0.14 0.15 0.19
- ------------------------------------------------ --------- --------- --------- -------- -------- --------
Net gains on securities (both realized and
unrealized) 6.93 0.52 4.61 5.05 1.24 0.63
- ------------------------------------------------ --------- --------- --------- -------- -------- --------
Total from investment operations 7.10 0.52 4.94 5.19 1.39 0.82
- ------------------------------------------------ --------- --------- --------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.05) -- (0.21) (0.12) (0.21) (0.17)
- ------------------------------------------------ --------- --------- --------- -------- -------- --------
Distributions from net realized gains (2.17) -- (3.00) (0.46) (0.85) --
- ------------------------------------------------ --------- --------- --------- -------- -------- --------
Total distributions (2.22) -- (3.21) (0.58) (1.06) (0.17)
- ------------------------------------------------ --------- --------- --------- -------- -------- --------
Net asset value, end of period $ 30.96 $ 26.08 $ 25.56 $ 23.83 $ 19.22 $ 18.89
================================================ ========= ========= ========= ======== ======== ========
Total return(c) 29.68% 2.04% 22.39% 27.84% 7.69% 4.54%
================================================ ========= ========= ========= ======== ======== ========
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 498,178 $ 120,448 $ 106,415 $ 71,324 $ 60,115 $ 65,112
================================================ ========= ========= ========= ======== ======== ========
Ratio of expenses to average net assets(d) 1.31%(e)(f) 1.30%(g) 1.26% 1.3% 1.4% 1.3%
================================================ ========= ========= ========= ======== ======== ========
Ratio of net investment income to average net
assets(h) 0.50%(e) 0.12%(g) 0.53% 0.7% 0.8% 1.0%
================================================ ========= ========= ========= ======== ======== ========
Portfolio turnover rate 43% 10% 58% 17% 13% 25%
================================================ ========= ========= ========= ======== ======== ========
Average brokerage commission rate paid(i) $ 0.0619 $ 0.0665 $ 0.0696 N/A N/A N/A
================================================ ========= ========= ========= ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 3, 1996.
(b) Calculated using average shares outstanding.
(c) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.32%, 1.37% (annualized) and 1.28% for the periods 1997-1996, and September
30, 1996, respectively.
(e) Ratios are based on average net assets of $322,318,404.
(f) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.49%, 0.05% (annualized) and 0.51% for the periods
1997-1996 and September 30, 1996, respectively.
(i) 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-24
<PAGE> 118
<TABLE>
<CAPTION>
1997 1996
CLASS B: -------- --------
<S> <C> <C>
Net asset value, beginning of period $ 26.07 $ 25.56
- ------------------------------------------------------------ -------- --------
Income from investment operations:
Net investment income (0.03)(a) (0.01)
- ------------------------------------------------------------ -------- --------
Net gains on securities (both realized and unrealized) 6.92 0.52
- ------------------------------------------------------------ -------- --------
Total from investment operations 6.89 0.51
- ------------------------------------------------------------ -------- --------
Less distributions:
Dividends from net investment income (0.03) --
- ------------------------------------------------------------ -------- --------
Distributions from net realized gains (2.17) --
- ------------------------------------------------------------ -------- --------
Total distributions (2.20) --
- ------------------------------------------------------------ ======== ========
Net asset value, end of period $ 30.76 $ 26.07
============================================================ ======== ========
Total return(b) 28.81% 2.00%
============================================================ ======== ========
Ratios/supplement data:
Net assets, end of period (000s omitted) $264,337 $ 8,101
============================================================ ======== ========
Ratio of expenses to average net assets(c) 2.09%(d)(e) 2.01%(f)
============================================================ ======== ========
Ratio of net investment income (loss) to average net
assets(g) (0.28)%(d) (0.58)%(f)
============================================================ ======== ========
Portfolio turnover rate 43% 10%
============================================================ ======== ========
Average brokerage commission rate paid(h) $ 0.0619 $ 0.0665
============================================================ ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.12% and 2.08% (annualized) for the periods 1997-1996, respectively.
(d) Ratios are based on average net assets of $126,850,228.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
2.10%.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.31)% and (0.65)% (annualized) for the periods
1997-1996, respectively.
(h) 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.
<TABLE>
<CAPTION>
1997
CLASS C: ----------
<S> <C>
Net asset value, beginning of period $ 31.72
- ------------------------------------------------------------ --------
Income from investment operations:
Net investment income (0.01)(a)
- ------------------------------------------------------------ --------
Net gains (losses) on securities (both realized and
unrealized) (0.96)
- ------------------------------------------------------------ --------
Total from investment operations (0.97)
- ------------------------------------------------------------ --------
Less distributions:
Dividends from net investment income --
- ------------------------------------------------------------ --------
Distributions from net realized gains --
- ------------------------------------------------------------ --------
Total distributions --
============================================================ ========
Net asset value, end of period $ 30.75
============================================================ ========
Total return(b) (3.06)%
============================================================ ========
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 3,947
============================================================ ========
Ratio of expenses to average net assets(c) 2.09%(d)(e)
============================================================ ========
Ratio of net investment income (loss) to average net
assets(f) (0.28)%(d)
============================================================ ========
Portfolio turnover rate 43%
============================================================ ========
Average brokerage commission rate paid(g) $ 0.0619
============================================================ ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and for periods less than one
year, total returns are not annualized.
(c) After fee waivers and/or expense reimbursements. Ratio of
expenses to average net assets prior to fee waivers and/or
expense reimbursements was 2.12% (annualized).
(d) Ratios are annualized and based on average net assets of
$1,985,899.
(e) Ratio includes expenses paid indirectly. Excluding expenses
paid indirectly, the ratio of expenses to average net assets
would have remained the same.
(f) After fee waivers and/or expense reimbursements. Ratio of
net investment income (loss) to average net assets prior to
fee waivers and/or expense reimbursements was (0.31)%
annualized).
(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.
FS-25
<PAGE> 119
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
AIM Capital Development Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Capital Development Fund (a series
portfolio of AIM Equity Funds, Inc.), including the
schedule of investments, as of October 31, 1997, the
related statement of operations for the year ended October
31, 1997 and the statement of changes in net assets and
financial highlights for the year or period ended October
31, 1997 and the period June 17, 1996 (date operations
commenced) through October 31, 1996. These financial
statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial
highlights based on our audit.
We conducted our 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 the AIM
Capital Development Fund as of October 31, 1997, the
results of its operations for the year ended October 31,
1997 and the changes in its net assets and the financial
highlights for the year or period ended October 31, 1997
and the period June 17, 1996 (date operations commenced)
through October 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 5, 1997
FS-26
<PAGE> 120
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-90.05%
AEROSPACE/DEFENSE-0.37%
Aviation Sales Co.(a) 25,000 $ 859,375
- --------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 50,000 1,450,000
- --------------------------------------------------------------
InVision Technologies, Inc.(a) 50,000 525,000
- --------------------------------------------------------------
O'Gara Co.(a) 25,000 425,000
- --------------------------------------------------------------
3,259,375
- --------------------------------------------------------------
AIR FREIGHT-0.63%
AirNet Systems, Inc.(a) 70,000 1,435,000
- --------------------------------------------------------------
Eagle USA Airfreight, Inc.(a) 120,000 3,630,000
- --------------------------------------------------------------
Kitty Hawk, Inc.(a) 25,000 509,375
- --------------------------------------------------------------
5,574,375
- --------------------------------------------------------------
AIRLINES-0.23%
China Eastern Airlines Corp.
Ltd.-ADR (a)(Hong Kong) 35,000 796,250
- --------------------------------------------------------------
China Southern Airlines Co.
Ltd.-ADR (a)(China) 45,000 933,750
- --------------------------------------------------------------
Ryanair Holdings PLC-ADR (a)(Ireland) 12,200 305,000
- --------------------------------------------------------------
2,035,000
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.36%
Aftermarket Technology Corp.(a) 134,300 2,719,575
- --------------------------------------------------------------
Keystone Automotive Industries, Inc.(a) 20,500 453,562
- --------------------------------------------------------------
3,173,137
- --------------------------------------------------------------
BANKS (REGIONAL)-0.55%
AmSouth Bancorporation 9,000 432,563
- --------------------------------------------------------------
Banknorth Group, Inc. 16,000 968,000
- --------------------------------------------------------------
Cullen/Frost Bankers, Inc. 8,000 404,000
- --------------------------------------------------------------
Hibernia Corp.-Class A 30,000 534,375
- --------------------------------------------------------------
Marshall & Ilsley Corp. 35,000 1,815,625
- --------------------------------------------------------------
Southwest Bancorp. of Texas, Inc.(a) 25,000 750,000
- --------------------------------------------------------------
4,904,563
- --------------------------------------------------------------
BIOTECHNOLOGY-0.30%
Genzyme Corp.(a) 50,000 1,368,750
- --------------------------------------------------------------
Kos Pharmaceuticals, Inc.(a) 35,000 1,251,250
- --------------------------------------------------------------
2,620,000
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-1.75%
Chancellor Media Corp.(a) 39,091 2,145,119
- --------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 85,000 2,895,313
- --------------------------------------------------------------
Emmis Broadcasting Corp.-Class A(a) 20,000 885,000
- --------------------------------------------------------------
Hearst-Argyle Television Inc.(a) 24,870 708,795
- --------------------------------------------------------------
Heftel Broadcasting Corp.(a) 39,300 2,613,450
- --------------------------------------------------------------
Jacor Communications, Inc.(a) 15,000 628,125
- --------------------------------------------------------------
Metro Networks, Inc.(a) 55,000 1,705,000
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-(CONTINUED)
Univision Communications, Inc.(a) 64,000 $ 3,968,000
- --------------------------------------------------------------
15,548,802
- --------------------------------------------------------------
BUILDING MATERIALS-0.37%
Diamond Home Services, Inc.(a) 100,000 850,000
- --------------------------------------------------------------
Pameco Corp.(a) 85,000 1,445,000
- --------------------------------------------------------------
White Cap Industries, Inc.(a) 50,000 950,000
- --------------------------------------------------------------
3,245,000
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.75%
Andrew Corp.(a) 60,000 1,391,250
- --------------------------------------------------------------
Cidco, Inc.(a) 45,000 838,125
- --------------------------------------------------------------
Coherent Communications Systems
Corp.(a) 80,000 2,420,000
- --------------------------------------------------------------
Corsair Communications, Inc.(a) 17,200 399,900
- --------------------------------------------------------------
Digital Lightwave, Inc.(a) 60,000 1,095,000
- --------------------------------------------------------------
DSC Communications Corp.(a) 180,000 4,387,500
- --------------------------------------------------------------
Innova Corp.(a) 75,000 1,612,500
- --------------------------------------------------------------
IWL Communications, Inc.(a) 50,000 562,500
- --------------------------------------------------------------
MAS Technology Ltd.-ADR(a)
(New Zealand) 150,000 2,306,250
- --------------------------------------------------------------
Metromedia Fiber Network, Inc.(a) 114,500 2,748,000
- --------------------------------------------------------------
NACT Telecommunications, Inc.(a) 50,000 681,250
- --------------------------------------------------------------
NEXTLINK Communications,
Inc.-Class A(a) 60,000 1,357,500
- --------------------------------------------------------------
P-COM, Inc.(a) 70,000 1,408,750
- --------------------------------------------------------------
PairGain Technologies, Inc.(a) 80,000 2,260,000
- --------------------------------------------------------------
SBS Technologies, Inc.(a) 75,000 2,175,000
- --------------------------------------------------------------
Scientific-Atlanta, Inc. 160,000 2,970,000
- --------------------------------------------------------------
Stanford Telecommunications, Inc.(a) 40,000 970,000
- --------------------------------------------------------------
Tekelec(a) 25,000 1,046,875
- --------------------------------------------------------------
Tollgrade Communications, Inc.(a) 70,000 1,723,750
- --------------------------------------------------------------
Verilink Corp.(a) 125,000 953,125
- --------------------------------------------------------------
33,307,275
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-0.75%
Bell & Howell Co.(a) 90,000 2,480,625
- --------------------------------------------------------------
Concord EFS, Inc.(a) 5,000 148,438
- --------------------------------------------------------------
Gateway 2000, Inc.(a) 38,400 1,101,600
- --------------------------------------------------------------
IDX Systems Corp.(a) 14,600 492,750
- --------------------------------------------------------------
Micron Electronics, Inc.(a) 60,000 832,500
- --------------------------------------------------------------
National Instruments Corp.(a) 30,000 1,365,000
- --------------------------------------------------------------
Stratasys, Inc.(a) 15,000 230,625
- --------------------------------------------------------------
6,651,538
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-0.56%
Bay Networks, Inc.(a) 30,000 948,750
- --------------------------------------------------------------
Cabletron Systems, Inc.(a) 50,000 1,450,000
- --------------------------------------------------------------
FORE Systems, Inc.(a) 25,000 406,250
- --------------------------------------------------------------
</TABLE>
FS-27
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<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (NETWORKING)-(CONTINUED)
MMC Networks, Inc.(a) 50,500 $ 1,104,688
- --------------------------------------------------------------
Premiere Technologies, Inc.(a) 30,000 1,020,000
- --------------------------------------------------------------
4,929,688
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.41%
DSP Communications, Inc.(a) 50,000 925,000
- --------------------------------------------------------------
NeoMagic Corp.(a) 10,000 146,250
- --------------------------------------------------------------
Printronix, Inc.(a) 140,000 2,555,000
- --------------------------------------------------------------
3,626,250
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-9.95%
Activision, Inc.(a) 100,000 1,462,500
- --------------------------------------------------------------
Adobe Systems, Inc. 25,000 1,193,750
- --------------------------------------------------------------
Advanced Fibre Communications, Inc.(a) 60,000 1,743,750
- --------------------------------------------------------------
American Software, Inc.-Class A(a) 60,000 705,000
- --------------------------------------------------------------
ANSYS, Inc.(a) 50,000 462,500
- --------------------------------------------------------------
Aris Corp.(a) 10,000 236,250
- --------------------------------------------------------------
Aspen Technologies, Inc.(a) 40,000 1,505,000
- --------------------------------------------------------------
Autodesk, Inc. 10,000 370,000
- --------------------------------------------------------------
Avant! Corp.(a) 25,000 656,250
- --------------------------------------------------------------
Best Software, Inc.(a) 225,000 2,334,375
- --------------------------------------------------------------
BMC Software, Inc.(a) 40,000 2,415,000
- --------------------------------------------------------------
Box Hill Systems Corp.(a) 60,600 939,300
- --------------------------------------------------------------
Broderbund Software, Inc.(a) 165,000 4,785,000
- --------------------------------------------------------------
C/NET, Inc.(a) 15,000 361,875
- --------------------------------------------------------------
Cadence Design Systems, Inc.(a) 21,220 1,129,965
- --------------------------------------------------------------
Check Point Software Technologies
Ltd. (a)(Israel) 25,000 1,065,625
- --------------------------------------------------------------
Claremont Technology Group,
Inc.(a) 25,000 553,125
- --------------------------------------------------------------
Compuware Corp.(a) 35,000 2,314,375
- --------------------------------------------------------------
Concord Communications, Inc.(a) 55,000 976,250
- --------------------------------------------------------------
CyberMedia, Inc.(a) 20,000 595,000
- --------------------------------------------------------------
DAOU Systems, Inc.(a) 45,000 1,186,875
- --------------------------------------------------------------
Dassault Systemes S.A.-ADR (France) 20,000 600,000
- --------------------------------------------------------------
Dendrite International, Inc.(a) 87,500 1,695,312
- --------------------------------------------------------------
Dr. Solomon's Group PLC-ADR(a)
(United Kingdom) 35,000 1,071,875
- --------------------------------------------------------------
Electronic Arts, Inc.(a) 35,000 1,185,625
- --------------------------------------------------------------
FARO Technologies, Inc.(a) 90,000 1,226,250
- --------------------------------------------------------------
Geoworks(a) 35,000 446,250
- --------------------------------------------------------------
Great Plains Software, Inc.(a) 60,000 1,432,500
- --------------------------------------------------------------
HBO & Co. 80,000 3,480,000
- --------------------------------------------------------------
HPR, Inc.(a) 90,000 2,160,000
- --------------------------------------------------------------
Infinity Financial Technology, Inc.(a) 75,000 1,153,125
- --------------------------------------------------------------
Intuit, Inc.(a) 65,000 2,120,625
- --------------------------------------------------------------
J.D. Edwards & Co.(a) 45,400 1,543,600
- --------------------------------------------------------------
JDA Software Group, Inc.(a) 45,000 1,406,250
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Kofax Image Products, Inc.(a) 150,000 $ 1,509,375
- --------------------------------------------------------------
Mastech Corp.(a) 100,000 3,312,500
- --------------------------------------------------------------
McAfee Associates, Inc.(a) 15,000 746,250
- --------------------------------------------------------------
Mechanical Dynamics, Inc.(a) 15,000 127,500
- --------------------------------------------------------------
Medical Manager Corp.(a) 390,000 6,825,000
- --------------------------------------------------------------
Memco Software Ltd. (a)(Israel) 67,700 1,709,425
- --------------------------------------------------------------
Mercury Interactive Corp.(a) 85,000 1,912,500
- --------------------------------------------------------------
MicroProse, Inc.(a) 50,000 325,000
- --------------------------------------------------------------
Midway Games Inc.(a) 75,000 1,570,312
- --------------------------------------------------------------
Netscape Communications Corp.(a) 80,000 2,630,000
- --------------------------------------------------------------
Network General Corp.(a) 220,000 4,455,000
- --------------------------------------------------------------
Network Solutions, Inc.-Class A(a) 40,300 765,700
- --------------------------------------------------------------
Omtool, Ltd.(a) 125,300 1,581,913
- --------------------------------------------------------------
Parametric Technology Co.(a) 32,500 1,434,063
- --------------------------------------------------------------
Peerless Systems Corp.(a) 10,000 130,000
- --------------------------------------------------------------
Platinum Technology, Inc.(a) 180,000 4,365,000
- --------------------------------------------------------------
QAD Inc.(a) 50,000 706,250
- --------------------------------------------------------------
Radiant Systems, Inc.(a) 10,000 181,250
- --------------------------------------------------------------
Security Dynamics Technologies, Inc.(a) 10,000 338,750
- --------------------------------------------------------------
Siebel Systems, Inc.(a) 20,083 810,865
- --------------------------------------------------------------
Simulation Sciences, Inc.(a) 30,000 547,500
- --------------------------------------------------------------
Sterling Commerce, Inc.(a) 37,500 1,244,531
- --------------------------------------------------------------
Sybase, Inc.(a) 25,000 407,813
- --------------------------------------------------------------
Technology Modeling Associates, Inc.(a) 53,500 749,000
- --------------------------------------------------------------
Transaction Systems Architects,
Inc.-Class A(a) 5,000 195,625
- --------------------------------------------------------------
Trusted Information Systems, Inc.(a) 75,000 703,125
- --------------------------------------------------------------
Vantive Corp.(a) 65,000 1,641,250
- --------------------------------------------------------------
Viewlogic Systems, Inc.(a) 40,000 970,000
- --------------------------------------------------------------
88,408,674
- --------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.48%
Blyth Industries, Inc.(a) 110,000 2,736,250
- --------------------------------------------------------------
Lancaster Colony Corp. 15,000 742,500
- --------------------------------------------------------------
Little Switzerland, Inc.(a) 100,000 650,000
- --------------------------------------------------------------
TAG Heuer International S.A.-ADR
(a)(Switzerland) 10,000 115,000
- --------------------------------------------------------------
4,243,750
- --------------------------------------------------------------
CONSUMER FINANCE-0.17%
Green Tree Financial Corp. 25,000 1,053,125
- --------------------------------------------------------------
Investors Financial Services Corp. 10,000 440,000
- --------------------------------------------------------------
1,493,125
- --------------------------------------------------------------
CONTAINERS (METAL & GLASS)-0.77%
Peak International Ltd.(a) 85,000 1,912,500
- --------------------------------------------------------------
Silgan Holdings, Inc.(a) 140,000 4,935,000
- --------------------------------------------------------------
6,847,500
- --------------------------------------------------------------
</TABLE>
FS-28
<PAGE> 122
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DISTRIBUTORS (FOOD & HEALTH)-1.12%
AmeriSource Health Corp.-Class A(a) 25,000 $ 1,484,375
- --------------------------------------------------------------
McKesson Corp. 28,000 3,004,750
- --------------------------------------------------------------
Owens & Minor, Inc. Holding Co. 30,000 420,000
- --------------------------------------------------------------
ProSource, Inc.(a) 50,000 368,750
- --------------------------------------------------------------
Rykoff-Sexton, Inc. 130,000 2,795,000
- --------------------------------------------------------------
Suburban Ostomy Supply Co., Inc.(a) 175,000 1,903,125
- --------------------------------------------------------------
9,976,000
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.37%
Black Box Corp.(a) 20,000 820,000
- --------------------------------------------------------------
Checkpoint Systems, Inc.(a) 50,000 800,000
- --------------------------------------------------------------
Harman International Industries, Inc. 10,000 540,000
- --------------------------------------------------------------
Itron, Inc.(a) 45,000 922,500
- --------------------------------------------------------------
Sawtek Inc.(a) 5,000 170,000
- --------------------------------------------------------------
3,252,500
- --------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.53%
Power-One, Inc.(a) 140,000 2,607,500
- --------------------------------------------------------------
Stoneridge, Inc.(a) 126,300 2,052,375
- --------------------------------------------------------------
4,659,875
- --------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.01%
Tracor, Inc.(a) 3,900 104,325
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.89%
ASM Lithography Holding N.V.(a)
(Netherlands) 5,000 366,250
- --------------------------------------------------------------
Alliance Semiconductor Corp.(a) 25,000 187,500
- --------------------------------------------------------------
Altera Corp.(a) 35,000 1,553,125
- --------------------------------------------------------------
Apex PC Solutions, Inc.(a) 10,000 257,500
- --------------------------------------------------------------
Cypress Semiconductor Corp.(a) 55,000 618,750
- --------------------------------------------------------------
Galileo Technology Ltd.(a) (Israel) 35,000 1,203,125
- --------------------------------------------------------------
General Scanning, Inc.(a) 15,000 387,187
- --------------------------------------------------------------
General Semiconductor, Inc.(a) 10,000 113,750
- --------------------------------------------------------------
Integrated Device Technology, Inc.(a) 40,000 462,500
- --------------------------------------------------------------
Oak Technology, Inc.(a) 30,000 288,750
- --------------------------------------------------------------
SDL, Inc.(a) 20,000 360,000
- --------------------------------------------------------------
3Dlabs Inc., Ltd.(a) 25,000 531,250
- --------------------------------------------------------------
Xilinx, Inc.(a) 45,000 1,535,625
- --------------------------------------------------------------
7,865,312
- --------------------------------------------------------------
ENTERTAINMENT-0.19%
Alliance Communications
Corp.-Class B(a) (Canada) 60,000 738,750
- --------------------------------------------------------------
N2K Inc.(a) 37,500 986,718
- --------------------------------------------------------------
1,725,468
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-1.10%
Aehr Test Systems(a) 70,000 945,000
- --------------------------------------------------------------
Asyst Technologies, Inc.(a) 10,000 290,938
- --------------------------------------------------------------
Credence Systems Corp.(a) 30,000 885,000
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-(CONTINUED)
DuPont Photomasks, Inc.(a) 55,000 $ 2,365,000
- --------------------------------------------------------------
KLA-Tencor Corp.(a) 10,000 439,375
- --------------------------------------------------------------
PRI Automation, Inc.(a) 15,000 573,750
- --------------------------------------------------------------
Speedfam International, Inc.(a) 95,000 3,526,875
- --------------------------------------------------------------
Teradyne, Inc.(a) 20,000 748,750
- --------------------------------------------------------------
9,774,688
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.13%
American Capital Strategies, Ltd.(a) 35,100 631,800
- --------------------------------------------------------------
Hamilton Bancorp, Inc.(a) 75,000 2,287,500
- --------------------------------------------------------------
Insignia Financial Group, Inc.-
Class A(a) 45,000 973,125
- --------------------------------------------------------------
MGIC Investment Corp. 20,000 1,206,250
- --------------------------------------------------------------
Mutual Risk Management Ltd. (Bermuda) 30,000 778,125
- --------------------------------------------------------------
SEI Corp. 90,000 3,830,625
- --------------------------------------------------------------
SunAmerica, Inc. 8,400 301,875
- --------------------------------------------------------------
10,009,300
- --------------------------------------------------------------
FOODS-0.66%
American Italian Pasta Co.-Class
A(a) 170,000 3,570,000
- --------------------------------------------------------------
Weider Nutrition International,
Inc. 200,000 2,312,500
- --------------------------------------------------------------
5,882,500
- --------------------------------------------------------------
FOOTWEAR-0.29%
Samsonite Corp.(a) 55,000 2,550,625
- --------------------------------------------------------------
GAMING, LOTTERY & PARI-MUTUEL COMPANIES-0.91%
Circus Circus Enterprises(a) 100,000 2,225,000
- --------------------------------------------------------------
International Game Technology 135,000 3,450,937
- --------------------------------------------------------------
Sodak Gaming, Inc.(a) 225,000 2,418,750
- --------------------------------------------------------------
8,094,687
- --------------------------------------------------------------
HARDWARE & TOOLS-0.21%
Acorn Products, Inc.(a) 125,000 1,843,750
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-0.21%
Allergan, Inc. 10,000 329,375
- --------------------------------------------------------------
IVAX Corp. 200,000 1,512,500
- --------------------------------------------------------------
1,841,875
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.52%
Algos Pharmaceutical Corp.(a) 20,000 495,000
- --------------------------------------------------------------
BioChem Pharma, Inc.(a) (Canada) 30,000 751,875
- --------------------------------------------------------------
Collagenex Pharmaceuticals, Inc.(a) 20,000 240,000
- --------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 66,000 3,192,750
- --------------------------------------------------------------
Elan Corp. PLC-ADR(a) (Ireland) 15,000 748,125
- --------------------------------------------------------------
Forest Laboratories, Inc.(a) 155,000 7,168,750
- --------------------------------------------------------------
Gilead Sciences, Inc.(a) 8,000 273,000
- --------------------------------------------------------------
Guilford Pharmaceuticals, Inc.(a) 10,000 243,750
- --------------------------------------------------------------
Human Genome Sciences, Inc.(a) 15,000 615,000
- --------------------------------------------------------------
Jones Medical Industries, Inc. 35,000 1,054,375
- --------------------------------------------------------------
</TABLE>
FS-29
<PAGE> 123
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-GENERIC & OTHER)-(CONTINUED)
Martek Biosciences Corp.(a) 20,000 $ 222,500
- --------------------------------------------------------------
North American Vaccine, Inc.(a) 60,000 1,507,500
- --------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a) 50,000 475,000
- --------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Israel) 33,000 1,542,750
- --------------------------------------------------------------
Warner Chilcott Laboratories-SP
ADR (a)(Ireland) 135,000 1,906,875
- --------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 60,000 1,905,000
- --------------------------------------------------------------
22,342,250
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-0.08%
Applied Analytical Industries, Inc.(a) 40,000 670,000
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.06%
Health Management Associates,
Inc.-Class A(a) 22,500 548,438
- --------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.61%
Capital Senior Living Corp.(a) 100,500 1,683,375
- --------------------------------------------------------------
Horizon Health Corp.(a) 25,500 596,063
- --------------------------------------------------------------
Integrated Health Services, Inc. 40,000 1,270,000
- --------------------------------------------------------------
National Surgery Centers, Inc.(a) 12,500 312,500
- --------------------------------------------------------------
NovaCare, Inc.(a) 20,000 261,250
- --------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 35,000 1,299,375
- --------------------------------------------------------------
5,422,563
- --------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-1.12%
Alternative Living Services, Inc.(a) 85,000 2,082,500
- --------------------------------------------------------------
American Oncology Resources, Inc.(a) 30,000 438,750
- --------------------------------------------------------------
Concentra Managed Care, Inc.(a) 40,000 1,305,000
- --------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 13,000 732,875
- --------------------------------------------------------------
HealthCare COMPARE Corp.(a) 20,000 1,075,000
- --------------------------------------------------------------
HealthPlan Services Corp. 55,000 1,158,437
- --------------------------------------------------------------
MedPartners, Inc.(a) 65,715 1,671,625
- --------------------------------------------------------------
Monarch Dental Corp.(a) 63,000 1,141,875
- --------------------------------------------------------------
PacifiCare Health Systems, Inc.-
Class B(a) 5,000 323,750
- --------------------------------------------------------------
9,929,812
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.82%
ADAC Laboratories 25,000 487,500
- --------------------------------------------------------------
Bard (C.R.), Inc. 55,000 1,526,250
- --------------------------------------------------------------
Biomet, Inc. 65,000 1,620,937
- --------------------------------------------------------------
Dentsply International, Inc. 70,000 1,986,250
- --------------------------------------------------------------
Endovascular Technologies, Inc.(a) 25,000 462,500
- --------------------------------------------------------------
Gulf South Medical Supply, Inc.(a) 11,000 363,000
- --------------------------------------------------------------
Marquette Medical Systems-Class A(a) 55,000 1,416,250
- --------------------------------------------------------------
Maxxim Medical, Inc.(a) 25,000 559,375
- --------------------------------------------------------------
MiniMed, Inc.(a) 70,000 2,730,000
- --------------------------------------------------------------
Nitinol Medical Technologies, Inc.(a) 80,000 1,120,000
- --------------------------------------------------------------
Protocol Systems Inc.(a) 25,000 265,625
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-(CONTINUED)
SangStat Medical Corp.(a) 25,000 $ 778,125
- --------------------------------------------------------------
Schick Technologies, Inc.(a) 25,000 537,500
- --------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 30,000 2,066,250
- --------------------------------------------------------------
Steris Corp.(a) 85,000 3,378,750
- --------------------------------------------------------------
Stryker Corp. 19,000 706,563
- --------------------------------------------------------------
Sullivan Dental Products, Inc. 25,000 584,375
- --------------------------------------------------------------
Sulzer Medica (a)(Switzerland) 26,900 719,575
- --------------------------------------------------------------
Sybron International Corp.(a) 85,000 3,410,625
- --------------------------------------------------------------
Trex Medical Corp.(a) 25,000 321,875
- --------------------------------------------------------------
25,041,325
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-2.59%
Advance ParadigM, Inc.(a) 140,000 3,570,000
- --------------------------------------------------------------
AmeriPath, Inc.(a) 110,000 1,815,000
- --------------------------------------------------------------
BioReliance Corp.(a) 42,500 945,625
- --------------------------------------------------------------
Boron, LePore & Associates, Inc.(a) 16,500 402,188
- --------------------------------------------------------------
Cohr, Inc.(a) 150,000 1,575,000
- --------------------------------------------------------------
Covance, Inc.(a) 40,000 707,500
- --------------------------------------------------------------
First Commonwealth, Inc.(a) 15,000 217,500
- --------------------------------------------------------------
FPA Medical Management, Inc.(a) 42,000 1,013,250
- --------------------------------------------------------------
Intensiva Healthcare Corp.(a) 70,000 533,750
- --------------------------------------------------------------
Medical Resources, Inc.(a) 75,000 1,359,375
- --------------------------------------------------------------
Ocular Sciences, Inc.(a) 131,100 2,884,200
- --------------------------------------------------------------
Prime Medical Services, Inc.(a) 60,000 795,000
- --------------------------------------------------------------
Summit Holding Southeast Inc.(a) 235,000 4,230,000
- --------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 25,000 775,000
- --------------------------------------------------------------
Ventana Medical Systems, Inc.(a) 140,000 2,170,000
- --------------------------------------------------------------
22,993,388
- --------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.22%
Kimball International, Inc.-Class B 30,000 1,230,000
- --------------------------------------------------------------
Service Experts, Inc.(a) 29,900 747,500
- --------------------------------------------------------------
1,977,500
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.20%
Dial Corp. 105,000 1,771,875
- --------------------------------------------------------------
HOUSEWARES-0.38%
Central Garden and Pet Co.(a) 80,000 2,100,000
- --------------------------------------------------------------
Helen of Troy Ltd.(a) 20,000 332,500
- --------------------------------------------------------------
Home Products International, Inc.(a) 80,000 955,000
- --------------------------------------------------------------
3,387,500
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.95%
AmerUs Life Holdings, Inc.-Class A 42,400 1,317,050
- --------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 140,000 4,261,250
- --------------------------------------------------------------
Penncorp Financial Group, Inc. 20,000 651,250
- --------------------------------------------------------------
UNUM Corp. 10,400 507,000
- --------------------------------------------------------------
</TABLE>
FS-30
<PAGE> 124
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (LIFE/HEALTH)-(CONTINUED)
Western National Corp. 60,000 $ 1,728,750
- --------------------------------------------------------------
8,465,300
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.18%
Ace, Ltd. 4,000 371,750
- --------------------------------------------------------------
Horace Mann Educators Corp. 8,000 450,000
- --------------------------------------------------------------
PAULA Financial(a) 29,900 754,975
- --------------------------------------------------------------
1,576,725
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-2.14%
Amerin Corp.(a) 200,000 4,575,000
- --------------------------------------------------------------
Capital Re Corp. 10,000 589,375
- --------------------------------------------------------------
CapMAC Holdings, Inc. 30,000 900,000
- --------------------------------------------------------------
CMAC Investment Corp. 13,000 710,937
- --------------------------------------------------------------
Everest Re Holdings, Inc. 56,000 2,107,000
- --------------------------------------------------------------
Executive Risk Inc. 5,000 329,375
- --------------------------------------------------------------
Exel Ltd. 11,200 676,900
- --------------------------------------------------------------
HCC Insurance Holdings, Inc. 50,000 1,168,750
- --------------------------------------------------------------
NAC Re Corp. 8,000 356,000
- --------------------------------------------------------------
Penn-America Group, Inc. 80,000 1,475,000
- --------------------------------------------------------------
Progressive Corp. 25,000 2,606,250
- --------------------------------------------------------------
TIG Holdings, Inc. 25,000 846,875
- --------------------------------------------------------------
Transatlantic Holdings, Inc. 10,000 691,875
- --------------------------------------------------------------
UnionAmerica Holdings PLC-ADR
(United Kingdom) 27,000 536,625
- --------------------------------------------------------------
Vesta Insurance Group, Inc. 10,000 581,250
- --------------------------------------------------------------
W. R. Berkley Corp. 20,000 822,500
- --------------------------------------------------------------
18,973,712
- --------------------------------------------------------------
INVESTMENT MANAGEMENT-0.13%
ARM Financial Group, Inc.-Class A 51,400 1,111,525
- --------------------------------------------------------------
INVESTMENTS-0.13%
Security Capital Group Inc.-Class B(a) 36,700 1,174,400
- --------------------------------------------------------------
IRON & STEEL-0.09%
Ispat International N.V.-New York
Registered Shares(a) (Netherlands) 33,200 840,375
- --------------------------------------------------------------
LAND DEVELOPMENT-0.38%
LaSalle Partners, Inc.(a) 35,000 1,279,687
- --------------------------------------------------------------
Silverleaf Resorts, Inc.(a) 95,000 2,066,250
- --------------------------------------------------------------
3,345,937
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.37%
Coastcast Corp.(a) 20,000 292,500
- --------------------------------------------------------------
Coleman Co., Inc.(a) 50,000 746,875
- --------------------------------------------------------------
Florida Panthers Holdings, Inc.(a) 15,000 301,875
- --------------------------------------------------------------
Galoob Toys, Inc.(a) 210,000 2,769,375
- --------------------------------------------------------------
GTECH Holdings Corp.(a) 25,000 806,250
- --------------------------------------------------------------
Hasbro, Inc. 30,000 870,000
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-(CONTINUED)
K2, Inc. 18,000 $ 455,625
- --------------------------------------------------------------
Oakley, Inc.(a) 95,000 938,125
- --------------------------------------------------------------
The North Face, Inc.(a) 145,000 3,425,625
- --------------------------------------------------------------
Toy Biz, Inc.(a) 110,000 969,375
- --------------------------------------------------------------
Travis Boats & Motors, Inc.(a) 30,000 573,750
- --------------------------------------------------------------
12,149,375
- --------------------------------------------------------------
LODGING-HOTELS-0.58%
Four Seasons Hotels, Inc. (Canada) 38,000 1,256,375
- --------------------------------------------------------------
Vail Resorts Inc.(a) 125,000 3,476,562
- --------------------------------------------------------------
Wyndham Hotel Corp.(a) 10,000 449,375
- --------------------------------------------------------------
5,182,312
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.65%
CTB International Corp.(a) 200,000 3,425,000
- --------------------------------------------------------------
Greenfield Industries 15,000 568,125
- --------------------------------------------------------------
OmniQuip International, Inc. 40,000 670,000
- --------------------------------------------------------------
Pfeiffer Vacuum Technology
A.G.-ADR(a) (Germany) 15,000 487,500
- --------------------------------------------------------------
Thermo Fibergen Inc. 45,000 410,625
- --------------------------------------------------------------
Thermo Fibergen Inc.-Rights(a) 45,000 154,688
- --------------------------------------------------------------
5,715,938
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.21%
Daniel Industries 30,000 603,750
- --------------------------------------------------------------
Figgie International Inc.-Class A(a) 30,000 401,250
- --------------------------------------------------------------
Industrial Distribution Group, Inc.(a) 45,100 873,813
- --------------------------------------------------------------
1,878,813
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.43%
Amor Holdings, Inc.(a) 50,000 550,000
- --------------------------------------------------------------
Big Dog Holdings, Inc.(a) 125,000 1,765,625
- --------------------------------------------------------------
Cognex Corp.(a) 105,000 2,808,750
- --------------------------------------------------------------
DONCASTERS PLC-ADR(a) (United Kingdom) 25,000 673,438
- --------------------------------------------------------------
First Years, Inc. (The) 118,000 2,950,000
- --------------------------------------------------------------
Novel Denim Holdings Ltd.(a) (Hong
Kong) 27,500 556,875
- --------------------------------------------------------------
Regal-Beloit Corp. 20,000 537,500
- --------------------------------------------------------------
Rock of Ages Corp.(a) 30,000 570,000
- --------------------------------------------------------------
Tefron Ltd.(a) (Israel) 120,000 2,302,500
- --------------------------------------------------------------
12,714,688
- --------------------------------------------------------------
METAL FABRICATORS-0.71%
Metals USA(a) 400,000 5,900,000
- --------------------------------------------------------------
Shaw Group, Inc.(a) 20,000 417,500
- --------------------------------------------------------------
6,317,500
- --------------------------------------------------------------
NATURAL GAS-0.16%
NGC Corp. 75,000 1,425,000
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.84%
Boise Cascade Office Products Corp.(a) 9,700 184,300
- --------------------------------------------------------------
</TABLE>
FS-31
<PAGE> 125
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OFFICE EQUIPMENT & SUPPLIES-(CONTINUED)
Daisytek International Corp.(a) 95,000 $ 3,621,875
- --------------------------------------------------------------
Danka Business Systems PLC-ADR
(United Kingdom) 30,000 1,110,000
- --------------------------------------------------------------
U.S. Office Products Co.(a) 70,000 2,187,500
- --------------------------------------------------------------
Wallace Computer Services, Inc. 9,400 361,313
- --------------------------------------------------------------
7,464,988
- --------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-9.53%
Atwood Oceanics, Inc.(a) 65,000 7,198,750
- --------------------------------------------------------------
Baker Hughes, Inc. 80,000 3,675,000
- --------------------------------------------------------------
BJ Services Co.(a) 20,000 1,695,000
- --------------------------------------------------------------
Cal Dive International, Inc.(a) 121,000 3,781,250
- --------------------------------------------------------------
Camco International, Inc. 8,000 578,000
- --------------------------------------------------------------
Computalog Ltd.(a) (Canada) 25,000 514,062
- --------------------------------------------------------------
Cooper Cameron Corp.(a) 21,000 1,517,250
- --------------------------------------------------------------
Diamond Offshore Drilling, Inc. 40,000 2,490,000
- --------------------------------------------------------------
Dril-Quip, Inc.(a) 8,900 319,288
- --------------------------------------------------------------
ENSCO International, Inc. 105,000 4,416,562
- --------------------------------------------------------------
EVI, Inc.(a) 89,802 5,764,165
- --------------------------------------------------------------
Falcon Drilling Company, Inc.(a) 56,000 2,037,000
- --------------------------------------------------------------
Fred. Olsen Energy A.S.A.(a)
(Norway) 47,100 1,188,064
- --------------------------------------------------------------
Grey Wolf, Inc.(a) 110,000 907,500
- --------------------------------------------------------------
Gulfmark Offshore Inc.(a) 67,000 2,437,125
- --------------------------------------------------------------
Hanover Compressor Co.(a) 70,000 1,513,750
- --------------------------------------------------------------
Hvide Marine, Inc.-Class A(a) 205,000 6,765,000
- --------------------------------------------------------------
Input/Output, Inc.(a) 30,000 804,375
- --------------------------------------------------------------
National-Oilwell, Inc.(a) 43,000 3,292,188
- --------------------------------------------------------------
Noble Drilling Corp.(a) 105,000 3,734,063
- --------------------------------------------------------------
Oceaneering International, Inc.(a) 30,000 744,375
- --------------------------------------------------------------
Offshore Logistics, Inc.(a) 25,000 525,000
- --------------------------------------------------------------
Parker Drilling Co.(a) 80,000 1,185,000
- --------------------------------------------------------------
Petroleum Geo-Services ASA-ADR(a)
(Netherlands) 18,300 1,267,275
- --------------------------------------------------------------
Precision Drilling Corp.(a) (Canada) 20,000 615,000
- --------------------------------------------------------------
Pride International, Inc.(a) 90,000 2,970,000
- --------------------------------------------------------------
Reading & Bates Corp.(a) 50,000 2,118,750
- --------------------------------------------------------------
Rowan Companies, Inc.(a) 15,000 583,125
- --------------------------------------------------------------
Santa Fe International Corp. 15,200 747,650
- --------------------------------------------------------------
SEACOR Holdings Inc.(a) 12,000 781,500
- --------------------------------------------------------------
Smith International, Inc.(a) 20,000 1,525,000
- --------------------------------------------------------------
Tidewater, Inc. 6,000 394,125
- --------------------------------------------------------------
Transocean Offshore Inc. 30,000 1,620,000
- --------------------------------------------------------------
Trico Marine Services, Inc.(a) 130,000 4,777,500
- --------------------------------------------------------------
Tuboscope Vetco International
Corp.(a) 130,000 4,127,500
- --------------------------------------------------------------
UNIFAB International, Inc.(a) 67,200 2,150,400
- --------------------------------------------------------------
Veritas DGC, Inc.(a) 19,000 777,813
- --------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED)
Weatherford Enterra, Inc.(a) 60,000 $ 3,063,750
- --------------------------------------------------------------
84,602,155
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-2.71%
Anadarko Petroleum Corp. 4,000 293,000
- --------------------------------------------------------------
Apache Corp. 5,000 210,000
- --------------------------------------------------------------
Benton Oil & Gas Co.(a) 185,000 3,723,125
- --------------------------------------------------------------
Cabot Oil & Gas Corp.-Class A 70,000 1,680,000
- --------------------------------------------------------------
Cross Timbers Oil Co. 35,000 934,062
- --------------------------------------------------------------
Devon Energy Corp. 5,000 223,750
- --------------------------------------------------------------
Eagle Geophysical, Inc.(a) 100,000 1,750,000
- --------------------------------------------------------------
Houston Exploration Co. (The)(a) 80,000 1,940,000
- --------------------------------------------------------------
Louis Dreyfus Natural Gas Corp.(a) 15,000 331,875
- --------------------------------------------------------------
Newfield Exploration Co.(a) 5,000 135,625
- --------------------------------------------------------------
Noble Affiliates, Inc. 20,000 821,250
- --------------------------------------------------------------
Nuevo Energy Co.(a) 40,000 1,657,500
- --------------------------------------------------------------
Ocean Energy, Inc.(a) 25,000 1,543,750
- --------------------------------------------------------------
Petsec Energy Ltd.-ADR(a)
(Australia) 15,000 337,500
- --------------------------------------------------------------
Pogo Producing Co. 25,000 904,687
- --------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 40,400 527,725
- --------------------------------------------------------------
Stolt Comex Seaway, S.A.(a)
(United Kingdom) 95,000 5,700,000
- --------------------------------------------------------------
Titan Exploration, Inc.(a) 80,000 1,010,000
- --------------------------------------------------------------
United Meridian Corp.(a) 10,000 339,375
- --------------------------------------------------------------
24,063,224
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-0.28%
Gulf Indonesia Resources Ltd.(a)
(Indonesia) 60,000 1,260,000
- --------------------------------------------------------------
Rutherford-Moran Oil Corp.(a) 50,000 1,225,000
- --------------------------------------------------------------
2,485,000
- --------------------------------------------------------------
PERSONAL CARE-0.78%
Estee Lauder Companies-Class A 14,500 644,344
- --------------------------------------------------------------
French Fragrances, Inc.(a) 27,900 298,181
- --------------------------------------------------------------
Perrigo Co.(a) 72,600 1,116,225
- --------------------------------------------------------------
Rexall Sundown, Inc.(a) 70,000 1,531,250
- --------------------------------------------------------------
Twinlab Corp.(a) 175,000 3,325,000
- --------------------------------------------------------------
6,915,000
- --------------------------------------------------------------
PUBLISHING-0.30%
CMP Media Inc.-Class A(a) 75,000 1,387,500
- --------------------------------------------------------------
Petersen Companies, Inc.
(The)-Class A(a) 65,000 1,283,750
- --------------------------------------------------------------
2,671,250
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-0.54%
CCA Prison Realty Trust 50,000 1,725,000
- --------------------------------------------------------------
Equity Office Properties Trust 23,000 702,937
- --------------------------------------------------------------
Great Lakes REIT, Inc. 50,000 937,500
- --------------------------------------------------------------
Kilroy Realty Corp. 40,000 1,060,000
- --------------------------------------------------------------
</TABLE>
FS-32
<PAGE> 126
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST-(CONTINUED)
SL Green Realty Corp.(a) 15,200 $ 380,950
- --------------------------------------------------------------
4,806,387
- --------------------------------------------------------------
RESTAURANTS-0.97%
Apple South, Inc. 30,000 558,750
- --------------------------------------------------------------
Brinker International, Inc.(a) 50,000 700,000
- --------------------------------------------------------------
Cracker Barrel Old Country Store,
Inc. 8,000 236,000
- --------------------------------------------------------------
Landry's Seafood Restaurants, Inc.(a) 20,000 560,000
- --------------------------------------------------------------
Logan's Roadhouse, Inc.(a) 40,000 715,000
- --------------------------------------------------------------
NPC International Inc.(a) 25,000 353,125
- --------------------------------------------------------------
Outback Steakhouse, Inc.(a) 10,000 270,625
- --------------------------------------------------------------
Ryan's Family Steak Houses, Inc.(a) 40,000 345,000
- --------------------------------------------------------------
Showbiz Pizza Time, Inc.(a) 85,000 1,806,250
- --------------------------------------------------------------
Starbucks Corp.(a) 45,000 1,485,000
- --------------------------------------------------------------
Wendy's International, Inc. 75,000 1,575,000
- --------------------------------------------------------------
8,604,750
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.11%
Eagle Hardware & Garden, Inc.(a) 60,000 1,020,000
- --------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.37%
CompUSA, Inc.(a) 33,000 1,080,750
- --------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 30,300 903,317
- --------------------------------------------------------------
Tech Data Corp.(a) 30,000 1,335,000
- --------------------------------------------------------------
3,319,067
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.28%
Neiman Marcus Group, Inc. (The)(a) 40,000 1,327,500
- --------------------------------------------------------------
Nordstrom, Inc. 15,000 918,750
- --------------------------------------------------------------
Proffitt's, Inc.(a) 8,400 240,975
- --------------------------------------------------------------
2,487,225
- --------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.16%
Dollar Tree Stores, Inc.(a) 19,500 789,750
- --------------------------------------------------------------
Family Dollar Stores, Inc. 172,500 4,053,750
- --------------------------------------------------------------
Fred's, Inc. 50,000 1,112,500
- --------------------------------------------------------------
Mac Frugals Bargains Close-Outs,
Inc.(a) 60,000 2,040,000
- --------------------------------------------------------------
Men's Wearhouse, Inc.(a) 60,000 2,325,000
- --------------------------------------------------------------
10,321,000
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.15%
Rite Aid Corp. 22,000 1,306,250
- --------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.31%
Dominick's Supermarkets, Inc.(a) 50,000 1,825,000
- --------------------------------------------------------------
Whole Foods Market, Inc.(a) 80,000 3,140,000
- --------------------------------------------------------------
Wild Oats Markets Inc.(a) 190,000 6,697,500
- --------------------------------------------------------------
11,662,500
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.04%
Costco Companies, Inc.(a) 10,000 385,000
- --------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.07%
Damark International, Inc.-Class A(a) 50,000 $ 581,250
- --------------------------------------------------------------
RETAIL (SPECIALTY)-6.44%
Bed, Bath & Beyond Inc.(a) 35,000 1,111,250
- --------------------------------------------------------------
Borders Group, Inc.(a) 2,400 62,250
- --------------------------------------------------------------
Brookstone, Inc.(a) 35,000 423,281
- --------------------------------------------------------------
Casey's General Stores, Inc. 50,000 1,206,250
- --------------------------------------------------------------
Coldwater Creek Inc.(a) 75,000 2,175,000
- --------------------------------------------------------------
Cole National Corp.-Class A(a) 50,000 2,118,750
- --------------------------------------------------------------
Corporate Express, Inc.(a) 105,000 1,542,188
- --------------------------------------------------------------
Cross-Continent Auto Retailers,
Inc.(a) 50,000 493,750
- --------------------------------------------------------------
Diedrich Coffee, Inc.(a) 75,000 215,625
- --------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 100,000 1,687,500
- --------------------------------------------------------------
Friedman's, Inc.-Class A(a) 35,000 623,438
- --------------------------------------------------------------
Garden Ridge Corp.(a) 50,000 668,750
- --------------------------------------------------------------
General Nutrition Companies,
Inc.(a) 155,000 4,882,500
- --------------------------------------------------------------
Genesco Inc.(a) 50,000 634,375
- --------------------------------------------------------------
Gymboree Corp.(a) 20,000 485,000
- --------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 40,000 1,110,000
- --------------------------------------------------------------
Hot Topic, Inc.(a) 90,000 1,518,750
- --------------------------------------------------------------
Just for Feet, Inc.(a) 235,000 3,480,938
- --------------------------------------------------------------
Linens 'N Things, Inc.(a) 145,000 5,210,938
- --------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 100,000 1,737,500
- --------------------------------------------------------------
OfficeMax, Inc.(a) 40,000 535,000
- --------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 80,000 2,015,000
- --------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 22,000 676,500
- --------------------------------------------------------------
PETsMART, Inc.(a) 425,000 3,240,625
- --------------------------------------------------------------
Pier 1 Imports, Inc. 105,000 1,916,250
- --------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 140,000 3,640,000
- --------------------------------------------------------------
RDO Equipment Co.-Class A(a) 50,000 1,084,375
- --------------------------------------------------------------
Sports Authority, Inc. (The)(a) 150,000 2,840,625
- --------------------------------------------------------------
Staples, Inc.(a) 10,000 262,500
- --------------------------------------------------------------
Sunglass Hut International,
Inc.(a) 150,000 1,200,000
- --------------------------------------------------------------
Tiffany & Co. 30,000 1,185,000
- --------------------------------------------------------------
U.S.A. Floral Products, Inc.(a) 80,000 1,400,000
- --------------------------------------------------------------
United Auto Group, Inc.(a) 50,000 1,018,750
- --------------------------------------------------------------
Viking Office Products, Inc.(a) 80,000 1,915,000
- --------------------------------------------------------------
West Marine, Inc.(a) 35,000 735,000
- --------------------------------------------------------------
Williams-Sonoma, Inc.(a) 25,000 1,003,125
- --------------------------------------------------------------
Zale Corp.(a) 45,000 1,136,250
- --------------------------------------------------------------
57,192,033
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.51%
Abercrombie & Fitch Co.-Class A(a) 115,000 2,990,000
- --------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 10,000 290,000
- --------------------------------------------------------------
dELiA*s Inc.(a) 60,000 1,245,000
- --------------------------------------------------------------
Gadzooks, Inc.(a) 60,000 1,492,500
- --------------------------------------------------------------
</TABLE>
FS-33
<PAGE> 127
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL)-(CONTINUED)
Stage Stores, Inc.(a) 185,000 $ 6,752,500
- --------------------------------------------------------------
Talbots, Inc. 25,000 600,000
- --------------------------------------------------------------
13,370,000
- --------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-2.01%
Abacus Direct Corp.(a) 70,000 2,572,500
- --------------------------------------------------------------
Castle Dental Centers, Inc.(a) 50,000 543,750
- --------------------------------------------------------------
Cognizant Corp. 13,000 509,437
- --------------------------------------------------------------
Eagle River Interactive, Inc.(a) 50,000 459,375
- --------------------------------------------------------------
Forrester Research, Inc.(a) 11,800 304,588
- --------------------------------------------------------------
Getty Communications PLC-ADR(a)
(United Kingdom) 30,000 442,500
- --------------------------------------------------------------
Hagler Bailly, Inc.(a) 35,000 708,750
- --------------------------------------------------------------
Information Resources, Inc.(a) 10,400 171,600
- --------------------------------------------------------------
JLK Direct Distribution Inc.-Class
A(a) 15,700 469,038
- --------------------------------------------------------------
Lamar Advertising Co.(a) 160,000 5,420,000
- --------------------------------------------------------------
Metromail Corp.(a) 70,000 1,386,875
- --------------------------------------------------------------
Snyder Communications, Inc.(a) 65,000 1,917,500
- --------------------------------------------------------------
Universal Outdoor Holdings,
Inc.(a) 70,000 2,957,500
- --------------------------------------------------------------
17,863,413
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-4.60%
Advantage Learning Systems,
Inc.(a) 32,500 820,625
- --------------------------------------------------------------
American Residential Services,
Inc.(a) 80,800 1,181,700
- --------------------------------------------------------------
Avis Rent A Car, Inc.(a) 90,400 2,480,350
- --------------------------------------------------------------
BA Merchant Services, Inc.-Class
A(a) 205,000 3,062,188
- --------------------------------------------------------------
C.H. Robinson Worldwide, Inc.(a) 100,000 2,200,000
- --------------------------------------------------------------
Cerner Corp.(a) 150,000 3,637,500
- --------------------------------------------------------------
Children's Comprehensive Services,
Inc.(a) 22,500 406,055
- --------------------------------------------------------------
CorporateFamily Solutions, Inc.(a) 50,000 743,750
- --------------------------------------------------------------
Equity Corp. International(a) 85,000 1,731,875
- --------------------------------------------------------------
First Aviation Services, Inc.(a) 60,000 465,000
- --------------------------------------------------------------
G & K Services, Inc.-Class A 28,500 1,026,000
- --------------------------------------------------------------
Galileo International, Inc. 51,200 1,286,400
- --------------------------------------------------------------
Hertz Corp.-Class A 41,100 1,420,519
- --------------------------------------------------------------
INSpire Insurance Solutions,
Inc.(a) 75,000 1,387,500
- --------------------------------------------------------------
MemberWorks, Inc.(a) 40,000 700,000
- --------------------------------------------------------------
Metzler Group, Inc.(a) 80,000 3,090,000
- --------------------------------------------------------------
National Research Corp.(a) 18,200 368,550
- --------------------------------------------------------------
PalEx, Inc.(a) 25,000 331,250
- --------------------------------------------------------------
Pegasus Systems, Inc.(a) 50,000 775,000
- --------------------------------------------------------------
Pierce Leahy Corp.(a) 40,000 1,120,000
- --------------------------------------------------------------
Pittston Brink's Group 35,000 1,264,375
- --------------------------------------------------------------
Protection One, Inc.(a) 225,000 4,050,000
- --------------------------------------------------------------
Rental Service Corp.(a) 49,000 1,310,750
- --------------------------------------------------------------
Sotheby's Holdings, Inc.-Class A 55,000 1,031,250
- --------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 5,000 210,625
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-(CONTINUED)
Travel Services International, Inc.(a) 51,000 $ 1,141,125
- --------------------------------------------------------------
U.S. Rentals, Inc.(a) 110,000 2,681,250
- --------------------------------------------------------------
Vivid Technologies, Inc.(a) 60,000 817,500
- --------------------------------------------------------------
Warrantech Corp.(a) 10,000 120,000
- --------------------------------------------------------------
40,861,137
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.86%
Shared Medical Systems Corp. 8,000 438,000
- --------------------------------------------------------------
SunGard Data Systems Inc.(a) 305,000 7,205,625
- --------------------------------------------------------------
7,643,625
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-2.36%
BDM International Inc.(a) 45,000 995,625
- --------------------------------------------------------------
BISYS Group, Inc.(a) 90,000 2,801,250
- --------------------------------------------------------------
CCC Information Services Group(a) 215,000 4,004,375
- --------------------------------------------------------------
DST Systems, Inc.(a) 34,000 1,200,625
- --------------------------------------------------------------
Hyperion Software Corp.(a) 96,500 3,679,062
- --------------------------------------------------------------
Lason Holdings, Inc.(a) 66,400 1,713,950
- --------------------------------------------------------------
Learning Tree International, Inc.(a) 100,000 3,475,000
- --------------------------------------------------------------
May & Speh, Inc.(a) 25,000 315,625
- --------------------------------------------------------------
Medaphis Corp.(a) 50,000 303,125
- --------------------------------------------------------------
MedQuist, Inc.(a) 30,000 731,250
- --------------------------------------------------------------
Saville Systems Ireland PLC-ADR(a)
(Ireland) 20,000 1,195,000
- --------------------------------------------------------------
Transaction Network Services,
Inc.(a) 30,000 498,750
- --------------------------------------------------------------
20,913,637
- --------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.56%
Administaff, Inc.(a) 40,000 865,000
- --------------------------------------------------------------
COREStaff, Inc.(a) 35,000 866,250
- --------------------------------------------------------------
Hall, Kinion & Associates, Inc.(a) 19,800 309,375
- --------------------------------------------------------------
Norrell Corp. 53,900 1,569,836
- --------------------------------------------------------------
Syntel, Inc.(a) 95,000 1,330,000
- --------------------------------------------------------------
4,940,461
- --------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.23%
Corrections Corp. of America(a) 30,000 915,000
- --------------------------------------------------------------
MAXIMUS, Inc.(a) 39,000 1,092,000
- --------------------------------------------------------------
2,007,000
- --------------------------------------------------------------
SPECIALTY PRINTING-0.21%
Deluxe Corp. 40,000 1,310,000
- --------------------------------------------------------------
Gartner Group, Inc.(a) 20,000 565,000
- --------------------------------------------------------------
1,875,000
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.59%
Aerial Communications Inc.(a) 125,000 1,062,500
- --------------------------------------------------------------
International Telecommunication
Data Systems, Inc.(a) 30,000 795,000
- --------------------------------------------------------------
LCC International, Inc.-Class A(a) 170,000 3,187,500
- --------------------------------------------------------------
</TABLE>
FS-34
<PAGE> 128
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-(CONTINUED)
Powerwave Technologies, Inc.(a) 5,000 $ 154,375
- --------------------------------------------------------------
5,199,375
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.40%
ACC Corp.(a) 40,000 1,585,000
- --------------------------------------------------------------
Billing Information Concepts(a) 15,000 588,750
- --------------------------------------------------------------
CIENA Corp.(a) 10,000 550,000
- --------------------------------------------------------------
TresCom International, Inc.(a) 50,000 500,000
- --------------------------------------------------------------
USLD Communications Corp.(a) 15,000 297,188
- --------------------------------------------------------------
3,520,938
- --------------------------------------------------------------
TELEPHONE-0.21%
GeoTel Communications Corp.(a) 14,700 251,738
- --------------------------------------------------------------
McLeod, Inc.-Class A(a) 6,500 241,313
- --------------------------------------------------------------
SmarTalk Teleservices Inc.(a) 65,000 1,401,562
- --------------------------------------------------------------
1,894,613
- --------------------------------------------------------------
TEXTILES (APPAREL)-0.35%
Ashworth, Inc.(a) 45,000 447,187
- --------------------------------------------------------------
Nautica Enterprises, Inc.(a) 50,000 1,331,250
- --------------------------------------------------------------
Tommy Hilfiger Corp.(a) 32,500 1,285,781
- --------------------------------------------------------------
3,064,218
- --------------------------------------------------------------
TOBACCO-0.41%
800-JR CIGAR, Inc.(a) 45,000 1,406,250
- --------------------------------------------------------------
Consolidated Cigar Holdings, Inc.(a) 20,000 785,000
- --------------------------------------------------------------
General Cigar Holdings, Inc.(a) 50,000 1,446,875
- --------------------------------------------------------------
3,638,125
- --------------------------------------------------------------
TRUCKING-0.09%
Jevic Transportation, Inc.(a) 45,000 $ 798,750
- --------------------------------------------------------------
WASTE MANAGEMENT-1.05%
Casella Waste Systems, Inc.(a) 136,000 3,009,000
- --------------------------------------------------------------
ITEQ, Inc.(a) 93,000 1,162,500
- --------------------------------------------------------------
Philip Services Corp.(a) (Canada) 45,000 787,500
- --------------------------------------------------------------
Tetra Technologies, Inc.(a) 30,000 691,875
- --------------------------------------------------------------
USA Waste Services, Inc.(a) 40,000 1,480,000
- --------------------------------------------------------------
Waste Industries, Inc.(a) 42,500 897,812
- --------------------------------------------------------------
Waterlink, Inc.(a) 76,000 1,296,750
- --------------------------------------------------------------
9,325,437
- --------------------------------------------------------------
Total Common Stocks 799,208,016
- --------------------------------------------------------------
U.S. TREASURY BILLS-3.89%
U.S. Treasury Bills, 5.093%,
01/02/1998(b)(c) $34,805,000 $ 34,527,256
- --------------------------------------------------------------
REPURCHASE AGREEMENT-5.72%(d)
SBC Warburg Inc., 5.65%,
11/03/1997(e) 50,776,404 50,776,404
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.66% 884,511,676
- --------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.34% 2,992,143
- --------------------------------------------------------------
NET ASSETS-100.00% $887,503,819
==============================================================
</TABLE>
Abbreviations:
ADR-American Depository Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sale price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 10/31/97 with a maturing value of
$350,164,792. Collateralized by $355,329,000 U.S. Government obligations,
7.00% to 9.8755% due 11/15/15 to 10/01/27 with an aggregate market value at
10/31/97 of $359,463,470.
See Notes to Financial Statements.
FS-35
<PAGE> 129
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$692,268,731) $884,511,676
- -----------------------------------------------------------
Receivables for:
Capital stock sold 22,983,394
- -----------------------------------------------------------
Dividends and interest 36,451
- -----------------------------------------------------------
Variation margin 744,625
- -----------------------------------------------------------
Investment for deferred compensation plan 6,353
- -----------------------------------------------------------
Other assets 46,684
- -----------------------------------------------------------
Total assets 908,329,183
- -----------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 18,162,308
- -----------------------------------------------------------
Capital stock reacquired 1,449,994
- -----------------------------------------------------------
Deferred compensation 6,353
- -----------------------------------------------------------
Accrued advisory fees 498,908
- -----------------------------------------------------------
Accrued administrative service fees 5,565
- -----------------------------------------------------------
Accrued directors' fees 4,066
- -----------------------------------------------------------
Accrued distribution fees 422,317
- -----------------------------------------------------------
Accrued transfer agent fees 174,020
- -----------------------------------------------------------
Accrued operating expenses 101,833
- -----------------------------------------------------------
Total liabilities 20,825,364
- -----------------------------------------------------------
Net assets applicable to shares outstanding $887,503,819
===========================================================
NET ASSETS:
Class A $577,685,308
===========================================================
Class B $297,623,358
===========================================================
Class C $ 12,195,153
===========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- -----------------------------------------------------------
Outstanding 39,659,317
===========================================================
Class B:
Authorized 750,000,000
- -----------------------------------------------------------
Outstanding 20,589,603
===========================================================
Class C:
Authorized 750,000,000
- -----------------------------------------------------------
Outstanding 843,780
===========================================================
CLASS A:
Net asset value and redemption price per
share $ 14.57
===========================================================
Offering price per share:
(Net assets value of $14.57
divided by 94.50%) $ 15.42
===========================================================
CLASS B:
Net asset value and offering price per
share $ 14.46
===========================================================
CLASS C:
Net asset value and offering price per
share $ 14.45
===========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $6,162 foreign withholding
tax) $ 980,386
- -----------------------------------------------------------
Interest 1,528,919
- -----------------------------------------------------------
Total investment income 2,509,305
- -----------------------------------------------------------
EXPENSES:
Advisory fees 3,633,989
- -----------------------------------------------------------
Administrative service fees 74,810
- -----------------------------------------------------------
Custodian fees 88,465
- -----------------------------------------------------------
Directors' fees 10,902
- -----------------------------------------------------------
Distribution fees-Class A 1,321,521
- -----------------------------------------------------------
Distribution fees-Class B 1,325,888
- -----------------------------------------------------------
Distribution fees-Class C 12,721
- -----------------------------------------------------------
Transfer agent fees-Class A 820,991
- -----------------------------------------------------------
Transfer agent fees-Class B 403,404
- -----------------------------------------------------------
Transfer agent fees-Class C 2,741
- -----------------------------------------------------------
Other 378,182
- -----------------------------------------------------------
Total expenses 8,073,614
- -----------------------------------------------------------
Less: Fees waived by advisor (262,189)
- -----------------------------------------------------------
Expenses paid indirectly (45,969)
- -----------------------------------------------------------
Net expenses 7,765,456
- -----------------------------------------------------------
Net investment income (loss) (5,256,151)
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS, AND SECURITIES SOLD
SHORT:
Net realized gain (loss) on sales of:
Investment securities (6,200,075)
- -----------------------------------------------------------
Foreign currencies (2,308)
- -----------------------------------------------------------
Securities sold short (3,470)
- -----------------------------------------------------------
(6,205,853)
- -----------------------------------------------------------
Net unrealized appreciation of:
Investment securities 158,822,640
- -----------------------------------------------------------
Futures contracts 315,275
- -----------------------------------------------------------
159,137,915
- -----------------------------------------------------------
Net gain on investment securities,
foreign currencies, futures contracts
and securities sold short 152,932,062
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $147,675,911
===========================================================
</TABLE>
See Notes to Financial Statements.
FS-36
<PAGE> 130
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 1997 AND THE PERIOD JUNE 17, 1996 (DATE
OPERATIONS COMMENCED) THROUGH OCTOBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (5,256,151) $ (167,630)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities, foreign currencies, futures contracts and
securities sold short (6,205,853) (5,381,138)
- ------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
futures contracts 159,137,915 33,420,305
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 147,675,911 27,871,537
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 218,214,845 222,946,738
- ------------------------------------------------------------------------------------------
Class B 235,598,112 22,869,334
- ------------------------------------------------------------------------------------------
Class C 12,327,342 --
- ------------------------------------------------------------------------------------------
Net increase in net assets 613,816,210 273,687,609
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 273,687,609 --
- ------------------------------------------------------------------------------------------
End of period $887,503,819 $273,687,609
==========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $706,543,586 $245,649,966
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (10,996) (1,524)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities, foreign currencies, futures
contracts and securities sold short (11,586,991) (5,381,138)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 192,558,220 33,420,305
- ------------------------------------------------------------------------------------------
$887,503,819 $273,687,609
==========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six diversified
portfolios: AIM Capital Development Fund, AIM Aggressive Growth Fund, AIM Blue
Chip Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. The
Fund currently offers three different classes of shares: the Class A shares, the
Class B shares, and the Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a contingent
deferred sales charge. Class C shares commenced sales 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 long-term capital appreciation.
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors such as yield, type of issue,
coupon rate and maturity date. Securities for which market quotations are not
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a
FS-37
<PAGE> 131
trade date basis. Realized gains or losses on sales are computed on the basis
specific identification of the securities sold. Interest income is recorded as
earned from settlement date and is recorded on the accrual basis. Dividend
income, dividend expense on short sales and distributions to shareholders are
recorded on the ex-dividend date. On October 31, 1997, 5,246,679 was
reclassified from undistributed net investment income (loss) to paid in
capital as a result of net operation tax loss. Net assets were unaffected by
the reclassification discussed above.
C. 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 value of the contracts may not correlate with changes in
the value of the securities being hedged.
D. Accounting for Securities Sold Short--When the Fund sells common stock short,
an amount equal to the proceeds of the sales is recorded as an asset. This
asset is offset by a liability (representing the borrowed security) recorded
on the books of the Fund at the market value of the common stock determined
each day in accordance with the procedures for security valuations discussed
in "A" above. The Fund's risk is that the value of the security will increase
rather than decline and thus an unrealized loss will be recorded. When the
Fund closes out a short position by delivering the stock sold short, the Fund
will realize a gain or loss and the liability related to such short position
will be eliminated. The Fund will attempt to hedge against market risk by
entering into short sales of securities that it currently owns or has the
right to acquire through the conversion or exchange of other securities that
it owns. Such short sales may protect the Fund against the risk of losses in
the value of its portfolio securities because any unrealized losses with
respect to such securities may be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in
such portfolio may be wholly or partially offset by a corresponding loss in
the short position.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of
$9,504,404 (which may be carried forward to offset future taxable gains, if
any) which expires, if not previously utilized, in the year 2005.
F. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. AIM has agreed to
waive advisory fees paid by the Fund to AIM to the extent necessary to keep the
annual expense ratio for Class A shares at 1.34% for two years commencing August
12, 1996. During the year ended October 31, 1997, AIM waived fees of $262,189.
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 $74,810 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the year ended October 31, 1997, AFS was paid
$676,298 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor 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 0.35% 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 of the Class B shares. Of this amount, the Fund pays a service
fee of 0.25% of the average daily net assets of the Class B shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own Class B shares of the Fund. Any
amounts not paid as a service fee under such Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. AIM Distributors may, from time to time, assign, transfer or pledge to
one or more assignees, its rights to all or a portion of (a) compensation
received by AIM Distributors from the Fund
FS-38
<PAGE> 132
pursuant to the Class B Plan (but not AIM Distributors' duties and obligations
pursuant to the Class B Plan) and (b) any contingent deferred sales charges
payable to AIM Distributors related to the Class B shares. During the year ended
October 31, 1997, the Class A shares and Class B shares, and the period August
4, 1997 through October 31, 1997 the Class C shares paid AIM Distributors
$1,321,521, $1,325,888 and $12,721, respectively, as compensation pursuant to
the Plans.
AIM Distributors received commissions of $1,212,125 from Class A capital stock
transactions 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 capital stock. During the year ended October 31,
1997, AIM Distributors received $14,049 in contingent deferred sales charges
imposed on redemptions of capital stock. Certain officers and directors of the
Company are officers and directors of AIM, AIM Distributors and AFS.
During the year ended October 31, 1997 the Fund paid legal fees of $4,956 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 $3,096. The Fund also
received reductions in transfer agency fees from AFS (an affiliate of AIM) and
reductions in custodian fees of $6,455 and $36,418, respectively, under expense
offset arrangements. The effect of the above arrangements resulted in reductions
of the Fund's total expenses of $45,969 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 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
$606,671,871 and $199,600,375, 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 $210,972,026
- ------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (20,432,991)
- ------------------------------------------------------
Net unrealized appreciation of
investment securities $190,539,035
======================================================
</TABLE>
Cost of investments for tax purposes is $693,972,641.
NOTE 7-FUTURES CONTRACTS
On October 31, 1997, $356,000 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>
NO. OF MONTH/ UNREALIZED
CONTRACT CONTRACTS COMMITMENT APPRECIATION
-------- --------- ---------- ------------
<S> <C> <C> <C>
Russell 2000 Index 161 Dec. 97 $315,275
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in the capital stock outstanding during the year ended October 31, 1997
and the period June 17, 1996 (date operations commenced) through October 31,
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 33,846,855 $430,979,375 24,923,432 $246,810,746
- -----------------------------------------------------------------------------
Class B* 20,627,807 261,084,351 2,026,599 22,898,153
- -----------------------------------------------------------------------------
Class C** 850,531 12,426,338 -- --
- -----------------------------------------------------------------------------
Reacquired:
Class A (16,847,317) (212,764,530) (2,263,653) (23,864,008)
- -----------------------------------------------------------------------------
Class B* (2,062,227) (25,486,239) (2,576) (28,819)
- -----------------------------------------------------------------------------
Class C** (6,751) (98,996) -- --
- -----------------------------------------------------------------------------
36,408,898 $466,140,299 24,683,802 $245,816,072
=============================================================================
</TABLE>
* Class B shares commenced sales on October 1, 1996.
** Class C shares commenced sales on August 4, 1997.
FS-39
<PAGE> 133
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended October 31, 1997 and the period June 17, 1996
(date operations commenced) through October 31, 1996, for a share of Class B
capital stock outstanding during the year ended October 31, 1997 and the period
October 1, 1996 (date sales commenced) through October 31, 1996, and for a share
of Class C capital stock outstanding during the period August 4, 1997 (date
sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------- --------------------- --------
1997 1996 1997 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.09 $ 10.00 $ 11.08 $ 11.26 $ 13.48
- ---------------------------------------------------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss) (0.10) (0.01)(a) (0.20) (0.01)(a) (0.06)
- ---------------------------------------------------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized
and unrealized) 3.58 1.10 3.58 (0.17) 1.03
- ---------------------------------------------------- -------- -------- -------- -------- --------
Total from investment operations 3.48 1.09 3.38 (0.18) 0.97
- ---------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $ 14.57 $ 11.09 $ 14.46 $ 11.08 $ 14.45
==================================================== ======== ======== ======== ======== ========
Total return(b) 31.38% 10.90% 30.51% (1.60)% 7.20%
==================================================== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $577,685 $251,253 $297,623 $ 22,435 $ 12,195
==================================================== ======== ======== ======== ======== ========
Ratio of expenses to average net assets(c) 1.32%(d)(e) 1.35%(f) 2.08%(d)(e) 1.89%(f) 2.14%(d)(e)(f)
==================================================== ======== ======== ======== ======== ========
Ratio of net investment income (loss) to average net
assets(g) (0.83)%(d) (0.29)%(f) (1.59)%(d) (0.83)%(f) (1.64)%(d)(f)(g)
==================================================== ======== ======== ======== ======== ========
Portfolio turnover rate 41% 13% 41% 13% 41%
==================================================== ======== ======== ======== ======== ========
Average brokerage commission rate(h) $ 0.0534 $ 0.0550 $ 0.0534 $ 0.0550 $ 0.0534
==================================================== ======== ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and for periods less than one
year, total returns are not annualized.
(c) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements for the periods 1997 and 1996 are
1.61% and 1.60% (annualized) for Class A shares, 2.37% and
2.28% (annualized) for Class B shares and 2.42% (annualized)
for Class C shares (for 1997 only).
(d) Ratios are based on average net assets of $377,577,393 for
Class A shares, $132,588,760 for Class B shares, and
$5,217,273 for Class C shares.
(e) Excluding indirectly paid expenses, the ratios of expenses
to average net assets would have been 1.33% for Class A,
2.09% for Class B shares and 2.17% for Class C shares.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratios of
net investment income (loss) prior to fee waivers and/or
expense reimbursements for the periods 1997 and 1996 are
(1.12)% and (0.54)% (annualized) for Class A shares, (1.88)%
and (1.22)% (annualized) for Class B shares and (1.93%)
(annualized) for Class C shares (for 1997 only).
(h) 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.
FS-40
<PAGE> 134
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-41
<PAGE> 135
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
- ---------------------------------------------------------------
Bay Networks, Inc.(a)(b) 1,200,000 37,950,000
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-(CONTINUED)
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
- ---------------------------------------------------------------
Federal National Mortgage
Association 1,000,000 48,437,500
- ---------------------------------------------------------------
MBIA, Inc. 400,000 23,900,000
</TABLE>
FS-42
<PAGE> 136
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
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
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-(CONTINUED)
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-43
<PAGE> 137
<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-44
<PAGE> 138
<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-45
<PAGE> 139
<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
- ---------------------------------------------------------------
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-46
<PAGE> 140
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-47
<PAGE> 141
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-48
<PAGE> 142
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.
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
FS-49
<PAGE> 143
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.
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
FS-50
<PAGE> 144
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.
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>
FS-51
<PAGE> 145
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>
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.
FS-52
<PAGE> 146
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the five-year period ended October 31, 1997, for a Class B
share outstanding during each of the years in the two-year period ended October
31, 1997 and the period June 26, 1995 (date sales commenced) through October 31,
1995, and for a Class C share outstanding during the period August 4, 1997 (date
sales commenced) through October 31, 1997.
CLASS A:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.19 $ 10.63 $ 8.90 $ 9.46 $ 8.36
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.10 0.19 0.15 0.21 0.17
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net gains (losses) on securities (both realized and
unrealized) 2.91 1.43 2.11 (0.45) 1.22
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total from investment operations 3.01 1.62 2.26 (0.24) 1.39
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.12) (0.16) (0.20) (0.16) (0.29)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Distributions from net realized gains (0.67) (0.90) (0.33) (0.16) --
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total distributions (0.79) (1.06) (0.53) (0.32) (0.29)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 13.41 $ 11.19 $ 10.63 $ 8.90 $ 9.46
============================================================ ========== ========== ========== ========== ==========
Total return(a) 28.57% 16.70% 27.03% (2.55)% 16.92%
============================================================ ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,466,912 $2,647,208 $1,974,417 $1,579,074 $1,690,482
============================================================ ========== ========== ========== ========== ==========
Ratio of expenses to average net assets 1.09%(b)(c) 1.12% 1.17% 1.17% 1.17%
============================================================ ========== ========== ========== ========== ==========
Ratio of net investment income to average net assets 0.79%(b) 1.81% 1.55% 2.32% 1.89%
============================================================ ========== ========== ========== ========== ==========
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) Does not deduct sales charges.
(b) Ratios are based on average net assets of $3,153,317,435. After fee waivers.
Prior to fee waivers, the ratios of expenses to average net assets and net
investment income to average net assets are 1.10% and 0.78%, respectively.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratios 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.
CLASS B:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.18 $ 10.62 $ 9.81
- ------------------------------------------------------------ ---------- -------- -------
Income from investment operations:
Net investment income 0.01 0.10 0.03
- ------------------------------------------------------------ ---------- -------- -------
Net gains on securities (both realized and unrealized) 2.89 1.45 0.80
- ------------------------------------------------------------ ---------- -------- -------
Total from investment operations 2.90 1.55 0.83
- ------------------------------------------------------------ ---------- -------- -------
Less distributions:
Dividends from net investment income (0.04) (0.09) (0.02)
- ------------------------------------------------------------ ---------- -------- -------
Distributions from net realized gains (0.67) (0.90) --
- ------------------------------------------------------------ ---------- -------- -------
Total distributions (0.71) (0.99) (0.02)
============================================================ ========== ======== =======
Net asset value, end of period $ 13.37 $ 11.18 $ 10.62
============================================================ ========== ======== =======
Total return(a) 27.54% 15.90% 8.48%
============================================================ ========== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,056,094 $515,672 $67,592
============================================================ ========== ======== =======
Ratio of expenses to average net assets 1.85%(b)(c) 1.94% 1.98%(d)
============================================================ ========== ======== =======
Ratio of net investment income to average net assets 0.03%(b) 0.99% 0.74%(d)
============================================================ ========== ======== =======
Portfolio turnover rate 170% 164% 161%
============================================================ ========== ======== =======
Average brokerage commission rate(e) $ 0.0615 $ 0.0638 N/A
============================================================ ========== ======== =======
</TABLE>
(a) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(b) Ratios are based on average net assets of $804,618,145. After fee waivers.
Prior to fee waivers, the ratios of expenses to average net assets and net
investment income to average net assets are 1.86% and 0.02%, respectively.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratios of expenses to average net assets would have remained the same.
(d) Annualized.
(e) 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-53
<PAGE> 147
NOTE 10-FINANCIAL HIGHLIGHTS-continued
CLASS C:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net asset value, beginning of period $ 13.86
- ------------------------------------------------------------ -------
Income from investment operations:
Net investment income --
- ------------------------------------------------------------ -------
Net gains on securities (both realized and unrealized) (0.45)
- ------------------------------------------------------------ -------
Total from investment operations (0.45)
- ------------------------------------------------------------ -------
Less distributions:
Dividends from net investment income --
- ------------------------------------------------------------ -------
Distributions from net realized gains (0.02)
- ------------------------------------------------------------ -------
Total distributions (0.02)
- ------------------------------------------------------------ -------
Net asset value, end of period $ 13.39
============================================================ =======
Total return(a) (3.24)%
============================================================ =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 5,669
============================================================ =======
Ratio of expenses to average net assets 1.82%(b)(c)
============================================================ =======
Ratio of net investment income to average net assets 0.06%(b)
============================================================ =======
Portfolio turnover rate 170%
============================================================ =======
Average brokerage commission rate(d) $0.0615
============================================================ =======
</TABLE>
(a) Does not deduct sales charge and total returns for periods less than one
year are not annualized.
(b) Ratios are annualized and based on average net assets of $2,493,136. After
fee waivers. Prior to fee waivers, the ratios of expenses to average net
assets and net investment income to average net assets are 1.83% and 0.04%,
respectively.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratios 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-54
<PAGE> 148
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-55
<PAGE> 149
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
- ---------------------------------------------------------------
Parametric Technology Co.(a) 1,600,000 70,600,000
- ---------------------------------------------------------------
</TABLE>
FS-56
<PAGE> 150
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.09%
MGIC Investment Corp. 2,000,000 120,625,000
- ---------------------------------------------------------------
SunAmerica, Inc. 1,050,000 37,734,375
- ---------------------------------------------------------------
158,359,375
- ---------------------------------------------------------------
</TABLE>
FS-57
<PAGE> 151
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
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
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-(CONTINUED)
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
</TABLE>
FS-58
<PAGE> 152
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED)
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
</TABLE>
FS-59
<PAGE> 153
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DEPARTMENT STORES)-(CONTINUED)
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
(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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
</TABLE>
FS-60
<PAGE> 154
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
</TABLE>
FS-61
<PAGE> 155
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
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 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
- ---------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Granada Group PLC (Leisure
Time-Products) 390,000 $ 5,378,530
- ---------------------------------------------------------------
86,778,530
- ---------------------------------------------------------------
Total Foreign Stocks &
Other Equity Interests 735,948,217
- ---------------------------------------------------------------
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-62
<PAGE> 156
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
============================================================
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<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-63
<PAGE> 157
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 pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices, and
FS-64
<PAGE> 158
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 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.
FS-65
<PAGE> 159
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-66
<PAGE> 160
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 Class A capital stock
outstanding during each of the years in the five-year period ended October 31,
1997 and for a share of Class C capital stock outstanding during the period
August 4, 1997 (date sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
CLASS A: ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.48 $ 23.69 $ 18.31 $ 17.04 $ 13.25
- ------------------------------------------------------ ----------- ----------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.11) (0.06) (0.05) (0.02) (0.04)
- ------------------------------------------------------ ----------- ----------- ---------- ---------- ----------
Net gains on securities (both realized
and unrealized) 4.75 2.60 5.95 1.29 3.83
- ------------------------------------------------------ ----------- ----------- ---------- ---------- ----------
Total from investment operations 4.64 2.54 5.90 1.27 3.79
- ------------------------------------------------------ ----------- ----------- ---------- ---------- ----------
Less distributions:
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 $ 29.23 $ 25.48 $ 23.69 $ 18.31 $ 17.04
====================================================== =========== =========== ========== ========== ==========
Total return(a) 18.86% 11.26% 33.43% 7.45% 28.60%
====================================================== =========== =========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $14,319,441 $11,255,506 $7,000,350 $3,726,029 $2,756,497
====================================================== =========== =========== ========== ========== ==========
Ratio of expenses to average net assets(b) 1.11%(c)(d) 1.14% 1.16% 1.20% 1.22%
====================================================== =========== =========== ========== ========== ==========
Ratio of net investment income (loss) to average net
assets(e) (0.40)%(c) (0.27)% (0.32)% (0.15)% (0.31)%
====================================================== =========== =========== ========== ========== ==========
Portfolio turnover rate 67% 58% 45% 79% 70%
====================================================== =========== =========== ========== ========== ==========
Average brokerage commission rate paid(f) $ 0.0576 $ 0.0596 N/A N/A N/A
====================================================== =========== =========== ========== ========== ==========
</TABLE>
(a) Does not deduct sales charges.
(b) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.13%, 1.16%, 1.18% and 1.21%
for the periods 1997-1994, respectively.
(c) Ratios are based on average net assets of $12,953,471,546.
(d) Ratio includes expenses paid indirectly. Excluding expenses
paid indirectly, the ratio of expenses to average net assets
would have remained the same.
(e) After fee waivers and/or expense reimbursements. Ratios of
net investment income (loss) to average net assets prior to
fee waivers and/or expense reimbursement were (0.42)%,
(0.29)%, (0.34)% and (0.16)% for the periods 1997-1994,
respectively.
(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.
FS-67
<PAGE> 161
<TABLE>
<CAPTION>
1997
CLASS C: ----------
<S> <C>
Net asset value, beginning of period $ 30.32
- ------------------------------------------------------------ --------
Income from investment operations:
Net investment income (loss) (0.04)
- ------------------------------------------------------------ --------
Net gains (losses) on securities (both realized and
unrealized) (1.10)
- ------------------------------------------------------------ --------
Total from investment operations (1.14)
============================================================ ========
Net asset value, end of period $ 29.18
============================================================ ========
Total return(a) (3.76)%
============================================================ ========
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 21,508
============================================================ ========
Ratio of expenses to average net assets(b) 1.83%(c)(d)
============================================================ ========
Ratio of net investment income (loss) to average net
assets(e) (1.12)%(c)
============================================================ ========
Portfolio turnover rate 67%
============================================================ ========
Average brokerage commission rate paid(f) $ 0.0576
============================================================ ========
</TABLE>
(a) Does not deduct sales charges and for periods less than one year,
total returns are not annualized.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses
to average net assets prior to fee waivers and/or expense
reimbursements was 1.86% (annualized).
(c) Ratios are annualized and based on average net assets of
$10,863,777.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have
been 1.84% (annualized).
(e) After fee waivers and/or expense reimbursements. Ratio of net
investment income (loss) to average net assets prior to fee waivers
and/or expense reimbursements was (1.15)% (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.
FS-68
<PAGE> 162
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-69
<PAGE> 163
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
- ---------------------------------------------------------------
Honeywell, Inc. 200,000 13,612,500
- ---------------------------------------------------------------
</TABLE>
FS-70
<PAGE> 164
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-(CONTINUED)
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
- ---------------------------------------------------------------
American Home Products Corp. 500,000 37,062,500
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 594,000 52,123,500
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-(CONTINUED)
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
- ---------------------------------------------------------------
Maytag Corp. 502,700 16,777,613
- ---------------------------------------------------------------
26,155,938
- ---------------------------------------------------------------
</TABLE>
FS-71
<PAGE> 165
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
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
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-(CONTINUED)
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
</TABLE>
FS-72
<PAGE> 166
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING (NEWSPAPERS)-(CONTINUED)
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
</TABLE>
FS-73
<PAGE> 167
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-8.99%
CANADA-1.25%
Newbridge Networks Corp.
(Computers-Networking)(a) 220,000 11,660,000
- ---------------------------------------------------------------
Northern Telecom Ltd.
(Communications Equipment) 325,000 29,148,438
- ---------------------------------------------------------------
Philip Services Corp. (Waste
Management)(a) 2,200,000 38,500,000
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
</TABLE>
FS-74
<PAGE> 168
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
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
- ---------------------------------------------------------------
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-75
<PAGE> 169
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-76
<PAGE> 170
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-77
<PAGE> 171
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 liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option
FS-78
<PAGE> 172
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 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
FS-79
<PAGE> 173
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.
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.
FS-80
<PAGE> 174
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>
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.
FS-81
<PAGE> 175
NOTE 11-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the five-year period ended October 31,
1997, for a share of Class B capital stock outstanding during each of the years
in the two-year period ended October 31, 1997 and the period June 26, 1995 (date
sales commenced) through October 31, 1995, and for a share of Class C capital
stock outstanding during the period August 4, 1997 (date sales commenced)
through October 31, 1997.
CLASS A:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.19 $ 20.33 $ 17.82 $ 17.62 $ 16.68
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.01 0.06 -- 0.07 0.10
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net gains on securities (both realized and unrealized) 4.82 2.51 4.36 0.57 0.93
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total from investment operations 4.83 2.57 4.36 0.64 1.03
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.06) -- (0.07) (0.11) (0.09)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Distributions from net realized gains (2.24) (2.71) (1.78) (0.33) --
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total distributions (2.30) (2.71) (1.85) (0.44) (0.09)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 22.72 $ 20.19 $ 20.33 $ 17.82 $ 17.62
============================================================ ========== ========== ========== ========== ==========
Total return(a) 26.83% 14.81% 28.20% 3.76% 6.17%
============================================================ ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,810,582 $4,977,493 $4,564,730 $3,965,858 $4,999,983
============================================================ ========== ========== ========== ========== ==========
Ratio of expenses to average net assets(b) 1.07%(c)(d) 1.12% 1.17% 1.21% 1.13%
============================================================ ========== ========== ========== ========== ==========
Ratio of net investment income to average net assets(e) 0.07%(c) 0.33% (0.02)% 0.45% 0.62%
============================================================ ========== ========== ========== ========== ==========
Portfolio turnover rate 128% 159% 139% 136% 109%
============================================================ ========== ========== ========== ========== ==========
Average brokerage commission rate paid(f) $ 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)(g) -- -- $ 593 -- --
============================================================ ========== ========== ========== ========== ==========
Average number of shares outstanding during the period (000s
omitted)(g) 262,563 248,189 229,272 249,351 314,490
============================================================ ========== ========== ========== ========== ==========
Average amount of debt per share during the period -- -- $ .0026 -- --
============================================================ ========== ========== ========== ========== ==========
</TABLE>
(a) Does not deduct sales charges.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.11%, 1.15%, 1.19%, 1.24% and 1.17% for the periods 1997-1993,
respectively.
(c) Ratios are based on average net assets of $5,466,375,838.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.03%, 0.30%, (0.04%), 0.42% and 0.58% for the periods
1997-1993, respectively.
(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.
(g) Averages computed on a daily basis.
FS-82
<PAGE> 176
CLASS B:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 19.98 $ 20.28 $ 18.56
- ------------------------------------------------------------ ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.05)(a) (0.03)
- ------------------------------------------------------------ ---------- ---------- ----------
Net gains on securities (both realized and unrealized) 4.75 2.46 1.75
- ------------------------------------------------------------ ---------- ---------- ----------
Total from investment operations 4.60 2.41 1.72
- ------------------------------------------------------------ ---------- ---------- ----------
Less distributions:
Distributions from net realized gains (2.24) (2.71) --
- ------------------------------------------------------------ ---------- ---------- ----------
Net asset value, end of period $ 22.34 $ 19.98 $ 20.28
============================================================ ========== ========== ==========
Total return(b) 25.78% 13.95% 9.27%
============================================================ ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000's omitted) $ 486,105 $ 267,459 $ 42,238
============================================================ ========== ========== ==========
Ratio of expenses to average net assets(c) 1.87%(d)(e) 1.95% 1.91%(f)
============================================================ ========== ========== ==========
Ratio of net investment income (loss) to average net
assets(g) (0.73)%(d) (0.50)% (0.76)%(f)
============================================================ ========== ========== ==========
Portfolio turnover rate 128% 159% 139%
============================================================ ========== ========== ==========
Average brokerage commission rate paid(h) $ 0.0618 $ 0.0615 N/A
============================================================ ========== ========== ==========
Borrowings for the period:
Amount of debt outstanding at end of
period (000s omitted) -- -- --
============================================================ ========== ========== ==========
Average amount of debt outstanding during the
period (000s omitted)(i) -- -- $ 3
============================================================ ========== ========== ==========
Average number of shares outstanding during the
period (000s omitted)(i) 18,505 7,956 1,036
============================================================ ========== ========== ==========
Average amount of debt per share during the period -- -- $ 0.0029
============================================================ ========== ========== ==========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and for periods less than
one year, total returns are not annualized.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.91%, 1.98% and 1.94% (annualized) for the periods 1997-1995,
respectively.
(d) Ratios are based on average net assets of $383,198,900.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been
1.86%.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.77)%, (0.53)% and (0.79)% (annualized) for the
periods 1997-1995, respectively.
(h) 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.
(i) Averages computed on a daily basis.
FS-83
<PAGE> 177
CLASS C:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net asset value, beginning of period $ 22.83
- ------------------------------------------------------------ -------
Income from investment operations:
Net investment income (0.04)(a)
- ------------------------------------------------------------ -------
Net gains (losses) on securities (both realized and
unrealized) (0.45)
- ------------------------------------------------------------ -------
Total from investment operations (0.49)
============================================================ =======
Net asset value, end of period $ 22.34
============================================================ =======
Total return(b) (2.15)%
============================================================ =======
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 2,326
============================================================ =======
Ratio of expenses to average net assets(c) 1.84%(d)(e)
============================================================ =======
Ratio of net investment income (loss) to average net
assets(f) (0.70)%(d)
============================================================ =======
Portfolio turnover rate 128%
============================================================ =======
Average brokerage commission rate paid(g) $0.0618
============================================================ =======
Borrowings for the period:
Amount of debt outstanding at end of period (000's omitted) --
============================================================ =======
Average amount of debt outstanding during the period (000's
omitted) --
============================================================ =======
Average number of shares outstanding during the period
(000's omitted)(h) 41,282
============================================================ =======
Average amount of debt per share during the period --
============================================================ =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and periods for less than one year,
total returns are not annualized.
(c) After fee waivers and/or expense reimbursements. Ratio of
expenses to average net assets prior to fee waivers and/or
expense reimbursements was 1.88% (annualized).
(d) Ratios are annualized and based on average net assets of
$958,881.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would
have remained the same.
(f) After fee waivers and/or expense reimbursements. Ratio of net
investment income (loss) to average net assets prior to fee
waivers and/or expense reimbursements was (0.74)% (annualized).
(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.
FS-84
