<PAGE> 1
AIM CHARTER FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT OCTOBER 31, 1997
<PAGE> 2
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Charter Fund performance figures are historical and reflect reinvestment
of all distributions and changes in net asset value. Unless otherwise
indicated, Fund results were computed at net asset value without reflecting
sales charges.
o The Fund's average annual total returns, including sales charges, for
periods ended 9/30/97 (the most recent calendar quarter-end) are as follows.
For A shares, one year, 28.00%; five years, 16.96%; 10 years, 13.67%. For B
shares, one year, 29.40%; since inception on 6/26/95, 24.74%. Class C shares
commenced sales August 4, 1997.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class B share
performance reflects the applicable contingent deferred sales charge (CDSC)
for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The performance of the Fund's Class B shares will differ from that of
Class A shares due to differences in sales charge structure and class
expenses.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged Lipper Growth & Income Fund Index represents an average of the
performance of the 30 largest growth-and-income mutual funds.
o The unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P 500) is
widely regarded by investors as representative of the stock market in
general.
o The Dow Jones Industrial Average (DJIA) is price-weighted average of 30
actively traded primarily industrial stocks.
o The Europe, Australia, Far East (EAFE) Index is a group of unmanaged foreign
securities. The index is compiled by Morgan Stanley Capital International.
o The NASDAQ (National Association of Securities Dealers Automated Quotation
system) Composite Index is a group of more than 4,500 unmanaged
over-the-counter securities widely regarded by investors to be
representative of the small- and medium-sized company stock universe.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE;
AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
-------------------------------------------
AIM CHARTER FUND
For shareholders who seek
growth and income by investing
primarily in stocks of large-cap,
well-run companies with
a history of stable and
improving earning's
and generally increasing
dividend payouts.
-------------------------------------------
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholder:
The fiscal year ended October 31 experienced no let-up in the
volatility in equity markets, and it closed on an unsettling
note. In late October, in the wake of a currency crisis in
Southeast Asia, the stock market experienced its first 10%
correction since 1991. On Monday, October 27, the New York
[photo of Stock Exchange closed to deal with market volatility for the
Charles T. first time in its history when the Dow Jones Industrial
Bauer, Chairman Average fell 554 points, the index's largest point decline
of the Board ever. It is important to note that in percentage terms, this
of the Fund, was a drop of 7.18%, far smaller than the 22.61% decline that
appears here] occurred October 19, 1987. Fortunately, this time the market
snapped back, and the Dow regained 337 points the next day. As
of this writing, markets continue to recover.
Many investment managers, including AIM, had
cautioned that a correction was inevitable, that the
relentless rise in benchmarks like the Dow could not continue.
In less than 12 months, the Dow had climbed from 6010 on
October 14, 1996, to reach its all-time high of 8259 on August 6, 1997.
When markets become overvalued, no one knows what will precipitate a
decline. No one foresaw that a currency devaluation by Thailand beginning during
the summer would lead to worldwide stock market turmoil.
Despite recent activities, the fiscal year ended October 31 brought domestic
equity investors excellent returns: The Dow was up almost 26%; the broader S&P
500, more than 32%; the NASDAQ small-cap index, 30.46%. International
investments, while positive, weren't as robust; the EAFE Index rose 4.63%. On
the following pages, your Fund managers discuss how your Fund performed in this
market context and their outlook for the future.
REALISTIC EXPECTATIONS
The 1100-point decline in the Dow between early August and late October was the
latest in a series of market breaks. Between mid-March and mid-April of this
year, for example, the Dow dropped almost 10%.
Many investors, including professional fund managers, have become accustomed
to buying on these market breaks because the market has bounced back quickly.
From its 1997 low of 6391 on April 11, the Dow took less than four months to
rise almost 2000 points to its all-time high.
However, this time could be different. Many investors have developed two
unrealistic expectations: first, a belief that stocks can rise more than 20% a
year indefinitely; and second, confidence that the market always rebounds
swiftly from a decline.
Neither notion is historically correct. History tells us that over the long
term, average annual total return for stocks is about 10%, not 20%. And those of
us who have been in this business for many years remember the bear market of the
1970s, when the market experienced a series of declines and recovery was very
slow.
Nevertheless, there is reason for optimism, including sound fiscal policy
steadily shrinking the federal deficit, stable interest rates, and a strong
economy unharmed by inflation. Despite recent events in Asia, it is difficult to
be pessimistic about the U.S. economy and, indeed, about most of the developed
economies in the world.
We are pleased to send you this report on your Fund. Please contact our
Client Services department at 800-959-4246 if you have any questions or
comments. Don't forget that automated information about your AIM account is
available 24 hours a day on the AIM Investor Line, 800-246-5463. Or visit our
Web site, at www.aimfunds.com.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-------------------------------
Despite recent activities
the fiscal year ended october 31
brought domestic equity investors
excellent returns.
-------------------------------
<PAGE> 4
The Managers' Overview
THREE SECTORS PROPEL FUND TO EXCELLENT RESULTS
A roundtable discussion with the Fund management team for AIM Charter Fund for
the fiscal year ended October 31, 1997.
- --------------------------------------------------------------------------------
Q: HOW DID AIM CHARTER FUND PERFORM DURING THE FISCAL YEAR?
A: The Fund's Class A shares produced a total return of 28.57%, outpacing
the 28.03% total return for the Lipper Growth and Income Fund Index. For
Class B shares, total return for the fiscal year was 27.54%. Class C
shares commenced sales August 4, 1997. These figures include
distributions of $0.794 per share for Class A shares and $0.72 for Class
B shares. This was excellent performance, with the Fund outpacing its own
long-term average annual returns.
================================================================================
NET ASSETS UNDER MANAGEMENT
- --------------------------------------------------------------------------------
10/31/96
$3.19 billion
10/31/97
$4.37 billion
================================================================================
Q: WHICH HOLDING'S CONTRIBUTED TO SUCH GOOD PERFORMANCE?
A: Our three largest sectors continue to be financials, technology, and health
care. The individual stocks we hold in these sectors and the mix of
industries will vary, but we think these three sectors represent excellent
long-term growth potential.
Q: WHAT IS ATTRACTIVE ABOUT FINANCIAL COMPANIES?
A: Our holding's in the financial sector, including banks, insurers, and
brokerage houses, were up during the fiscal year. With a growing economy,
stable interest rates, and demographic trends leading more people into
retirement-oriented financial planning, financial institutions have
prospered. Earning's growth for big money center banks such as Chase and
Citicorp outdid analysts' expectations.
The sector is experiencing a wave of mergers and acquisitions, for
example the purchase of brokerage firm Robertson-Stephens by Bank of
America. Financial firms want to be capable of offering the broadest
possible range of services and of competing in a global environment.
Through careful securities selection, we want to focus on the companies
initiating this consolidation the franchise companies that will be around
five years from now.
Q: WHY DO YOU OWN SUCH A LARGE NUMBER OF TECHNOLOGY STOCKS?
A: The biggest portion of corporate capital expenditures, domestically and
overseas, has been spent on technology. This investment has resulted in
the productivity improvements that have been driving economic growth.
Manufacturers in the tech sector have done well. Specialized
semiconductor makers like Texas Instruments, networking-equipment
producers such as Bay Networks, and such industry-leading personal
computer manufacturers as Compaq have been very good holding's.
On the software/services side, another successful holding is
software maker Compuware, which is poised to profit from the so called
"millennium problem," the need to reprogram older computers to recognize
the year 2000.
Not all news in the tech sector is good. Pricing pressures are tough.
You can now buy a meaningful personal computer for $1,000, which has to
affect profit margins. Even Intel has been feeling the pressure, though it
remains the industry's flagship.
Despite these glitches, we think the sector's long-term growth
prospects are excellent. We will continue to seek individual companies
whose earning's justify our investment. For example, while not included
in the technology sector, retailers of computers and electronic gear have
been doing well. We added CompUSA to the portfolio since our last report to
shareholders.
Q: WHY DOES HEALTH CARE REMAIN A LONG-TERM THEME?
A: One factor contributing to strength in the health-care sector is the FDA's
move toward more rapid approval of drugs and medical devices, which should
reduce costs for the medical instrument and pharmaceutical industries. We
hold such major pharmaceutical makers as Merck and SmithKline Beecham, and
the portfolio includes companies like Medtronic Inc., a maker of
sophisticated implantable therapeutic devices such as stents, pacemakers,
and heart valves.
Q: DOES THE PORTFOLIO STILL INCLUDE CONVERTIBLE SECURITIES?
A: About 15% of the portfolio consisted of convertible bonds or convertible
preferred stocks at the close of the fiscal year.
We stress dividend-paying securities in this portfolio because of
our investment
See important fund and index disclosures inside front cover.
--------------------
We will continue
to seek individual companies
whose earnings
justify investment.
--------------------
2
<PAGE> 5
The Managers' Overview
PORTFOLIO COMPOSITION
As of 10/31/97, based on total net assets
<TABLE>
<CAPTION>
=========================================================================================================================
TOP 10 INDUSTRIES TOP 10 HOLDINGS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Financial (Diversified) 5.97% 1. WorldCom, Inc. 2.56%
2. Health Care (Diversified) 5.05 2. Chase Manhattan Corp. 2.53
3. Banking (Money Center) 4.73 3. Philip Morris Companies Inc. 1.95
4. Health Care (Drugs -- Major Pharmaceuticals) 4.22 4. Brunswick Corp. 1.85
5. Computers (Software & Services) 3.96 5. American Home Products Corp. 1.62
6. Services (Commercial & Consumer) 3.67 6. SmithKline Beecham PLC-ADR 1.56
7. Communications Equipment 3.31 7. Citicorp 1.51
8. Insurance (Multi-Line) 3.18 8. Allstate Corp. 1.45
9. Computers (Hardware) 3.10 9. Warner-Lambert Co. 1.41
10. Oil & Gas (Drilling & Equipment) 2.67 10. Morgan Stanley, Dean Witter, Discover & Co. 1.39
Please keep in mind that the Fund's portfolio composition is subject to change and there is no assurance the Fund will
continue to hold any particular security.
=========================================================================================================================
</TABLE>
================================================================================
PORTFOLIO COMPOSITION
As of 10/31/97, based on total net assets
NUMBER OF HOLDINGS: 182
U.S. Stocks 73.43%
Domestic Convertible Bonds 7.44
Convertible Preferred Stocks 6.72
U.S. Government Securities 6.19
Foreign Stocks 5.79
Convertible Foreign Bonds 0.56
Repurchase Agreements 0.28
================================================================================
objective, which is primarily growth with income as a secondary goal.
The dividend yield on common stocks has been declining recently for
various reasons. Rather than paying dividends, many corporations have
elected to reinvest cash flow in capital equipment, largely new technology
systems to enhance productivity, or in acquisitions of new or complementary
businesses. Another trend has been stock repurchases by corporations.
Corporate dividends are taxed twice, once at the corporate level as
dividends are distributed on an after-tax basis, and then at the individual
level. To avoid this double taxation, companies have been returning capital
to shareholders by buying back stock instead. This spreads future corporate
earning's over fewer shares outstanding, increasing earning's per share and
thus the stock price.
Given the tax code's bias in favor of long-term capital gains over
income, these trends are likely to continue and we don't anticipate any big
rise in the level of corporate dividends. We will continue to employ
convertibles as opportunities arise. Current convertible holding's include
WorldCom Inc., which is merging with MCI Communications Corp.; and Conseco,
Inc., a leading consolidator in the insurance industry.
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY IN THE NEAR TERM?
A. There are a few cautionary signs: a tight labor market that could put
inflationary pressure on wages, a drop in consumer confidence measured by
The Conference Board, a slip in new vehicle sales. Nevertheless, there is
much evidence of a favorable economic environment. Inflation is so well
controlled many economy watchers are more concerned about deflation.
Because of monetary turmoil and market declines overseas, few expect a rate
hike by the Federal Reserve, at least for the short term. And finally,
corporate earning's continue to grow. As of the third quarter of 1997,
earning's for S&P 500 companies were up more than 12% year over year, for
example.
Q: WHAT DO YOU SEE AHEAD FOR THE EQUITY MARKETS?
A: In our last report, we commented on the "narrowness" of the markets during
1996 and early 1997, when a few very large companies accounted for much of
the rise in market indexes. Beginning in May, investors began to look
beyond these blue-chip stocks. From May through the end of the fiscal year,
small- and mid-sized company stocks either paced or outpaced larger-company
stocks. Although about 75% of our holding's in AIM Charter Fund are large
companies, we also have the flexibility to invest in smaller companies, and
we do. So as a diversified fund, we were glad to see the market broaden.
The market is more normal when investors cast their nets broadly rather
than pouring money into a few huge stocks with sky-high valuations.
Earning's remain key to market performance, and earning's look as if they
may be coming down to more normal levels. Earning's for the companies in
the S&P 500 have been very high: 20-percent-plus for three years in a row.
As we just mentioned, the most recent figure is about 12%. With interest
rates stable, investors will focus more on earning's. We believe the Fund
is well-positioned for this market.
See important fund and index disclosures inside front cover.
3
<PAGE> 6
Long-Term Performance
THE AIM CHARTER FUND GROWTH STORY
AIM CHARTER FUND CLASS A SHARES VS. BENCHMARK INDEXES
The chart compares your Fund's Class A shares to indexes. It is important to
understand differences between your Fund and these indexes. An index measures
performance of a hypothetical portfolio. A market index, such as the S&P 500, is
not managed, incurring no sales charges, expenses or fees. If you could buy all
the securities that make up an index, you would incur expenses that would affect
your investment's return. An index of funds, such as the Lipper Growth and
Income Fund Index, includes a number of mutual funds grouped by investment
objective. Each of those funds interprets that objective differently, and each
employs a different management style and investment strategy. Use of these
indexes is intended to give you a general idea of how your Fund performed
compared to these benchmarks.
GROWTH OF A $10,000 INVESTMENT: NOVEMBER 26, 1968-OCTOBER 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AIM Charter Fund Lipper Growth &
Class A Shares S&P 500 Income Fund Index
- --------------------------------------------------------------------------------
(In thousands)
<C> <C> <C> <C>
11/26/68 9,446 10,000 10,000
10/31/69 9,562 9,358 9,021
10/31/70 7,024 8,320 7,799
10/31/71 9,170 9,719 9,110
10/31/72 12,768 11,845 10,509
10/31/73 14,160 11,840 10,360
10/31/74 9,720 8,436 7,891
10/31/75 11,892 10,635 9,912
10/31/76 14,361 12,769 11,936
10/31/77 16,072 11,980 11,723
10/31/78 21,504 12,733 12,662
10/31/79 27,400 14,683 15,052
10/31/80 42,232 19,398 19,849
10/31/81 45,389 19,504 20,371
10/31/82 49,226 22,689 24,322
10/31/83 63,796 29,015 30,952
10/31/84 58,881 30,844 32,352
10/31/85 67,367 36,810 38,411
10/31/86 88,645 49,011 50,076
10/31/87 94,606 52,120 51,255
10/31/88 100,188 59,852 60,569
10/31/89 133,926 75,575 73,179
10/31/90 139,089 69,896 64,719
10/31/91 191,451 93,313 86,510
10/31/92 199,439 102,577 94,214
10/31/93 233,177 117,846 112,580
10/31/94 227,232 122,407 116,140
10/31/95 288,652 154,607 139,691
10/31/96 336,862 191,827 169,575
10/31/97 434,421 253,413 217,109
================================================================================
</TABLE>
Past performance is no guarantee of comparable future results.
<TABLE>
<CAPTION>
============================================================================================================
11/26/68 10/69 10/70 10/71 10/72 10/73 10/74 10/75
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Dividends Reinvested $ 0 94 228 214 135 0 34 157
Capital Gains Reinvested $ 0 0 114 0 0 1,240 0 0
Total Distributions Reinvested $ 0 94 342 214 135 1,240 34 157
Total Account Value $ 9,446 9,562 7,024 9,170 12,768 14,160 9,720 11,892
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
10/76 10/77 10/78 10/79 10/80 10/97
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Dividends Reinvested 139 147 222 364 866 1,190
Capital Gains Reinvested 0 0 1,219 4,972 2,625 6,476
Total Distributions Reinvested 139 147 1,441 5,336 3,491 7,666
Total Account Value 14,361 16,072 21,504 27,400 42,232 45,389
==============================================================================================================
</TABLE>
<PAGE> 7
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 10/31/97, including sales charges.
CLASS A SHARES
Since inception (11/26/68) 13.92%
10 Years 15.78
5 Years 15.45
1 Year 21.52
CLASS B SHARES
Since inception (6/15/95) 21.30
1 Year 22.54
CLASS C SHARES
Since Inception (8/4/97) - 4.20
================================================================================
<TABLE>
<CAPTION>
================================================================================================================================
10/82 10/83 10/84 10/85 10/86 10/87 10/88 10/89 10/90 10/91 10/92
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Dividends Reinvested 2,287 2,585 1,475 1,723 1,677 1,893 1,718 3,432 4,900 3,185 3,752
Capital Gains Reinvested 3,670 0 5,560 0 5,030 20,211 20,038 0 8,070 6,583 5,287
Total Distributions Reinvested 5,957 2,585 7,035 1,723 6,7072 2,104 21,756 3,432 12,970 9,768 9,039
Total Account Value 49,226 63,796 58,881 67,367 88,645 94,606 100,188 133,926 139,089 191,451 199,439
================================================================================================================================
<CAPTION>
================================================================================================================================
10/93 10/94 10/95 10/96 10/97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Dividends Reinvested 6,868 4,023 5,275 4,672 5,056
Capital Gains Reinvested 0 3,882 8,298 24,466 19,086
Total Distributions Reinvested 6,868 7,905 13,573 29,138 24,142
Total Account Value 233,177 227,232 288,652 336,862 434,421
================================================================================================================================
</TABLE>
Data shown are as of the Fund's fiscal year-end. Class A shares' total return
includes sales charges, expenses, and management fees. The performance of Class
B and Class C shares will differ from that of Class A shares due to differing
fees and expenses. For Fund performance calculations and descriptions of indexes
cited on this page, please refer to the inside front cover. Source: Towers Data
Systems HYPO--Registered Trademark-- and FundStation.
<PAGE> 8
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>
6
<PAGE> 9
<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>
7
<PAGE> 10
<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>
8
<PAGE> 11
<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>
9
<PAGE> 12
<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.
10
<PAGE> 13
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.
11
<PAGE> 14
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.
12
<PAGE> 15
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
13
<PAGE> 16
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
14
<PAGE> 17
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>
15
<PAGE> 18
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.
16
<PAGE> 19
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.
17
<PAGE> 20
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.
18
<PAGE> 21
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
19
<PAGE> 22
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company")
was held on February 7, 1997 at the offices of A I M Management Group Inc., 11
Greenway Plaza, Houston, Texas. The meeting was held for the following purposes:
(1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen
Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F.
Pennock, Ian W. Robinson and Louis S. Sklar.
(2) To approve a new Master Investment Advisory Agreement between the AIM
Charter Fund (the "Fund") and A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital
Management, Inc.
(4) To approve the elimination of the fundamental investment policy prohibiting
the Fund from investing in other investment companies.
(5) To approve the elimination of provisions of a fundamental investment policy
prohibiting or restricting investments in puts, calls, straddles and
spreads.
(6) To approve the elimination of the fundamental investment policy prohibiting
investments in companies with less than five years of continuous operation.
(7) To ratify the selection of KPMG Peat Marwick LLP as independent accountants
for the Fund for the Company's fiscal year ending October 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Votes Withheld/
Director/Matter Votes For Against Abstentions
--------------- --------- ------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 618,811,245 N/A 19,923,485
Bruce L. Crockett........................................... 619,427,685 N/A 19,307,045
Owen Daly II................................................ 618,919,919 N/A 19,814,811
Carl Frischling............................................. 619,275,356 N/A 19,459,374
Robert H. Graham............................................ 619,431,576 N/A 19,303,154
John F. Kroeger............................................. 618,878,096 N/A 19,856,634
Lewis F. Pennock............................................ 619,272,998 N/A 19,461,732
Ian W. Robinson............................................. 618,944,840 N/A 19,789,890
Louis S. Sklar.............................................. 619,462,714 N/A 19,272,016
(2) Approval of Master Investment Advisory Agreement............ 173,793,114 2,961,324 7,253,671
(3) Approval of Sub-Advisory Agreement.......................... 173,153,366 3,196,109 7,658,634
(4) Elimination of Policy concerning Other Investment
Companies................................................... 132,189,441 5,578,624 7,737,685
(5) Elimination of Policy concerning Puts, Calls, Straddles and
Spreads..................................................... 130,439,316 6,922,517 8,143,916
(6) Elimination of Policy concerning Companies with Less Than
Five Years of Continuous Operation.......................... 131,139,307 6,923,959 7,442,483
(7) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
</TABLE>
20
<PAGE> 23
Directors & Officers
<TABLE>
<S> <C>
BOARD OF DIRECTORS OFFICERS DIRECTORS OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Chief Senior Vice President and Treasurer 11 Greenway Plaza
Executive Officer Suite 100
COMSAT Corporation Gary T. Crum Houston, TX 77046
Senior Vice President
Owen Daly II TRANSFER AGENT
Director Carol F. Relihan
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
and Secretary P.O. Box 4739
Jack Fields Houston, TX 77210-4739
Formerly Member of the Jonathan C. Schoolar
U.S. House of Representatives Vice President CUSTODIAN
Carl Frischling Melville B. Cox State Street Bank & Trust Company
Partner Vice President 225 Franklin Street
Kramer, Levin, Naftalis & Frankel Boston, MA 02110
Dana R. Sutton
Robert H. Graham Vice President and Assistant Treasurer COUNSEL TO THE FUND
President and Chief Executive Officer
A I M Management Group Inc. P. Michelle Grace Ballard Spahr
Assistant Secretary Andrews & Ingersoll
John F. Kroeger 1735 Market Street
Formerly Consultant Nancy L. Martin Philadelphia, PA 1910
Wendell & Stockel Associates, Inc. Assistant Secretary
COUNSEL TO THE DIRECTORS
Lewis F. Pennock Ofelia M. Mayo
Attorney Assistant Secretary Kramer, Levin, Naftal
919 Third Avenue
Ian W. Robinson Kathleen J. Pflueger New York, NY 10022
Consultant; Formerly Executive Assistant Secretary
Vice President and DISTRIBUTOR
Chief Financial Officer Samuel D. Sirko
Bell Atlantic Management Assistant Secretary A I M Distributors, Inc.
Services, Inc. 11 Greenway Plaza
Stephen I. Winer Suite 100
Louis S. Sklar Assistant Secretary Houston, TX 77046
Executive Vice President
Hines Interests Mary J. Benson AUDITORS
Limited Partnership Assistant Treasurer
KPMG Peat Marwick LLP
700 Louisiana
Houston, TX 77002
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Charter Fund Class A, Class B, and Class C shares paid ordinary dividends
in the amount of $0.207, $0.133, and $0.0215 per share, respectively, during
the Fund's tax year ended October 31, 1997. Of this amount 38% is eligible for
the dividends received deduction for corporations. The Fund also distributed
long-term capital gains of $0.587 per share for Class A and Class B shares
during the Fund's tax year ended October 31, 1997.
REQUIRED STATE INCOME TAX INFORMATION
Of the total income dividends paid,9% was derived from U.S. Treasury
obligations.
<PAGE> 24
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Capital Development Fund
AIM Constellation Fund
AIM Global Aggressive Growth Fund
GROWTH OF CAPITAL
AIM Advisor International Value Fund
[PHOTO OF AIM Blue Chip Fund
11 GREENWAY PLAZA AIM Global Growth Fund
APPEARS HERE] AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME OR INCOME WITH CAPITAL GROWTH
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Charter Fund
AIM Global Utilities Fund
HIGH CURRENT INCOME OR CURRENT INCOME
AIM High Yield Fund
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the *AIM Aggressive Growth Fund was closed to new investors on
mutual fund industry since 1976 and managed approximately June 5, 1997. For more complete information about any AIM
$82 billion in assets for more than 3.6 million shareholders, Fund(s), including sales charges and expenses, ask your
including individual investors, corporate clients, and financial financial consultant or securities dealer for a free
institutions as of September 30, 1997. The AIM Family of prospectus(es). Please read the prospectus(es) carefully
Funds--Registered Trademark-- is distributed nationwide, and before you invest or send money.
AIM today ranks among the nation's top 15 mutual fund
companies in assets under management, according to Lipper INVEST WITH DISCIPLINE-SM-
Analytical Services, Inc.
[AIM LOGO APPEARS HERE] -----------------
BULK RATE
A I M Distributors, Inc. U.S. POSTAGE
11 Greenway Plaza, Suite 100 PAID
Houston, TX 77046 HOUSTON, TX
Permit No. 1919
-----------------
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