<PAGE> 1
AIM MID CAP GROWTH FUND
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AIM Mid Cap Growth Fund seeks to provide long-term growth of capital.
PROSPECTUS --Registered Trademark--
NOVEMBER 1, 1999
This prospectus contains important
information about the Class A, B,
and C shares of the fund. Please
read it before investing and keep it
for future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
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AIM MID CAP GROWTH FUND
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
FEE TABLE AND EXPENSE EXAMPLE 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 2
Expense Example 2
FUND MANAGEMENT 3
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 3
Advisor Compensation 3
Portfolio Managers 3
OTHER INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 3
Dividends and Distributions 3
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com,
Invest with Discipline, La Familia AIM de Fondos and La Familia AIM de Fondos
and Design are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design, AIM Internet Connect and AIM Investor are service marks of
A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 3
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AIM MID CAP GROWTH FUND
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INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. The fund's
investment objective may be changed by the fund's Board of Directors without
shareholder approval.
The fund seeks to meet this objective by investing at least 65% of its total
assets in securities of companies that have market capitalizations, at the time
of purchase, within the range of market capitalizations of companies included
in the Standard & Poor's MidCap 400 Index. The Standard & Poor's MidCap 400
Index is an unmanaged market-weighted index of domestic stocks that measures
the performance of the mid-size company segment of the U.S. market. Under
normal conditions, the top 10 holdings may comprise up to 40% of the fund's
total assets. The fund will invest primarily in common stocks but may also
invest in convertible securities and warrants. The fund may also invest up to
25% of its total assets in foreign securities.
The portfolio managers focus on companies they believe are likely to benefit
from new or innovative products, services or processes as well as those that
have experienced above-average, long-term growth in earnings and have favorable
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result,
the fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. This is
especially true with respect to equity securities of smaller companies, whose
prices may go up and down more than equity securities of larger, more
established companies. Also, since equity securities of smaller companies may
not be traded as often as equity securities of larger, more established
companies, it may be difficult or impossible for the fund to sell securities at
a desirable price.
The values of the convertible securities in which the fund may invest also
will be affected by market interest rates, the risk that the issuer may default
on interest or principal payments and the value of the underlying common stock
into which these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest and dividends, their values may fall
if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Since a large percentage of the fund's assets will be invested in a limited
number of securities, any change in value of those securities could
significantly affect the value of your investment in the fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The fund may participate in the Initial Public Offering (IPO) market, and a
significant portion of the fund's returns consequently may be attributable to
its investment in IPOs, which have a magnified impact due to the fund's small
asset base. As the fund's assets grow, it is probable that the effect of the
fund's investment in IPOs on its total returns will decline, which may reduce
the fund's total returns.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
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AIM MID CAP GROWTH FUND
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FEE TABLE AND EXPENSE EXAMPLE
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FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- ---------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.80% 0.80% 0.80%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00
Other Expenses(2) 0.48 0.52 0.52
Total Annual Fund
Operating Expenses 1.63% 2.32% 2.32%
- ---------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Other expenses are based on estimated amounts for the current fiscal year.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- -------------------------
<S> <C> <C>
Class A $707 $1,036
Class B 735 1,024
Class C 335 724
- -------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- -------------------------
<S> <C> <C>
Class A $707 $1,036
Class B 235 724
Class C 235 724
- -------------------------
</TABLE>
2
<PAGE> 5
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AIM MID CAP GROWTH FUND
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FUND MANAGEMENT
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THE ADVISOR
A I M Advisors, Inc. serves as the fund's investment adviser. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor
supervises all aspects of the fund's operations and provides investment advisory
services to the fund, including obtaining and evaluating economic, statistical
and financial information to formulate and implement investment programs for the
fund.
The advisor has acted as an investment adviser since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 125
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
The advisor is to receive a fee from the fund calculated at the annual rate of
0.80% of the first $1 billion of average daily net assets, and 0.75% of assets
over $1 billion of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- - Brant Demuth, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1989.
- - Christopher P. Perras, Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1999. From 1997 to 1999, he was an equity analyst at Van Wagoner Capital
Management. From 1995 to 1997, he was Associate Portfolio Manager for Van
Kampen American Capital Asset Management, Inc. From 1993 to 1995, he was
Assistant Portfolio Manager with Hellman, Jordan Management Company.
- - Charles D. Scavone, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1996. From 1994 to 1996, he was Associate Portfolio Manager for Van
Kampen American Capital Asset Management, Inc. In 1994, he was Equity Research
Analyst/Assistant Portfolio Manager at Texas Commerce Investment Management
Company.
- - Kenneth A. Zschappel, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1990.
OTHER INFORMATION
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SALES CHARGES
Purchases of Class A shares of AIM Mid Cap Growth Fund are subject to the
maximum 5.50% initial sales charge as listed under the heading "CATEGORY I
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
3
<PAGE> 6
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THE AIM FUNDS
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SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
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DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
A-1 MCF--10/99
<PAGE> 7
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THE AIM FUNDS
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<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree
to purchase determines the initial sales charge you pay. If the full face
amount of the LOI is not invested by the end of the 13-month period, your
account will be adjusted to the higher initial sales charge level for the
amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/99 A-2
<PAGE> 8
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THE AIM FUNDS
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PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM Mid
Cap Opportunities Fund and AIM Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number.
Then, use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name:
A I M Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect option
methods described above. on your completed account application
or complete an AIM Internet
Connect Authorization Form. Mail the
application or form to the transfer
agent. Once your request for this option
has been processed (which may take up
to 10 days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/99
<PAGE> 9
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THE AIM FUNDS
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SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the AIM
Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. However, if
you acquired Class A shares of AIM Developing Markets Fund in connection with
the reorganization of AIM Eastern Europe Fund, you will be charged a redemption
fee of 2% of the net asset value of those shares, which will be paid to AIM
Developing Markets Fund, if you redeem your shares within the first year after
the reorganization. Your broker or financial consultant may charge service fees
for handling redemption transactions. Your shares also may be subject to a
contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/99 A-4
<PAGE> 10
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THE AIM FUNDS
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HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
By AIM Internet Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet. The
transfer agent must confirm your transaction during the
hours the NYSE is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
A-5 MCF--10/99
<PAGE> 11
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited
MCF--10/99 A-6
<PAGE> 12
-------------
THE AIM FUNDS
-------------
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if
you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
A-7 MCF--10/99
<PAGE> 13
-------------
THE AIM FUNDS
-------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each day the
NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange and redemption orders at
the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THIS
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/99 A-8
<PAGE> 14
-----------------------
AIM MID CAP GROWTH FUND
-----------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ----------------------------------
AIM MID CAP GROWTH FUND
SEC 1940 Act file number: 811-1424
- ----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com MCG-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 15
STATEMENT OF
ADDITIONAL INFORMATION
RETAIL CLASSES OF
AIM AGGRESSIVE GROWTH FUND
AIM BLUE CHIP FUND
AIM CAPITAL DEVELOPMENT FUND
AIM CHARTER FUND
AIM CONSTELLATION FUND
AIM DENT DEMOGRAPHIC TRENDS FUND
AIM LARGE CAP BASIC VALUE FUND
AIM LARGE CAP GROWTH FUND
AIM MID CAP GROWTH FUND
AIM WEINGARTEN FUND
(SERIES PORTFOLIOS OF
AIM EQUITY FUNDS, INC.)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
-------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IT SHOULD BE READ IN CONJUNCTION WITH
A PROSPECTUS OF THE ABOVE-NAMED FUNDS,
A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE
FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TX 77210-4739
OR BY CALLING (800) 347-4246.
-------------------
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 1, 1999
RELATING TO THE AIM AGGRESSIVE GROWTH FUND PROSPECTUS DATED
MARCH 1, 1999, AS REVISED APRIL 8, 1999,
THE AIM BLUE CHIP FUND PROSPECTUS DATED MARCH 1, 1999, AS
REVISED APRIL 23, 1999,
THE AIM CAPITAL DEVELOPMENT FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM CHARTER FUND PROSPECTUS DATED MARCH 1, 1999, AS REVISED MARCH 15, 1999,
THE AIM CONSTELLATION FUND PROSPECTUS DATED MARCH 1, 1999,
AS REVISED MAY 12, 1999,
THE AIM DENT DEMOGRAPHIC TRENDS FUND PROSPECTUS DATED JUNE 7, 1999,
THE AIM LARGE CAP BASIC VALUE FUND PROSPECTUS DATED JUNE 7, 1999,
AS REVISED JULY 1, 1999,
THE AIM LARGE CAP GROWTH FUND PROSPECTUS DATED MARCH 1,1999,
AS REVISED APRIL 5, 1999,
THE AIM MID CAP GROWTH FUND PROSPECTUS DATED NOVEMBER 1, 1999,
AND THE AIM WEINGARTEN FUND PROSPECTUS DATED MARCH 1, 1999
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION......................................................................................................1
GENERAL INFORMATION ABOUT THE FUNDS...............................................................................1
The Company and Its Shares...............................................................................1
PERFORMANCE.......................................................................................................2
Total Return Calculations................................................................................3
Total Return Quotations..................................................................................4
Historical Portfolio Results.............................................................................4
Yield Quotations.........................................................................................7
Allocation of IPO Securities Transactions................................................................8
PORTFOLIO TRANSACTIONS AND BROKERAGE..............................................................................8
General Brokerage Policy.................................................................................8
Allocation of Portfolio Transactions.....................................................................9
Section 28(e) Standards.................................................................................10
Transactions with Regular Brokers.......................................................................10
Brokerage Commissions Paid..............................................................................10
Portfolio Turnover......................................................................................11
INVESTMENT STRATEGIES AND RISKS..................................................................................11
Real Estate Investment Trusts...........................................................................13
Foreign Securities......................................................................................13
Foreign Exchange Transactions...........................................................................15
Illiquid Securities.....................................................................................15
Rule 144A Securities....................................................................................15
Lending of Portfolio Securities.........................................................................16
Repurchase Agreements...................................................................................16
Reverse Repurchase Agreements...........................................................................16
Special Situations......................................................................................17
Short Sales.............................................................................................17
Warrants ...............................................................................................17
Securities Issued on a When-Issued or Delayed Delivery Basis............................................17
Investment in Unseasoned Issuers........................................................................18
Investment in Other Investment Companies................................................................18
Temporary Defensive Investments.........................................................................18
OPTIONS, FUTURES AND CURRENCY STRATEGIES.........................................................................18
Introduction............................................................................................18
General Risks of Options, Futures and Currency Strategies...............................................19
Cover ..................................................................................................19
Writing Call Options....................................................................................20
Writing Put Options.....................................................................................20
Purchasing Put Options..................................................................................21
Purchasing Call Options.................................................................................21
Over-the-Counter Options................................................................................21
Index Options...........................................................................................22
Limitations on Options..................................................................................22
Interest Rate, Currency and Stock Index Futures Contracts...............................................22
Options on Futures Contracts............................................................................23
Forward Contracts.......................................................................................24
Limitations on Use of Futures, Options on Futures and Certain Options on Currencies.....................24
</TABLE>
i
<PAGE> 17
<TABLE>
<S> <C>
INVESTMENT RESTRICTIONS..........................................................................................24
Aggressive Growth.......................................................................................24
Blue Chip...............................................................................................25
Capital Development.....................................................................................26
Charter.................................................................................................27
Constellation...........................................................................................28
Demographic Trends......................................................................................29
Large Cap Basic Value...................................................................................30
Large Cap Growth........................................................................................32
Mid Cap.................................................................................................33
Weingarten..............................................................................................35
MANAGEMENT.......................................................................................................36
Directors and Officers..................................................................................36
Investment Advisory, Administrative Services and Sub-Advisory Agreements................................41
DISTRIBUTION PLANS..............................................................................................45
The Class A and C Plan..................................................................................45
The Class B Plan........................................................................................46
Both Plans..............................................................................................46
THE DISTRIBUTOR..................................................................................................50
SALES CHARGES AND DEALER CONCESSIONS.............................................................................53
REDUCTIONS IN INITIAL SALES CHARGES..............................................................................56
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS......................................................................59
HOW TO PURCHASE AND REDEEM SHARES................................................................................61
Backup Withholding......................................................................................62
NET ASSET VALUE DETERMINATION....................................................................................63
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................64
Reinvestment of Dividends and Distributions.............................................................64
Tax Matters.............................................................................................64
Qualification as a Regulated Investment Company.........................................................65
Determination of Taxable Income of a Regulated Investment Company.......................................65
Excise Tax on Regulated Investment Companies............................................................66
Fund Distributions......................................................................................67
Sale or Redemption of Shares............................................................................69
Reinstatement Privilege.................................................................................69
Foreign Shareholders....................................................................................69
Effect of Future Legislation; Local Tax Considerations..................................................70
SHAREHOLDER INFORMATION..........................................................................................70
MISCELLANEOUS INFORMATION........................................................................................73
Charges for Certain Account Information.................................................................73
Audit Reports...........................................................................................73
Legal Matters...........................................................................................73
Custodian and Transfer Agent............................................................................73
Principal Holders of Securities.........................................................................73
Weingarten..............................................................................................80
Other Information.......................................................................................81
</TABLE>
ii
<PAGE> 18
<TABLE>
<S> <C>
APPENDIX.........................................................................................................82
Description of Commercial Paper Ratings.................................................................82
Description of Corporate Bond Ratings...................................................................82
FINANCIAL STATEMENTS.............................................................................................FS
</TABLE>
iii
<PAGE> 19
INTRODUCTION
AIM Equity Funds, Inc. (the "Company") is a series mutual fund. The
rules and regulations of the United States Securities and Exchange Commission
(the "SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the fund being considered for
investment. The information for the Retail Classes of AIM Aggressive Growth Fund
("Aggressive Growth") is included in a Prospectus dated March 1, 1999, as
revised April 8, 1999. The information for the Retail Classes of AIM Blue Chip
Fund ("Blue Chip") is included in a Prospectus dated March 1, 1999, as revised
April 23, 1999. The information for the Retail Classes of AIM Capital
Development Fund ("Capital Development") is included in a Prospectus dated March
1, 1999. The information for the Retail Classes of AIM Charter Fund ("Charter")
is included in a Prospectus dated March 1, 1999, as revised March 15, 1999. The
information for the Retail Classes of AIM Constellation Fund ("Constellation")
is included in a Prospectus dated March 1, 1999, as revised May 12, 1999. The
information for the AIM Dent Demographic Trends Fund ("Demographic Trends") is
included in a Prospectus dated June 7, 1999. The information for the Retail
Classes of AIM Large Cap Basic Value Fund ("Large Cap Basic Value") is included
in a Prospectus dated June 7, 1999, as revised July 1, 1999. The information for
the Retail Classes of AIM Large Cap Growth Fund ("Large Cap Growth") is included
in a Prospectus dated March 1, 1999, as revised April 5, 1999. The information
for the Retail Classes of AIM Mid Cap Growth Fund ("Mid Cap") is included in a
Prospectus dated September 27, 1999. The information for the Retail Classes of
AIM Weingarten Fund ("Weingarten") is included in a Prospectus dated March 1,
1999. Additional copies of the Prospectuses and this Statement of Additional
Information may be obtained without charge by writing the principal distributor
of the Funds' shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box
4739, Houston, TX 77210-4739 or by calling (800) 347-4246. Investors must
receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Prospectuses; and, in order to avoid repetition, reference
will be made to sections of the Prospectuses. Additionally, the Prospectuses and
this Statement of Additional Information omit certain information contained in
the Registration Statement filed with the SEC. Copies of the Registration
Statement, including items omitted from the Prospectuses and this Statement of
Additional Information, may be obtained from the SEC by paying the charges
described under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized in 1988 as a Maryland corporation, and is
registered with the SEC as a diversified open-end series management investment
company. The Company currently consists of ten separate portfolios: Aggressive
Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic
Trends, Large Cap Basic Value, Large Cap Growth, Mid Cap, and Weingarten (each a
"Fund" and collectively, the "Funds"). Charter, Weingarten and Constellation
each have four separate classes: Class A, Class B and Class C and an
Institutional Class. Aggressive Growth, Blue Chip, Capital Development,
Demographic Trends, Large Cap Basic Value, Large Cap Growth and Mid Cap each
have three classes of shares: Class A, Class B and Class C shares. Class A
shares (sold with a front-end sales charge) and Class B and Class C shares (each
sold with a contingent deferred sales charge) of the Funds are also referred to
as the Retail Classes. Prior to October 15, 1993, Aggressive Growth was a
portfolio of AIM Funds Group ("AFG"), a Massachusetts business trust. Pursuant
to an Agreement and Plan of Reorganization between AFG and the Company,
Aggressive Growth was redomesticated as a portfolio of the Company. All
historical financial and other information contained in this Statement of
Additional Information for periods prior to October 15, 1993, relating to
Aggressive Growth is that of AFG's Aggressive Growth. Blue Chip acquired the
investment portfolio of Baird Blue Chip Fund, Inc. (the "BBC Fund"), a
registered management investment company, on June 3, 1996, in a corporate
1
<PAGE> 20
reorganization. All historical financial information contained in this Statement
of Additional Information for periods prior to June 3, 1996, relating to Blue
Chip is that of the BBC Fund. Capital Development acquired substantially all of
the assets of Baird Capital Development Fund, Inc., a registered management
investment company, on August 12, 1996 in a corporate reorganization.
This Statement of Additional Information relates solely to the Retail
Classes of the Funds.
The term "majority of the outstanding shares" of the Company, of a
particular Fund or of a particular class of a Fund means, respectively, the vote
of the lesser of (a) 67% or more of the shares of the Company, such Fund or such
class present at a meeting of the Company's shareholders, if the holders of more
than 50% of the outstanding shares of the Company, such Fund or such class are
present or represented by proxy, or (b) more than 50% of the outstanding shares
of the Company, such Fund or such class.
Shares of the Retail Classes and the Institutional Class of each Fund
have equal rights and privileges. Each share of a particular class is entitled
to one vote, to participate equally in dividends and distributions declared by
the Company's Board of Directors with respect to the class of such Fund and,
upon liquidation of the Fund, to participate proportionately in the net assets
of the Fund allocable to such class remaining after satisfaction of outstanding
liabilities of the Fund allocable to such class. Fund shares are fully paid,
non-assessable and fully transferable when issued and have no preemptive rights
and have such conversion and exchange rights as set forth in the Prospectuses
and this Statement of Additional Information. Fractional shares have
proportionately the same rights, including voting rights, as are provided for a
full share.
Except as specifically noted above, shareholders of each Fund are
entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the different classes
of shares, where applicable, of a Fund. However, on matters affecting one
portfolio of the Company or one class of shares, a separate vote of shareholders
of that portfolio or class is required. Shareholders of a portfolio or class are
not entitled to vote on any matter which does not affect that portfolio or class
but which requires a separate vote of another portfolio or class. An example of
a matter which would be voted on separately by shareholders of a portfolio is
the approval of an advisory agreement, and an example of a matter which would be
voted on separately by shareholders of a class of shares is approval of a
distribution plan.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company.
Under Maryland law and the Company's By-Laws, the Company need not hold
an annual meeting of shareholders unless a meeting is required under the
Investment Company Act of 1940, as amended (the "1940 Act"), to elect directors.
Shareholders may remove directors from office, and a meeting of shareholders may
be called at the request of the holders of 10% or more of the Company's
outstanding shares.
PERFORMANCE
Each Fund's performance may be quoted in advertising in terms of yield
or total return. All advertisements of the Funds will disclose the maximum sales
charge (including deferred sales charge) to which investments in shares of the
Funds may be subject. If any advertised performance data does not reflect the
maximum sales charge (if any), such advertisement will disclose that the sales
charge has not been deducted in computing the performance data, and that, if
reflected, the maximum sales charge would reduce the performance quoted.
2
<PAGE> 21
Standardized total return for Class A shares of a Fund reflects the
deduction of the maximum initial sales charge at the time of purchase.
Standardized total return for Class B shares of a Fund reflects the deduction of
the maximum applicable contingent deferred sales charge on a redemption of
shares held for the period. Standardized total return for Class C shares of a
Fund reflects the deduction of a 1% contingent deferred sales charge, if
applicable, on a redemption of shares held for the period.
A Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested and that all charges and expenses are deducted. A
cumulative total return reflects a Fund's performance over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Fund's performance had been constant over the entire period. BECAUSE AVERAGE
ANNUAL RETURNS TEND TO EVEN OUT VARIATIONS
IN A FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS ARE NOT THE
SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual returns into
income results and capital gain or loss.
Some or all of the Funds may participate in the Initial Public
Offering ("IPO") market, and a significant portion of those Funds' returns may
be attributable to their investment in IPOs, which have a magnified impact due
to the Funds' small asset base. There is no guarantee that as the Funds' assets
grow, they will continue to experience substantially similar performance by
investing in IPOs.
Yield is computed in accordance with the standardized formula described
below and can be expected to fluctuate from time to time and is not necessarily
indicative of future results. Accordingly, yield information may not provide a
basis for comparison with investments which pay a fixed rate of interest for a
stated period of time. Yield is a function of the type and quality of a Fund's
investments, the Fund's maturity and the Fund's operating expense ratio.
From time to time, A I M Advisors, Inc. ("AIM") or its affiliates may
waive all or a portion of their fees and/or assume certain expenses of any Fund.
Voluntary fee waivers or reductions or commitments to assume expenses may be
rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions or commitments to assume expenses, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions or reimbursement of expenses set
forth in the Fee Table in a Prospectus may not be terminated or amended to the
Funds' detriment during the period stated in the agreement between AIM and the
Fund. Fee waivers or reductions or commitments to reduce expenses will have the
effect of increasing that Fund's yield and total return.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results. A Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in any Fund.
Additional performance information is contained in a Fund's Annual
Report to Shareholders, which is available upon request without charge.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
applicable Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in such Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical investment in a particular Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that a Fund's
3
<PAGE> 22
performance is not constant over time, but changes from year to
year, and that average annual returns do not represent the actual year-to-year
performance of such Fund.
In addition to average annual returns, the Retail Class of each Fund
may quote unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions, over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph or similar
illustration. Total returns may be quoted with or without taking the applicable
Fund's maximum applicable Class A front-end sales charge or Class B or Class C
contingent deferred sales charge into account. Excluding sales charges from a
total return calculation produces a higher total return figure.
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return is as follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable
maximum sales load is deducted at the beginning of the
1, 5, or 10 year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the 1, 5, or 10 year periods (or
fractional portion of such period).
HISTORICAL PORTFOLIO RESULTS
Total returns for Class A shares of Aggressive Growth, Blue Chip, Capital
Development, Charter, Constellation, Large Cap Growth and Weingarten, for the
one-year, five-year, ten-year, fifteen-year and twenty-year (or since inception,
if shorter) periods ended April 30, 1999 (which include the maximum sales charge
of 5.50% and reinvestment of all dividends and distributions), were as follows:
<TABLE>
<CAPTION>
CLASS A AVERAGE ANNUAL RETURNS
------------------------------
ONE FIVE TEN FIFTEEN TWENTY SINCE
YEAR YEARS YEARS YEARS YEARS INCEPTION*
---- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH - 14.77% 14.74% 18.41% N/A N/A 14.69%
BLUE CHIP 13.73% 24.70% 17.39% N/A N/A 15.00%
CAPITAL DEVELOPMENT - 20.14% N/A N/A N/A N/A 10.48%
CHARTER 17.67% 21.28% 17.43% 16.80% 16.96% 14.51%
CONSTELLATION 0.63% 15.82% 18.25% 18.51% 19.17% 18.21%
LARGE CAP GROWTH N/A N/A N/A N/A N/A N/A
WEINGARTEN 16.54% 22.00% 17.30% 18.38% 19.71% 15.64%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CUMULATIVE RETURNS
--------------------------
ONE FIVE TEN FIFTEEN TWENTY SINCE
YEAR YEARS YEARS YEARS YEARS INCEPTION*
---- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH - 14.77% 98.87% 441.81% N/A N/A 681.36%
BLUE CHIP 13.73% 201.54% 396.79% N/A N/A 452.88%
CAPITAL DEVELOPMENT - 20.14% N/A N/A N/A N/A 33.08%
CHARTER 17.67% 162.44% 398.51% 927.68% 2,193.41% 6,067.98%
CONSTELLATION 0.63% 108.40% 434.67% 1,176.86% 3,235.20% 4,584.15%
LARGE CAP GROWTH N/A N/A N/A N/A N/A -0.67%
WEINGARTEN 16.54% 170.30% 393.25% 1,156.41% 3,554.77% 7,576.18%
</TABLE>
4
<PAGE> 23
* The inception dates for the Class A shares of the Funds are May 1,
1984, February 4, 1987, June 17, 1996, November 26, 1968, April 30,
1976, March 1, 1999 and June 17, 1969, respectively.
Blue Chip acquired the investment portfolio of the BBC Fund on June 3,
1996. The performance data set forth above for Blue Chip includes performance
data of the BBC Fund for periods prior to June 3, 1996.
During the 10-year period ended April 30, 1999, a hypothetical $1,000
investment at the beginning of such period in Class A shares of Aggressive
Growth, Blue Chip, Charter, Constellation and Weingarten would have been worth
$5,418, $4,968, $4,985, $5,347 and $4,933, respectively, assuming all
distributions were reinvested.
During the 15-year period ended April 30, 1999, a hypothetical $1,000
investment at the beginning of such period in Class A shares of Charter,
Constellation and Weingarten would have been worth $10,277, $12,769 and $12,564,
respectively, assuming all dividends were reinvested.
During the 20-year period ended April 30, 1999, a hypothetical $1,000
investment at the beginning of such period in Class A shares of Charter,
Constellation and Weingarten would have been worth $22,934, $33,352 and $36,548,
respectively, assuming all distributions were reinvested.
Blue Chip and Capital Development's total returns for Class B shares
for the period ended April 30, 1999 and the period October 1, 1996 (inception
date for Class B shares) through April 30, 1999 (which include the maximum
contingent deferred sales charge of 5% and reinvestment of all dividends and
distributions), Charter and Weingarten's total returns for Class B shares for
the period ended April 30, 1999 and the period June 26, 1995 (inception date for
Class B shares of Charter and Weingarten) through April 30, 1999 (which include
the maximum contingent deferred sales charge of 5% and reinvestment of all
dividends and distributions), Constellation's total returns for Class B shares
for the period November 3, 1997 (inception date for Class B shares) through
April 30, 1999 (which includes the maximum contingent deferred sales charge of
5% and reinvestment of all dividends and distributions), Large Cap Growth's
total return for Class B shares for the period March 1, 1999 (inception date for
Class B shares) through April 30, 1999 (which includes the maximum contingent
deferred sales charge of 5% and reimbursement of all dividends and
distributions) were as follows:
<TABLE>
<CAPTION>
CLASS B AVERAGE ANNUAL RETURNS
------------------------------
Since
One Year Inception*
-------- ----------
<S> <C> <C>
AGGRESSIVE GROWTH N/A N/A
BLUE CHIP 14.44% 27.28%
CAPITAL DEVELOPMENT - 20.33% 7.24%
CHARTER 18.58% 23.05%
CONSTELLATION 0.58% 6.33%
LARGE CAP GROWTH N/A N/A
WEINGARTEN 17.35% 23.06%
</TABLE>
5
<PAGE> 24
<TABLE>
<CAPTION>
CLASS B CUMULATIVE RETURNS
--------------------------
Since
One Year Inception*
-------- ----------
<S> <C> <C>
AGGRESSIVE GROWTH N/A 1.98%
BLUE CHIP 14.44% 86.26%
CAPITAL DEVELOPMENT - 20.33% 19.74%
CHARTER 18.58% 122.07%
CONSTELLATION 0.58% 9.56%
LARGE CAP GROWTH N/A -9.91%
WEINGARTEN 17.35% 122.18%
</TABLE>
* The inception dates for the Class B shares of the Funds are March 1,
1999, October 1, 1996, October 1, 1996, June 26, 1995, November 3,
1997, March 1, 1999, and June 26, 1995, respectively.
Total returns for Class C shares of Blue Chip, Capital Development,
Charter, Constellation and Weingarten, for the period ended April 30, 1999 and
the period August 4, 1997 (inception date for Class C shares) through April 30,
1999, were as follows:
<TABLE>
<CAPTION>
CLASS C AVERAGE ANNUAL RETURNS
------------------------------
Since
One Year Inception*
-------- ----------
<S> <C> <C>
AGGRESSIVE GROWTH N/A N/A
BLUE CHIP 18.48% 21.39%
CAPITAL DEVELOPMENT - 16.99% 1.40%
CHARTER 22.60% 19.32%
CONSTELLATION 4.54% 7.01%
LARGE CAP GROWTH N/A N/A
WEINGARTEN 21.38% 21.77%
</TABLE>
<TABLE>
<CAPTION>
CLASS C CUMULATIVE RETURNS
--------------------------
Since
One Year Inception*
-------- ----------
<S> <C> <C>
AGGRESSIVE GROWTH N/A 5.98%
BLUE CHIP 18.48% 40.04%
CAPITAL DEVELOPMENT - 16.99% 2.45%
CHARTER 22.60% 35.91%
CONSTELLATION 4.54% 12.48%
LARGE CAP GROWTH N/A -6.12%
WEINGARTEN 21.38% 40.79%
</TABLE>
* The inception date for the Class C shares of the Funds is August 4,
1997, except the inception date for the Class C shares of Aggressive
Growth and Large Cap Growth is March 1, 1999.
The performance data listed above is not necessarily indicative of the
future performance of any of the Funds.
Average annual return is not available for Class A, B and C shares of
Demographic Trends, Large Cap Basic Value and Mid Cap because these classes had
no operations prior to April 30, 1999.
6
<PAGE> 25
YIELD QUOTATIONS
The standard formula for calculating yield is as follows:
6
YIELD = 2[((a-b)/(c X d) + 1) -1]
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued rather
than recorded on the ex-dividend date. Interest earned under
this formula must generally be calculated based on the yield to
maturity of each obligation (or, if more appropriate, based on
yield to call date).
b = expense accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the
period.
d = the maximum offering price per share on the last day of the
period.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Incorporated and other independent services which monitor the
performance of mutual funds. The Funds may also advertise mutual fund
performance rankings which have been assigned to each respective Fund by such
monitoring services.
Each Fund's performance may also be compared in advertising and other
materials to the performance of comparative benchmarks such as the Consumer
Price Index ("CPI"), the Russell --Registered Trademark-- indices, the
Standard & Poor's 500 Stock Index, and fixed-price investments such as bank
certificates of deposit and/or savings accounts.
The CPI, published by the U.S. Bureau of Labor Statistics, is a
statistical measure of changes, over time, in the prices of goods and services.
Standard & Poor's 500 Stock Index is a group of unmanaged securities widely
regarded by investors as representative of the stock market in general.
Comparisons assume the reinvestment of dividends. Fixed Price Investments, such
as bank certificates of deposits and savings accounts, are generally backed by
federal agencies for up to $100,000.
In addition, each Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
Each Fund's advertising may from time to time include discussions of
general economic conditions and interest rates. Each Fund's advertising may also
include references to the use of the Fund as part of an individual's overall
retirement investment program.
From time to time, Fund sales literature and/or advertisements may
disclose (i) top holdings included in the Fund's portfolio, (ii) certain selling
group members, and/or (iii) certain institutional shareholders.
From time to time, Demographic Trends sales literature and/or
advertisements may quote (i) Harry S. Dent, Jr.'s theories on why the coming
decade may offer unprecedented opportunities for investors, including his
opinions on the stock market outlook and where growth may be strongest; (ii)
Harry S. Dent, Jr.'s opinions and theories from his books and publications,
including, but not limited to, Job Shock, The Great Boom Ahead and The Roaring
2000s, including his beliefs that (a) people's spending patterns may help
predict the stock market, (b) the stock market has tended to perform best when a
generation has reached its peak spending years from ages 45-50, and (c) as more
and more baby boomers reach their peak spending age, they could propel stock
prices up for the next decade; and (iii) Harry S. Dent, Jr.'s S-curve analysis,
a forecasting tool used to analyze products that show remarkable growth.
Large Cap Growth invests primarily in domestic "brand-name" companies
that are domiciled in the U.S. and compete in the global marketplace. By
investing in companies whose products and services
7
<PAGE> 26
are marketed around the world, Large Cap Growth attempts to capture potential
growth in foreign markets, while benefiting from the growth opportunities and
relative stability of the U.S. marketplace.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. These topics
include, but are not limited to, literature addressing general information about
mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money
markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning and inflation.
ALLOCATION OF IPO SECURITIES TRANSACTIONS
From time to time, certain of the AIM Funds may become interested in
participating in security distributions that are available in an IPO, and
occasions may arise when purchases of such securities by one AIM Fund may also
be considered for purchase by one or more other AIM Funds. In such cases, it
shall be AIM's practice to specifically combine or otherwise bunch indications
of interest for IPO securities for all AIM Funds participating in purchase
transactions for that security, and to allocate such transactions in accordance
with the following procedures:
AIM will determine the eligibility of each AIM Fund that seeks to
participate in a particular IPO by reviewing a number of factors, including
suitability of the investment with the AIM Fund's investment objective,
policies and strategies, the liquidity of the AIM Fund if such investment is
purchased, and whether the portfolio manager intends to hold the security as a
long-term investment. The allocation of limited supply securities issued in
IPOs will be made to eligible AIM Funds in a manner designed to be fair and
equitable for the eligible AIM Funds, and so that there is equal allocation of
IPOs over the longer term. Where multiple funds are eligible, rotational
participation may occur, based on the extent to which an AIM Fund has
participated in previous IPOs as well as the size of the AIM Fund. Each
eligible AIM Fund with an asset level of less than $500 million will be placed
in one of three tiers, depending upon its asset level. The AIM Funds in the
tier containing funds with the smallest asset levels will participate first,
each receiving a 40 basis point allocation (rounded to the nearest share round
lot that approximates 40 basis points) (the "Allocation"), based on that AIM
Fund's net assets. This process continues until all of the AIM Funds in the
three tiers receiving their Allocations, or until the shares are all allocated.
Should securities remain after this process, eligible AIM Funds will receive
their Allocations on a straight pro rata basis. For the tier of AIM Funds not
receiving a full Allocation, the Allocation may be made only to certain AIM
Funds so that each may receive close to or exactly 40 basis points.
Any AIM Funds with substantially identical investment objectives and
policies will participate in syndicates in amounts that are substantially
proportionate to each other. In these cases, the net assets of the largest AIM
Fund will be used to determine in which tier, as described in the paragraph
above, such group of AIM Funds will be placed. The price per share of
securities purchased in such syndicate transactions will be the same for each
AIM Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for each Fund, selects
broker-dealers, effects the Funds' investment portfolio transactions, allocates
brokerage fees in such transactions, and where applicable, negotiates
commissions and spreads on transactions. AIM's primary consideration in
effecting a security transaction is to obtain the most favorable execution of
the order, which includes the best price on the security and a low commission
rate. While AIM seeks reasonably competitive commission rates, the Funds may not
pay the lowest commission or spread available. See "Section 28(e) Standards"
below.
8
<PAGE> 27
Some of the securities in which the Funds invest are traded in
over-the-counter markets. In such transactions, a Fund deals directly with
dealers who make markets in the securities involved, except when better prices
are available elsewhere. Portfolio transactions placed through dealers who are
primary market makers are effected at net prices without commissions, but which
include compensation in the form of a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. ("AIM Capital") (collectively, the "AIM Funds") in
particular, including sales of the Funds and of the other AIM Funds. In
connection with (3) above, the Funds' trades may be executed directly by dealers
that sell shares of the AIM Funds or by other broker-dealers with which such
dealers have clearing arrangements. AIM will not use a specific formula in
connection with any of these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which AIM can recapture are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of a Fund, provided the conditions of an exemptive order received by
the Funds from the SEC are met. In addition, a Fund may purchase or sell a
security from or to another AIM Fund provided the Funds follow procedures
adopted by the Board of Directors/Trustees of the various AIM Funds, including
the Company. These inter-fund transactions do not generate brokerage commissions
but may result in custodial fees or taxes or other related expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to a Fund. In making such allocations,
AIM considers the investment objectives and policies of its advisory clients,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the judgments of the persons responsible for recommending
the investment.
9
<PAGE> 28
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Company's directors with respect to
the performance, investment activities, and fees and expenses of other mutual
funds. Broker-dealers may communicate such information electronically, orally,
in written form or on computer software. Research services may also include the
providing of custody services, as well as the providing of equipment used to
communicate research information, the providing of specialized consultations
with AIM personnel with respect to computerized systems and data furnished to
AIM as a component of other research services, the arranging of meetings with
management of companies, and the providing of access to consultants who supply
research information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
TRANSACTIONS WITH REGULAR BROKERS
As of October 31, 1998, Blue Chip and Charter held an amount of common
stock issued by Merrill Lynch & Co. having a market value of $13,035,000 and
$41,475,000, respectively, and common stock issued by Morgan Stanley, Dean
Witter, Discover & Co. having a market value of $19,425,000, and $42,087,500,
respectively.
BROKERAGE COMMISSIONS PAID
For the fiscal years ended October 31, 1998, 1997 and 1996, Aggressive
Growth paid brokerage commissions of $5,098,276, $4,026,523 and $3,244,570,
respectively. For the fiscal year ended October 31, 1998, AIM allocated certain
of Aggressive Growth's brokerage transactions to certain
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<PAGE> 29
broker-dealers that provided AIM with certain research, statistical and other
information. Such transactions amounted to $393,505,382 and the related
brokerage commissions were $892,852.
For the fiscal years ended October 31, 1998, 1997 and the fiscal period
ended October 31, 1996, Blue Chip paid brokerage commissions of $1,457,590,
$858,396 and $121,246, respectively. For the fiscal year ended October 31, 1998,
AIM allocated certain of Blue Chip's brokerage transactions to certain
broker-dealers that provide AIM with certain research, statistical and other
information. Such transactions amounted to $58,005,198 and the related brokerage
commissions were $66,836.
For the fiscal years ended October 31, 1998, 1997 and the fiscal period
ended October 31, 1996, Capital Development paid brokerage commissions of
$2,277,419, $628,188 and $219,931. For the fiscal year ended October 31, 1998,
AIM allocated certain of Capital Development's brokerage transactions to certain
broker-dealers that provide AIM with certain research, statistical and other
information. Such transactions amounted to $138,016,129 and the related
brokerage commissions were $291,193.
For the fiscal years ended October 31, 1998, 1997 and 1996, Charter
paid brokerage commissions of $15,567,811, $12,073,633 and $9,213,125,
respectively. For the fiscal year ended October 31, 1998, AIM allocated certain
of Charter's brokerage transactions to certain broker-dealers that provided AIM
with certain research, statistical and other information. Such transactions
amounted to $738,229,694 and the related brokerage commissions were $844,218.
For the fiscal years ended October 31, 1998, 1997 and 1996,
Constellation paid brokerage commissions of $25,285,665, $16,928,988 and
$13,032,299, respectively. For the fiscal year ended October 31, 1998, AIM
allocated certain of Constellation's brokerage transactions to certain
broker-dealers that provided AIM with certain research, statistical and other
information. Such transactions amounted to $1,798,503,544 and the related
brokerage commissions were $2,714,083.
For the fiscal years ended October 31, 1998, 1997 and 1996, Weingarten
paid brokerage commissions of $19,810,852, $17,413,682 and $21,795,437,
respectively. For the fiscal year ended October 31, 1998, AIM allocated certain
of Weingarten's brokerage transactions to certain broker-dealers that provided
AIM with certain research, statistical and other information. Such transactions
amounted to $1,115,120,365 and the related brokerage commissions were
$1,262,948.
PORTFOLIO TURNOVER
The portfolio turnover rate of Aggressive Growth, Blue Chip, Capital
Development, Charter, Constellation and Weingarten is shown under "Financial
Highlights" in the applicable Prospectus. Higher portfolio turnover increases
transaction costs to the Fund.
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment policies supplements the
discussion of the investment objectives and policies set forth in the applicable
Prospectus under the heading "Investment Objective and Strategies" and
"Principal Risks of Investing in the Fund."
Each of the Funds may invest, for temporary or defensive purposes, all
or substantially all of their assets in corporate bonds, commercial paper, or
U.S. Government obligations. In addition, a portion of each Fund's assets may be
held, from time to time, in cash, repurchase agreements or other short-term debt
securities when such positions are deemed advisable in light of economic or
market conditions. For a description of the various rating categories of
corporate bonds and commercial paper in which the Funds may invest, see the
Appendix to this Statement of Additional Information.
COMMON STOCKS -- The Funds will invest in common stocks. Common stocks
represent the residual ownership interest in the issuer and are entitled to the
income and increase in the value of the assets and business of the entity after
all of its obligations and preferred stocks are satisfied. Common
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stocks generally have voting rights. Common stocks fluctuate in price in
response to many factors including historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest rates,
investor perceptions and market liquidity.
PREFERRED STOCKS -- The Funds may invest in preferred stocks. Preferred
stock has a preference over common stock in liquidation (and generally dividends
as well) but is subordinated to the liabilities of the issuer in all respects.
As a general rule the market value of preferred stock with a fixed dividend rate
and no conversion element varies inversely with interest rates and perceived
credit risk, while the market price of convertible preferred stock generally
also reflects some element of conversion value. Because preferred stock is
junior to debt securities and other obligations of the issuer, deterioration in
the credit quality of the issuer will cause greater changes in the value of a
preferred stock than in a more senior debt security with similar stated yield
characteristics. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
CONVERTIBLE SECURITIES -- The Funds may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible income securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. Although each
Fund will only purchase convertible securities that AIM considers to have
adequate protection parameters, including an adequate capacity to pay interest
and repay principal in a timely manner, it invests without regard to corporate
bond ratings. Capital Development does not intend to invest more than 5% of its
net assets in convertible securities. Blue Chip does not intend to invest more
than 10% of its total assets in convertible securities.
CORPORATE DEBT SECURITIES -- The Funds may invest in corporate debt
securities. Corporations issue debt securities of various types, including bonds
and debentures (which are long-term), notes (which may be short- or long-term),
bankers acceptances (indirectly secured borrowings to facilitate commercial
transactions) and commercial paper (short-term unsecured notes). These
securities typically provide for periodic payments of interest, at a rate which
may be fixed or adjustable, with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise guaranteed. The
values of fixed rate income securities tend to vary inversely with changes in
interest rates, with longer-term securities generally being more volatile than
shorter-term securities. Corporate securities frequently are subject to call
provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a security
is called during a period of declining interest rates, the Fund may be required
to reinvest the proceeds in securities having a lower yield. In addition, in the
event that a security was purchased at a premium over the call price, a Fund
will experience a capital loss if the security is called. Adjustable rate
corporate debt securities may have interest rate caps and floors.
Blue Chip and Large Cap Growth will not invest in non-convertible
corporate debt securities rated below investment grade by Standard and Poor's
Ratings Services ("S&P") and Moody's Investors Service ("Moody's") or in unrated
non-convertible corporate debt securities believed by the Fund's investment
adviser to be below investment grade quality. Securities rated in the four
highest long-term rating categories by S&P and Moody's are considered to be
"investment grade." S&P's fourth highest long-term rating category is "BBB",
with BBB- being the lowest investment grade rating. Moody's fourth highest
long-term rating category is "Baa", with Baa3 being the lowest investment grade
rating. Publications of S&P indicate that it assigns securities to the "BBB"
rating category when such securities are "regarded as having an adequate
capacity to pay interest and repay principal. Such securities normally exhibit
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<PAGE> 31
adequate protection parameters, but adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay," whereas
securities rated AAA by S&P are regarded as having "capacity to pay interest and
repay principal that is extremely strong." Publications of Moody's indicate that
it assigns securities to the "Baa rating category when such securities are
considered as medium grade obligations, i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well," whereas securities rated Aaa by Moody's "are judged to
be of the best quality" and "carry the smallest degree of investment risk."
U.S. GOVERNMENT SECURITIES -- The Funds may invest in securities issued
or guaranteed by the United States government or its agencies or
instrumentalities. These include Treasury securities (bills, notes, bonds and
other debt securities) which differ only in their interest rates, maturities and
times of issuance. U.S. Government agency and instrumentality securities include
securities which are supported by the full faith and credit of the U.S.,
securities that are supported by the right of the agency to borrow from the U.S.
Treasury, securities that are supported by the discretionary authority of the
U.S. Government to purchase certain obligations of the agency or instrumentality
and securities that are supported only by the credit of such agencies. While the
U.S. Government may provide financial support to such U.S. government-sponsored
agencies or instrumentalities, no assurance can be given that it always will do
so. The U.S. government, its agencies and instrumentalities do not guarantee the
market value of their securities. The values of such securities fluctuate
inversely to interest rates.
REAL ESTATE INVESTMENT TRUSTS
To the extent consistent with their respective investment objectives
and policies, the Funds may invest in equity and/or debt securities issued by
Real Estate Investment Trusts ("REITS"). Such investments will not exceed 25%
of the total assets of any of the Funds.
REITs are trusts which sell equity or debt securities to investors and
use the proceeds to invest in real estate or interests therein. A REIT may focus
on particular projects, such as apartment complexes, or geographic regions, such
as the Southeastern United States, or both.
To the extent that a Fund has the ability to invest in REITs, such Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic condition, adverse change in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expense, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain exemption from the 1940 Act. Changes in interest rates may
also affect the value of debt securities held by a Fund. By investing in REITs
indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
FOREIGN SECURITIES
To the extent consistent with their respective investment objectives,
each of the Funds may invest in foreign securities. Each of Aggressive Growth,
Blue Chip, Capital Development, Demographic Trends, Large Cap Basic Value, Large
Cap Growth And Mid Cap may invest up to 25% of its total assets in foreign
securities. Each of Charter, Constellation and Weingarten may invest up to 20%
of its total assets
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in foreign securities. For purposes of computing such limitation American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and other
securities representing underlying securities of foreign issuers are treated as
foreign securities. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a United States bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs are receipts issued in Europe which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets, and EDRs, in bearer form, are designed for use
in European securities markets. ADRs and EDRs may be listed on stock exchanges,
or traded in OTC markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates.
To the extent a Fund invests in securities denominated in foreign
currencies, each Fund bears the risk of changes in the exchange rates between
U.S. currency and the foreign currency, as well as the availability and status
of foreign securities markets. These securities will be marketable equity
securities (including common and preferred stock, depositary receipts for stock
and fixed income or equity securities exchangeable for or convertible into
stock) of foreign companies which generally are listed on a recognized foreign
securities exchange or traded in a foreign over-the-counter market. Each of the
Funds may also invest in foreign securities listed on recognized U.S. securities
exchanges or traded in the U.S. over-the-counter market. Such foreign securities
may be issued by foreign companies located in developing countries in various
regions of the world. A "developing country" is a country in the initial stages
of its industrial cycle. As compared to investment in the securities markets of
developed countries, investment in the securities markets of developing
countries involves exposure to markets that may have substantially less trading
volume and greater price volatility, economic structures that are less diverse
and mature, and political systems that may be less stable.
Investments by a Fund in foreign securities, whether denominated in
U.S. currencies or foreign currencies, may entail all of the risks set forth
below. Investments by a Fund in ADRs, EDRs or similar securities also may entail
some or all of the risks as set forth below.
Currency Risk. The value of each Fund's foreign investments will
be affected by changes in currency exchange rates. The U.S. dollar value of
a foreign security decreases when the value of the U.S. dollar rises against
the foreign currency in which the security is denominated and increases when
the value of the U.S. dollar falls against such currency.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a
common European currency known as the "euro" and each member's local currency
became a denomination of the euro. It is anticipated that each participating
country will replace its local currency with the euro on July 1, 2002. Any other
European country that is a member of the European Union and satisfies the
criteria for participation in the EMU may elect to participate in the EMU and
may supplement its existing currency with the euro. The anticipated replacement
of existing currencies with the euro on July 1, 2002 could cause market
disruptions before or after July 1, 2002 and could adversely affect the value of
securities held by a Fund.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest are not as developed as the United States economy and
may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of each
Fund's investments.
Regulatory Risk. Foreign companies are not registered with the SEC and
are generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income
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<PAGE> 33
from foreign securities owned by the Funds may be reduced by a withholding tax
at the source, which tax would reduce dividend income payable to the Funds'
shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
FOREIGN EXCHANGE TRANSACTIONS
Each Fund has authority to deal in foreign exchange between currencies
of the different countries in which it will invest either for the settlement of
transactions or as a hedge against possible variations in the foreign exchange
rates between those currencies. This may be accomplished through direct
purchases or sales of foreign currency, purchases of futures contracts with
respect to foreign currency (and options thereon), and contractual agreements to
purchase or sell a specified currency at a specified future date (up to one
year) at a price set at the time of the contract. Such contractual commitments
may be forward contracts entered into directly with another party or
exchange-traded futures contracts. The Fund may purchase and sell options on
futures contracts or forward contracts which are denominated in a particular
foreign currency to hedge the risk of fluctuations in the value of another
currency. The Fund's dealings in foreign exchange may involve specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of foreign currency with respect to specific receivables or payables of the Fund
accruing in connection with the purchase or sale of its portfolio securities,
the sale and redemption of shares of the Fund, or the payment of dividends and
distributions by the Fund. Position hedging is the purchase or sale of foreign
currency with respect to portfolio security positions (or underlying portfolio
security positions, such as in an ADR) denominated or quoted in a foreign
currency. The Fund will not speculate in foreign exchange, nor commit a larger
percentage of its total assets to foreign exchange hedges than the percentage of
its total assets that it could invest in foreign securities.
ILLIQUID SECURITIES
None of the Funds will invest more than 15% of their net assets in
illiquid securities, including repurchase agreements with maturities in excess
of seven days.
RULE 144A SECURITIES
The Funds may purchase privately placed securities that are eligible
for purchase and sale pursuant to Rule 144A under the Securities Act of 1933
(the "1933 Act"). This Rule permits certain qualified institutional buyers, such
as a Fund, to trade in securities that have not been registered under the 1933
Act. AIM, under the supervision of the Company's Board of Directors, will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the Fund's restriction of investing no more than 15% of its assets in
illiquid securities. Determination of whether a Rule 144A security is liquid or
not is a question of fact. In making this determination AIM will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, AIM could consider the (i)
frequency of trades and quotes, (ii) number of dealers and potential purchasers,
(iii) dealer undertakings to make a market, and (iv) nature of the security and
of market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities will also be monitored by AIM and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to determine
what, if any, action is required to assure that the Fund does not invest more
than 15% of its assets in illiquid securities. Investing in Rule 144A securities
could have the
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<PAGE> 34
effect of increasing the amount of the Fund's investments in illiquid securities
if qualified institutional buyers are unwilling to purchase such securities.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Funds may each make
secured loans of portfolio securities amounting to not more than 33-1/3% of its
total assets. Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to the value of the securities
lent marked to market on a daily basis. The collateral received will consist of
cash, U.S. Government securities, letters of credit or such other collateral as
may be permitted under the Fund's investment program. While the securities are
being lent, the Fund will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. The Fund has a right to
call each loan and obtain the securities on five business days' notice or, in
connection with securities trading on foreign markets, within such longer period
of time which coincides with the normal settlement period for purchases and
sales of such securities in such foreign markets. The Fund will not have the
right to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. Loans will not be made unless, in the
judgment of AIM, the consideration to be earned from such loans would justify
the risk.
REPURCHASE AGREEMENTS
The Funds may each enter into repurchase agreements. A repurchase
agreement is an instrument under which a Fund acquires ownership of a debt
security and the seller (usually a broker or bank) agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the Fund's holding period. In the event of
bankruptcy or other default of a seller of a repurchase agreement, the Fund may
experience both delays in liquidating the underlying securities and losses,
including: (a) a possible decline in the value of the underlying security during
the period in which the Fund seeks to enforce its rights thereto; (b) a possible
subnormal level of income and lack of access to income during this period; and
(c) expenses of enforcing its rights. A repurchase agreement is collateralized
by the security acquired by the Fund and its value is marked to market daily in
order to minimize the Fund's risk. Repurchase agreements usually are for short
periods, such as one or two days, but may be entered into for longer periods of
time. Repurchase agreements are not included in each Fund's restrictions on
lending. Repurchase agreements are considered to be loans by each Fund under the
1940 Act.
Charter may enter into repurchase agreements (at any time, up to 50% of
its net assets), using only U.S. Government securities, for the sole purpose of
increasing its yield on idle cash. Charter will not invest in a repurchase
agreement of more than seven days' duration if, as a result of that investment,
the amount of repurchase agreements of more than seven days' duration and other
illiquid assets of Charter would exceed 15% of its assets.
REVERSE REPURCHASE AGREEMENTS
Consistent with Charter's, Demographic Trends', Large Cap Basic Value's
and Mid Cap's policies on borrowings, Charter, Demographic Trends , Large Cap
Basic Value and Mid Cap may invest in reverse repurchase agreements with banks,
which involve the sale of securities held by the Fund, with an agreement that
the Fund will repurchase the securities at an agreed upon price and date. The
Funds may employ reverse repurchase agreements (i) for temporary emergency
purposes, such as to meet unanticipated net redemptions so as to avoid
liquidating other portfolio securities during unfavorable market conditions;
(ii) to cover short-term cash requirements resulting from the timing of trade
settlements; or (iii) to take advantage of market situations where the interest
income to be earned from
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<PAGE> 35
the investment of the proceeds of the transaction is greater than the interest
expense of the transaction. At the time it enters into a reverse repurchase
agreement, a Fund will segregate liquid securities having a dollar value equal
to the repurchase price. Reverse repurchase agreements are considered borrowings
by the Fund under the 1940 Act.
SPECIAL SITUATIONS
Although Constellation does not currently intend to do so, it may
invest in "special situations." A special situation arises when, in the opinion
of the Fund's management, the securities of a particular company will, within a
reasonably estimable period of time, be accorded market recognition at an
appreciated value solely by reason of a development applicable to that company,
and regardless of general business conditions or movements of the market as a
whole. Developments creating special situations might include, among others:
liquidations, reorganizations, recapitalizations, mergers, material litigation,
technical breakthroughs, and new management or management policies. Although
large and well-known companies may be involved, special situations more often
involve comparatively small or unseasoned companies. Investments in unseasoned
companies and special situations often involve much greater risk than is
inherent in ordinary investment securities.
SHORT SALES
Although Aggressive Growth, Blue Chip, Constellation, Demographic
Trends, Large Cap Basic Value, Large Cap Growth, Mid Cap and Weingarten do not
currently intend to do so, they and Capital Development may each enter into
short sales transactions. None of Aggressive Growth, Blue Chip, Capital
Development, Constellation, Demographic Trends, Large Cap Basic Value, Large Cap
Growth, Mid Cap or Weingarten will make short sales of securities nor maintain a
short position unless at all times when a short position is open, the Fund owns
an equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." Such short sales will be
used by each of Aggressive Growth, Blue Chip, Capital Development,
Constellation, Demographic Trends, Large Cap Basic Value, Large Cap Growth, Mid
Cap and Weingarten for the purpose of deferring recognition of gain or loss for
federal income tax purposes. In no event may more than 10% of the value of the
respective Fund's net assets (10% of the value of total assets of Aggressive
Growth) be deposited or pledged as collateral for such sales at any time.
WARRANTS
The Funds may, from time to time, invest in warrants. Warrants are, in
effect, longer-term call options. They give the holder the right to purchase a
given number of shares of a particular company at specified prices within
certain periods of time. The purchaser of a warrant expects that the market
price of the security will exceed the purchase price of the warrant plus the
exercise price of the warrant, thus giving him a profit. Of course, since the
market price may never exceed the exercise price before the expiration date of
the warrant, the purchaser of the warrant risks the loss of the entire purchase
price of the warrant. Warrants generally trade in the open market and may be
sold rather than exercised. Warrants are sometimes sold in unit form with other
securities of an issuer. Units of warrants and common stock may be employed in
financing young, unseasoned companies. The purchase price of a warrant varies
with the exercise price of a warrant, the current market value of the underlying
security, the life of the warrant and various other investment factors.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
Each Fund may purchase securities on a "when-issued" basis, that is,
delivery of and payment for the securities is not fixed at the date of purchase,
but is set after the securities are issued (normally within forty-five days
after the date of the transaction). Each Fund also may purchase or sell
securities on a delayed delivery basis. The payment obligation and the interest
rate that will be received on the delayed delivery securities are fixed at the
time the buyer enters into the commitment. A Fund will only make commitments to
purchase when-issued or delayed delivery securities with the intention of
actually
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<PAGE> 36
acquiring such securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable.
Investment in securities on a when-issued or delayed delivery basis may
increase a Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. A Fund will employ techniques designed to
reduce such risks. If a Fund purchases a when-issued security, the Fund will
segregate liquid assets in an amount equal to the when-issued commitment. If the
market value of such assets declines, additional cash or securities will be
segregated on a daily basis so that the market value of the segregated assets
will equal the amount of the Fund's when-issued commitments. To the extent cash
and securities are segregated, they will not be available for new investments or
to meet redemptions. Securities purchased on a delayed delivery basis may
require a similar segregation of liquid assets.
INVESTMENT IN UNSEASONED ISSUERS
Charter, Demographic Trends, Large Cap Basic Value and Mid Cap may
purchase securities of unseasoned issuers. Securities in such issuers may
provide opportunities for long term capital growth. Greater risks are associated
with investments in securities of unseasoned issuers than in the securities of
more established companies because unseasoned issuers have only a brief
operating history and may have more limited markets and financial resources. As
a result, securities of unseasoned issuers tend to be more volatile than
securities of more established companies.
INVESTMENT IN OTHER INVESTMENT COMPANIES
Each of the Funds may invest in other investment companies to the
extent permitted by the 1940 Act, and rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC. The Funds have obtained an
exemptive order from the SEC allowing them to invest in money market funds that
have AIM or an affiliate of AIM as an investment adviser (the "Affiliated Money
Market Funds"), provided that investments in Affiliated Money Market Funds do
not exceed 25% of the total assets of such Fund. With respect to a Fund's
purchase of shares of the Affiliated Money Market Funds, the Fund will
indirectly pay the advisory fees and other operating expenses of the Affiliated
Money Market Funds.
TEMPORARY DEFENSIVE INVESTMENTS
In anticipation of or in response to adverse market conditions, for
cash management purposes, or for defensive purposes, each of the Funds may
temporarily hold all or a portion of its assets in cash, money market
instruments, bonds, or other debt securities. Each of the Funds may also
invest up to 25% of its total assets in Affiliated Money Market Funds for
these purposes.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
The Funds may each use forward contracts, futures contracts, options on
securities, options on indices, options on currencies, and options on futures
contracts to attempt to hedge against the overall level of investment and
currency risk normally associated with each Fund's investments. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities).
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GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use by the Funds of options, futures contracts and forward currency
contracts involves special considerations and risks, as described below. Risks
pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract, forward contract or option thereon at
any particular time.
(5) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
COVER
Transactions using forward contracts, futures contracts and options
(other than options purchased by a Fund) expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, currencies, or
other options, forward contracts or futures contracts or (2) cash, liquid assets
and/or short-term debt securities with a value sufficient at all times to cover
its potential obligations not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities. To the extent that
a futures contract, forward contract or option is deemed to be illiquid, the
assets used to "cover" the Fund's obligation will also be treated as illiquid
for purposes of determining the Fund's maximum allowable investment in illiquid
securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, the Fund will treat the
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market value of the option (i.e., the amount at risk to the Fund) as illiquid,
but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward contract, futures contract or option is open, unless they
are replaced with other appropriate assets. If a large portion of a Fund's
assets is used for cover or otherwise set aside, it could affect portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
WRITING CALL OPTIONS
Each of the Funds may write (sell) covered call options on securities,
futures contracts, forward contracts, indices and currencies. As the writer of a
call option, a Fund would have the obligation to deliver the underlying
security, cash or currency (depending on the type of derivative) to the holder
(buyer) at a specified price (the exercise price) at any time until (American
style) or on (European style) a certain date (the expiration date). So long as
the obligation of a Fund continues, it may be assigned an exercise notice,
requiring it to deliver the underlying security, cash or currency against
payment of the exercise price. This obligation terminates upon the expiration of
the call option, or such earlier time at which a Fund effects a closing purchase
transaction by purchasing an option identical to that previously sold.
When writing a call option a Fund, in return for the premium, gives up
the opportunity for profit from a price increase in the underlying security,
contract or currency above the exercise price, and retains the risk of loss
should the price of the security, contract or currency decline. Unlike one who
owns securities, contracts or currencies not subject to an option, a Fund has no
control over when it may be required to sell the underlying securities,
contracts or currencies, since most options may be exercised at any time prior
to the option's expiration. If a call option that a Fund has written expires, it
will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security, contract or
currency during the option period. If the call option is exercised, a Fund will
realize a gain or loss from the sale of the underlying security, contract or
currency, which will be increased or offset by the premium received.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option.
Closing transactions may be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security, contract or currency
from being called or to permit the sale of the underlying security, contract or
currency. Furthermore, effecting a closing transaction will permit a Fund to
write another call option on the underlying security, contract or currency with
either a different exercise price or expiration date, or both.
WRITING PUT OPTIONS
Each of the Funds may write (sell) covered put options on securities,
futures contracts, forward contracts, indices and currencies. As the writer of a
put option, a Fund would have the obligation to buy the underlying security,
contract or currency (depending on the type of derivative) at the exercise price
at any time until (American style) or on (European style) the expiration date.
This obligation terminates upon the expiration of the put option, or such
earlier time at which a Fund effects a closing purchase transaction by
purchasing an option identical to that previously sold.
A Fund would write a put option at an exercise price that, reduced by
the premium received on the option, reflects the lower price it is willing to
pay for the underlying security, contract or currency. The risk in such a
transaction would be that the market price of the underlying security, contract
or currency would decline below the exercise price less the premium received.
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PURCHASING PUT OPTIONS
Each of the Funds may purchase covered put options on securities,
futures contracts, forward contracts, indices and currencies. As the holder of
a put option, a Fund would have the right to sell the underlying security,
contract or currency at the exercise price at any time until (American style)
or on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise such option or permit such
option to expire.
A Fund may purchase a put option on an underlying security, contract or
currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The premium
paid for the put option and any transaction costs would reduce any profit
realized when the security, contract or currency is delivered upon exercise of
said option. Conversely, if the underlying security, contract or currency does
not decline in value, the option may expire worthless and the premium paid for
the protective put would be lost.
A Fund may also purchase put options on underlying securities,
contracts or currencies against which it has written other put options. For
example, where a Fund has written a "put option" on an underlying security,
rather than entering a closing transaction of the written option, it may
purchase a put option with a different exercise price and/or expiration date
that would eliminate some or all of the risk associated with the written put.
Used in combinations, these strategies are commonly referred to as put spreads.
Likewise, a Fund may write call options on underlying securities, contracts or
currencies against which it has purchased protective put options. This strategy
is commonly referred to as a "collar".
PURCHASING CALL OPTIONS
Each of the Funds may purchase covered call options on securities,
futures contracts, forward contracts, indices and currencies. As the holder of a
call option, a Fund would have the right to purchase the underlying security,
contract or currency at the exercise price at any time until (American style) or
on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise such options or permit such
options to expire.
Call options may be purchased by a Fund for the purpose of acquiring
the underlying security, contract or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable a Fund to acquire the
security, contract or currency at the exercise price of the call option plus the
premium paid. So long as it holds such a call option, rather than the underlying
security or currency itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security, contract or currency
and, in such event, could allow the call option to expire, incurring a loss only
to the extent of the premium paid for the option.
Each of the Funds may also purchase call options on underlying
securities, contracts or currencies against which it has written other call
options. For example, where a Fund has written a call option on an underlying
security, rather than entering a closing transaction of the written option, it
may purchase a call option with a different exercise price and/or expiration
date that would eliminate some or all of the risk associated with the written
call. Used in combinations, these strategies are commonly referred to as "call
spreads."
OVER-THE-COUNTER OPTIONS
Options may be either listed on an exchange or traded in
over-the-counter ("OTC") markets. Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. A Fund will not purchase an OTC option unless it
believes that daily valuations for such options are readily obtainable. OTC
options differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which guarantees
performance). Consequently,
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there is a risk of non-performance by the dealer. Since no exchange is involved,
OTC options are valued on the basis of an average of the last bid prices
obtained from dealers, unless a quotation from only one dealer is available, in
which case only that dealer's price will be used. In the case of OTC options,
there can be no assurance that a liquid secondary market will exist for any
particular option at any specific time. Although a Fund will enter into OTC
options only with dealers that are expected to be capable of entering into
closing transactions with it, there is no assurance that the Fund will in fact
be able to close out an OTC option position at a favorable price prior to
expiration. In the event of insolvency of the dealer, a Fund might be unable to
close out an OTC option position at any time prior to its expiration.
The staff of the SEC considers purchased OTC options (i.e., the market
value of the option) to be illiquid securities. A Fund may also sell OTC
options and, in connection therewith, segregate assets or cover its
obligations with respect to OTC options written by it. The assets used as
cover for OTC options written by the Fund will be considered illiquid unless
the OTC options are sold to qualified dealers who agree that the Fund may
repurchase any OTC option it writes at a maximum price to be calculated by a
formula set forth in the option agreement. The cover for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities
or futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call or put times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, a Fund cannot, as a practical matter, acquire and hold
a portfolio containing exactly the same securities as underlie the index and, as
a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
LIMITATIONS ON OPTIONS
A Fund will not write options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at
any time of the investment, the aggregate premiums paid for the options will
exceed 5% of the Fund's total assets.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Each of the Funds may enter into interest rate, currency or stock index
futures contracts (collectively, "Futures" OR "Futures Contracts") as a hedge
against changes in prevailing levels of interest rates, currency exchange rates
or stock price levels, respectively, in order to establish more definitely the
effective return on securities or currencies held or intended to be acquired by
it. A Fund's hedging may include sales of Futures as an offset against the
effect of expected increases in interest rates, and decreases in currency
exchange rates and stock prices, and purchases of Futures as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
A Futures Contract is a two party agreement to buy or sell a specified
amount of a specified security or currency (or delivery of a cash settlement
price, in the case of an index future) for a specified price at a designated
date, time and place. A stock index future provides for the delivery, at a
designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference
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between the stock index value at the close of trading on the contract and the
price agreed upon in the Futures Contract; no physical delivery of stocks
comprising the index is made. Brokerage fees are incurred when a Futures
Contract is bought or sold, and margin deposits must be maintained at all times
the Future is outstanding.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC").
Foreign futures exchanges and trading thereon are not regulated by the CFTC and
are not subject to the same regulatory controls. For a further discussion of
the risks associated with investments in foreign securities, see "Foreign
Securities" in this Statement of Additional Information.
Closing out an open Future is effected by entering into an offsetting
Future for the same aggregate amount of the identical financial instrument or
currency and the same delivery date. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular Future at a particular time. If a Fund is not able to enter into an
offsetting transaction, it will continue to be required to maintain the margin
deposits on the Future.
A Fund's Futures transactions will be entered into for hedging purposes
only; that is, Futures will be sold to protect against a decline in the price of
securities or currencies that the Fund owns, or Futures will be purchased to
protect the Fund against an increase in the price of securities or currencies it
has committed to purchase or expects to purchase.
"Margin" with respect to Futures is the amount of funds that must be
deposited by a Fund in order to initiate Futures trading and maintain its open
positions in Futures. A margin deposit made when the Futures Contract is entered
("initial margin") is intended to ensure the Fund's performance under the
Futures Contract. The margin required for a particular Future is set by the
exchange on which the Future is traded and may be significantly modified from
time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures more or less valuable, a process known as
marking-to-market.
If a Fund were unable to liquidate a Future or an option on a Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the Future or option or to maintain cash or securities in a segregated
account.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account.
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FORWARD CONTRACTS
A forward contract is an obligation, usually arranged with a commercial
bank or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund either
may accept or make delivery of the currency at the maturity of the forward
contract. A Fund may also, if its contra party agrees prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract. Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, it may be more difficult to
value such contracts, and it may be difficult to enter into closing
transactions.
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward contracts with respect to a specific purchase or
sale of a security, or with respect to its portfolio positions generally. When a
Fund purchases a security denominated in a foreign currency for settlement in
the near future, it may immediately purchase in the forward market the currency
needed to pay for and settle the purchase. By entering into a forward contract
with respect to the specific purchase or sale of a security denominated in a
foreign currency, the Fund can secure an exchange rate between the trade and
settlement dates for that purchase or sale transaction. This practice is
sometimes referred to as "transaction hedging." Position hedging is the purchase
or sale of foreign currency with respect to portfolio security positions
denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. The use of
forward contracts does not eliminate fluctuations in the prices of the
underlying securities a Fund owns or intends to acquire, but it does establish a
rate of exchange in advance. In addition, while forward contract sales limit the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result should the value of the currencies
increase.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on
Futures Contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the liquidation value of the Fund, after taking into account
unrealized profits and unrealized losses on any contracts it has entered into.
This guideline may be modified by the Board, without a shareholder vote. This
limitation does not limit the percentage of the Fund's assets at risk to 5%.
INVESTMENT RESTRICTIONS
The following fundamental policies and investment restrictions have
been adopted by each Fund as indicated and, except as noted, such policies
cannot be changed without the approval of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act.
AGGRESSIVE GROWTH
Aggressive Growth may not:
(a) with respect to 75% of the total assets of the Fund, purchase the
securities of any issuer if such purchase would cause more than 5% of the value
of its assets to be invested in the securities of such issuer (except U.S.
Government securities including securities issued by its agencies and
instrumentalities and except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order);
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(b) concentrate 25% or more of its investments in a particular
industry;
(c) make short sales of securities (unless at all times when a short
position is open it either owns an amount of such securities or owns securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's total assets
(taken at current value) is held for such sales at any one time) or purchase
securities on margin, but it may obtain such short-term credit as is necessary
for the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in stock index futures contracts and
options thereon;
(d) act as a securities underwriter under the 1933 Act;
(e) make loans, except (i) through the purchase of a portion of an
issue of bonds or other obligations of types commonly offered publicly and
purchased by financial institutions, and (ii) through the purchase of short-term
obligations (maturing within a year), including repurchase agreements, provided
that the Fund may lend its portfolio securities provided the value of such
loaned securities does not exceed 33-1/3% of its total assets;
(f) borrow, except that the Fund may enter into stock index futures
contracts and that the right is reserved to borrow from banks, provided that no
borrowing may exceed one-third of the value of its total assets (including the
proceeds of such borrowing) and may secure such borrowings by pledging up to
one-third of the value of its total assets. (For the purposes of this
restriction, neither collateral arrangements with respect to margin for a stock
index futures contracts nor the segregation of securities in connection with
short sales are deemed to be a pledge of assets); or
(g) buy or sell commodities, commodity contracts or real estate.
Aggressive Growth does not intend (a) to invest for the purposes of
influencing management or exercising control; or (b) to purchase additional
securities when any borrowings from banks exceed 5% of the Fund's total assets.
The investment policies stated in this paragraph are not fundamental policies of
the Funds and may be changed by the Board of Directors of the Company without
shareholder approval. Shareholders will be notified before any material change
in the investment policies stated above become effective.
Except for the borrowing policy, if a percentage restriction is adhered
to at the time of investment, a later change in the percentage of such
investment held by a Fund resulting solely from changes in values or assets will
not be considered to be a violation of the restriction.
BLUE CHIP
Blue Chip may not:
(a) issue bonds, debentures or senior equity securities;
(b) concentrate its investments; that is, invest 25% or more
of the value of its assets in issuers which conduct their business
operations in the same industry;
(c) invest in real estate, except that this restriction does
not preclude investments in real estate investment trusts;
(d) write, purchase, or sell puts, calls, straddles, spreads
or combinations thereof (other than covered put and call options), or
sell securities short (except against the box collateralized by not
more than 10% of its net assets) or deal in commodities;
(e) make loans, except that the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt
securities, or purchasing short-term obligations, is not considered to
be a loan
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for purposes of this restriction, provided that the Fund may
lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(f) purchase securities on margin, except that the Fund may
obtain such short term credits as may be necessary for the clearance of
purchases or sales of securities;
(g) borrow money or pledge its assets except that, as a
temporary measure for extraordinary or emergency purposes and not for
investment purposes, the Fund may borrow from banks (including the
Fund's custodian bank) amounts of up to 10% of the value of its total
assets, and may pledge amounts of up to 20% of its total assets to
secure such borrowings; or
(h) act as an underwriter of securities of other issuers.
In addition, Blue Chip may not (a) with respect to 75% of the Fund's
total assets, invest more than 5% of the total assets of the Fund (valued at
market) in securities of any one issuer (other than obligations of the U.S.
Government and its instrumentalities) or purchase more than 10% of the
outstanding securities of any one issuer or more than 10% of any class of
securities of an issuer, except that the Fund may purchase securities of
Affiliated Money Market Funds to the extent permitted by exemptive order;
or (b) purchase additional securities when any borrowings from banks exceed 5%
of the Fund's total assets. These additional restrictions are not fundamental,
and may be changed by the Board of Directors of the Company without shareholder
approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
CAPITAL DEVELOPMENT
Capital Development may not:
(a) with respect to 75% of the total assets of the Fund, purchase the
securities of any one issuer (except securities issued or guaranteed by the U.S.
Government) if, immediately after and as a result of such purchase, (i) the
value of the holdings of the Fund in the securities of such issuer exceeds 5% of
the value of the Fund's total assets, or (ii) the Fund owns more than 10% of the
outstanding voting securities of any one class of securities of such issuer,
except that the Fund may purchase securities of other investment companies to
the extent permitted by applicable law or exemptive order;
(b) concentrate its investments; that is, invest 25% or more of the
value of its total assets in issuers who conduct their business operations in
the same industry;
(c) buy or sell commodities or commodity contracts or purchase or sell
real estate or other interests in real estate including real estate limited
partnership interests, except that this restriction does not preclude
investments in marketable securities of companies engaged in real estate
activities or in master limited partnership interests that are traded on a
national securities exchange;
(d) make loans, except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or purchasing
short-term obligations, is not considered to be a loan for purposes of this
restriction, provided that the Fund may lend its portfolio securities provided
the value of such loaned securities does not exceed 33-1/3% of its total assets;
(e) purchase securities on margin, except that the Fund may obtain such
short term credits as may be necessary for the clearance of purchases or sales
of securities, or sell securities short (except against the box and
collateralized by not more than 10% of its net assets);
(f) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment purposes,
the Fund may borrow from banks (including the Fund's custodian bank) provided
that no borrowing may exceed one-third of the value of its total assets,
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including the proceeds of such borrowings, and may secure such borrowings by
pledging up to one-third of the value of its total assets;
(g) act as an underwriter of securities of other issuers; or
(h) issue bonds, debentures, or senior equity securities.
In addition, Capital Development may not purchase additional securities
when any borrowings from banks exceed 5% of the Fund's total assets. This
additional restriction is not fundamental, and may be changed by the Board of
Directors of the Company without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
CHARTER
Charter may not:
(a) purchase the securities of any one issuer (except securities issued
or guaranteed by the U.S. Government) if, immediately after and as a result of
such purchase, (i) the value of the holdings of the Fund in the securities of
such issuer exceeds 5% of the value of the Fund's total assets, or (ii) the Fund
owns more than 10% of the outstanding voting securities of any one class of
securities of such issuers, except that the Fund may purchase securities of
other investment companies to the extent permitted by applicable law or
exemptive order.
(b) concentrate its investments; that is, invest 25% or more of the
value of its assets in any particular industry;
(c) purchase or sell real estate or other interests in real estate
(except that this restriction does not preclude investments in marketable
securities of companies engaged in real estate activities);
(d) buy or sell physical commodities or physical commodity contracts,
including physical commodities futures contracts, or deal in oil, gas, or other
mineral exploration or development programs;
(e) make loans (except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or entering
into a repurchase agreement, is not considered to be a loan for purposes of this
restriction), provided that the Fund may lend its portfolio securities provided
the value of such loaned securities does not exceed 33-1/3% of its total assets;
(f) purchase securities on margin or sell short;
(g) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment purposes,
the Fund may borrow from banks (including the Fund's custodian bank) amounts of
up to 10% of the value of its total assets, and may pledge amounts of up to 20%
of its total assets to secure such borrowings;
(h) invest in companies for the purpose of exercising control or
management, except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(i) act as an underwriter of securities of other issuers;
(j) purchase from or sell to any officer, director or employee of the
Fund, or its advisors or distributor, or to any of their officers or directors,
any securities other than shares of the capital stock of Charter; or
27
<PAGE> 46
(k) purchase or retain the securities of any issuer if those officers
and directors of the Company, its advisors or distributor owning individually
more than 1/2 of 1% of the securities of such issuer, together own more than 5%
of the securities of such issuer.
In addition, Charter may not (a) issue senior securities, except to the
extent permitted by applicable law or exemptive order, or (b) purchase
additional securities when any borrowings from banks exceed 5% of the Fund's
total assets. These restrictions are not fundamental and may be changed by the
Board of Directors of the Company without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
CONSTELLATION
Constellation may not:
(a) invest for the purpose of exercising control over or management of
any company, except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(b) engage in the underwriting of securities of other issuers;
(c) purchase and sell real estate or commodities or commodity
contracts;
(d) make loans, except by the purchase of a portion of an issue of
publicly distributed bonds, debentures or other obligations, provided that the
Fund may lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(e) invest in interests in oil, gas or other mineral exploration or
development programs; or
(f) invest 25% or more of the value of its total assets in securities
of issuers all of which conduct their principal business activities in the same
industry.
In addition, Constellation may borrow money to a limited extent from
banks (including the Fund's custodian bank) for temporary or emergency purposes
or to purchase or carry securities. The Fund may borrow funds from a bank
(including its custodian bank) to purchase or carry securities only if,
immediately after such borrowing, the value of the Fund's assets, including the
amount borrowed, less its liabilities, is equal to at least 300% of the amount
borrowed, plus all outstanding borrowings. For the purpose of determining this
300% asset coverage requirement, the Fund's liabilities will not include the
amount borrowed but will include the market value, at the time of computation,
of all securities borrowed by the Fund in connection with short sales. The
amount of borrowing will also be limited by the applicable margin limitations
imposed by the Federal Reserve Board. If at any time the value of the Fund's
assets should fail to meet the 300% asset coverage requirement, the Fund will,
within three days, reduce its borrowings to the extent necessary. The Fund may
be required to eliminate partially or totally its outstanding borrowings at
times when it may not be desirable for it to do so. Any investment gains made by
the Fund with the borrowed monies in excess of interest paid by the Fund will
cause the net asset value of the Fund's shares to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased with the proceeds of such borrowings fails to
cover the interest paid on the money borrowed by the Fund, the net asset value
of the Fund will decrease faster than would otherwise be the case. This
speculative factor is known as "leveraging."
The Board of Directors of the Company has also adopted the following
limitations which are not matters of fundamental policy of Constellation and
which may be changed without shareholder approval:
(a) the Fund may not issue senior securities, except to the extent
permitted by applicable law or exemptive order; or
28
<PAGE> 47
(b) the Fund may not purchase additional securities when any borrowings
from banks exceed 5% of the Fund's total assets.
Except for the borrowing policy, if a percentage restriction is adhered
to at the time of investment, a later change in the percentage of such
investment held by a Fund resulting solely from changes in values or assets,
will not be considered to be a violation of the restriction.
DEMOGRAPHIC TRENDS
Demographic Trends is subject to the following investment restrictions,
which may be changed only by a vote of a majority of the Fund's outstanding
shares:
(a) the Fund is a "diversified company" as defined in the 1940
Act. The Fund will not purchase the securities of any issuer if, as a
result, the Fund would fail to be a diversified company within the
meaning of the 1940 Act, and the rules and regulations promulgated
thereunder, as such statute, rules and regulations are amended from
time to time or are interpreted from time to time by the SEC staff
(collectively, the "1940 Act Laws and Interpretations") or to the
extent that the Fund may be permitted to do so by exemptive order or
similar relief (collectively, with the 1940 Act Laws and
Interpretations, the "1940 Act Laws, Interpretations and Exemptions").
In complying with this restriction, however, the Fund may purchase
securities of other investment companies to the extent permitted by the
1940 Act Laws, Interpretations and Exemptions.
(b) the Fund may not borrow money, except as permitted by the
1940 Act Laws, Interpretations and Exemptions.
(c) the Fund may not issue senior securities, except as may be
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(d) the Fund may not underwrite the securities of other
issuers. This restriction does not prevent the Fund from engaging in
transactions involving the acquisition, disposition or resale of its
portfolio securities, regardless of whether the Fund may be considered
to be an underwriter under the Securities Act of 1933.
(e) the Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940
Act Laws, Interpretations and Exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This
restriction does not limit the Fund's investments in (i) obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or (ii) tax-exempt obligations issued by governments
or political subdivisions of governments. In complying with this
restriction, the Fund will not consider a bank-issued guaranty or
financial guaranty insurance as a separate security.
(f) the Fund may not purchase real estate or sell real estate
unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from investing
in issuers that invest, deal, or otherwise engage in transactions in
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein.
(g) the Fund may not purchase physical commodities or sell
physical commodities unless acquired as a result of ownership of
securities or other instruments. This restriction does not prevent the
Fund from engaging in transactions such as futures, contracts and
options thereon or investing in securities that are secured by physical
commodities.
(h) the Fund may not make personal loans or loans to persons
who control or are under the common control of the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from purchasing debt obligations,
entering into
29
<PAGE> 48
repurchase agreements, loaning its assets to broker-dealers or
institutional investors, or investing in loans, including assignments
and participation interests.
(i) the Fund may, notwithstanding any other fundamental
investment policy or restriction, invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Fund.
The investment restrictions set forth above provide Demographic Trends
with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of the change. Even though Demographic Trends has this flexibility, the
Board of Directors of the Company has adopted internal guidelines for the Fund
relating to certain of these restrictions which the adviser must follow in
managing the Fund. Any changes to these guidelines, which are set forth below,
require the approval of the Board of Directors.
1. In complying with the diversification restriction set forth in
(a), the Fund will not, with respect to 75% of its total
assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities), if, as a result, (i)
more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (ii) the fund would hold
more than 10% of the outstanding voting securities of that
issuer. The fund may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other
money market funds and lend money to other investment
companies and their series portfolios that have AIM as an
investment adviser, subject to the terms and conditions of any
exemptive orders issued by the SEC.
2. In complying with the borrowing restriction set forth in (b),
the Fund may borrow money in an amount not exceeding 33-1/3%
of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from
banks, broker/dealers or other investment companies or their
series portfolios that have AIM or an affiliate of AIM as an
investment adviser (an "AIM Fund"). The Fund may not borrow
for leveraging, but may borrow for temporary or emergency
purposes, in anticipation of or in response to adverse market
conditions, or for cash management purposes. The Fund may not
purchase additional securities when any borrowing from banks
exceed 5% of the Fund's total assets.
3. In complying with the concentration restriction set forth in
(e) above, the Fund may invest up to 25% of its total assets
in the securities of issuers whose principal business
activities are in the same industry.
4. In complying with the lending restrictions set forth in (h)
above, the Fund may lend up to 33-1/3% of its total assets and
may lend money to another AIM Fund, on such terms and
conditions as the SEC may require in an exemptive order.
5. Notwithstanding the restriction set forth in (i) above, the
Fund may not invest all of its assets in the securities of a
single open-end management investment company with the same
fundamental investment objectives, policies and limitations as
the Fund.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
LARGE CAP BASIC VALUE
Large Cap Basic Value is subject to the following investment
restrictions, which may be changed only by a vote of a majority of the Fund's
outstanding shares:
30
<PAGE> 49
(a) the Fund is a "diversified company" as defined in the 1940
Act. The Fund will not purchase the securities of any issuer if, as a
result, the Fund would fail to be a diversified company within the
meaning of the 1940 Act, and the rules and regulations promulgated
thereunder, as such statute, rules and regulations are amended from
time to time or are interpreted from time to time by the SEC staff
(collectively, the "1940 Act Laws and Interpretations") or to the
extent that the Fund may be permitted to do so by exemptive order or
similar relief (collectively, with the 1940 Act Laws and
Interpretations, the "1940 Act Laws, Interpretations and Exemptions").
In complying with this restriction, however, the Fund may purchase
securities of other investment companies to the extent permitted by the
1940 Act Laws, Interpretations and Exemptions.
(b) the Fund may not borrow money, except as permitted by the
1940 Act Laws, Interpretations and Exemptions.
(c) the Fund may not issue senior securities, except as may be
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(d) the Fund may not underwrite the securities of other
issuers. This restriction does not prevent the Fund from engaging in
transactions involving the acquisition, disposition or resale of its
portfolio securities, regardless of whether the Fund may be considered
to be an underwriter under the Securities Act of 1933.
(e) the Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940
Act Laws, Interpretations and Exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This
restriction does not limit the Fund's investments in (i) obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or (ii) tax-exempt obligations issued by governments
or political subdivisions of governments. In complying with this
restriction, the Fund will not consider a bank-issued guaranty or
financial guaranty insurance as a separate security.
(f) the Fund may not purchase real estate or sell real estate
unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from investing
in issuers that invest, deal, or otherwise engage in transactions in
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein.
(g) the Fund may not purchase physical commodities or sell
physical commodities unless acquired as a result of ownership of
securities or other instruments. This restriction does not prevent the
Fund from engaging in transactions such as futures, contracts and
options thereon or investing in securities that are secured by physical
commodities.
(h) the Fund may not make personal loans or loans to persons
who control or are under the common control of the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from purchasing debt obligations,
entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans,
including assignments and participation interests.
(i) the Fund may, notwithstanding any other fundamental
investment policy or restriction, invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Fund.
The investment restrictions set forth above provide Large Cap Basic
Value with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of the change. Even though Large Cap Basic Value has this flexibility,
the Board of Directors of the Company has adopted internal guidelines for the
Fund relating to certain of these restrictions which the adviser must follow in
managing the Fund. Any changes to these guidelines, which are set forth below,
require the approval of the Board of Directors.
31
<PAGE> 50
1. In complying with the diversification restriction set forth in
(a), the Fund will not, with respect to 75% of its total
assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities), if, as a result, (i)
more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (ii) the fund would hold
more than 10% of the outstanding voting securities of that
issuer. The fund may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other
money market funds and lend money to other investment
companies and their series portfolios that have AIM as an
investment adviser, subject to the terms and conditions of any
exemptive orders issued by the SEC.
2. In complying with the borrowing restriction set forth in (b),
the Fund may borrow money in an amount not exceeding 33-1/3%
of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from
banks, broker/dealers or other investment companies or their
series portfolios that have AIM or an affiliate of AIM as an
investment adviser (an "AIM Fund"). The Fund may not borrow
for leveraging, but may borrow for temporary or emergency
purposes, in anticipation of or in response to adverse market
conditions, or for cash management purposes. The Fund may not
purchase additional securities when any borrowing from banks
exceed 5% of the Fund's total assets.
3. In complying with the concentration restriction set forth in
(e) above, the Fund may invest up to 25% of its total assets
in the securities of issuers whose principal business
activities are in the same industry.
4. In complying with the lending restrictions set forth in (h)
above, the Fund may lend up to 33-1/3% of its total assets and
may lend money to another AIM Fund, on such terms and
conditions as the SEC may require in an exemptive order.
5. Notwithstanding the restriction set forth in (i) above, the
Fund may not invest all of its assets in the securities of a
single open-end management investment company with the same
fundamental investment objectives, policies and limitations as
the Fund.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
LARGE CAP GROWTH
Large Cap Growth may not:
(a) issue bonds, debentures or senior equity securities;
(b) concentrate its investments; that is, invest 25% or more
of the value of its assets in issuers which conduct their business
operations in the same industry;
(c) invest in real estate, except that this restriction does
not preclude investments in real estate investment trusts;
(d) make loans, except that the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt
securities, or purchasing short-term obligations, is not considered to
be a loan for purposes of this restriction, provided that the Fund may
lend its portfolio securities provided the value of such loaned
securities does not exceed 33-1/3% of its total assets;
(e) purchase securities on margin, except that the Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases or sales of securities;
32
<PAGE> 51
(f) borrow money or pledge its assets except that, as a
temporary measure for extraordinary or emergency purposes and not for
investment purposes, the Fund may borrow from banks (including the
Fund's custodian bank) amounts of up to 10% of the value of its total
assets, and may pledge amounts of up to 20% of its total assets to
secure such borrowings;
(g) act as an underwriter of securities of other issuers; or
(h) purchase physical commodities.
In addition, Large Cap Growth may not (a) with respect to 75% of the
Fund's total assets, invest more than 5% of the total assets of the Fund (valued
at market) in securities of any one issuer (other than obligations of the U.S.
Government and its instrumentalities) or purchase more than 10% of the
outstanding securities of any one issuer, except that the Fund may purchase
securities of Affiliated Money Market Funds to the extent permitted by exemptive
order; or, (b) purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets. These additional restrictions are not
fundamental, and may be changed by the Board of Directors of the Company without
shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
MID CAP
Mid Cap is subject to the following investment restrictions, which may
be changed only by a vote of a majority of the Fund=s outstanding shares:
(a) the Fund is a "diversified company" as defined in the 1940
Act. The Fund will not purchase the securities of any issuer if, as a
result, the Fund would fail to be a diversified company within the
meaning of the 1940 Act, and the rules and regulations promulgated
thereunder, as such statute, rules and regulations are amended from
time to time or are interpreted from time to time by the SEC staff
(collectively, the "1940 Act Laws and Interpretations") or to the
extent that the Fund may be permitted to do so by exemptive order or
similar relief (collectively, with the 1940 Act Laws and
Interpretations, the "1940 Act Laws, Interpretations and Exemptions").
In complying with this restriction, however, the Fund may purchase
securities of other investment companies to the extent permitted by the
1940 Act Laws, Interpretations and Exemptions.
(b) the Fund may not borrow money, except as permitted by the
1940 Act Laws, Interpretations and Exemptions.
(c) the Fund may not issue senior securities, except as may be
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(d) the Fund may not underwrite the securities of other
issuers. This restriction does not prevent the Fund from engaging in
transactions involving the acquisition, disposition or resale of its
portfolio securities, regardless of whether the Fund may be considered
to be an underwriter under the Securities Act of 1933.
(e) the Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940
Act Laws, Interpretations and Exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This
restriction does not limit the Fund's investments in (i) obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or (ii) tax-exempt obligations issued by governments
or political subdivisions of governments. In complying with this
restriction, the Fund will not consider a bank-issued guaranty or
financial guaranty insurance as a separate security.
33
<PAGE> 52
(f) the Fund may not purchase real estate or sell real estate
unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from investing
in issuers that invest, deal, or otherwise engage in transactions in
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein.
(g) the Fund may not purchase physical commodities or sell
physical commodities unless acquired as a result of ownership of
securities or other instruments. This restriction does not prevent the
Fund from engaging in transactions such as futures, contracts and
options thereon or investing in securities that are secured by physical
commodities.
(h) the Fund may not make personal loans or loans to persons
who control or are under the common control of the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from purchasing debt obligations,
entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans,
including assignments and participation interests.
(i) the Fund may, notwithstanding any other fundamental
investment policy or restriction, invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Fund.
The investment restrictions set forth above provide Mid Cap with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though Mid Cap has this flexibility, the Board of Directors of
the Company has adopted internal guidelines for the Fund relating to certain of
these restrictions which the adviser must follow in managing the Fund. Any
changes to these guidelines, which are set forth below, require the approval of
the Board of Directors.
1. In complying with the diversification restriction set forth in
(a), the Fund will not, with respect to 75% of its total
assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities), if, as a result, (i)
more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (ii) the fund would hold
more than 10% of the outstanding voting securities of that
issuer. The fund may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other
money market funds and lend money to other investment
companies and their series portfolios that have AIM as an
investment adviser, subject to the terms and conditions of any
exemptive orders issued by the SEC.
2. In complying with the borrowing restriction set forth in (b),
the Fund may borrow money in an amount not exceeding 33-1/3%
of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from
banks, broker/dealers or other investment companies or their
series portfolios that have AIM or an affiliate of AIM as an
investment adviser (an "AIM Fund"). The Fund may not borrow
for leveraging, but may borrow for temporary or emergency
purposes, in anticipation of or in response to adverse market
conditions, or for cash management purposes. The Fund may not
purchase additional securities when any borrowing from banks
exceed 5% of the Fund's total assets.
3. In complying with the concentration restriction set forth in
(e) above, the Fund may invest up to 25% of its total assets
in the securities of issuers whose principal business
activities are in the same industry.
4. In complying with the lending restrictions set forth in (h)
above, the Fund may lend up to 33-1/3% of its total assets and
may lend money to another AIM Fund, on such terms and
conditions as the SEC may require in an exemptive order.
34
<PAGE> 53
5. Notwithstanding the restriction set forth in (i) above, the
Fund may not invest all of its assets in the securities of a
single open-end management investment company with the same
fundamental investment objectives, policies and limitations as
the Fund.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
WEINGARTEN
Weingarten may not:
(a) issue bonds, debentures or senior equity securities;
(b) underwrite securities of other companies or purchase restricted
securities ("letter stock");
(c) invest in real estate, except that the Fund may purchase securities
of real estate investment trusts;
(d) lend money, except in connection with the acquisition of a portion
of an issue of publicly distributed bonds, debentures or other corporate or
governmental obligations, provided that the Fund may lend its portfolio
securities provided the value of such loaned securities does not exceed 33-1/3%
of its total assets;
(e) purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
(f) purchase shares in order to control management of a company, except
that the Fund may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order;
(g) buy or sell physical commodities or physical commodity contracts,
including physical commodities futures contracts;
(h) invest 25% or more of the value of its total assets in securities
of issuers all of which conduct their principal business activities in the same
industry; or
(i) borrow money or pledge its assets, except that, as a temporary
measure for extraordinary or emergency purposes and not for investment purposes,
the Fund may borrow from banks (including the Fund's custodian bank) amounts of
up to 10% of the value of its total assets, and may pledge amounts of up to 20%
of its total assets to secure such borrowings.
In addition, Weingarten may not (a) invest more than 5% of the total
assets of the Fund (valued at market) in securities of any one issuer (other
than obligations of the U.S. Government and its instrumentalities), except that
the Fund may purchase securities of Affiliated Money Market Funds to the extent
permitted by exemptive order; (b) purchase more than 10% of the outstanding
securities of any one issuer or more than 10% of any class of securities of an
issuer, except that the fund may purchase securities of Affiliated Money Market
Funds to the extent permitted by exemptive order; or (c) purchase additional
securities when any borrowings from banks exceed 5% of the Fund's total assets.
These additional restrictions are not fundamental, and may be changed by the
Board of Directors of the Company without shareholder approval.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
35
<PAGE> 54
MANAGEMENT
The overall management of the business and affairs of the Funds is
vested with the Company's Board of Directors. The Board of Directors approves
all significant agreements between the Company and persons or companies
furnishing services to a Fund, including the Master Advisory Agreement with AIM,
the Master Sub-Advisory Agreement between AIM and AIM Capital with respect to
the Funds, the Master Administrative Services Agreement with AIM, the Master
Distribution Agreement with AIM Distributors as the distributor of the shares of
the Retail Classes of the Funds, the Custodian Agreement with State Street Bank
and Trust Company as custodian and the Transfer Agency and Service Agreement
with A I M Fund Services, Inc. ("AFS" or the "Transfer Agent") as transfer
agent. The day-to-day operations of each Fund are delegated to its officers and
to AIM, subject always to the objectives and policies of the Fund and to the
general supervision of the Company's Board of Directors. Certain directors and
officers of the Company are affiliated with AIM and A I M Management Group Inc.
("AIM Management"), the parent corporation of AIM.
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
indicated, the address of each director and officer is 11 Greenway Plaza, Suite
100, Houston, TX 77046-1173. All of the Company's executive officers hold
similar offices with some or all of the other AIM Funds.
<TABLE>
<CAPTION>
=========================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (80) Director and Chairman of the Board of Directors, A I M Management
Chairman Group Inc.; A I M Advisors, Inc., A I M Capital Management,
Inc., A I M Distributors, Inc., A I M Fund Services, Inc.,
and Fund Management Company; and Vice Chairman and Director,
AMVESCAP PLC.
- -------------------------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (55) Director Director, ACE Limited (insurance company). Formerly,
906 Frome Lane Director, President and Chief Executive Officer, COMSAT
McLean, VA 22102 Corporation; and Chairman, Board of Governors of INTELSAT
(international communications company).
- -------------------------------------------------------------------------------------------------------------------------
OWEN DALY II (74) Director Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental Life
Baltimore, MD 21210 Insurance Company and Monumental General Insurance
Company; and Chairman of the Board of Equitable
Bancorporation.
- -------------------------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (64) Director Chairman of the Board of Directors, Mercantile Mortgage
2 Hopkins Plaza, 20th Floor Corp; Formerly, Vice Chairman of the Board of Directors
Baltimore, MD 21201 and President, Mercantile - Safe Deposit & Trust Co.;
and President, Mercantile Bankshares.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
36
<PAGE> 55
<TABLE>
<CAPTION>
=========================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JACK FIELDS (47) Director Chief Executive Officer, Texana Global, Inc.(foreign
Jetero Plaza, Suite E trading company) and Twenty-First Century Group, Inc.
8810 Will Clayton Parkway (governmental affairs company). Formerly, Member of
Humble, Texas 77338 the U.S. House of Representatives.
- -------------------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (62) Director Partner, Kramer, Levin, Naftalis & Frankel LLP (law
919 Third Avenue firm). Formerly Partner, Reid & Priest (law firm).
New York, NY 10022
- -------------------------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (52) Director and Director, President and Chief Executive Officer, A I M
President Management Group Inc.; Director and President, A I M
Advisors, Inc.; Director and Senior Vice President, A I M
Capital Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., and Fund Management Company;
Director, AMVESCAP PLC.
- -------------------------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (48) Director Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department for
New York, NY 10118 the Aging; and Member of the Board of Directors,
Metropolitan Transportation Authority of New York State.
- -------------------------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (56) Director Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
- -------------------------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (59) Director Executive Vice President, Development and Operations,
Transco Tower, 50th Floor Hines Interests Limited Partnership (real
2800 Post Oak Blvd. estate development).
Houston, TX 77056
- -------------------------------------------------------------------------------------------------------------------------
GARY T. CRUM (51) Senior Vice Director and President, A I M Capital Management, Inc.;
President Director and Executive Vice President, A I M Management
Group Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director, A I M Distributors, Inc.
and AMVESCAP PLC.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
** A director who is an "interested person" of the Company as defined in
the 1940 Act.
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
37
<PAGE> 56
<TABLE>
<CAPTION>
=========================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAROL F. RELIHAN (44) Senior Vice Director, Senior Vice President, General Counsel and
President Secretary, A I M Advisors, Inc.; Senior Vice President,
and Secretary General Counsel and Secretary, A I M Management Group
Inc.; Director, Vice President and General Counsel,
Fund Management Company; General Counsel and Vice
President, A I M Fund Services, Inc.; and Vice
President, A I M Capital Management, Inc., and A I M
Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (55) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc., and Fund
Management Company.
- -------------------------------------------------------------------------------------------------------------------------
DANA R. SUTTON (40) Vice President and Vice President and Fund Controller, A I M Advisors,
Treasurer Inc.; and Assistant Vice President and Assistant
Treasurer, Fund Management Company.
- -------------------------------------------------------------------------------------------------------------------------
EDGAR M. LARSEN (58) Vice President Vice President, A I M Capital Management Inc.
=========================================================================================================================
</TABLE>
The standing committees of the Board of Directors are the Audit Committee,
the Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock, Sklar and Dr. Mathai-Davis. The Audit
Committee is responsible for meeting with the Company's auditors to review audit
procedures and results and to consider any matters arising from an audit to be
brought to the attention of the directors as a whole with respect to the
Company's fund accounting or its internal accounting controls, and considering
such matters as may from time to time be set forth in a charter adopted by the
Board of Directors and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock, Sklar (Chairman) and Dr. Mathai-Davis.
The Investment Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are
Messrs. Crockett (Chairman), Daly, Dunn, Fields, Pennock, Sklar and Dr.
Mathai-Davis. The Nominating and Compensation Committee is responsible for
considering and nominating individuals to stand for election as directors who
are not interested persons as long as the Company maintains a distribution plan
pursuant to Rule 12b-1 under the 1940 Act, reviewing from time to time the
compensation payable to the disinterested directors, and considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such committee.
All of the Company's directors also serve as directors or trustees of some
or all of the other investment companies managed or advised by AIM. All of the
Company's executive officers hold similar offices with some or all of the other
investment companies managed or advised by AIM.
38
<PAGE> 57
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. Each director who
is not also an officer of the Company is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director or trustee of other AIM Funds. Each such director receives
a fee, allocated among the AIM Funds for which he or she serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
Set forth below is information regarding compensation paid or accrued for
each director of the Company:
<TABLE>
<CAPTION>
========================================================================================================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL AIM FROM ALL
DIRECTOR COMPANY(1) FUNDS(2) AIM FUNDS(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------------------
Bruce L. Crockett 23,162 37,485 96,000
- --------------------------------------------------------------------------------------------------------
Owen Daly II 23,162 122,898 96,000
- --------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. 14,866 0 78,889
- --------------------------------------------------------------------------------------------------------
Jack Fields 23,038 15,826 95,500
- --------------------------------------------------------------------------------------------------------
Carl Frischling(4) 23,162 97,971 95,500
- --------------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- --------------------------------------------------------------------------------------------------------
John F. Kroeger(5) 21,972 107,896 91,654
- --------------------------------------------------------------------------------------------------------
Prema Mathai-Davis 2,126 0 32,636
- --------------------------------------------------------------------------------------------------------
Lewis F. Pennock 23,162 45,766 95,500
- --------------------------------------------------------------------------------------------------------
Ian Robinson(6) 22,787 94,442 94,500
- --------------------------------------------------------------------------------------------------------
Louis S. Sklar 22,907 90,232 95,500
========================================================================================================
</TABLE>
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended October 31, 1998, including interest earned
thereon, was $112,867.
(2) During the fiscal year ended October 31, 1998, the total amount of expenses
allocated to the Company in respect of such retirement benefits was
$222,013. Data reflects compensation for the calendar year ended December
31, 1998.
(3) Each Director serves as director or trustee of a total of 12 registered
investment companies advised by AIM (comprised of over 50 portfolios). Data
reflects total compensation for the calendar year ended December 31, 1998.
39
<PAGE> 58
(4) During the year ended October 31, 1998, Aggressive Growth, Blue Chip,
Capital Development, Charter, Constellation and Weingarten, each paid
$10,572, $5,463, $5,579, $12,926, $31,902 and $16,595, respectively, in
legal fees to Mr. Frischling's law firm, Kramer, Levin, Naftalis & Frankel
LLP for services rendered.
(5) Mr. Kroeger was a director until June 11, 1998, when he resigned. On that
date he became a consultant to the Company. Of the amount listed above,
$12,784.63 was for compensation for services as a director and the
remainder as a consultant. Mr. Kroeger passed away on November 26, 1998.
Mr. Kroeger's widow will receive his pension as described below under "AIM
Funds Retirement Plan for Eligible Directors/Trustees."
(6) Mr. Robinson was a director until March 12, 1999, when he retired.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any of
the AIM Funds, AIM Management or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board of Directors. Pursuant to the
Plan, the normal retirement date is the date on which the eligible director has
attained age 65 and has completed at least five years of continuous service with
one or more of the regulated investment companies managed, administered or
distributed by AIM or its affiliates (the "Applicable AIM Funds"). Each eligible
director is entitled to receive an annual benefit from the Applicable AIM Funds
commencing on the first day of the calendar quarter coincident with or following
his date of retirement equal to a maximum of 75% of the annual retainer paid or
accrued by the Applicable AIM Funds for such director during the twelve-month
period immediately preceding the director's retirement (including amounts
deferred under a separate agreement between the Applicable AIM Funds and the
director) and based on the number of such director's years of service (not in
excess of 10 years of service) completed with respect to any of the Applicable
AIM Funds. Such benefit is payable to each eligible director in quarterly
installments. If an eligible director dies after attaining the normal retirement
date but before receipt of any benefits under the Plan commences, the director's
surviving spouse (if any) shall receive a quarterly survivor's benefit equal to
50% of the amount payable to the deceased director for no more than ten years
beginning the first day of the calendar quarter following the date of the
director's death. Payments under the Plan are not secured or funded by any
Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming a specified level of
compensation and years of service classifications. The estimated credited years
of service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger,
Pennock, Robinson, Sklar and Dr. Mathai-Davis are 11, 11, 0, 1, 21, 20, 17,
11, 9, and 0 years, respectively.
40
<PAGE> 59
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
====================================================
Number of
Years of Annual Retirement
Service With Compensation Paid By All
the Applicable Applicable AIM Funds
AIM Funds
====================================================
<S> <C>
10 $67,500
----------------------------------------------------
9 $60,750
----------------------------------------------------
8 $54,000
----------------------------------------------------
7 $47,250
----------------------------------------------------
6 $40,500
----------------------------------------------------
5 $33,750
====================================================
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Dunn, Fields, Frischling, Robinson and Sklar (for
purposes of this paragraph only, the "deferring directors") have each executed a
Deferred Compensation Agreement (collectively, the "Agreements"). Pursuant to
the Agreements, the deferring directors may elect to defer receipt of up to 100%
of their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of their deferral accounts shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Agreement) beginning on the date the
deferring director's retirement benefits commence under the Plan. The Company's
Board of Directors, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the deferring director's
termination of service as a director of the Company. If a deferring director
dies prior to the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
single lump sum payment as soon as practicable after such deferring director's
death. The Agreements are not funded and, with respect to the payments of
amounts held in the deferral accounts, the deferring directors have the status
of unsecured creditors of the Company and of each other AIM Fund from which they
are deferring compensation.
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES AND SUB-ADVISORY AGREEMENTS
AIM is a wholly owned subsidiary of AIM Management, a holding company
that has been engaged in the financial services business since 1976. The address
of AIM is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. AIM was organized
in 1976, and, together with its subsidiaries, advises or manages over 110
investment portfolios encompassing a broad range of investment objectives. AIM
Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire
Square, London EC2M 4YR, United Kingdom. AMVESCAP PLC and its subsidiaries are
an independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Certain of the directors and officers of AIM are also
executive officers of the Company and their affiliations are shown under
"Directors and Officers." AIM Capital, a wholly owned subsidiary of AIM, is
engaged in the business of providing investment advisory services to investment
companies, corporations, institutions and other accounts.
41
<PAGE> 60
AIM and the Company have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) to pre-clear personal
securities transactions subject to the Code of Ethics, (b) to file reports or
duplicate confirmations regarding such transactions, (c) to refrain from
personally engaging in (i) short-term trading of a security, (ii) transactions
involving a security within seven days of an AIM Fund transaction involving the
same security, and (iii) transactions involving securities being considered for
investment by an AIM Fund, and (d) abide by certain other provisions under the
Code of Ethics. The Code of Ethics also prohibits investment personnel and all
other AIM employees from purchasing securities in an initial public offering.
Personal trading reports are reviewed periodically by AIM, and the Board of
Directors reviews quarterly and annual reports (including information on any
substantial violations of the Code of Ethics). Sanctions for violations of the
Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Funds have entered into a Master Investment Advisory Agreement (the
"Master Advisory Agreement") and a Master Administrative Services Agreement (the
"Master Administrative Services Agreement") with AIM. In addition, AIM has
entered into a Master Sub-Advisory Agreement (the "Master Sub-Advisory
Agreement") with AIM Capital with respect to Charter, Weingarten and
Constellation.
Under the terms of the Master Advisory Agreement, AIM supervises all
aspects of the Funds' operations and provides investment advisory services to
the Funds. AIM obtains and evaluates economic, statistical and financial
information to formulate and implement investment programs for the Funds. AIM
will not be liable to the Funds or their shareholders except in the case of
AIM's willful misfeasance, bad faith, gross negligence or reckless disregard of
duty.
Pursuant to the Master Administrative Services Agreement, AIM has
agreed to provide or arrange for the provision of certain accounting and other
administrative services to the Funds, including the services of a principal
financial officer of the Funds and related staff. As compensation to AIM for its
services under the Master Administrative Service Agreements, the Funds reimburse
AIM for expenses incurred by AIM or its subsidiaries in connection with such
services.
Under the terms of the Master Sub-Advisory Agreement, AIM has appointed
AIM Capital to provide certain investment advisory services for each of Charter,
Constellation and Weingarten, subject to overall supervision by AIM and the
Company's Board of Directors. Certain of the directors and officers of AIM
Capital are also executive officers of the Company.
Both the Master Advisory Agreement and the Master Sub-Advisory
Agreement provide that the Fund will pay or cause to be paid all expenses of the
Fund not assumed by AIM or AIM Capital, including, without limitation: brokerage
commissions, taxes, legal, auditing or governmental fees, the cost of preparing
share certificates, custodian, transfer and shareholder service agent costs,
expenses of issue, sale, redemption, and repurchase of shares, expenses of
registering and qualifying shares for sale, expenses relating to directors and
shareholder meetings, the cost of preparing and distributing reports and notices
to shareholders, the fees and other expenses incurred by the Company on behalf
of the Fund in connection with membership in investment company organizations,
the cost of printing copies of prospectuses and statements of additional
information distributed to the Funds' shareholders and all other charges and
costs of the Funds' operations unless otherwise explicitly provided.
The Master Advisory Agreement and the Master Sub-Advisory Agreement
each provide that if, for any fiscal year, the total of all ordinary business
expenses of any Fund, including all investment advisory fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses, such
as litigation, exceed the applicable expense limitations imposed by state
securities regulations in any state in which such Fund's shares are qualified
for sale, as such limitations may be raised or lowered from time to time, the
aggregate of all such investment advisory fees with respect to such Fund shall
be reduced by the amount of such excess. The amount of any such reduction to be
borne by AIM shall be deducted from the monthly investment advisory fees
otherwise payable to AIM with respect to such Fund during such fiscal year. If
required pursuant to such state securities regulations, AIM will reimburse each
Fund, no later than the last day of the first month of the next succeeding
fiscal year, for any such annual operating expenses (after reduction of all
investment advisory fees in excess of such limitation).
42
<PAGE> 61
The Master Advisory Agreement and the Master Sub-Advisory Agreement
will continue from year to year only if such continuance is specifically
approved at least annually by (i) the Company's Board of Directors or the vote
of a "majority of the outstanding voting securities" of the Funds (as defined in
the 1940 Act), and (ii) the affirmative vote of a majority of the directors who
are not parties to the agreements or "interested persons" of any such party (the
"Non-Interested Directors") by votes cast in person at a meeting called for such
purpose. Each agreement provides that the Funds, AIM (in the case of the Master
Advisory Agreement) or AIM Capital (in the case of the Master Sub-Advisory
Agreement) may terminate such agreement on 60 days' written notice without
penalty. Each agreement terminates automatically in the event of its assignment.
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund. Fee waivers or
reductions set forth in the Master Advisory Agreement may not be terminated
without shareholder approval.
AIM has contractually agreed to a reduction of advisory fees for
Charter, Constellation and Weingarten at net asset levels higher than those
currently incorporated in the advisory fee schedule. Accordingly, with respect
to each of Charter and Constellation, AIM receives a fee calculated at an annual
rate of 1.0% of the first $30 million of such Fund's average daily net assets,
plus 0.75% of such Fund's average daily net assets in excess of $30 million to
and including $150 million, plus 0.625% of such Fund's average daily net assets
in excess of $150 million. With respect to Weingarten, AIM's fee is calculated
at an annual rate of 1.0% of the first $30 million of the Fund's average daily
net assets, plus 0.75% of the Fund's average daily net assets in excess of $30
million to and including $350 million, plus 0.625% of the Fund's average daily
net assets in excess of $350 million.
With respect to Aggressive Growth, AIM's fee is calculated at an annual
rate of 0.80% of the first $150 million of the Fund's average daily net assets,
plus 0.625% of the Fund's average daily net assets in excess of $150 million.
With respect to Blue Chip and Capital Development, AIM is entitled to receive a
fee calculated at an annual rate of 0.75% of the first $350 million of such
Fund's average daily net assets, plus 0.625% of such Fund's average daily net
assets in excess of $350 million. With respect to Demographic Trends, AIM is
entitled to receive a fee calculated at an annual rate of 0.85% of the first $2
billion of average daily net assets plus 0.80% of the Fund's average daily net
assets in excess of $2 billion. With respect to Large Cap Basic Value, AIM is
entitled to receive a fee calculated at an annual rate of 0.60% of the first $1
billion of average daily net assets, plus 0.575% of the Fund's average daily net
assets in excess of $1 billion to and including $2 billion of average daily net
assets, plus 0.55% of the Fund's average daily net assets in excess of $2
billion. With respect to Large Cap Growth, AIM is entitled to receive a fee
calculated at an annual rate of 0.75% of the first $1 billion of such Fund's
average daily net assets, plus 0.70% of such Fund's average daily net assets in
excess of $1 billion to and including $2 billion, plus 0.625% of such Fund's
average daily net assets in excess of $2 billion. With respect to Mid Cap, AIM
is entitled to receive a fee calculated at an annual rate of 0.80% of the first
$1 billion of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $1 billion.
As compensation for its services, AIM pays 50% of the advisory fees it
receives pursuant to the Master Advisory Agreement with respect to Charter,
Constellation and Weingarten to AIM Capital.
Each Fund paid to AIM the following advisory fees net of any expense
limitations (fee waivers) for the years ended October 31, 1998, 1997 and 1996:
43
<PAGE> 62
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggressive Growth...................... $21,617,925 $19,244,957 $16,492,564
Blue Chip.............................. 8,680,763 3,154,473 256,773*
Capital Development.................... 7,886,238 3,371,800 280,248**
Charter................................ 31,058,588 24,725,606 16,529,891
Constellation.......................... 86,555,468 80,116,284 57,614,412
Weingarten............................. 40,657,216 35,300,671 29,960,379
</TABLE>
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $188,544, and for the period October 1, 1996
through October 31, 1996 it was $68,229.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
For the fiscal year ended October 31, 1998, 1997 and 1996, AIM waived
advisory fees for each Fund as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggressive Growth ..... $ 0 $ 0 $ 0
Blue Chip ............. 0 100,380 26,433*
Capital Development.... 0 262,189 144,946**
Charter ............... 762,337 498,463 156,975
Constellation ......... 3,074,705 2,805,955 1,869,383
Weingarten ............ 2,917,461 2,187,021 1,458,804
</TABLE>
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $19,409, and for the period October 1, 1996
through October 31, 1996 it was $7,024.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
Prior to June 3, 1996, the investment advisor to Blue Chip was Baird.
Baird was also the Fund's distributor. Baird is an indirect partially-owned
subsidiary of, and controlled by, The Northwestern Mutual Life Insurance
Company. The BBC Fund and Baird entered into an investment advisory agreement
pursuant to which Baird furnished continuous investment advisory services to the
BBC Fund. That investment advisory agreement was terminated in connection with
the reorganization of the BBC Fund. For the period October 1, 1995 through June
3, 1996 the BBC Fund paid Baird fees of $370,615.
AIM, in turn, paid the following sub-advisory fees to AIM Capital, as
sub-advisor for Charter, Constellation and Weingarten, for the years ended
October 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Charter..................$15,529,294 $12,362,803 $ 8,264,946
Constellation............ 43,277,734 40,058,142 28,807,206
Weingarten............... 20,328,608 17,650,335 14,980,190
</TABLE>
The Master Administrative Services Agreement provides that AIM may
perform or arrange for the performance of certain accounting and, shareholder
services and other administrative services to each Fund which are not required
to be performed by AIM under the Master Advisory Agreement. For such services,
AIM would be entitled to receive from each Fund reimbursement of its costs or
such reasonable compensation as may be approved by the Company's Board of
Directors. The Master Administrative Services Agreement will continue from year
to year only if such continuance is specifically approved at least annually by
(i) the Company's Board of Directors or the vote of a "majority of the
outstanding voting securities" of the Funds (as defined in the 1940 Act), and
(ii) the affirmative vote of a majority of the Non-Interested Directors by votes
cast in person at a meeting called for such purpose.
44
<PAGE> 63
In addition, the Transfer Agency and Service agreement for the Fund
provides that AFS, a registered transfer agent and wholly owned subsidiary of
AIM, will perform certain shareholder services for the Fund for a fee per
account serviced. The Transfer Agency and Service Agreement provides that AFS
will receive a per account fee plus out-of-pocket expenses to process orders for
purchases, redemptions and exchanges of shares, prepare and transmit payments
for dividends and distributions declared by the Fund, maintain shareholder
accounts and provide shareholders with information regarding the Fund and their
accounts.
The Funds paid AIM the following amounts as reimbursement of
administrative services costs for the years ended October 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggressive Growth........ $108,996 $ 97,609 $ 97,857
Blue Chip................ 85,043 73,653 20,545*
Capital Development...... 85,252 74,810 19,841**
Charter.................. 152,008 127,908 14,489
Constellation............ 295,926 251,513 212,800
Weingarten............... 179,633 163,243 132,643
</TABLE>
* For the period from June 3, 1996 (date of acquisition) through
September 30, 1996 it was $16,236 and for the period October 1, 1996
through October 31, 1996 it was $4,309.
** For the period from June 17, 1996 (date operations commenced) through
October 31, 1996.
Prior to June 3, 1996, Fiduciary Management, Inc. ("FMI") served as the
administrator to the BBC Fund. Pursuant to the administration agreement between
FMI and the BBC Fund, FMI prepared and maintained the books, accounts and other
documents required by the 1940 Act, determined the fund's net asset value,
responded to shareholder inquiries, prepared the fund's financial statements and
excise tax returns, prepared reports and filings with the Securities and
Exchange Commission, furnished statistical and research data, clerical,
accounting and bookkeeping services and stationery and office supplies, and
maintained the fund's financial accounts and records and generally assisted in
all aspects of the fund's operations other than portfolio management. This
administration agreement terminated in connection with the corporate
reorganization of the BBC Fund.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Company has adopted a Master Distribution Plan pursuant to Rule
12b-1 under the 1940 Act relating to the Class A and Class C shares of the Funds
(the "Class A and C Plan"). The Class A and C Plan provides that the Class A
shares pay 0.35% per annum of their daily average net assets in the case of Blue
Chip, Capital Development, Demographic Trends, Large Cap Basic Value, Large Cap
Growth and Mid Cap, 0.30% per annum of their average daily net assets in the
case of Charter, Constellation and Weingarten and 0.25% per annum of the average
net assets of Aggressive Growth as compensation to AIM Distributors for the
purpose of financing any activity which is primarily intended to result in the
sale of Class A shares. Under the Class A and C Plan, Class C shares of
Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation,
Demographic Trends, Large Cap Basic Value, Large Cap Growth and Mid Cap, and
Weingarten pay compensation to AIM Distributors at an annual rate of 1.00% of
the average daily net assets attributable to Class C shares. The Class A and C
Plan is designed to compensate AIM Distributors, on a quarterly basis, for
certain promotional and other sales-related costs, and to implement a dealer
incentive program which provides for periodic payments to selected dealers who
furnish continuing personal shareholder services to their customers who purchase
and own Class A or Class C shares of a Fund. Payments can also be directed by
AIM Distributors to selected institutions
45
<PAGE> 64
who have entered into service agreements with respect to Class A and Class C
shares of each Fund and who provide continuing personal services to their
customers who own Class A and Class C shares of the Fund. The service fees
payable to selected institutions are calculated at the annual rate of 0.25% of
the average daily net asset value of those Fund shares that are held in such
institution's customers' accounts which were purchased on or after a prescribed
date set forth in the Plan. Activities appropriate for financing under the Class
A and C Plan include, but are not limited to, the following: printing of
prospectuses and statements of additional information and reports for other than
existing shareholders; overhead; preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class A and C Plan.
Of the aggregate amount payable under the Class A and C Plan, payments
to dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average daily net assets of the Fund
attributable to the customers of such dealers or financial institutions are
characterized as a service fee, and payments to dealers and other financial
institutions in excess of such amount and payments to AIM Distributors would be
characterized as an asset-based sales charge pursuant to the Class A and C Plan.
Payments pursuant to the Plans are subject to any applicable limitations imposed
by rules of the National Association of Securities Dealers, Inc.
THE CLASS B PLAN
The Company has also adopted a Master Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act relating to Class B shares of Aggressive
Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic
Trends, Large Cap Basic Value, Large Cap Growth, Mid Cap and Weingarten
(the "Class B Plan", and collectively with the Class A and C Plan, the
"Plans"). Under the Class B Plan, Aggressive Growth, Blue Chip, Capital
Development, Charter, Constellation, Demographic Trends, Large Cap Basic Value,
Large Cap Growth, Mid Cap and Weingarten pay compensation to AIM Distributors at
an annual rate of 1.00% of the average daily net assets attributable to Class B
shares. Of such amount, the Funds pay a service fee of 0.25% of the average
daily net assets attributable to Class B shares to selected dealers and other
institutions which furnish continuing personal shareholder services to their
customers who purchase and own Class B shares. Any amounts not paid as a service
fee would constitute an asset-based sales charge. Amounts paid in accordance
with the Class B Plan may be used to finance any activity primarily intended to
result in the sale of Class B shares, including, but not limited to, printing of
prospectuses and statements of additional information and reports for other than
existing shareholders; overhead; preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class B Plan.
BOTH PLANS
Pursuant to an incentive program, AIM Distributors may enter into
agreements ("Shareholder Service Agreements") with investment dealers selected
from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Funds. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: distributing sales literature;
answering routine customer inquiries concerning the Funds; assisting customers
in changing dividend options, account designations and addresses, and in
enrolling in any of several special investment plans offered in connection with
the purchase of the Fund's shares; assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and any capital gains
distributions automatically in the Fund's shares; and providing such other
information and services as the Funds or the customer may reasonably request.
46
<PAGE> 65
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding the Funds and
the Company; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing customer purchase and redemption transactions;
providing periodic statements showing a shareholder's account balance and the
integration of such statements with those of other transactions and balances in
the shareholder's other accounts serviced by the bank; forwarding applicable
prospectuses, proxy statements, reports and notices to bank clients who hold
shares of the Funds; and such other administrative services as the Funds
reasonably may request, to the extent permitted by applicable statute, rule or
regulation. Similar agreements may be permitted under the Plans for institutions
which provide recordkeeping for and administrative services to 401(k) plans.
The Company may also enter into Variable Group Annuity Contractholder
Service Agreements ("Variable Contract Agreements") on behalf of Aggressive
Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic
Trends, Large Cap Basic Value, Large Cap Growth, Mid Cap and Weingarten
authorizing payments to selected insurance companies offering variable annuity
contracts to employers as funding vehicles for retirement plans qualified under
Section 401(a) of the Code. Services provided pursuant to such Variable Contract
Agreements may include some or all of the following: answering inquiries
regarding the Fund and the Company; performing sub-accounting; establishing and
maintaining Contractholder accounts and records; processing and bunching
purchase and redemption transactions; providing periodic statements of contract
account balances; forwarding such reports and notices to Contractholders
relative to the Fund as deemed necessary; generally, facilitating communications
with Contractholders concerning investments in a Fund on behalf of Plan
participants; and performing such other administrative services as deemed to be
necessary or desirable, to the extent permitted by applicable statute, rule or
regulation to provide such services.
Under a Shareholder Service Agreement, the Funds agree to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement generally will be calculated at the end of each payment period
for each business day of the Funds during such period at the annual rate of
0.25% of the average daily net asset value of the Funds' shares purchased or
acquired through exchange. Fees calculated in this manner shall be paid only to
those selected dealers or other institutions who are dealers or institutions of
record at the close of business on the last business day of the applicable
payment period for the account in which the Funds' shares are held.
The Plans are subject to any applicable limitations imposed from time
to time by rules of the National Association of Securities Dealers, Inc.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions. AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM Distributors and the Fund.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Fund on an agency basis, may
receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Funds, in
making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors.
For the fiscal year ended October 31, 1998, with respect to Class A
shares, Aggressive Growth, Blue Chip, Capital Development, Charter,
Constellation and Weingarten paid AIM Distributors under the
47
<PAGE> 66
Class A and C Plan $8,542,170, $2,772,279, $2,504,089, $11,101,044, $41,684,536
and $18,567,575, respectively, or an amount equal to 0.25%, 0.35%, 0.35%, 0.30%,
0.30%, and 0.30%, respectively, of the Fund's Class A shares average daily net
assets.
For the fiscal year ended October 31, 1998, with respect to Class B
shares, Blue Chip, Capital Development, Charter and Weingarten paid AIM
Distributors under the Class B Plan $4,951,574, $4,422,958, $12,843,741 and
$6,185,890, respectively, or an amount equal to 1.00%, 1.00%, 1.00% and 1.00%,
respectively, of the Fund's Class B shares average daily net assets. For the
period November 3, 1997 (date operations commenced) through October 31, 1998,
with respect to Class B shares, Constellation paid AIM Distributors under the
Class B Plan $1,576,409, or an amount equal to 1.00% of the Class B shares
average daily net assets.
For the fiscal year ended October 31, 1998, with respect to Class C
shares, Blue Chip, Capital Development, Charter, Constellation and Weingarten
paid AIM Distributors under the Class A and C Plan $315,731, $340,482, $216,922,
$506,546 and $125,198, respectively, or an amount equal to 1.00%, 1.00%, 1.00%,
1.00% and 1.00%, respectively, of the Fund's Class C shares average daily net
assets on an annualized basis.
An estimate by category of actual fees paid by the following Funds
under the Class A and C Plan during the year ended October 31, 1998, were
allocated as follows:
<TABLE>
<CAPTION>
AGGRESSIVE CAPITAL
GROWTH BLUE CHIP DEVELOPMENT CHARTER CONSTELLATION WEINGARTEN
---------- --------- ----------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Advertising $ 247,250 $ 403,517 $ 429,227 $ 1,373,461 $ 4,647,983 $ 2,170,093
Printing and mailing 25,044 41,918 44,213 140,986 474,074 222,499
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 52,355 92,305 91,876 299,122 998,359 473,819
Compensation to 0 0 0 0 0 657,057
Underwriters to partially
offset other marketing
expenses
Compensation to 8,217,521 2,234,544 1,938,774 9,287,474 35,564,121 15,044,107
Dealers including
finder's fees
Compensation to 0 0 0 0 0 0
Sales Personnel
Annual Report Total 8,542,170 2,772,284 2,504,090 11,101,043 41,684,537 18,567,575
</TABLE>
An estimate by category of actual fees paid by the following Funds under the
Class B Plan during the year ended October 31, 1998, were allocated as follows:
48
<PAGE> 67
<TABLE>
<CAPTION>
CAPITAL
BLUE CHIP DEVELOPMENT CHARTER CONSTELLATION WEINGARTEN
--------- ----------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C>
CLASS B
Advertising $ 569,530 $ 532,496 $ 798,722 $ 270,819 $ 363,136
Printing and mailing 59,219 54,748 82,110 28,814 37,527
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 130,136 114,552 175,158 69,778 80,366
Compensation to 3,713,613 3,317,219 9,632,806 1,182,307 4,639,418
Underwriters to partially
offset other marketing
expenses
Compensation to 478,987 403,943 2,154,945 24,692 1,065,443
Dealers
Compensation to 0 0 0 0 0
Sales Personnel
Annual Report Totals 4,951,485 4,422,958 12,843,741 1,576,410 6,185,890
</TABLE>
An estimate by category of actual fees paid by the following Funds
under the Class A and C Plan during the fiscal year ended October 31, 1998, were
allocated as follows:
<TABLE>
<CAPTION>
CAPITAL
BLUE CHIP DEVELOPMENT CHARTER CONSTELLATION WEINGARTEN
--------- ----------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C>
CLASS C
Advertising $ 8,874 $ 49,003 $ 31,654 $ 70,101 $ 17,777
Printing and mailing 945 5,110 3,313 7,306 1,881
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars 1,862 9,758 6,441 15,104 3,483
Compensation to 236,799 255,361 162,692 379,909 93,898
Underwriters to partially
offset other marketing
expenses
Compensation to 67,253 21,248 12,822 34,126 8,159
Dealers including
finder's fees
Compensation to 0 0 0 0 0
Sales Personnel
Annual Report Totals 315,733 340,480 216,922 506,546 125,198
</TABLE>
The Plans require AIM Distributors to provide the Board of Directors at
least quarterly with a written report of the amounts expended pursuant to the
Plans and the purposes for which such expenditures were made. The Board of
Directors reviews these reports in connection with their decisions with respect
to the Plans.
49
<PAGE> 68
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Directors, including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of the Company and who have no direct or indirect financial interest in the
operation of the Plans or in any agreements related to the Plans ("Qualified
Directors"). In approving the Plans in accordance with the requirements of Rule
12b-1, the directors considered various factors and determined that there is a
reasonable likelihood that the Plans would benefit each class of the Fund and
its respective shareholders.
The Plans do not obligate the Fund to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless the Plans are terminated earlier in accordance with their terms,
the Plans continue in effect from year to year as long as such continuance is
specifically approved at least annually by the Board of Directors, including a
majority of the Qualified Directors.
The Plans may be terminated by the vote of a majority of the Qualified
Directors, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the directors, including a majority of the Qualified
Directors, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Directors is committed to the discretion of the
Qualified Directors. In the event the Class A and C Plan is amended in a manner
which the Board of Directors determines would materially increase the charges
paid by holders of Class A shares under the Class A and C Plan, the Class B
shares of the Fund will no longer convert into Class A shares of the Fund unless
the Class B shares, voting separately, approve such amendment. If the Class B
shareholders do not approve such amendment, the Board of Directors will (i)
create a new class of shares of the Fund which is identical in all material
respects to the Class A shares as they existed prior to the implementation of
the amendment, and (ii) ensure that the existing Class B shares of the Fund will
be exchanged or converted into such new class of shares no later than the date
the Class B shares were scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan and the Class
B Plan are: (i) the Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to .35% of average daily net assets of
Blue Chip, Capital Development, Demographic Trends, Large Cap Basic Value and
Large Cap Growth, Class A shares, .30% of average daily net assets of Charter,
Constellation, Mid Cap and Weingarten's Class A shares and up to .25% of average
daily net assets of Aggressive Growth's Class A shares as compared to 1.00% of
such assets of Aggressive Growth, Blue Chip, Capital Development, Charter,
Constellation, Demographic Trends, Large Cap Basic Value, Large Cap Growth, Mid
Cap and Weingarten's Class B shares; (ii) the Class B Plan obligates the Class B
shares to continue to make payments to AIM Distributors following termination of
the Class B shares Distribution Agreement with respect to Class B shares sold by
or attributable to the distribution efforts of AIM Distributors unless there has
been a complete termination of the Class B Plan (as defined in such Plan); and
(iii) the Class B Plan expressly authorizes AIM Distributors to assign, transfer
or pledge its rights to payments pursuant to the Class B Plan.
THE DISTRIBUTOR
The Company has entered into distribution arrangements with AIM
Distributors, P.O. Box 4739, Houston, TX 77210-4739, a registered broker-dealer
and a wholly owned subsidiary of AIM, to act as the distributor in the
continuous offering of Class A, Class B and Class C shares of the Funds. Certain
50
<PAGE> 69
directors and officers of the Company are affiliated with AIM Distributors. The
Company has entered into a Master Distribution Agreement with AIM Distributors
relating to the Class A shares and Class C shares of the Funds and a Master
Distribution Agreement with AIM Distributors relating to the Class B shares of
the Funds. Both such Master Distribution Agreements are hereinafter
collectively, referred to as the "Distribution Agreements."
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Retail Classes of the Funds directly and
through institutions with whom AIM Distributors has entered into selected dealer
agreements. Under the Distribution Agreement for the Class B shares, AIM
Distributors sells Class B shares of the Funds at net asset value subject to a
contingent deferred sales charge established by AIM Distributors. AIM
Distributors is authorized to advance to institutions through whom Class B
shares are sold a sales commission under schedules established by AIM
Distributors. The Distribution Agreement for the Class B shares provides that
AIM Distributors (or its assignee or transferee) will receive 0.75% (of the
total 1.00% payable under the distribution plan applicable to Class B shares) of
each Fund's average daily net assets attributable to Class B shares attributable
to the sales efforts of AIM Distributors.
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing prospectuses and
statements of additional information of the Funds relating to public offerings
made by AIM Distributors pursuant to the Distribution Agreements (other than
those prospectuses and statements of additional information distributed to
existing shareholders of the Funds), and any promotional or sales literature
used by AIM Distributors or furnished by AIM Distributors to dealers in
connection with the public offering of the Funds' shares, including expenses of
advertising in connection with such public offerings. AIM Distributors has not
undertaken to sell any specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B shares of the Funds and
Class C shares of the Funds at the time of such sales. Payments with respect to
Class B shares will equal 4.0% of the purchase price of the Class B shares sold
by the dealer or institution, and will consist of a sales commission equal to
3.75% of the purchase price of the Class B shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. The portion of the
payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs. AIM
Distributors anticipates that it will require a number of years to recoup from
Class B Plan payments the sales commissions paid to dealers and institutions in
connection with sales of Class B shares.
In the future, if multiple distributors serve Aggressive Growth, Blue
Chip, Capital Development, Charter, Constellation, Demographic Trends, Large Cap
Basic Value, Large Cap Growth, Mid Cap or Weingarten, each such Distributor (or
its assignee or transferee) would receive a share of the payments under the
Class B Plan based on the portion of such Fund's Class B shares sold by or
attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record.
51
<PAGE> 70
The Company (on behalf of any class of the Funds) or AIM Distributors
may terminate the Distribution Agreements on sixty (60) days' written notice
without penalty. The Distribution Agreements will terminate in the event of
their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B Plan (as defined in such Plan) would terminate all
payments to AIM Distributors. Termination of the Class B Plan or Distribution
Agreement does not effect the obligations of Class B shareholders to pay
contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreement relating to Class B shares in order to
finance distribution expenditures in respect of Class B shares.
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the years or periods ended October 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth.. $4,551,806 763,601 $42,392,109 $ 5,850,410 $ 11,683,056 $ 2,111,788
Blue Chip.......... 9,984,437 1,557,995 7,418,585 1,139,512 1,000,546 144,343
Capital Development 10,092,451 1,536,318 7,852,157 1,212,125 6,850,693 926,213
Charter............ 12,198,981 1,892,699 13,683,388 2,129,799 16,469,061 2,705,618
Constellation...... 34,242,618 5,261,392 68,714,717 10,566,898 105,245,937 19,558,836
Weingarten......... 10,455,825 1,654,675 9,534,039 1,521,630 13,202,260 2,259,328
</TABLE>
The following chart reflects the contingent deferred sales charges paid
by Class A shareholders of Blue Chip, Charter, Constellation and Weingarten for
the fiscal years ended October 31, 1998, 1997 and 1996 and by Class A
shareholders of Aggressive Growth for the fiscal year ended October 31, 1998,
and for the Class A shareholders of Capital Development for the fiscal years
ended October 31, 1998, 1997 and for the period June 17, 1996 (date operations
commenced) through October 31, 1996, and by Class B shareholders of Charter and
Weingarten for the fiscal years ended October 31, 1998, 1997 and 1996 and by
Class B shareholders of Blue Chip and Capital Development for the fiscal years
ended October 31, 1998, 1997 and for the period October 1, 1996 (inception date
of Class B shares) through October 31, 1996, and for the Class C shareholders of
all Funds for the fiscal year ended October 31, 1998 and for the period August
4, 1997 (inception date for Class C shares) through October 31, 1997.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C>
Aggressive Growth................. $ 86,211 N/A N/A
Blue Chip......................... 61,498 $ 50,289 N/A
Capital Development............... 108,532 14,049 $ 733
Charter........................... 161,792 62,653 32,497
Constellation..................... 510,316 253,473 N/A
Weingarten........................ 55,685 38,015 34,185
</TABLE>
Shares of the BBC Fund were sold at a public offering price which
included a sales charge. The BBC Fund waived its sales charge in connection with
sales to specified types of investors and on purchases of $1,000,000 or more,
but imposed a contingent deferred sales charge upon the redemption of certain
shares so purchased, which contingent deferred sales charge was paid to Baird.
52
<PAGE> 71
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge
ranging from 5.50% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds include Class A shares of each of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor Large Cap Value Fund,
AIM Aggressive Growth Fund, AIM Asian Growth Fund, AIM Basic Value Fund, AIM
Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM
Constellation Fund, AIM Dent Demographic Trends Fund, AIM European Development
Fund, AIM Europe Growth Fund, AIM Global Utilities Fund, AIM Global Growth &
Income Fund, AIM International Equity Fund, AIM Japan Growth Fund, AIM Large Cap
Basic Value Fund, AIM Large Cap Growth Fund, AIM Mid Cap Equity Fund, AIM Mid
Cap Growth Fund, Aim Mid Cap Opportunities Fund, AIM New Pacific Growth Fund,
AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap Opportunities
Fund, AIM Value Fund and AIM Weingarten Fund.
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
----------------------- ------------- ---------- ---------
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
- -----------------------
(1) AIM Small Cap Opportunities Fund will not accept any single
purchase in excess of $250,000.
CATEGORY II. Certain AIM Funds are currently sold with a sales charge
ranging from 4.75% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds are: the Class A shares of each of AIM Advisor Real
Estate Fund, AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging
Markets Debt Fund, AIM Global Aggressive Growth Fund, AIM Global Consumer
Products and Services Fund, AIM Global Financial Services Fund, AIM Global
Government Income Fund, AIM Global Growth Fund, AIM Global Health Care Fund, AIM
Global Income Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund,
AIM Global Telecommunications and Technology Fund, AIM Global Trends Fund, AIM
High Income Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, AIM
Income Fund, AIM Intermediate Government Fund, AIM Latin American Growth Fund,
AIM Municipal Bond Fund, AIM Strategic Income Fund and AIM Tax-Exempt Bond
Fund of Connecticut.
53
<PAGE> 72
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
-------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
CATEGORY III. Certain AIM Funds are currently sold with a sales charge
ranging from 1.00% to 0.50% of the offering price on purchases of less than
$1,000,000. These AIM Funds are the Class A shares of each of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
---------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment In Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ------------- ------------ -----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more of Category
I, II or III funds; however, AIM Distributors may pay a dealer concession and/or
advance a service fee on such transactions as set forth below.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the
entire initial sales charge to dealers for all sales with respect to which
orders are placed with AIM Distributors during a particular period. Dealers to
whom substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the option of the dealer, such
incentives may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and their families to places within or outside the United States. The total
amount of such additional bonus payments or other consideration shall not exceed
0.25% of the public offering price of the shares sold. Any such bonus or
incentive programs will not change the price paid by investors for the purchase
of the applicable AIM Fund's shares or the amount that any particular AIM Fund
will receive as proceeds from such sales. Dealers may not use sales of the AIM
Funds' shares to qualify for any incentives to the extent that such incentives
may be prohibited by the laws of any state.
AIM Distributors may make payments to dealers and institutions who are
dealers of record for purchases of $1 million or more of Class A shares (or
shares which normally involve payment of initial
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<PAGE> 73
sales charges), which are sold at net asset value and are subject to a
contingent deferred sales charge, for all AIM Funds other than Class A shares of
each of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund as
follows: 1% of the first $2 million of such purchases, plus 0.80% of the next $1
million of such purchases, plus 0.50% of the next $17 million of such purchases,
plus 0.25% of amounts in excess of $20 million of such purchases. AIM
Distributors may make payments to dealers and institutions who are dealers of
record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), and which are sold at net
asset value and are not subject to a contingent deferred sales charge, in an
amount up to 0.10% of such purchases of Class A shares of AIM Limited Maturity
Treasury Fund, and in an amount up to 0.25% of such purchases of Class A shares
of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class B shares of the AIM Funds at the time of such sales. Payments
with respect to Class B shares will equal 4.00% of the purchase price of the
Class B shares sold by the dealer or institution, and will consist of a sales
commission equal to 3.75% of the purchase price of the Class B shares sold plus
an advance of the first year service fee of 0.25% with respect to such shares.
The portion of the payments to AIM Distributors under the Class B Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of such sales commissions plus financing
costs.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record. These
commissions are not paid on sales to investors exempt from the CDSC, including
shareholders of record OF AIM Advisor Funds, Inc. on April 30, 1995, who
purchase additional shares in any of the Funds on or after May 1, 1995, and in
circumstances where AIM Distributors grants an exemption on particular
transactions.
Exchanges of AIM Cash Reserve Shares of AIM Money Market Fund for
Class B shares or Class C shares are considered sales of such Class B shares
or Class C shares for purposes of the sales charges and dealer concessions
discussed above.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of all
AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate
Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit
plan as follows: 1% of the first $2 million of such purchases, plus 0.80% of the
next $1 million of such purchases, plus 0.50% of the next $17 million of such
purchases, plus 0.25% of amounts in excess of $20 million of such purchases and
up to 0.10% of the net asset value of any Class A shares of AIM Limited Maturity
Treasury Fund sold at net asset value to an employee benefit plan in accordance
with this paragraph.
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<PAGE> 74
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class
B and Class C shares of the AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
o an individual and his or her spouse and children, including any
trust established exclusively for the benefit of any such person;
or a pension, profit-sharing, or other benefit plan established
exclusively for the benefit of any such person, such as an IRA,
Roth IRA, a single-participant money-purchase/profit-sharing plan
or an individual participant in a 403(b) Plan (unless such 403(b)
plan qualifies as the purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted with
respect to individual participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant
with the contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or
single fiduciary account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Code) and 457 plans, although more than
one beneficiary or participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension account (SAR-SEP) or a
Savings Incentive Match Plans for Employees IRA (SIMPLE IRA),
where the employer has notified the distributor in writing that
all of its related employee SEP, SAR-SEP or SIMPLE IRA accounts
should be linked; or
o any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six
months and has some purpose other than the purchase at a discount
of redeemable securities of a registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing
definition, to the reduced sales charge. No person or entity may distribute
shares of the AIM Funds without payment of the applicable sales charge other
than to persons or entities who qualify for a reduction in the sales charge as
provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified group annuities, for contracts purchased
on or before June 30, 1992. The LOI confirms such purchaser's intention as to
the total investment to be made in shares of the AIM Funds (except for (i) Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
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<PAGE> 75
Money Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii)
shares of AIM Floating Rate Fund) within the following 13 consecutive months. By
marking the LOI section on the account application and by signing the account
application, the purchaser indicates that he understands and agrees to the terms
of the LOI and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public offering price
applicable to a single transaction of the total dollar amount indicated by the
LOI, as described under "Sales Charges and Dealer Concessions." It is the
purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales charge.
The offering price may be further reduced as described under "Rights of
Accumulation" if the Transfer Agent is advised of all other accounts at the time
of the investment. Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI. At any time during the
13-month period after meeting the original obligation, a purchaser may revise
his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not total
the amount specified, the investor will pay the increased amount of sales charge
as described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the
initial purchase (or subsequent purchases if necessary) the Transfer Agent will
escrow in the form of shares an appropriate dollar amount (computed to the
nearest full share). All dividends and any capital gain distributions on the
escrowed shares will be credited to the purchaser. All shares purchased,
including those escrowed, will be registered in the purchaser's name. If the
total investment specified under this LOI is completed within the 13-month
period, the escrowed shares will be promptly released. If the intended
investment is not completed, the purchaser will pay the Transfer Agent the
difference between the sales charge on the specified amount and the amount
actually purchased. If the purchaser does not pay such difference within 20 days
of the expiration date, he irrevocably constitutes and appoints the Transfer
Agent as his attorney to surrender for redemption any or all shares, to make up
such difference within 60 days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he must give written notice to AIM Distributors. If at
any time before completing the LOI Program the purchaser requests the Transfer
Agent to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may
also qualify for reduced initial sales charges based upon such purchaser's
existing investment in shares of any of the AIM Funds (except for (i) Class A
shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund and (ii) Class B and Class C shares of the AIM Funds and (iii)
shares of AIM Floating Rate Fund) at the time of the proposed purchase. Rights
of Accumulation are also available to holders of the Connecticut General
Guaranteed Account, established for tax-qualified group annuities, for contracts
purchased on or before June 30, 1992. To determine whether or not a reduced
initial sales charge applies to a proposed purchase, AIM Distributors takes into
account not only the money which is invested upon such proposed purchase, but
also the value of all shares of the AIM Funds (except for (i) Class A shares of
AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund ,
(ii) Class B and Class C shares of the AIM Funds and (iii) shares of AIM
Floating Rate Fund) owned by such purchaser, calculated at their then current
public offering price. If a purchaser so qualifies
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<PAGE> 76
for a reduced sales charge, the reduced sales charge applies to the total amount
of money then being invested by such purchaser and not just to the portion that
exceeds the breakpoint above which a reduced sales charge applies. For example,
if a purchaser already owns qualifying shares of any AIM Fund with a value of
$20,000 and wishes to invest an additional $20,000 in a fund, with a maximum
initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will
apply to the full $20,000 purchase and not just to the $15,000 in excess of the
$25,000 breakpoint. To qualify for obtaining the discount applicable to a
particular purchase, the purchaser or his dealer must furnish AFS with a list of
the account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM
Funds at net asset value (without payment of an initial sales charge) may be
made in connection with: (a) the reinvestment of dividends and distributions
from a fund; (b) exchanges of shares of certain funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of a fund.
The following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and
members of their immediate family) of AIM Management, its
affiliates or The AIM Family of Funds--Registered Trademark--,
and any foundation, trust or employee benefit plan
established exclusively for the benefit of, or by, such
persons;
o Any current or retired officer, director, or employee (and
members of their immediate family), of CIGNA Corporation or its
affiliates, or of First Data Investor Services Group; and any
deferred compensation plan for directors of investment
companies sponsored by CIGNA Investments, Inc. or its
affiliates;
o Sales representatives and employees (and members of their
immediate family) of selling group members or financial
institutions that have arrangements with such selling group
members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined
above, and non-qualified plans offered in conjunction
therewith, provided the initial investment in the plan(s) is
at least $1 million; the sponsor signs a $1 million LOI; the
employer-sponsored plan(s) has at least 100 eligible
employees; or all plan transactions are executed through a
single omnibus account per Fund and the financial institution
or service organization has entered into the appropriate
agreements with the distributor. Section 403(b) plans
sponsored by public educational institutions are not eligible
for a sales charge exception based on the aggregate investment
made by the plan or the number of eligible employees.
Purchases of AIM Small Cap Opportunities Fund by such plans
are subject to initial sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund
on November 17, 1986, who have continuously owned shares having
a market value of at least $500 and who purchase additional
shares of the same Fund;
o Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on
February 12, 1999 who have continuously owned shares of the AIM
Funds.
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o Unitholders of G/SET series unit investment trusts investing
proceeds from such trusts in shares of AIM Weingarten Fund or
AIM Constellation Fund; provided, however, prior to the
termination date of the trusts, a unitholder may invest
proceeds from the redemption or repurchase of his units only
when the investment in shares of AIM Weingarten Fund and AIM
Constellation Fund is effected within 30 days of the redemption
or repurchase;
o A shareholder of a fund that merges or consolidates with an
AIM Fund or that sells its assets to an AIM Fund in exchange
for shares of an AIM Fund;
o Shareholders of the GT Global funds as of April 30, 1987
who since that date continually have owned shares of one
or more of these funds; and
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October
1989, and who have continuously held shares in the GT Global
funds since that time.
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70-1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan; (8) redemptions made
in connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption: (1) total or partial redemptions resulting from a
distribution following retirement in the case of a tax-qualified
employer-sponsored retirement; (2) minimum required distributions made in
connection with an IRA, Keogh Plan or custodial account under Section 403(b) of
the Code or other retirement plan following attainment of age 70-1/2; (3)
redemptions pursuant to distributions from a tax-qualified employer-sponsored
retirement plan, which is invested in the former GT Global funds, which are
permitted to be made without penalty pursuant to the Code, other than tax-free
rollovers or transfers of assets, and the proceeds of
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which are reinvested in the former GT Global funds; (4) redemptions made in
connection with participant-directed exchanges between options in an
employer-sponsored benefit plan; (5) redemptions made for the purpose of
providing cash to fund a loan to a participant in a tax-qualified retirement
plan; (6) redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of Section
72(t)(2) of the Code, and the regulations promulgated thereunder; (7)
redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the Code to a
participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon
hardship of the covered employee (determined pursuant to Treasury Regulation
Section 1.401(k)-1(d)(2)); and (8) redemptions made by or for the benefit of
certain states, counties or cities, or any instrumentalities, departments or
authorities thereof where such entities are prohibited or limited by applicable
law from paying a sales charge or commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor Large
Cap Value Fund and AIM Advisor Real Estate Fund by
shareholders of record on April 30, 1995, of these Funds,
except that shareholders whose broker-dealers maintain a
single omnibus account with AFS on behalf of those
shareholders, perform sub-accounting functions with respect to
those shareholders, and are unable to segregate shareholders
of record prior to April 30, 1995, from shareholders whose
accounts were opened after that date will be subject to a CDSC
on all purchases made after March 1, 1996;
o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor
of a living trust, of shares held in the account at the time of
death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result from (i) required minimum distributions to
plan participants or beneficiaries who are age 70-1/2 or
older, and only with respect to that portion of such
distributions that does not exceed 12% annually of the
participant's or beneficiary's account value in a particular
AIM Fund; (ii) in kind transfers of assets where the
participant or beneficiary notifies the distributor of the
transfer no later than the time the transfer occurs; (iii)
tax-free rollovers or transfers of assets to another plan of
the type described above invested in Class B or Class C shares
of one or more of the AIM Funds; (iv) tax-free returns of
excess contributions or returns of excess deferral amounts;
and (v) distributions on the death or disability (as defined
in the Internal Revenue Code of 1986, as amended) of the
participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
o Liquidation by the Fund when the account value falls below the
minimum required account size of $500;
o Investment account(s) of AIM; and
o Class C shares where the investor's dealer of record notifies
the distributor prior to the time of investment that the dealer
waives the payment otherwise payable to him.
Upon the redemption of shares of funds in sales charge Categories I and
II (see "Sales Charges and Dealer Concessions") purchased in amounts of $1
million or more, no CDSC will be applied in the following situations:
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o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as
qualified purchasers, as defined above, where the redemptions
are in connection with employee terminations or withdrawals,
provided the total amount invested in the plan is at least
$1,000,000; the sponsor signs a $1 million LOI; or the
employer-sponsored plan has at least 100 eligible employees;
provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver on
the basis of the value of each plan participant's aggregate
investment in the AIM Funds, and not on the aggregate
investment made by the plan or on the number of eligible
employees;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's
dealer waives the amounts otherwise payable to it by the
distributor and notifies the distributor prior to the time of
investment; and
o Shares acquired by exchange from Class A shares of funds in
sales charge Categories I and II unless the shares acquired by
exchange are redeemed within 18 months of the original purchase
of the Class A shares.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Funds may
be purchased appears in each Prospectus under the caption "Purchasing Shares -
How to Purchase Shares."
The sales charge normally deducted on purchases of Class A shares of
the Funds is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of such shares.
Since there is little expense associated with unsolicited orders placed directly
with AIM Distributors by persons, who because of their relationship with the
Funds or with AIM and its affiliates, are familiar with the Funds, or whose
programs for purchase involve little expense (e.g., because of the size of the
transaction and shareholder records required), AIM Distributors believes that it
is appropriate and in the Funds' best interests that such persons be permitted
to purchase Class A shares of the Funds through AIM Distributors without payment
of a sales charge. The persons who may purchase Class A shares of the Funds
without a sales charge are listed under the caption "Reductions in Initial Sales
Charges - Purchases at Net Asset Value."
Complete information concerning the method of exchanging shares of the
Funds for shares of the other mutual funds managed or advised by AIM is set
forth in each Prospectus under the caption "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in
the Prospectuses under the caption "Redeeming Shares - How to Redeem Shares."
Shares of the AIM Funds may be redeemed directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors. In
addition to the Funds' obligation to redeem shares, AIM Distributors may also
repurchases shares as an accommodation to shareholders. To effect a repurchase,
those dealers who have executed Selected Dealer Agreements with AIM Distributors
must phone orders to the order desk of the Funds at (800) 959-4246 and guarantee
delivery of all required documents in good order. A repurchase is effected at
the net asset value of the Fund next determined after such order is received.
Such arrangement is subject to timely receipt by AFS of all required documents
in good order. If such documents are not received within a reasonable time after
the order is placed, the order is subject to cancellation. While there is no
charge imposed by the Funds or by AIM Distributors (other than any applicable
CDSC) when shares are redeemed or repurchased, dealers may charge a fair service
fee for handling the transaction. AIM intends to redeem all shares of the Funds
in cash.
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The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange ("NYSE") is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposition of portfolio securities or the
valuation of the net assets of the Fund not reasonably practicable.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations,
withhold 31% of redemption payments and reportable dividends (whether paid or
accrued) in the case of any shareholder who fails to provide the Fund with a
taxpayer identification number ("TIN") and a certification that he is not
subject to backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an
incorrect TIN, or
(3) the investor or the Fund is notified by the IRS that the investor
is subject to backup withholding because the investor failed to
report all of the interest and dividends on such investor's tax
return (for reportable interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable
interest and dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in
all five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1) (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United States,
or any of their political subdivisions or instrumentalities
o a foreign government or any of its political subdivisions, agencies or
instrumentalities
o an international organization or any of its agencies or
instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the U.S.
or a possession of the U.S.
o a futures commission merchant registered with the Commodity Futures
Trading Commission
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o a real estate investment trust
o an entity registered at all times during the tax year under the 1940
Act
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o a middleman known in the investment community as a nominee or listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List
o a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign
entities are not subject to the backup withholding previously discussed, but
must certify their foreign status by attaching IRS Form W-8 to their
application. Form W-8 remains in effect for three calendar years beginning with
the calendar year in which it is received by the Fund. Such shareholders may,
however, be subject to federal income tax withholding at a 30% rate on ordinary
income dividends and distributions and return of capital distributions. Under
applicable treaty law, residents of treaty countries may qualify for a reduced
rate of withholding or a withholding exemption.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the
net asset value of a share of each Fund is determined once daily as of the close
of trading of the NYSE (generally 4:00 p.m. Eastern Time), on each business day
of the Fund. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern
Time) on a particular day, the net asset value of a Fund share is determined as
of the close of the NYSE on such day. For purposes of determining net asset
value per share, futures and options contract closing prices which are available
fifteen (15) minutes after the close of trading on the NYSE will generally be
used. The net asset values per share of the Retail Classes and the Institutional
Class will differ because different expenses are attributable to each class. The
income or loss and the expenses (except those listed below) of a Fund are
allocated to each class on the basis of the net assets of the Fund allocable to
each such class, calculated as of the close of business on the previous business
day, as adjusted for the current day's shareholder activity of each class.
Distribution and service fees and transfer agency fees (to the extent different
rates are charged to different classes) are allocated only to the class to which
such expenses relate. The net asset value per share of a class is determined by
subtracting the liabilities (e.g., the expenses) of the Fund allocated to the
class from the assets of the Fund allocated to the class and dividing the result
by the total number of shares outstanding of such class. Determination of each
Fund's net asset value per share is made in accordance with generally accepted
accounting principles.
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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 closing bid price 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 on the basis of prices provided by independent
pricing services. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date, or lacking a last sale, at
the closing bid price on that day; option contracts are valued at the mean
between the closing bid and asked prices on the exchange where the contracts are
principally traded; futures contracts are valued at final settlement price
quotations from the primary exchange on which they are traded. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by an independent pricing service
may be determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as dividend rate, yield, type of issue, coupon rate and
maturity date. Securities for which market quotations are not readily available
or for which market quotations are not reflective of fair value are valued at
fair value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of Directors
of the Company. Short-term obligations having sixty (60) days or less to
maturity are valued at amortized cost, which approximates market value. (See
also "Purchasing Shares - How to Purchase Shares," and "Redeeming Shares -How to
Redeem Shares" and "Pricing of Shares" in each Prospectus.)
Generally, trading in foreign securities, as well as corporate bonds,
U.S. Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in computing the net asset value of a Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the NYSE which will not be reflected
in the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the net asset value per share of a Fund may be significantly affected on
days when an investor can not exchange or redeem shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the same class of each Fund unless the
shareholder has requested in writing to receive such dividends and distributions
in cash or that they be invested in shares of another AIM Fund, subject to the
terms and conditions set forth in the Prospectus under the caption "Special
Plans - Automatic Dividend Investment." If a shareholder's account does not have
any shares in it on a dividend or capital gains distribution payment date, the
dividend or distribution will be paid in cash whether or not the shareholder has
elected to have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
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QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Code. As a regulated investment company, each Fund is
not subject to federal income tax on the portion of its net investment income
(i.e., taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains over
capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year (the "Distribution Requirement"),
and satisfies certain other requirements of the Code that are described below.
Distributions by a Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
Each Fund may use "equalization accounting" in determining the portion
of its net investment income and capital gain net income that has been
distributed. A Fund that elects to use equalization accounting will allocate a
portion of its realized investment income and capital gains to redemptions of
Fund shares and will reduce the amount of such income and gains that it
distributes in cash. However, each Fund intends to make cash distributions for
each taxable year in an aggregate amount that is sufficient to satisfy the
Distribution Requirement without taking into account its use of equalization
accounting. The Internal Revenue Service has not published any guidance
concerning the methods to be used in allocating investment income and capital
gains to redemptions of shares. In the event that the Internal Revenue Service
determines that a Fund is using an improper method of allocation and has
underdistributed its net investment income and capital gain net income for any
taxable year, such Fund may be liable for additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the
companies, and securities of other issuers, the Fund has not invested more than
5% of the value of the Fund's total assets in securities of such issuer and as
to which the Fund does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a
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market discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market discount
which accrued during the period of time the Fund held the debt obligation unless
the Fund made an election to accrue market discount into income. In addition,
under the rules of Code Section 988, gain or loss recognized on the disposition
of a debt obligation denominated in a foreign currency or an option with respect
thereto (but only to the extent attributable to changes in foreign currency
exchange rates), and gain or loss recognized on the disposition of a foreign
currency forward contract or of foreign currency itself, will generally be
treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (a) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (b) the
asset is otherwise held by the Fund as part of a "straddle", or (c) the asset is
stock and the Fund grants certain call options with respect thereto. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position. Any gain recognized by a Fund on
the lapse of, or any gain or loss recognized by a Fund from a closing
transaction with respect to, an option written by the Fund will generally be
treated as a short-term capital gain or loss. In the case of covered options,
gain or loss may be long-term.
Other hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under Section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date) unless the closed
transaction exception applies.
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if they are sold for their fair market value on the last business day
of the taxable year, regardless of whether a taxpayer's obligations (or rights)
under such contracts have terminated (by delivery, exercise, entering into a
closing transaction or otherwise) as of such date. Any gain or loss recognized
as a consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is deemed to be
60% long-term (taxable at a maximum rate of 20% for non-corporate shareholders)
and 40% short-term gain or loss. However, in the case of Section 1256 contracts
that are forward foreign currency exchange contracts, the net gain or loss is
separately determined and (as discussed above) generally treated as ordinary
income or loss.
Because application of the rules governing Section 1256 contracts and
constructive sales may affect the character of gains or losses and/or accelerate
the recognition of gains or losses from the affected investment positions, the
amount which must be distributed to shareholders and which will be taxed to
shareholders as ordinary income or long-term capital gain may be increased as
compared to a fund that did not engage in transactions involving Section 1256
contracts or constructive sales.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or
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December 31, for its taxable year (a "taxable year election")). The balance of
such income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
For purposes of the excise tax, a regulated investment company shall
(a) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year, and (b) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the Internal Revenue Service determines that a Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), such Fund may be liable for excise tax. Moreover, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends received deduction for
corporations only to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. A shareholder of a Fund electing to use equalization
accounting, however, is likely to be taxed on less gain recognized prior to the
date the shareholder acquires his shares since such gain will in many cases have
been allocated to shares of the Fund that have previously been redeemed.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carry
forwards) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
treated as if each received a distribution of its pro rata share of such gain,
with the result that each shareholder will be required to report its pro rata
share of such gain on its tax return as long-term capital gain, will receive a
refundable tax credit for its share of tax paid by the Fund on the gain, and
will increase the tax basis for its shares by an amount equal to the deemed
distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends received deduction generally available
to corporations (other than corporations, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics and
other than for purposes of special taxes such as the accumulated earnings tax
and the personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend (a)
if it has been received with respect to any share of stock that the Fund has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3)and(4) (i)
any day more than 45 days (or 90 days in the case of certain preferred stock)
after the date on which the stock becomes ex-dividend, and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, has granted certain options to
buy or has otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (b) to the extent that the
Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in
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substantially similar or related property; or (c) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends received deduction for a corporate
shareholder may be disallowed or reduced (a) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund, or
(b) by application of Code Section 246(b) which in general limits the dividends
received deduction to 70% of the shareholder's taxable income (determined
without regard to the dividends received deduction and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
The corporate dividends received deduction is not itself an item of tax
preference that must be added back to taxable income or is otherwise disallowed
in determining a corporation's AMTI. However, corporate shareholders will
generally be required to take the full amount of any dividend received from the
Fund into account (without a dividend received deduction) in determining their
adjusted current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMTI net operating loss deduction)) that is includable in AMTI. For taxable
years beginning after 1997, however, certain small corporations are wholly
exempt from the AMT.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle any such Funds to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be invested
in various countries is not known.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
In addition, if the net asset value at the time a shareholder
purchases shares of a Fund reflects undistributed net investment income or
recognized capital gain net income, or unrealized appreciation in the value of
the assets of the Fund, distributions of such amounts will be taxable to the
shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the IRS.
The Funds will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (a) who has
provided either an incorrect tax identification number or no number at all, (b)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (c) who has failed to
certify to a Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
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SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within thirty (30) days before or after the
sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. Currently, any long-term capital gain
recognized by a non-corporate shareholder will be subject to tax at a maximum
rate of 20%. However, any capital loss arising from the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section 246(c)(3) and
(4) (discussed above in connection with the dividends received deduction for
corporations) generally will apply in determining the holding period of shares.
Long-term capital gains of non-corporate taxpayers are currently taxed at a
maximum rate that in some cases may be 19.6% lower than the maximum rate
applicable to ordinary income. Capital losses in any year are deductible only to
the extent of capital gains plus, in the case of a non-corporate taxpayer,
$3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a
Fund, (b) disposes of such shares less than 91 days after they are acquired, and
(c) subsequently acquires shares of the Fund or another Fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement
privilege may increase the amount of gain or reduce the amount of loss
recognized in the original redemption transaction, because the initial sales
charge will not be taken into account in determining such gain or loss to the
extent there has been a reduction in the initial sales charge. Loss may be
deferred if you reinstate by purchasing shares of the same fund within 30 days
of your original redemption (i.e., the wash sale rules will apply).
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from a Fund is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, dividends and return
of capital distributions (other than distributions of long-term capital gain)
will be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate) upon the gross amount of the distribution. Such a foreign shareholder
would generally be exempt from U.S. federal income tax on gains realized on the
sale of shares of a Fund, capital gain dividends and amounts retained by a Fund
that are designated as undistributed net capital gains.
If the income from a Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or
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taxable at a reduced treaty rate) unless such shareholders furnish the Fund with
proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on July 1, 1999. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investment in the Funds.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus
under the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent.
Any loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
SHARE CERTIFICATES. AIM Funds will issue share certificates upon
written request to AFS. Otherwise, shares are held on the shareholder's behalf
and recorded on the Fund books. AIM Funds will not issue certificates for shares
held in prototype retirement plans.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, all
shares are to be held by the Transfer Agent and all dividends and distributions
are reinvested in shares of the applicable AIM Fund by the Transfer Agent. To
provide funds for payments made under the Systematic Withdrawal Plan, the
Transfer Agent redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the AIM Funds and AIM Cash Reserve
Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases
while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to
be acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging
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into a fund paying daily dividends, and the release of the exchange proceeds is
delayed for the foregoing five-day period, such shareholder will not begin to
accrue dividends until the sixth business day after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be effective on the business day received by the Transfer Agent as
long as such request is received prior to NYSE Close. The Transfer Agent and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
By signing an account application form, an investor appoints the
Transfer Agent as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by the Transfer Agent in the
designated account(s), or in any other account with any of the AIM Funds,
present or future, which has the identical registration as the designated
account(s), with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption proceeds to be applied to purchase shares
in any one or more of the AIM Funds, provided that such fund is available for
sale and provided that the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone exchange requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction. The Transfer Agent reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints the Transfer Agent as his true and lawful attorney-in-fact to
surrender for redemption any and all unissued shares held by the Transfer Agent
in the designated account(s), present or future, with full power of substitution
in the premises. The Transfer Agent and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction. The Transfer Agent reserves the
right to cease to act as attorney-in-fact subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone redemption
privilege at any time without notice. An investor may elect not to
71
<PAGE> 90
have this privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $50,000 or the proceeds are to be sent to the address of record.
AIM Funds may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also accept
signatures with either: (1) a signature guaranteed with a medallion stamp of the
STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
TRANSACTIONS BY INTERNET. An investor may effect transactions in his
account through the Internet by selecting the AIM Internet Connect option on
his completed account application form or completing an AIM Internet Connect
Authorization Form. By signing either form the investor acknowledges and
agrees that the Transfer Agent and AIM Distributors will not be liable for any
loss, expense or cost arising out of any internet transaction effected in
accordance with the instructions set forth in the forms if they reasonably
believe such request to be genuine. Procedures for verification of internet
transactions include requests for confirmation of the shareholder's personal
identification number and mailing of confirmations promptly after the
transactions. The investor also acknowledges that (1) if he no longer wants
the AIM Internet Contract option, he will notify the Transfer Agent in writing,
and (2) the AIM Internet Connect option may be terminated at any time by the
AIM Funds.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital
gains, if any, available for distribution, net capital gains are offset against
available net capital losses, if any, carried forward from previous fiscal
periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares or AIM Cash Reserve Shares because of higher
distribution fees paid by Class B and Class C shares. Dividends on all shares
may also be affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made
by the shareholder at any time by notice to the Transfer Agent and are effective
as to any subsequent payment if such notice is received by the Transfer Agent
prior to the record date of such payment. Any dividend and distribution election
remains in effect until the Transfer Agent receives a revised written election
by the shareholder.
Any dividend or distribution paid by a fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
72
<PAGE> 91
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Directors will issue semi-annual reports of the
transactions of the Funds to the shareholders. Financial statements, audited by
independent auditors, will be issued annually. The firm of KPMG LLP, 700
Louisiana, NationsBank Building, Houston, Texas 77002, currently serves as the
auditors of each Fund.
LEGAL MATTERS
Legal matters for the Company have been passed upon by Ballard Spahr
Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Funds. The custodian attends to the collection of principal and income, pays
and collects all monies for securities bought and sold by the Funds and performs
certain other ministerial duties. A I M Fund Services, Inc., a wholly owned
subsidiary of AIM, P. O. Box 4739, Houston, Texas 77210-4739, acts as transfer
and dividend disbursing agent for the Funds. These services do not include any
supervisory function over management or provide any protection against any
possible depreciation of assets. The Funds pay the Custodian and the Transfer
Agent such compensation as may be agreed upon from time to time.
Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as
Sub-Custodian for retail purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
entered into an agreement with the Company (and certain other AIM Funds), First
Data Investor Service Group and Financial Data Services, Inc., pursuant to which
MLPF&S has agreed to perform certain shareholder sub-accounting services for its
customers who beneficially own shares of the Fund(s).
PRINCIPAL HOLDERS OF SECURITIES
AGGRESSIVE GROWTH
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A, Class B and Class C shares
of Aggressive Growth as of July 1, 1999, and the amount of the outstanding
shares held of record and beneficially owned by such holders are set forth
below:
73
<PAGE> 92
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
Merrill Lynch Pierce Fenner & Smith 16.01% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 16.03% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 29.13% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
BLUE CHIP
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A, Class B and Class C shares
of Blue Chip as of July 1, 1999, and the amount of the outstanding shares held
of record and beneficially owned by such holders are set forth below:
<TABLE>
RETAIL CLASS A SHARES
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 8.09% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 12.00% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
74
<PAGE> 93
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 20.89% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Banc One Securities Corp. FBO 5.82% -0-
The One Investment Solution
733 Greencrest Drive
Westerville, OH 43081
</TABLE>
CAPITAL DEVELOPMENT
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A, Class B and Class C shares
of Capital Development as of July 1, 1999, and the amount of the outstanding
shares held of record and beneficially owned by such holders are set forth
below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
Merrill Lynch Pierce Fenner & Smith 11.79% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 15.38% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 20.81% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
75
<PAGE> 94
CHARTER
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A, Class B and Class C shares
of Charter as of July 1, 1999, and the Institutional Class of Charter as of
July 1, 1999, and the amount of the outstanding shares held of record and
beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
Merrill Lynch Pierce Fenner & Smith 13.93% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Great-West Life and Annuity Insurance Co. 7.31% - 0 -
401(k) Unit Valuations
Attn: Mutual Fund Trading 2T2
8515 E. Orchard
Englewood, CO 80111
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 8.56% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 22.20% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
INSTITUTIONAL CLASS
Commonwealth of Massachusetts 95.45% - 0 -
One Ashburton Place
12th Floor
Boston, MA 02108
</TABLE>
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
76
<PAGE> 95
CONSTELLATION
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A, Class B and Class C shares
of Constellation as of July 1, 1999, and of the Institutional Class of
Constellation as of July 1, 1999, and the amount of the outstanding shares held
of record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
Merrill Lynch Pierce Fenner & Smith 16.54% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 6.95% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 24.93% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
INSTITUTIONAL CLASS
Nationwide Ohio Variable Account 38.65% - 0 -
P.O. Box 182029
Columbus, Ohio 43218
Commonwealth of Massachusetts 35.65% - 0 -
One Ashburton Place
12th Floor
Boston, MA 02108
Nationwide GPVA 11.09% - 0 -
P. O. Box 18209
Columbus, OH 43218
</TABLE>
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
77
<PAGE> 96
DEMOGRAPHIC TRENDS
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A, Class B and Class C shares of
Demographic Trends as of July 1, 1999, and the amount of the outstanding shares
held of record and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
Merrill Lynch Pierce Fenner & Smith 8.91% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 33.12% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 26.40% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Salomon Smith Barney Inc. 7.25% - 0 -
00159218474
333 West 34th Street, 3rd Floor
New York, NY 10001
Donaldson Lufkin Jenrette 6.85% - 0 -
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Donaldson Lufkin Jenrette 6.85% - 0 -
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
</TABLE>
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
78
<PAGE> 97
LARGE CAP BASIC VALUE
AIM provided the initial capitalization of Large Cap Basic Value and,
accordingly, as of the date of this Statement of Additional Information, owned
more than 25% of the issued and outstanding shares of that Fund and therefore
could be deemed to "control" that Fund as that term is defined in the 1940 Act.
It is anticipated that after commencement of the public offering of the Fund's
shares, AIM will cease to control the Fund for purposes of the 1940 Act.
LARGE CAP GROWTH
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A shares of Large Cap Growth
as of July 1, 1999, and the amount of the outstanding shares held of record
and beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---------------- ------------ ------------
<S> <C> <C>
RETAIL CLASS A SHARES
AIM Advisors, Inc. 34.66% - 0 -
Attn: David Hessel
11 Greenway Plaza, Ste. 100
Houston, TX 77046
RETAIL CLASS B SHARES
PaineWebber For the Benefit of 6.72% - 0 -
Alan E. Diamond
U/A DTD 7/12/93
225 W. 37th Street
New York, NY 10018
RETAIL CLASS C SHARES
Donaldson Lufkin Jenrette 21.27% - 0 -
Securities Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette 17.14% - 0 -
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette 15.33% - 0 -
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
79
<PAGE> 98
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
Donaldson Lufkin Jenrette 6.38% - 0 -
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
PaineWebber For the Benefit of 5.54% - 0 -
PW Trust Company Ttee
Bernard Cross
Profit Sharing Plan
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07087
NFSC FEBO # 0ST-515507 5.44% - 0 -
NFSC/FMTC IRA Rollover
FBO Shirlyn Perkovich
8 Erickson Place
Palm Coast, FL 32164
Donaldson Lufkin Jenrette 5.22% - 0 -
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
MID CAP
AIM provided the initial capitalization of Mid Cap and, accordingly,
as of the date of this Statement of Additional Information, owned more than 25%
of the issued and outstanding shares of that Fund and therefore could be deemed
to "control" the Fund as that term is defined in the 1940 Act. it is anticipated
that after commencement of the public offering of the fund's shares, AIM will
cease to control the fund for purposes of the 1940 Act.
WEINGARTEN
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding Class A, Class B and Class C shares
of Weingarten as of July 1, 1999, and the Institutional Class of Weingarten as
of July 1, 1999, and the amount of the outstanding shares held of record and
beneficially owned by such holders are set forth below:
<TABLE>
<CAPTION>
RETAIL CLASS A SHARES
- ---------------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 17.39% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
80
<PAGE> 99
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
NAME AND ADDRESS OWNED OF OF RECORD AND
OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- --------------- ------------ ------------
<S> <C> <C>
Great-West Life and Annuity 5.66% - 0 -
Insurance Co.
401(k) Unit Valuations
Attn: Mutual Fund Trading 2T2
8515 E. Orchard
Englewood, CO 80111
RETAIL CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 10.54% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
RETAIL CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 22.39% - 0 -
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
INSTITUTIONAL CLASS
Commonwealth of Massachusetts 88.31% - 0 -
One Ashburton Place
12th Floor
Boston, MA 02108
Nationwide GPVA 6.21% - 0 -
P. O. Box 182029
Columbus, OH 43218
</TABLE>
As of July 1, 1999, the directors/trustees and officers of the Company
as a group owned beneficially less than 1% of the outstanding shares of each
class of Aggressive Growth, Blue Chip, Capital Development, Charter,
Constellation, Demographic Trends, Large Cap Growth and Weingarten.
OTHER INFORMATION
Each Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Company
has filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Funds and the
securities offered hereby. The Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.
- --------------------
* The Funds have no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
81
<PAGE> 100
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well-established, and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's Commercial Paper is rated A-1 or A-2. A-1 indicates the degree of
safety regarding time of payment is very strong. A-2 indicates that the capacity
for timely payment is strong, but that the relative degree of safety is not as
overwhelming as for issues designated A-1.
MOODY'S
Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service. Among the factors considered by Moody's
in assigning ratings are the following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and customer
acceptance; (d) liquidity; (e) amount and quality of long-term debt; (f) trend
of earnings over a period of ten years; (g) financial strength of a parent
company and the relationships which exist with the issuer; and (h) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1 or Prime-2.
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
MOODY'S
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as "high-grade bonds." They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
82
<PAGE> 101
FINANCIAL STATEMENTS
FS
<PAGE> 102
AIM AGGRESSIVE GROWTH FUND
UNAUDITED FINANCIALS FOR THE
PERIOD ENDED APRIL 30, 1999
SCHEDULE OF INVESTMENTS
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-96.20%
AIR FREIGHT-0.37%
Expeditors International of
Washington, Inc. 150,000 $ 9,093,750
- ---------------------------------------------------------------
AIRLINES-1.21%
Alaska Air Group, Inc.(a) 100,000 4,406,250
- ---------------------------------------------------------------
Atlantic Coast Airlines
Holdings(a) 400,000 12,350,000
- ---------------------------------------------------------------
Ryanair Holdings plc-ADR(a)
(Ireland) 300,000 13,425,000
- ---------------------------------------------------------------
30,181,250
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.14%
Gentex Corp.(a) 500,000 15,031,250
- ---------------------------------------------------------------
Meritor Automotive, Inc. 250,000 5,296,875
- ---------------------------------------------------------------
Tower Automotive, Inc.(a) 350,000 8,050,000
- ---------------------------------------------------------------
28,378,125
- ---------------------------------------------------------------
BANKS (REGIONAL)-3.04%
Bank United Corp.-Class A 325,000 13,121,875
- ---------------------------------------------------------------
Centennial Bancorp(a) 275,000 3,523,438
- ---------------------------------------------------------------
Centura Banks, Inc. 100,000 5,956,250
- ---------------------------------------------------------------
Community First Bankshares, Inc. 500,000 10,218,750
- ---------------------------------------------------------------
First Republic Bank(a) 300,000 7,725,000
- ---------------------------------------------------------------
Provident Bankshares Corp. 220,500 5,484,938
- ---------------------------------------------------------------
Southwest Bancorp. of Texas,
Inc.(a) 675,600 11,400,750
- ---------------------------------------------------------------
Trustmark Corp. 500,000 10,562,500
- ---------------------------------------------------------------
Westamerica Bancorp 225,000 7,509,374
- ---------------------------------------------------------------
75,502,875
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.34%
IDEXX Laboratories, Inc.(a) 250,000 5,656,250
- ---------------------------------------------------------------
Pharmaceutical Product
Development, Inc.(a) 100,000 2,912,500
- ---------------------------------------------------------------
8,568,750
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.98%
Heftel Broadcasting Corp.(a) 450,000 24,468,750
- ---------------------------------------------------------------
BUILDING MATERIALS-0.81%
Elcor Corp. 300,000 11,587,500
- ---------------------------------------------------------------
NCI Building Systems, Inc.(a) 200,000 4,812,500
- ---------------------------------------------------------------
Simpson Manufacturing Co.,
Inc.(a) 78,500 3,630,625
- ---------------------------------------------------------------
20,030,625
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.59%
OM Group, Inc. 400,000 14,550,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.81%
ANTEC Corp.(a) 300,000 8,137,500
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 375,000 24,046,874
- ---------------------------------------------------------------
Dycom Industries, Inc.(a) 311,700 14,240,794
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Harmonic Inc.(a) 350,000 $ 15,968,750
- ---------------------------------------------------------------
Polycom, Inc.(a) 100,000 2,443,750
- ---------------------------------------------------------------
Proxim, Inc.(a) 300,000 11,550,000
- ---------------------------------------------------------------
Uniphase Corp.(a) 150,000 18,206,250
- ---------------------------------------------------------------
94,593,918
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-1.21%
Genesis Microchip Inc.(a) 175,000 3,631,250
- ---------------------------------------------------------------
National Instruments Corp.(a) 450,000 15,300,000
- ---------------------------------------------------------------
Visual Networks, Inc.(a) 400,000 11,225,000
- ---------------------------------------------------------------
30,156,250
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.22%
Emulex Corp.(a) 300,000 13,237,500
- ---------------------------------------------------------------
International Network Services(a) 300,000 11,400,000
- ---------------------------------------------------------------
VeriSign, Inc.(a) 50,000 5,750,000
- ---------------------------------------------------------------
30,387,500
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-3.33%
Cybex Computer Products Corp.(a) 350,000 6,650,000
- ---------------------------------------------------------------
DSP Communications, Inc.(a) 500,000 13,625,000
- ---------------------------------------------------------------
Jabil Circuit, Inc.(a) 317,400 14,778,938
- ---------------------------------------------------------------
Network Appliance, Inc.(a) 250,000 12,578,124
- ---------------------------------------------------------------
QLogic Corp.(a) 300,000 20,981,250
- ---------------------------------------------------------------
SanDisk Corp.(a) 400,000 8,100,000
- ---------------------------------------------------------------
Xircom, Inc.(a) 264,400 5,949,000
- ---------------------------------------------------------------
82,662,312
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-9.58%
American Management Systems,
Inc.(a) 175,000 6,015,625
- ---------------------------------------------------------------
Analytical Surveys, Inc.(a) 200,000 5,000,000
- ---------------------------------------------------------------
Avant! Corp.(a) 500,000 6,750,000
- ---------------------------------------------------------------
AVT Corp.(a) 375,000 10,195,313
- ---------------------------------------------------------------
Business Objects S.A.-ADR(a)
(France) 250,000 5,859,375
- ---------------------------------------------------------------
Check Point Software Technologies
Ltd.(a) (Israel) 300,000 10,575,000
- ---------------------------------------------------------------
Citrix Systems, Inc.(a) 350,000 14,875,000
- ---------------------------------------------------------------
Concord Communications, Inc.(a) 150,000 6,712,500
- ---------------------------------------------------------------
Electronics for Imaging, Inc.(a) 400,000 18,925,000
- ---------------------------------------------------------------
Engineering Animation, Inc.(a) 201,600 2,998,800
- ---------------------------------------------------------------
Gemstar International Group
Ltd.(a) 150,000 15,806,250
- ---------------------------------------------------------------
InfoCure Corp.(a) 200,000 5,262,500
- ---------------------------------------------------------------
ISS Group, Inc.(a) 100,000 5,306,250
- ---------------------------------------------------------------
Jack Henry & Associates 125,000 4,125,000
- ---------------------------------------------------------------
Macromedia, Inc.(a) 225,000 9,323,438
- ---------------------------------------------------------------
</TABLE>
FS-1
<PAGE> 103
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Medical Manager Corp.(a) 300,000 $ 8,550,000
- ---------------------------------------------------------------
Mercury Interactive Corp.(a) 300,000 8,456,250
- ---------------------------------------------------------------
Micromuse Inc.(a) 200,000 6,887,500
- ---------------------------------------------------------------
QRS Corp.(a) 101,700 5,593,500
- ---------------------------------------------------------------
Rational Software Corp.(a) 625,000 18,515,625
- ---------------------------------------------------------------
Sapient Corp.(a) 100,000 6,275,000
- ---------------------------------------------------------------
ScanSource, Inc.(a) 200,000 4,600,000
- ---------------------------------------------------------------
Transaction Systems Architects,
Inc.-Class A(a) 400,000 12,975,000
- ---------------------------------------------------------------
USWeb Corp.(a) 475,000 10,657,813
- ---------------------------------------------------------------
Veritas Software Corp.(a) 200,000 14,200,000
- ---------------------------------------------------------------
Verity, Inc.(a) 200,000 7,000,000
- ---------------------------------------------------------------
WebTrends Corp.(a) 125,000 6,640,625
- ---------------------------------------------------------------
238,081,364
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.61%
Action Performance Companies,
Inc.(a) 150,000 5,081,250
- ---------------------------------------------------------------
Department 56, Inc.(a) 88,200 2,386,912
- ---------------------------------------------------------------
Fossil, Inc.(a) 250,000 7,687,500
- ---------------------------------------------------------------
15,155,662
- ---------------------------------------------------------------
CONSUMER FINANCE-0.44%
AmeriCredit Corp.(a) 400,000 6,625,000
- ---------------------------------------------------------------
Doral Financial Corp. 250,000 4,406,250
- ---------------------------------------------------------------
11,031,250
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.44%
Patterson Dental Co.(a) 300,000 10,818,750
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.73%
CommScope, Inc.(a) 325,000 7,921,875
- ---------------------------------------------------------------
Cree Research, Inc.(a) 250,000 10,500,000
- ---------------------------------------------------------------
Electro Scientific Industries,
Inc.(a) 75,000 2,859,375
- ---------------------------------------------------------------
Oak Industries, Inc.(a) 200,000 8,350,000
- ---------------------------------------------------------------
Pinnacle Systems, Inc.(a) 200,000 10,875,000
- ---------------------------------------------------------------
Sanmina Corp.(a) 200,000 13,275,000
- ---------------------------------------------------------------
Sawtek Inc.(a) 200,000 7,050,000
- ---------------------------------------------------------------
SLI, Inc.(a) 135,000 3,704,063
- ---------------------------------------------------------------
Watsco, Inc. 175,000 3,434,375
- ---------------------------------------------------------------
67,969,688
- ---------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.34%
Aeroflex Inc.(a) 575,000 8,409,375
- ---------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION)-2.12%
Alpha Industries, Inc.(a)(b) 899,950 31,723,238
- ---------------------------------------------------------------
Waters Corp.(a) 200,000 21,025,000
- ---------------------------------------------------------------
52,748,238
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-6.69%
American Xtal Technology, Inc.(a) 400,000 9,025,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS (SEMICONDUCTORS)-(CONTINUED)
Apex PC Solutions, Inc.(a) 225,000 $ 3,740,625
- ---------------------------------------------------------------
Applied Micro Circuits Corp.(a) 300,000 15,993,750
- ---------------------------------------------------------------
Burr-Brown Corp.(a) 250,000 6,625,000
- ---------------------------------------------------------------
Dallas Semiconductor Corp. 175,000 7,437,500
- ---------------------------------------------------------------
Flextronics International Ltd.(a) 250,000 11,671,875
- ---------------------------------------------------------------
Micrel, Inc.(a) 150,000 8,831,250
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 500,000 17,500,000
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 200,000 19,175,000
- ---------------------------------------------------------------
SDL, Inc.(a) 250,000 27,312,500
- ---------------------------------------------------------------
Semtech Corp.(a) 300,000 9,787,500
- ---------------------------------------------------------------
TranSwitch Corp.(a) 250,000 11,000,000
- ---------------------------------------------------------------
Unitrode Corp.(a) 500,000 8,843,750
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 200,000 9,262,500
- ---------------------------------------------------------------
166,206,250
- ---------------------------------------------------------------
ENTERTAINMENT-0.85%
Cinar Films Inc.-Class B(a)
(Canada) 121,000 2,525,875
- ---------------------------------------------------------------
SFX Entertainment, Inc.-Class
A(a) 300,000 18,525,000
- ---------------------------------------------------------------
21,050,875
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-1.91%
Advanced Energy Industries,
Inc.(a) 206,100 5,706,394
- ---------------------------------------------------------------
Asyst Technologies, Inc.(a) 400,000 7,325,000
- ---------------------------------------------------------------
Brooks Automation, Inc.(a) 200,000 4,300,000
- ---------------------------------------------------------------
Credence Systems Corp.(a) 300,000 7,706,250
- ---------------------------------------------------------------
Kulicke & Soffa Industries,
Inc.(a) 225,000 5,146,874
- ---------------------------------------------------------------
Lam Research Corp.(a) 400,000 12,600,000
- ---------------------------------------------------------------
Novellus Systems, Inc.(a) 100,000 4,725,000
- ---------------------------------------------------------------
47,509,518
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.87%
Insignia Financial Group, Inc.(a) 266,666 3,349,992
- ---------------------------------------------------------------
NCO Group, Inc.(a) 200,000 6,525,000
- ---------------------------------------------------------------
SEI Investments Co. 125,000 11,875,000
- ---------------------------------------------------------------
21,749,992
- ---------------------------------------------------------------
FOODS-0.55%
Earthgrains Co. (The) 150,000 3,178,125
- ---------------------------------------------------------------
Hain Food Group, Inc. (The)(a) 375,000 6,703,125
- ---------------------------------------------------------------
United Natural Foods, Inc.(a) 150,000 3,768,750
- ---------------------------------------------------------------
13,650,000
- ---------------------------------------------------------------
FOOTWEAR-0.32%
K-Swiss Inc. 190,200 7,988,400
- ---------------------------------------------------------------
GAMING-0.33%
Station Casinos, Inc.(a) 500,000 8,218,750
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.23%
Alpharma, Inc.-Class A 495,834 14,627,102
- ---------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 104
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-GENERIC &
OTHER)-(CONTINUED)
Biovail Corporation
International(a) (Canada) 175,000 $ 6,135,938
- ---------------------------------------------------------------
Medicis Pharmaceutical-Class A(a) 400,000 9,725,000
- ---------------------------------------------------------------
30,488,040
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.00%
Health Management Associates,
Inc.-Class A(a) 500,000 7,812,500
- ---------------------------------------------------------------
Province Healthcare Co.(a) 300,000 6,675,000
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 200,000 10,362,500
- ---------------------------------------------------------------
24,850,000
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.74%
Express Scripts, Inc.-Class A(a) 250,000 18,406,250
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-4.02%
Henry Schein, Inc.(a) 450,000 11,784,375
- ---------------------------------------------------------------
MiniMed, Inc.(a) 300,000 18,750,000
- ---------------------------------------------------------------
Osteotech, Inc.(a) 450,000 16,256,250
- ---------------------------------------------------------------
ResMed, Inc.(a) 250,000 6,609,375
- ---------------------------------------------------------------
Sybron International Corp.(a) 500,000 13,843,750
- ---------------------------------------------------------------
Syncor International Corp.(a) 150,000 4,275,000
- ---------------------------------------------------------------
VISX, Inc.(a) 100,000 12,875,000
- ---------------------------------------------------------------
Xomed Surgical Products, Inc.(a) 375,000 15,609,375
- ---------------------------------------------------------------
100,003,125
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-3.30%
Advance Paradigm, Inc.(a) 225,000 11,812,500
- ---------------------------------------------------------------
Capital Senior Living Corp.(a) 33,700 332,788
- ---------------------------------------------------------------
Covance, Inc.(a) 200,000 4,387,500
- ---------------------------------------------------------------
First Consulting Group, Inc.(a) 300,000 3,450,000
- ---------------------------------------------------------------
Hooper Holmes, Inc. 600,000 9,562,500
- ---------------------------------------------------------------
NCS HealthCare, Inc.-Class A(a) 500,000 6,500,000
- ---------------------------------------------------------------
OEC Medical Systems, Inc.(a) 200,000 4,737,500
- ---------------------------------------------------------------
Omnicare, Inc. 600,000 14,437,500
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 625,000 7,734,374
- ---------------------------------------------------------------
Renal Care Group, Inc.(a) 300,000 6,262,500
- ---------------------------------------------------------------
Res-Care, Inc.(a) 150,000 2,775,000
- ---------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 125,000 3,375,000
- ---------------------------------------------------------------
Veterinary Centers of America,
Inc.(a) 500,000 6,562,500
- ---------------------------------------------------------------
81,929,662
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.14%
Penn Treaty American Corp.(a) 121,300 3,403,981
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.02%
Century Business Services,
Inc.(a) 46,600 559,200
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.76%
FPIC Insurance Group, Inc.(a) 300,000 13,500,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (PROPERTY-CASUALTY)-(CONTINUED)
HCC Insurance Holdings, Inc. 250,000 $ 5,281,250
- ---------------------------------------------------------------
18,781,250
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.67%
Hambrecht & Quist Group(a) 475,000 16,743,750
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-1.49%
Affiliated Managers Group,
Inc.(a) 100,000 2,906,250
- ---------------------------------------------------------------
Eaton Vance Corp. 316,100 7,211,031
- ---------------------------------------------------------------
Knight/Trimark Group, Inc.-Class
A(a) 175,000 26,807,813
- ---------------------------------------------------------------
36,925,094
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.34%
Acclaim Entertainment, Inc.(a) 250,000 1,625,000
- ---------------------------------------------------------------
International Speedway
Corp.-Class A 50,000 2,575,000
- ---------------------------------------------------------------
Speedway Motorsports, Inc.(a) 100,000 4,337,500
- ---------------------------------------------------------------
8,537,500
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.26%
Spartech Corp. 275,000 6,531,250
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.39%
Astec Industries, Inc.(a) 251,400 9,741,750
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.67%
Daisytek International
Corp.(a)(b) 1,000,000 16,750,000
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.89%
Cal Dive International, Inc.(a) 200,000 6,400,000
- ---------------------------------------------------------------
Core Laboratories
N.V.(a)(Netherlands) 500,000 9,000,000
- ---------------------------------------------------------------
Global Industries Ltd.(a) 550,000 6,771,875
- ---------------------------------------------------------------
22,171,875
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.72%
Cabot Oil & Gas Corp.-Class A 250,000 4,375,000
- ---------------------------------------------------------------
Evergreen Resources, Inc.(a) 375,000 8,531,250
- ---------------------------------------------------------------
Stone Energy Corp.(a) 150,000 5,090,625
- ---------------------------------------------------------------
17,996,875
- ---------------------------------------------------------------
PERSONAL CARE-0.64%
Steiner Leisure Ltd.(a) 500,000 15,875,000
- ---------------------------------------------------------------
PUBLISHING-0.62%
IDG Books Worldwide, Inc.-Class
A(a) 400,000 8,650,000
- ---------------------------------------------------------------
Meredith Corp. 185,500 6,805,531
- ---------------------------------------------------------------
15,455,531
- ---------------------------------------------------------------
RAILROADS-0.41%
MotivePower Industries, Inc.(a) 600,000 10,237,500
- ---------------------------------------------------------------
RESTAURANTS-1.56%
CEC Entertainment Inc.(a) 475,000 17,812,500
- ---------------------------------------------------------------
Foodmaker, Inc.(a) 350,000 8,443,750
- ---------------------------------------------------------------
Papa John's International,
Inc.(a) 100,000 4,018,750
- ---------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 105
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RESTAURANTS-(CONTINUED)
Sonic Corp.(a) 300,000 $ 8,437,500
- ---------------------------------------------------------------
38,712,500
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.48%
Fastenal Co. 250,000 11,937,500
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.93%
CDW Computer Centers, Inc.(a) 258,200 23,108,900
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.20%
Dollar Tree Stores, Inc.(a) 330,750 12,072,375
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 350,000 8,443,750
- ---------------------------------------------------------------
99 Cents Only Stores(a) 200,081 9,428,817
- ---------------------------------------------------------------
29,944,942
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.11%
Wild Oats Markets Inc.(a) 100,000 2,768,750
- ---------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.29%
DM Management Company(a) 300,000 7,125,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-4.88%
BOWLIN Outdoor Advertising &
Travel Centers Inc.(a)(b) 250,000 1,656,250
- ---------------------------------------------------------------
Casey's General Stores, Inc. 200,000 2,650,000
- ---------------------------------------------------------------
Cheap Tickets, Inc.(a) 75,000 2,887,500
- ---------------------------------------------------------------
Claire's Stores, Inc. 400,000 13,250,000
- ---------------------------------------------------------------
Cost Plus Inc.(a) 300,000 10,575,000
- ---------------------------------------------------------------
CSK Auto Corp.(a) 220,000 5,500,000
- ---------------------------------------------------------------
Finish Line, Inc. (The)-Class
A(a) 500,000 7,531,250
- ---------------------------------------------------------------
Footstar, Inc.(a) 281,500 9,518,219
- ---------------------------------------------------------------
Hibbett Sporting Goods,
Inc.(a)(b) 376,000 10,269,500
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 400,000 18,300,000
- ---------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 325,000 14,868,750
- ---------------------------------------------------------------
Rent-A-Center, Inc.(a) 350,000 10,850,000
- ---------------------------------------------------------------
Rent-Way, Inc.(a) 300,000 8,175,000
- ---------------------------------------------------------------
Tuesday Morning Corp.(a) 268,600 5,237,700
- ---------------------------------------------------------------
121,269,169
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-5.67%
Abercrombie & Fitch Co.-Class
A(a) 200,000 19,025,000
- ---------------------------------------------------------------
American Eagle Outfitters,
Inc.(a) 259,075 19,365,855
- ---------------------------------------------------------------
AnnTaylor Stores Corp.(a) 450,000 21,375,000
- ---------------------------------------------------------------
Buckle, Inc. (The)(a) 650,000 15,193,750
- ---------------------------------------------------------------
Children's Place Retail Stores,
Inc. (The)(a) 250,000 9,062,500
- ---------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 275,000 2,475,000
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 700,000 19,162,500
- ---------------------------------------------------------------
Pacific Sunwear of California(a) 400,000 14,837,500
- ---------------------------------------------------------------
Wet Seal, Inc.-Class A(a) 500,000 20,375,000
- ---------------------------------------------------------------
140,872,105
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SAVINGS & LOAN COMPANIES-0.32%
Queens County Bancorp Inc. 225,000 $ 7,903,125
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-2.09%
Abacus Direct Corp.(a) 100,000 7,400,000
- ---------------------------------------------------------------
Acxiom Corp.(a) 350,000 8,837,500
- ---------------------------------------------------------------
Forrester Research, Inc.(a) 249,000 8,466,000
- ---------------------------------------------------------------
Healthworld Corp.(a) 250,000 3,875,000
- ---------------------------------------------------------------
Market Facts, Inc.(a) 375,000 11,437,500
- ---------------------------------------------------------------
Metris Companies Inc. 150,000 9,168,750
- ---------------------------------------------------------------
Professional Detailing, Inc.(a) 100,000 2,875,000
- ---------------------------------------------------------------
52,059,750
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-3.69%
Bright Horizons Family Solutions,
Inc.(a) 260,000 5,590,000
- ---------------------------------------------------------------
Cerner Corp.(a) 300,000 5,100,000
- ---------------------------------------------------------------
Championship Auto Racing Teams,
Inc.(a) 100,000 3,081,250
- ---------------------------------------------------------------
Copart, Inc.(a) 300,000 5,437,500
- ---------------------------------------------------------------
Education Management Corp.(a) 125,000 2,492,188
- ---------------------------------------------------------------
G & K Services, Inc.-Class A 100,000 4,675,000
- ---------------------------------------------------------------
Iron Mountain, Inc.(a) 150,000 4,171,875
- ---------------------------------------------------------------
Metzler Group, Inc.(a) 295,000 8,223,125
- ---------------------------------------------------------------
MSC Industrial Direct Co.,
Inc.-Class A(a) 300,000 6,468,750
- ---------------------------------------------------------------
Provant, Inc.(a) 250,000 4,500,000
- ---------------------------------------------------------------
Regis Corp. 450,000 11,531,250
- ---------------------------------------------------------------
Ritchie Bros. Auctioneers Inc.(a)
(Canada) 155,100 5,418,806
- ---------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 400,000 7,950,000
- ---------------------------------------------------------------
Strayer Education, Inc. 330,500 11,443,563
- ---------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 225,000 5,653,125
- ---------------------------------------------------------------
91,736,432
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.93%
Ciber, Inc.(a) 212,000 4,001,500
- ---------------------------------------------------------------
Critical Path, Inc.(a) 50,000 4,975,000
- ---------------------------------------------------------------
Insight Enterprises, Inc.(a) 675,000 18,225,000
- ---------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 100,000 8,100,000
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 400,000 12,775,000
- ---------------------------------------------------------------
48,076,500
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-4.37%
Affiliated Computer Services,
Inc.(a) 300,000 11,475,000
- ---------------------------------------------------------------
CheckFree Holdings Corp.(a) 250,000 12,000,000
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 475,000 15,853,125
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 500,000 19,312,500
- ---------------------------------------------------------------
FactSet Research Systems, Inc. 150,000 6,993,750
- ---------------------------------------------------------------
Lason Holdings, Inc.(a) 125,000 4,945,313
- ---------------------------------------------------------------
MedQuist, Inc.(a) 350,000 11,987,500
- ---------------------------------------------------------------
National Computer Systems, Inc. 450,000 12,600,000
- ---------------------------------------------------------------
</TABLE>
FS-4
<PAGE> 106
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING)-(CONTINUED)
NOVA Corp.(a) 514,500 $ 13,377,000
- ---------------------------------------------------------------
108,544,188
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.41%
Select Appointments Holding-ADR (United
Kingdom) 400,000 10,150,000
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.65%
Cornell Corrections, Inc.(a) 200,000 4,025,000
- ---------------------------------------------------------------
Tetra Tech, Inc.(a) 500,000 12,093,750
- ---------------------------------------------------------------
16,118,750
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.55%
Consolidated Graphics, Inc.(a) 56,800 2,421,100
- ---------------------------------------------------------------
Valassis Communications, Inc.(a) 200,000 11,200,000
- ---------------------------------------------------------------
13,621,100
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.92%
Amdocs Limited(a) 400,000 10,750,000
- ---------------------------------------------------------------
Powerwave Technologies, Inc.(a) 400,000 12,150,000
- ---------------------------------------------------------------
22,900,000
- ---------------------------------------------------------------
TEXTILES (APPAREL)-0.91%
Quicksilver, Inc.(a) 525,000 13,945,313
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-(CONTINUED)
Tommy Hilfiger Corp.(a) 125,000 $ 8,734,375
- ---------------------------------------------------------------
22,679,688
- ---------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.49%
Mohawk Industries, Inc.(a) 375,000 12,093,750
- ---------------------------------------------------------------
TRUCKERS-0.55%
M.S. Carriers, Inc.(a) 100,000 3,187,500
- ---------------------------------------------------------------
Swift Transportation Co., Inc.(a) 565,050 10,382,794
- ---------------------------------------------------------------
13,570,294
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.06%
KTI, Inc.(a)(b) 150,000 1,500,000
- ---------------------------------------------------------------
Total Common Stocks (Cost
$1,629,892,346) 2,391,242,293
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-3.83%(C)
Dean Witter Reynolds, Inc.,
4.93%, 05/03/99(d) (Cost
$95,240,448) $95,240,448 95,240,448
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.03% 2,486,482,741
- ---------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.03%) (696,290)
- ---------------------------------------------------------------
NET ASSETS-100.00% $2,485,786,451
===============================================================
</TABLE>
Abbreviation:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Funds's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Co. Act of 1940) of
that issuer. The aggregate market value of affiliated issuers as of 04/30/99
was $60,398,988 which represented 2.43% of the Fund's net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d) Joint repurchase agreement entered into 04/30/99 with a maturing value of
$300,123,250. Collateralized by $316,962,000 U.S. Government obligations, 0%
to 7.55% due 07/01/99 to 04/15/30 with an aggregate market value at 04/30/99
of $306,001,331.
See Notes to Financial Statements.
FS-5
<PAGE> 107
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,725,132,794) $2,486,482,741
- --------------------------------------------------------
Receivables for:
Investments sold 26,129,327
- --------------------------------------------------------
Capital stock sold 3,191,653
- --------------------------------------------------------
Dividends and interest 177,500
- --------------------------------------------------------
Investment for deferred compensation
plan 53,395
- --------------------------------------------------------
Other assets 131,525
- --------------------------------------------------------
Total assets 2,516,166,141
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 11,526,518
- --------------------------------------------------------
Capital stock reacquired 15,995,299
- --------------------------------------------------------
Deferred compensation 53,395
- --------------------------------------------------------
Accrued advisory fees 1,302,027
- --------------------------------------------------------
Accrued administrative services fees 9,658
- --------------------------------------------------------
Accrued distribution fees 781,147
- --------------------------------------------------------
Accrued directors' fees 6,967
- --------------------------------------------------------
Accrued transfer agent fees 360,118
- --------------------------------------------------------
Accrued operating expenses 344,561
- --------------------------------------------------------
Total liabilities 30,379,690
- --------------------------------------------------------
Net assets applicable to shares
outstanding $2,485,786,451
- --------------------------------------------------------
NET ASSETS:
Class A $2,478,231,953
========================================================
Class B $ 5,987,580
========================================================
Class C $ 1,566,918
========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 53,289,705
========================================================
Class B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 128,945
========================================================
Class C:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 33,744
========================================================
Class A:
Net asset value and redemption price
per share $ 46.50
- --------------------------------------------------------
Offering price per share:
(Net asset value of $46.50
divided by 94.50%) $ 49.21
========================================================
Class B:
Net asset value and offering price per
share $ 46.44
========================================================
Class C:
Net asset value and offering price per
share $ 46.44
========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $1,500 foreign
withholding tax) $ 1,452,598
- -------------------------------------------------------
Interest 2,909,760
- -------------------------------------------------------
Total investment income 4,362,358
- -------------------------------------------------------
EXPENSES:
Advisory fees 8,618,890
- -------------------------------------------------------
Administrative services fees 46,826
- -------------------------------------------------------
Custodian fees 115,056
- -------------------------------------------------------
Directors' fees 11,182
- -------------------------------------------------------
Distribution fees-Class A 3,394,098
- -------------------------------------------------------
Distribution fees-Class B 4,351
- -------------------------------------------------------
Distribution fees-Class C 1,206
- -------------------------------------------------------
Transfer agent fees-Class A 2,304,396
- -------------------------------------------------------
Transfer agent fees-Class B 1,657
- -------------------------------------------------------
Transfer agent fees-Class C 373
- -------------------------------------------------------
Other 401,820
- -------------------------------------------------------
Total expenses 14,899,855
- -------------------------------------------------------
Less: Expenses paid indirectly (31,188)
- -------------------------------------------------------
Net expenses 14,868,667
- -------------------------------------------------------
Net investment income (loss) (10,506,309)
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 228,159,614
- -------------------------------------------------------
Net unrealized appreciation of investment
securities 209,355,102
- -------------------------------------------------------
Net gain from investment
securities 437,514,716
- -------------------------------------------------------
Net increase in net assets resulting from
operations $427,008,407
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-6
<PAGE> 108
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND THE YEAR ENDED OCTOBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL, 30 OCTOBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment (loss) $ (10,506,309) $ (21,818,881)
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures and
option contracts 228,159,614 22,492,829
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and futures contracts 209,355,102 (542,787,104)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 427,008,407 (542,113,156)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains-
Class A (25,067,104) (135,730,479)
- ---------------------------------------------------------------------------------------------
Share transactions--net
Class A (561,479,830) (548,376,018)
- ---------------------------------------------------------------------------------------------
Class B 5,784,062 --
- ---------------------------------------------------------------------------------------------
Class C 1,503,260 --
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (152,251,205) (1,226,219,653)
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,638,037,656 3,864,257,309
- ---------------------------------------------------------------------------------------------
End of period $2,485,786,451 $2,638,037,656
=============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,506,788,446 $2,060,980,954
- ---------------------------------------------------------------------------------------------
Undistributed net investment (loss) (10,624,277) (117,968)
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, futures and option contracts 228,272,335 25,179,825
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 761,349,947 551,994,845
- ---------------------------------------------------------------------------------------------
$2,485,786,451 $2,638,037,656
=============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
(UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of nine separate
portfolios. The Fund currently offers three different classes of shares: Class A
shares, Class B shares, and Class C shares. Class B shares and Class C shares
commenced sales on March 1, 1999. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by 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 achieve long-term growth of capital by
investing primarily in common stocks, convertible bonds, convertible preferred
stocks and warrants of companies which in the opinion of the Fund's investment
advisor are expected to achieve earnings growth over time at a rate in excess of
15% per year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last price on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price 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 closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a
FS-7
<PAGE> 109
manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in
foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under
the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions-- Securities
transactions are recorded on a trade date basis. Realized gains or losses on
sales are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date and are paid annually.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the
Fund's basis in the contract. Risks include the possibility of an illiquid
market and that a change in the value of contracts may not correlate with
changes in the value of the securities being hedged.
E. Foreign Currency Transactions--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for that portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments.
F. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
G. 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 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $150 million.
FS-8
<PAGE> 110
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 six months ended April 30, 1999, AIM
was reimbursed $46,826 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the six months ended April 30,
1999, AFS was paid $1,071,426 for such services.
The Company has entered into master distribution agreements 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 and Class C shares (the "Class A and C Plan"), and the Fund's Class B
shares (the "Class B Plan")(collectively, the "Plans"). The Fund, pursuant to
the Class A and C Plan, pays AIM Distributors compensation at the annual rate of
0.25% of the average daily net assets of Class A shares and 1.00% of the average
daily net assets of Class C shares. The Fund, pursuant to the Class B Plan, pays
AIM Distributors compensation at an annual rate of 1.00% of the average daily
net assets of the Class B shares. Of these amounts, the Fund may pay a service
fee of 0.25% of the average net assets of the Class A, Class B or C shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own the appropriate
class of shares of the Fund. Any amounts not paid as a service fee under the
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. During the six months ended April 30, 1999 for Class
A shares and the period March 1, 1999 (date sales commenced) through April 30,
1999 for the Class B and Class C shares, the Class A, Class B and Class C shares
paid AIM Distributors $3,394,098, $4,351 and $1,206, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $480,783 from sales of the Class A
shares of the Fund's capital stock during the six months ended April 30, 1999.
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 six
months ended April 30, 1999, AIM Distributors received $30,304 in contingent
deferred sales charges imposed on redemptions of the Fund's capital stock.
Certain officers and directors of the Company are officers and directors of AIM,
AFS and AIM Distributors.
During the six months ended April 30, 1999, the Fund paid legal fees of $3,461
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 1999 the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $17,812 and $13,376, respectively, under expense offset arrangements.
The effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $31,188 during the six months ended April 30, 1999.
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) $1,000,000,000 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. During the six
months ended April 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.05% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended April 30, 1999 were $936,738,764
and $1,389,058,177, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of April 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 817,200,919
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (62,749,291)
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities $ 754,451,628
===========================================================
</TABLE>
Cost of investment for tax purposes is $1,732,031,113.
FS-9
<PAGE> 111
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended April 30, 1999
and the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1999 OCTOBER 31, 1998
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold:
- --------------------------------------------------------------------------------------------------------------------------
Class A 14,274,026 $ 641,105,882 40,244,020 $ 1,856,544,416
- --------------------------------------------------------------------------------------------------------------------------
Class B* 140,242 6,279,139 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C* 36,031 1,605,300 -- --
- --------------------------------------------------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 522,590 23,265,548 2,928,346 126,973,169
- --------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (27,214,073) (1,225,851,260) (54,802,587) (2,531,893,603)
- --------------------------------------------------------------------------------------------------------------------------
Class B* (11,297) (495,077) -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C* (2,287) (102,040) -- --
- --------------------------------------------------------------------------------------------------------------------------
(12,254,768) $ (554,192,508) (11,630,221) $ (548,376,018)
==========================================================================================================================
</TABLE>
* Class B and Class C shares commenced sales on March 1, 1999.
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1999 and each of the years in
the five-year period ended October 31, 1998 and for a share of Class B and Class
C capital stock outstanding during the period March 1, 1999 (date sales
commenced) through April 30, 1999.
<TABLE>
<CAPTION>
OCTOBER 31,
APRIL 30, -----------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 40.15 $ 49.97 $ 44.93 $ 40.13 $ 28.37 $ 23.85
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss) (0.20) (0.33) (0.26) (0.32) (0.04) (0.05)
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Net gains (losses) on securities (both
realized and unrealized) 6.94 (7.71) 7.60 6.09 11.80 4.57
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Total from investment operations 6.74 (8.04) 7.34 5.77 11.76 4.52
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Distributions from net realized gains (0.39) (1.78) (2.30) (0.97) -- --
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 46.50 $ 40.15 $ 49.97 $ 44.93 $ 40.13 $ 28.37
=============================================== ========== ========== ========== ========== ========== ========
Total return(a) 16.84% (16.36)% 17.35% 14.77% 41.45% 18.96%
=============================================== ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,478,232 $2,638,038 $3,864,257 $2,750,564 $2,245,554 $687,238
=============================================== ========== ========== ========== ========== ========== ========
Ratio of expenses to average net assets(b) 1.10%(c) 1.06% 1.06% 1.11% 1.08% 1.07%
=============================================== ========== ========== ========== ========== ========== ========
Ratio of net investment income (loss) to
average net assets(d) (0.78)%(c) (0.64)% (0.65)% (0.76)% (0.19)% (0.26)%
=============================================== ========== ========== ========== ========== ========== ========
Portfolio turnover rate 44% 69% 73% 79% 52% 75%
=============================================== ========== ========== ========== ========== ========== ========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.15% and 1.09% for 1995-1994.
(c) Ratios are annualized and based on average net assets of $2,737,780,766.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.26)% and (0.28)% for 1995-1994.
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------- --------------
APRIL 30, 1999 APRIL 30, 1999
-------------- --------------
<S> <C> <C>
Net asset value, beginning of period $ 43.41 $ 43.41
- ------------------------------------------------------------ ------- -------
Income from investment operations:
Net investment income (loss) (0.06) (0.06)
- ------------------------------------------------------------ ------- -------
Net gains (losses) on securities (both realized and
unrealized) 3.09 3.09
- ------------------------------------------------------------ ------- -------
Total from investment operations 3.03 3.03
- ------------------------------------------------------------ ------- -------
Net asset value, end of period $ 46.44 $ 46.44
- ------------------------------------------------------------ ------- -------
Total return(a) 6.98% 6.98%
============================================================ ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 5,988 $ 1,567
============================================================ ======= =======
Ratio of expenses to average net assets 1.97%(b) 1.97%(b)
============================================================ ======= =======
Ratio of net investment income (loss) to average net assets (1.65)%(b) (1.65)%(b)
============================================================ ======= =======
Portfolio turnover rate 44% 44%
============================================================ ======= =======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $2,646,938 and
$734,212 for Class B and Class C, respectively.
FS-10
<PAGE> 112
AIM BLUE CHIP FUND
UNAUDITED FINANCIALS FOR THE
PERIOD ENDED APRIL 30, 1999
SCHEDULE OF INVESTMENTS
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-89.36%
AEROSPACE/DEFENSE-0.36%
Goodrich (B.F.) Co. 325,000 $ 12,918,750
- ---------------------------------------------------------------
AIRLINES-0.35%
Delta Air Lines, Inc. 200,000 12,687,500
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.57%
Lear Corp.(a) 400,000 18,350,000
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-1.85%
Fifth Third Bancorp 360,000 25,807,500
- ---------------------------------------------------------------
State Street Corp. 225,000 19,687,500
- ---------------------------------------------------------------
Wells Fargo Co. 500,000 21,593,750
- ---------------------------------------------------------------
67,088,750
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-1.91%
BankAmerica Corp. 275,000 19,800,000
- ---------------------------------------------------------------
Chase Manhattan Corp. (The) 600,000 49,650,000
- ---------------------------------------------------------------
69,450,000
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.75%
Coca-Cola Co. (The) 400,000 27,200,000
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-3.02%
AT&T Corp.-Liberty Media Group(a) 300,000 19,162,500
- ---------------------------------------------------------------
CBS Corp.(a) 625,000 28,476,562
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 325,000 22,587,500
- ---------------------------------------------------------------
Comcast Corp.-Class A 600,000 39,412,500
- ---------------------------------------------------------------
109,639,062
- ---------------------------------------------------------------
CHEMICALS-0.68%
Du Pont (E.I.) de Nemours & Co. 350,000 24,718,750
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.65%
Monsanto Co. 525,000 23,756,250
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.06%
Lucent Technologies, Inc. 900,000 54,112,500
- ---------------------------------------------------------------
Northern Telecom Ltd.-ADR
(Canada) 325,000 22,160,938
- ---------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR
(Finland) 425,000 31,529,688
- ---------------------------------------------------------------
Nokia Oyj-Class A (Finland) 40,000 3,083,013
- ---------------------------------------------------------------
110,886,139
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-3.24%
Dell Computer Corp.(a) 750,000 30,890,625
- ---------------------------------------------------------------
International Business Machines
Corp. 200,000 41,837,500
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 750,000 44,859,375
- ---------------------------------------------------------------
117,587,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (NETWORKING)-2.48%
Ascend Communications, Inc.(a) 135,000 $ 13,044,375
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 675,000 76,992,187
- ---------------------------------------------------------------
90,036,562
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.23%
EMC Corp.(a) 410,000 44,664,375
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-6.13%
America Online, Inc.(a) 575,000 82,081,250
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 250,000 3,390,625
- ---------------------------------------------------------------
Microsoft Corp.(a) 1,225,000 99,607,813
- ---------------------------------------------------------------
Oracle Corp.(a) 600,000 16,237,500
- ---------------------------------------------------------------
Yahoo! Inc.(a) 120,000 20,962,500
- ---------------------------------------------------------------
222,279,688
- ---------------------------------------------------------------
CONSUMER FINANCE-0.53%
Providian Financial Corp. 150,000 19,359,375
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.88%
Cardinal Health, Inc. 533,437 31,906,201
- ---------------------------------------------------------------
ELECTRIC COMPANIES-1.18%
Duke Power Co. 265,000 14,840,000
- ---------------------------------------------------------------
Edison International 700,000 17,150,000
- ---------------------------------------------------------------
Texas Utilities Co. 275,000 10,931,250
- ---------------------------------------------------------------
42,921,250
- ---------------------------------------------------------------
ELECTRIC EQUIPMENT-2.03%
General Electric Co. 700,000 73,850,000
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-2.57%
Intel Corp. 750,000 45,890,625
- ---------------------------------------------------------------
Texas Instruments, Inc. 240,000 24,510,000
- ---------------------------------------------------------------
Xilinx, Inc.(a) 500,000 22,812,500
- ---------------------------------------------------------------
93,213,125
- ---------------------------------------------------------------
ENTERTAINMENT-1.11%
Time Warner Inc. 575,000 40,250,000
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.48%
Applied Materials, Inc.(a) 325,000 17,428,125
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-5.48%
American Express Co. 300,000 39,206,250
- ---------------------------------------------------------------
Citigroup Inc. 550,000 41,387,500
- ---------------------------------------------------------------
Fannie Mae 675,000 47,882,813
- ---------------------------------------------------------------
Freddie Mac 800,000 50,200,000
- ---------------------------------------------------------------
MBIA, Inc. 300,000 20,175,000
- ---------------------------------------------------------------
198,851,563
- ---------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 113
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED)-5.54%
Abbott Laboratories 750,000 $ 36,328,125
- ---------------------------------------------------------------
American Home Products Corp. 650,000 39,650,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 725,000 46,082,812
- ---------------------------------------------------------------
Johnson & Johnson 375,000 36,562,500
- ---------------------------------------------------------------
Warner-Lambert Co. 625,000 42,460,937
- ---------------------------------------------------------------
201,084,374
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-4.59%
Lilly (Eli) & Co. 550,000 40,493,750
- ---------------------------------------------------------------
Merck & Co., Inc. 350,000 24,587,500
- ---------------------------------------------------------------
Pfizer Inc. 535,000 61,558,438
- ---------------------------------------------------------------
Schering-Plough Corp. 825,000 39,857,813
- ---------------------------------------------------------------
166,497,501
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-2.68%
Becton, Dickinson & Co. 625,000 23,242,187
- ---------------------------------------------------------------
Guidant Corp. 625,000 33,554,687
- ---------------------------------------------------------------
Medtronic, Inc. 563,600 40,543,975
- ---------------------------------------------------------------
97,340,849
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-0.32%
HEALTHSOUTH Corp.(a) 875,000 11,757,813
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-1.75%
Colgate-Palmolive Co. 275,000 28,170,312
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 375,000 35,179,688
- ---------------------------------------------------------------
63,350,000
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-2.28%
American International Group,
Inc. 575,000 67,526,562
- ---------------------------------------------------------------
CIGNA Corp. 175,000 15,257,812
- ---------------------------------------------------------------
82,784,374
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-2.10%
Merrill Lynch & Co., Inc. 300,000 25,181,250
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 350,000 34,715,625
- ---------------------------------------------------------------
Schwab (Charles) Corp. 150,000 16,462,500
- ---------------------------------------------------------------
76,359,375
- ---------------------------------------------------------------
LODGING (HOTELS)-1.02%
Carnival Corp. 900,000 37,125,000
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.89%
Ingersoll-Rand Co. 465,000 32,172,188
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.68%
Tyco International Ltd. 750,000 60,937,500
- ---------------------------------------------------------------
United Technologies Corp. 250,000 36,218,750
- ---------------------------------------------------------------
97,156,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NATURAL GAS-1.16%
El Paso Energy Corp. 425,000 $ 15,618,750
- ---------------------------------------------------------------
Enron Corp. 350,000 26,337,500
- ---------------------------------------------------------------
41,956,250
- ---------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-1.26%
Halliburton Co. 550,000 23,443,750
- ---------------------------------------------------------------
Schlumberger Ltd. 350,000 22,356,250
- ---------------------------------------------------------------
45,800,000
- ---------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-2.21%
Exxon Corp. 425,000 35,301,562
- ---------------------------------------------------------------
Mobil Corp. 225,000 23,568,750
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-New
York Shares-ADR (Netherlands) 365,000 21,420,938
- ---------------------------------------------------------------
80,291,250
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.75%
Bowater, Inc. 275,000 14,746,875
- ---------------------------------------------------------------
International Paper Co. 235,000 12,528,438
- ---------------------------------------------------------------
27,275,313
- ---------------------------------------------------------------
PERSONAL CARE-0.95%
Avon Products, Inc. 325,000 17,651,562
- ---------------------------------------------------------------
Gillette Co. 325,000 16,960,937
- ---------------------------------------------------------------
34,612,499
- ---------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.36%
New York Times Co.-Class A (The) 375,000 12,937,500
- ---------------------------------------------------------------
RAILROADS-0.35%
Canadian National Railway Co.
(Canada) 200,000 12,625,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-1.32%
Home Depot, Inc. (The) 800,000 47,950,000
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.59%
CVS Corp. 450,000 21,431,250
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.86%
Kroger Co.(a) 550,000 29,871,875
- ---------------------------------------------------------------
Safeway, Inc.(a) 700,000 37,756,250
- ---------------------------------------------------------------
67,628,125
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-3.17%
Costco Companies, Inc.(a) 330,000 26,709,375
- ---------------------------------------------------------------
Dayton Hudson Corp. 425,000 28,607,812
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 1,300,000 59,800,000
- ---------------------------------------------------------------
115,117,187
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.68%
Staples, Inc.(a) 825,000 24,750,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.24%
Gap, Inc. (The) 475,000 31,617,188
- ---------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 114
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL)-(CONTINUED)
TJX Companies, Inc. 400,000 $ 13,325,000
- ---------------------------------------------------------------
44,942,188
- ---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-0.41%
Interpublic Group of Companies,
Inc. 190,000 14,736,875
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.71%
Equifax, Inc. 387,800 13,936,562
- ---------------------------------------------------------------
First Data Corp. 600,000 25,462,500
- ---------------------------------------------------------------
Fiserv, Inc.(a) 385,000 22,546,563
- ---------------------------------------------------------------
61,945,625
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.84%
AirTouch Communications, Inc.(a) 325,000 30,346,875
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-3.79%
AT&T Corp. 850,000 42,925,000
- ---------------------------------------------------------------
MCI WorldCom, Inc.(a) 1,150,000 94,515,625
- ---------------------------------------------------------------
137,440,625
- ---------------------------------------------------------------
TELEPHONE-1.80%
BellSouth Corp. 675,000 30,206,250
- ---------------------------------------------------------------
SBC Communications, Inc. 625,000 35,000,000
- ---------------------------------------------------------------
65,206,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TOBACCO-0.58%
Philip Morris Companies, Inc. 600,000 $ 21,037,500
- ---------------------------------------------------------------
Total Common Stocks (Cost
$2,488,135,807) 3,242,701,001
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY BILLS-0.22%(B)
4.237%, 06/24/99 (Cost
$8,106,511) $ 8,160,000(c) $ 8,106,511
- ---------------------------------------------------------------
Total Investments (excluding
Repurchase Agreements (Cost
$2,496,242,318) 3,250,807,512
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-10.77%(D)
Dresdner Bank, 4.94%, 05/03/99(e) 51,506,184 51,506,184
- ---------------------------------------------------------------
SBC Warburg Dillon Read Inc.,
4.94%,(f) 05/03/99 339,145,171 339,145,171
- ---------------------------------------------------------------
Total Repurchase Agreement
(Cost $390,651,355) 390,651,355
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.35% 3,641,458,867
- ---------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.35%) (12,534,956)
- ---------------------------------------------------------------
NET ASSETS-100.00% $3,628,923,911
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) U.S. Treasury bills are trades on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreements entered into 04/30/99 with a maturing value of
$300,123,500. Collateralized by $297,865,514 U.S. Government Obligations,
5.81% to 7.68% due 05/01/03 to 11/01/37 with an aggregate market value at
04/30/99 of $306,001,164.
(f) Joint repurchase agreements entered into 04/30/99 with a maturing value of
$500,205,417. Collateralized by $657,973,000 U.S. Government Obligations, 0%
to 10.35% due 05/18/99 to 01/15/30 with an aggregate market value at
04/30/99 of $510,002,651.
See Notes to Financial Statements.
FS-13
<PAGE> 115
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,496,242,318) $3,250,807,512
- ---------------------------------------------------------
Repurchase agreements (cost $390,651,355) 390,651,355
- ---------------------------------------------------------
Foreign currencies, at value (cost
$15,074) 17,370
- ---------------------------------------------------------
Receivables for:
Investments sold 997,392
- ---------------------------------------------------------
Capital stock sold 34,518,826
- ---------------------------------------------------------
Dividends and interest 1,493,609
- ---------------------------------------------------------
Investment for deferred compensation plan 15,074
- ---------------------------------------------------------
Other assets 199,452
- ---------------------------------------------------------
Total assets 3,678,700,590
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 39,236,695
- ---------------------------------------------------------
Capital stock reacquired 5,277,919
- ---------------------------------------------------------
Deferred compensation 15,074
- ---------------------------------------------------------
Variation margin 1,223,750
- ---------------------------------------------------------
Accrued advisory fees 1,847,688
- ---------------------------------------------------------
Accrued administrative services fees 23,293
- ---------------------------------------------------------
Accrued directors' fees 4,360
- ---------------------------------------------------------
Accrued distribution fees 2,107,141
- ---------------------------------------------------------
Accrued transfer agent fees 30,390
- ---------------------------------------------------------
Accrued operating expenses 10,369
- ---------------------------------------------------------
Total liabilities 49,776,679
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $3,628,923,911
- ---------------------------------------------------------
NET ASSETS:
Class A $1,914,224,775
=========================================================
Class B $1,476,816,270
=========================================================
Class C $ 237,882,86
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Class A:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 43,426,611
=========================================================
Class B:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 33,993,629
=========================================================
Class C:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 5,477,141
=========================================================
Class A:
Net asset value and redemption price
per share $ 44.08
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $44.08
divided by 94.50%) $ 46.65
=========================================================
Class B:
Net asset value and offering price per
share $ 43.44
=========================================================
Class C:
Net asset value and offering price per
share $ 43.43
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $58,476 foreign
withholding tax) $ 9,590,639
- --------------------------------------------------------
Interest 7,814,731
- --------------------------------------------------------
Total investment income 17,405,370
- --------------------------------------------------------
EXPENSES:
Advisory fees 8,684,044
- --------------------------------------------------------
Administrative services fees 68,458
- --------------------------------------------------------
Custodian fees 14,475
- --------------------------------------------------------
Directors' fees 8,737
- --------------------------------------------------------
Distribution fees -- Class A 2,568,835
- --------------------------------------------------------
Distribution fees -- Class B 5,440,354
- --------------------------------------------------------
Distribution fees -- Class C 767,464
- --------------------------------------------------------
Transfer agent fees -- Class A 1,190,343
- --------------------------------------------------------
Transfer agent fees -- Class B 1,308,126
- --------------------------------------------------------
Transfer agent fees -- Class C 163,011
- --------------------------------------------------------
Other 280,610
- --------------------------------------------------------
Total expenses 20,494,457
- --------------------------------------------------------
Less: Expenses paid indirectly (18,427)
- --------------------------------------------------------
Net expenses 20,476,030
- --------------------------------------------------------
Net investment income (loss) (3,070,660)
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (7,220,919)
- --------------------------------------------------------
Foreign currencies (480,586)
- --------------------------------------------------------
Futures contracts 22,718,805
- --------------------------------------------------------
15,017,300
- --------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 474,622,704
- --------------------------------------------------------
Foreign currencies (9,610)
- --------------------------------------------------------
Futures contracts (2,286,033)
- --------------------------------------------------------
472,327,061
- --------------------------------------------------------
Net gain from investment securities,
foreign currencies and futures
contracts 487,344,361
- --------------------------------------------------------
Net increase in net assets resulting from
operations $484,273,701
========================================================
</TABLE>
See Notes to Financial Statements.
FS-14
<PAGE> 116
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1999 and the year ended October 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (3,070,660) $ 664,009
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures 15,017,300 1,200,650
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies and futures contracts 472,327,061 175,782,639
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 484,273,701 177,647,298
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (786,958) (1,249,305)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (3,115,713) (10,987,892)
- ----------------------------------------------------------------------------------------------
Class B (2,254,273) (6,118,620)
- ----------------------------------------------------------------------------------------------
Class C (293,546) (150,526)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 563,462,680 486,282,009
- ----------------------------------------------------------------------------------------------
Class B 543,016,160 425,444,112
- ----------------------------------------------------------------------------------------------
Class C 125,558,445 81,733,726
- ----------------------------------------------------------------------------------------------
Net increase in net assets 1,709,860,496 1,152,600,802
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,919,063,415 766,462,613
- ----------------------------------------------------------------------------------------------
End of period $3,628,923,911 $1,919,063,415
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $2,863,937,370 $1,631,900,085
- ----------------------------------------------------------------------------------------------
Undistributed net investment (loss) (3,151,371) 706,247
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, and futures 10,009,386 655,618
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 758,128,526 285,801,465
- ----------------------------------------------------------------------------------------------
$3,628,923,911 $1,919,063,415
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc.
(the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios. The
Fund currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately. The
Fund's investment objective is long-term growth of capital. Information
presented in these financial statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last price on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price 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 closing bid price. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors of the Company. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing
the net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their
fair market value as determined in good faith by or under the supervision
of the Board of Directors.
B. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could
be exposed to risk if counterparties to the contracts are unable to meet
the terms of their contracts.
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are recorded on a trade date basis. Realized gains or losses
on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date and are paid annually.
E. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
F. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as
FS-16
<PAGE> 118
unrealized gains or losses by "marking to market" on a daily basis to
reflect the market value of the contracts at the end of each day's trading.
Variation margin payments are made or received depending upon whether
unrealized gains or losses are incurred. When the contracts are closed, the
Fund recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. Risks include the possibility of an illiquid market and that
a change in the value of contracts may not correlate with changes in the
value of the securities being hedged.
G. 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.
H. Put options--The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the options'
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can
sell. If security prices fall, the put option could be exercised to offset
all or a portion of the Fund's resulting losses. At the same time, because
the maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
I. Expenses--Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million.
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 six months ended April 30, 1999, AIM
was reimbursed $68,458 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the six months ended April 30,
1999, AFS was paid $146,454 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the 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.
During the six months ended April 30, 1999, the Class A, Class B and Class C
shares paid AIM Distributors $2,568,835, $5,440,354, and $767,464 respectively,
as compensation under the Plans.
AIM Distributors received commissions of $1,476,783 from sales of Class A
shares of the Fund during the six months ended April 30, 1999. Such commissions
are not an expense of the Fund.
FS-17
<PAGE> 119
They are deducted from, and are not included in, the proceeds from sales of
Class A shares. During the six months ended April 30, 1999, AIM Distributors
received commissions of $69,208 in contingent deferred sales charges imposed on
redemption of Fund shares. Certain officers and directors of the Company are
officers and directors of AIM, AFS and AIM Distributors.
During the six months ended April 30, 1999, the Fund paid legal fees of
$2,552, respectively, for services rendered by Kramer, Levin, Naftalis & Frankel
LLP as counsel to the Company's directors. A member of that firm is a director
of the Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $16,199 and $2,228, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $18,427 during the six months ended April 30, 1999.
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) $1,000,000,000 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. During the six
months ended April 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.05% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended April 30, 1999 was $1,394,828,354
and $310,765,126, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $792,401,137
- -----------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (38,132,249)
- -----------------------------------------------------
Net unrealized appreciation of
investment securities $754,268,888
=====================================================
</TABLE>
Costs of investments for tax purposes is $2,887,189,979.
NOTE 7-FUTURES CONTRACTS
On April 30, 1999, $8,159,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts were as follows:
<TABLE>
<CAPTION>
NO. OF MONTH/ UNREALIZED
CONTRACT CONTRACTS COMMITMENT APPRECIATION
-------- --------- ---------- ------------
<S> <C> <C> <C>
S&P 500 Index 445 June 99 $3,565,562
=====================================================
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended April 30, 1999
and the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 19,390,333 $ 810,796,822 26,179,983 $ 915,652,812
- --------------------------------------------------------------------------------
Class B 14,952,458 618,742,761 14,239,927 492,929,849
- --------------------------------------------------------------------------------
Class C 3,782,110 156,838,426 2,711,151 95,200,193
- --------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 93,903 3,711,998 371,504 11,699,310
- --------------------------------------------------------------------------------
Class B 54,814 2,141,077 184,940 5,805,443
- --------------------------------------------------------------------------------
Class C 7,198 281,070 3,949 128,203
- --------------------------------------------------------------------------------
Reacquired:
Class A (6,098,695) (251,046,140) (12,601,919) (441,070,113)
- --------------------------------------------------------------------------------
Class B (1,889,298) (77,867,678) (2,143,627) (73,291,180)
- --------------------------------------------------------------------------------
Class C (763,219) (31,561,051) (392,399) (13,594,670)
- --------------------------------------------------------------------------------
29,529,604 $1,232,037,285 28,553,509 $ 993,459,847
================================================================================
</TABLE>
FS-18
<PAGE> 120
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1999, each of the years in the
two-year period ended October 31, 1998, the one month ended October 31, 1996 and
each of the years in the three-year period ended September 30, 1996, for a share
of Class B capital stock outstanding during the six months ended April 30, 1999,
each of the years in the two-year period ended October 31, 1998 and the period
October 1, 1996 (date sales commenced) through October 31, 1996, and for a share
of Class C capital stock outstanding during the six months ended April 30, 1999,
the year ended October 31, 1998 and the period August 4, 1997 (date sales
commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------
OCTOBER 31, SEPTEMBER 30,
APRIL 30, ---------------------------------- ------------------------------
1999 1998 1997 1996 1996(a) 1995 1994
---------- ---------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 36.14 $ 30.96 $ 26.08 $ 25.56 $ 23.83 $ 19.22 $ 18.89
- ------------------------------------------- ---------- ---------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.03(b) 0.13(b) 0.17(b) -- 0.33 0.14 0.15
- ------------------------------------------- ---------- ---------- -------- -------- -------- ------- -------
Net gains on securities (both realized
and unrealized) 8.03 5.75 6.93 0.52 4.61 5.05 1.24
- ------------------------------------------- ---------- ---------- -------- -------- -------- ------- -------
Total from investment operations 8.06 5.88 7.10 0.52 4.94 5.19 1.39
- ------------------------------------------- ---------- ---------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income (0.02) (0.07) (0.05) -- (0.21) (0.12) (0.21)
- ------------------------------------------- ---------- ---------- -------- -------- -------- ------- -------
Distributions from net realized gains (0.10) (0.63) (2.17) -- (3.00) (0.46) (0.85)
- ------------------------------------------- ---------- ---------- -------- -------- -------- ------- -------
Total distributions (0.12) (0.70) (2.22) -- (3.21) (0.58) (1.06)
- ------------------------------------------- ---------- ---------- -------- -------- -------- ------- -------
Net asset value, end of period $ 44.08 $ 36.14 $ 30.96 $ 26.08 $ 25.56 $ 23.83 $ 19.22
=========================================== ========== ========== ======== ======== ======== ======= =======
Total return(c) 22.34% 19.36% 29.68% 2.04% 22.39% 27.84% 7.69%
=========================================== ========== ========== ======== ======== ======== ======= =======
Ratios/supplement data:
Net assets, end of period (000s omitted) $1,914,225 $1,085,648 $498,178 $120,448 $106,415 $71,324 $60,115
=========================================== ========== ========== ======== ======== ======== ======= =======
Ratio of expenses to average net assets(d) 1.18%(e) 1.22% 1.31% 1.30%(f) 1.26% 1.3% 1.4%
=========================================== ========== ========== ======== ======== ======== ======= =======
Ratio of net investment income to average
net assets(g) 0.10%(e) 0.33% 0.50% 0.12%(f) 0.53% 0.7% 0.8%
=========================================== ========== ========== ======== ======== ======== ======= =======
Portfolio turnover rate 13% 27% 43% 10% 58% 17% 13%
=========================================== ========== ========== ======== ======== ======== ======= =======
</TABLE>
(a) The Fund changed investment advisors on June 3, 1996.
(b) Calculated using average shares outstanding.
(c) Does not deduct sales charges and is not annualized for periods less than
one year.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.32%, 1.37% (annualized) and 1.28% for the periods 1997-1996 and September
30, 1996.
(e) Ratios are annualized and based on average net assets of $1,480,070,885.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.49%, 0.05% (annualized) and 0.51% for the periods
1997-1996 and September 30, 1996.
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------- --------------------------------
OCTOBER 31, OCTOBER 31,
APRIL 30, ------------------------------- APRIL 30, ------------------
1999 1998 1997 1996 1999 1998 1997
---------- -------- -------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 35.73 $ 30.76 $ 26.07 $25.56 $ 35.72 $ 30.75 $31.72
- ---------------------------------------- ---------- -------- -------- ------ -------- ------- ------
Income from investment operations:
Net investment income (loss) (0.11)(b) (0.12) (0.03)(a) (0.01) (0.11)(b) (0.12)(a) (0.01)(a)
- ---------------------------------------- ---------- -------- -------- ------ -------- ------- ------
Net gains (losses) on securities
(both realized and unrealized) 7.92 5.72 6.92 0.52 7.92 5.72 (0.96)
- ---------------------------------------- ---------- -------- -------- ------ -------- ------- ------
Total from investment operations 7.81 5.60 6.89 0.51 7.81 5.60 (0.97)
- ---------------------------------------- ---------- -------- -------- ------ -------- ------- ------
Less distributions:
Dividends from net investment income -- -- (0.03) -- -- -- --
- ---------------------------------------- ---------- -------- -------- ------ -------- ------- ------
Distributions from net realized gains (0.10) (0.63) (2.17) -- (0.10) (0.63) --
- ---------------------------------------- ---------- -------- -------- ------ -------- ------- ------
Total distributions (0.10) (0.63) (2.20) -- (0.10) (0.63) --
- ---------------------------------------- ---------- -------- -------- ------ -------- ------- ------
Net asset value, end of period $ 43.44 $ 35.73 $ 30.76 $26.07 $ 43.43 $ 35.72 $30.75
======================================== ========== ======== ======== ====== ======== ======= ======
Total return(b) 21.88% 18.52% 28.81% 2.00% 21.89% 18.52% (3.06)%
======================================== ========== ======== ======== ====== ======== ======= ======
Ratios/supplement data:
Net assets, end of period (000s omitted) $1,476,816 $745,862 $264,337 $8,101 $237,883 $87,554 $3,947
======================================== ========== ======== ======== ====== ======== ======= ======
Ratio of expenses to average net
assets(c) 1.91%(d) 1.94% 2.10% 2.01%(e) 1.91%(d) 1.94% 2.10%(e)
======================================== ========== ======== ======== ====== ======== ======= ======
Ratio of net investment income (loss) to
average net assets(f) (0.62)%(d) (0.38)% (0.28)% (0.58)%(e) (0.62)%(d) (0.38)% (0.28)%(e)
======================================== ========== ======== ======== ====== ======== ======= ======
Portfolio turnover rate 13% 27% 43% 10% 13% 27% 43%
======================================== ========== ======== ======== ====== ======== ======= ======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.12% and 2.08% (annualized) for 1997-1996 for Class B and 2.12%
(annualized) for 1997 for Class C.
(d) Ratios are annualized and based on average net assets of $1,097,087,993 and
$154,764,861 for Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.31)% and (0.65)% (annualized) for 1997-1996 for Class
B and (0.31)% (annualized) for 1997 for Class C.
FS-19
<PAGE> 121
AIM CAPITAL DEVELOPMENT FUND
UNAUDITED FINANCIALS FOR THE
PERIOD ENDED APRIL 30, 1999
SCHEDULE OF INVESTMENTS
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-96.01%
AEROSPACE/DEFENSE-0.93%
HEICO Corp. 200,000 $ 4,212,500
- ---------------------------------------------------------------
Kroll-O'Gara Co. (The)(a) 160,000 3,830,000
- ---------------------------------------------------------------
TriStar Aerospace Co.(a) 275,000 2,921,875
===============================================================
10,964,375
===============================================================
AIRLINES-0.87%
Atlantic Coast Airlines
Holdings(a) 190,000 5,866,250
- ---------------------------------------------------------------
Ryanair Holdings PLC-ADR
(Ireland)(a) 100,000 4,475,000
===============================================================
10,341,250
===============================================================
AUTO PARTS & EQUIPMENT-0.98%
Dura Automotive Systems, Inc.(a) 160,000 4,580,000
- ---------------------------------------------------------------
Keystone Automotive Industries,
Inc.(a) 187,900 2,818,500
- ---------------------------------------------------------------
Stoneridge, Inc.(a) 251,300 4,209,275
===============================================================
11,607,775
===============================================================
BANKS (REGIONAL)-1.96%
Banco Santandr Puerto Rico 186,300 3,656,138
- ---------------------------------------------------------------
Bank United Corp.-Class A 155,000 6,258,125
- ---------------------------------------------------------------
Colonial BancGroup, Inc. (The) 400,000 4,950,000
- ---------------------------------------------------------------
Independence Community Bank Corp. 227,000 3,305,687
- ---------------------------------------------------------------
North Fork Bancorporation, Inc. 220,000 4,950,000
===============================================================
23,119,950
===============================================================
BEVERAGES (ALCOHOLIC)-0.68%
Beringer Wine Estates Holdings,
Inc.(a) 80,000 3,150,000
- ---------------------------------------------------------------
Canandaigua Wine Co., Inc.-Class
A(a) 95,000 4,892,500
===============================================================
8,042,500
===============================================================
BIOTECHNOLOGY-0.78%
Albany Molecular Research,
Inc.(a) 47,100 1,177,500
- ---------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 160,000 3,620,000
- ---------------------------------------------------------------
Pharmaceutical Product
Development, Inc.(a) 150,000 4,368,750
===============================================================
9,166,250
===============================================================
BROADCASTING (TELEVISION, RADIO & CABLE)-3.20%
Capstar Broadcasting Corp.-Class
A(a) 228,200 6,047,300
- ---------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 115,000 5,606,250
- ---------------------------------------------------------------
Emmis Broadcasting Corp.-Class
A(a) 115,000 5,175,000
- ---------------------------------------------------------------
Entercom Communications Corp.(a) 154,500 5,735,812
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 85,000 4,621,875
- ---------------------------------------------------------------
Metro Networks, Inc.(a) 105,000 4,725,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO &
CABLE)-(CONTINUED)
Univision Communications Inc.(a) 103,000 $ 5,961,125
===============================================================
37,872,362
===============================================================
BUILDING MATERIALS-0.19%
White Cap Industries, Inc.(a) 190,000 2,303,750
===============================================================
COMMUNICATIONS EQUIPMENT-2.61%
Comverse Technology, Inc.(a) 135,000 8,656,875
- ---------------------------------------------------------------
Digital Microwave Corp.(a) 250,000 3,187,500
- ---------------------------------------------------------------
General Instrument Corp.(a) 150,000 5,475,000
- ---------------------------------------------------------------
Gilat Satellite Networks Ltd.(a) 50,000 2,600,000
- ---------------------------------------------------------------
NorthEast Optic Network, Inc.(a) 275,000 4,709,375
- ---------------------------------------------------------------
PairGain Technologies, Inc.(a) 285,000 3,651,562
- ---------------------------------------------------------------
REMEC, Inc.(a) 200,000 2,587,500
===============================================================
30,867,812
===============================================================
COMPUTERS (HARDWARE)-0.31%
Bell & Howell Co.(a) 110,000 3,678,125
===============================================================
COMPUTERS (PERIPHERALS)-1.07%
Actel Corp.(a) 250,000 3,375,000
- ---------------------------------------------------------------
DSP Communications, Inc.(a) 265,000 7,221,250
- ---------------------------------------------------------------
QLogic Corp.(a) 30,000 2,098,125
===============================================================
12,694,375
===============================================================
COMPUTERS (SOFTWARE &
SERVICES)-5.18%
AppliedTheory Corp.(a) 60,500 1,240,250
- ---------------------------------------------------------------
Aris Corp.(a) 75,200 613,350
- ---------------------------------------------------------------
Avant! Corp.(a) 205,419 2,773,157
- ---------------------------------------------------------------
Best Software, Inc.(a) 240,500 3,111,469
- ---------------------------------------------------------------
Check Point Software Technologies
Ltd. (Israel)(a) 60,000 2,115,000
- ---------------------------------------------------------------
Dendrite International, Inc.(a) 128,800 3,332,700
- ---------------------------------------------------------------
Descartes Systems Group Inc.
(The)(a) 200,000 1,262,500
- ---------------------------------------------------------------
HNC Software Inc.(a) 100,000 2,150,000
- ---------------------------------------------------------------
InfoCure Corp.(a) 235,000 6,183,438
- ---------------------------------------------------------------
Lycos, Inc.(a) 30,000 2,990,625
- ---------------------------------------------------------------
Medical Manager Corp.(a) 90,000 2,565,000
- ---------------------------------------------------------------
Mentor Graphics Corp.(a) 375,000 4,546,875
- ---------------------------------------------------------------
Mercury Interactive Corp.(a) 110,500 3,114,718
- ---------------------------------------------------------------
PSINet Inc., Series C-$3.375
Conv. Pfd. 55,800 2,873,700
- ---------------------------------------------------------------
Rational Software Corp.(a) 150,000 4,443,750
- ---------------------------------------------------------------
SERENA Software, Inc.(a) 120,000 1,230,000
- ---------------------------------------------------------------
</TABLE>
FS-20
<PAGE> 122
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE &
SERVICES)-(CONTINUED)
Structural Dynamics Research
Corp.(a) 300,000 $ 5,831,250
- ---------------------------------------------------------------
Symantec Corp.(a) 260,000 5,167,500
- ---------------------------------------------------------------
Transaction Systems Architects,
Inc.-Class A(a) 100,000 3,243,750
- ---------------------------------------------------------------
Unigraphics Solutions Inc.(a) 160,300 2,384,462
===============================================================
61,173,494
===============================================================
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.21%
Blyth Industries, Inc.(a) 106,800 2,429,700
===============================================================
CONSUMER FINANCE-1.10%
American Capital Strategies, Ltd. 85,100 1,510,525
- ---------------------------------------------------------------
AmeriCredit Corp.(a) 400,000 6,625,000
- ---------------------------------------------------------------
Cash America International, Inc. 385,000 4,908,750
===============================================================
13,044,275
===============================================================
DISTRIBUTORS (FOOD &
HEALTH)-0.92%
JP Foodservice, Inc.(a) 100,750 4,237,797
- ---------------------------------------------------------------
Patterson Dental Co.(a) 55,000 1,983,437
- ---------------------------------------------------------------
Performance Food Group Co.(a) 175,000 4,637,500
===============================================================
10,858,734
===============================================================
ELECTRIC COMPANIES-0.38%
Avista Corp. 300,000 4,500,000
===============================================================
ELECTRICAL EQUIPMENT-2.73%
Conexant Systems, Inc.(a) 85,000 3,463,750
- ---------------------------------------------------------------
Cree Research, Inc.(a) 105,000 4,410,000
- ---------------------------------------------------------------
DII Group, Inc.(a) 100,000 3,100,000
- ---------------------------------------------------------------
PCD, Inc.(a) 150,000 1,659,375
- ---------------------------------------------------------------
Pinnacle Systems, Inc.(a) 85,000 4,621,875
- ---------------------------------------------------------------
Sawtek Inc.(a) 100,000 3,525,000
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 140,000 5,328,750
- ---------------------------------------------------------------
SLI, Inc.(a) 225,000 6,173,437
===============================================================
32,282,187
===============================================================
ELECTRONICS (DEFENSE)-0.46%
Aeroflex Inc.(a) 370,000 5,411,250
===============================================================
ELECTRONICS
(INSTRUMENTATION)-0.87%
Alpha Industries, Inc.(a) 117,300 4,134,825
- ---------------------------------------------------------------
Methode Electronics, Inc.-Class A 149,500 2,223,812
- ---------------------------------------------------------------
Varian Inc.(a) 100,000 906,250
- ---------------------------------------------------------------
Varian Medical Systems, Inc. 100,000 1,718,750
- ---------------------------------------------------------------
Varian Semiconductor Equipment
Associates, Inc.(a) 100,000 1,300,000
===============================================================
10,283,637
===============================================================
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS
(SEMICONDUCTORS)-1.95%
Apex PC Solutions, Inc.(a) 145,000 $ 2,410,625
- ---------------------------------------------------------------
Celestica Inc.(a) 115,000 4,499,375
- ---------------------------------------------------------------
Micrel, Inc.(a) 70,000 4,121,250
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 160,000 5,600,000
- ---------------------------------------------------------------
Unitrode Corp.(a) 229,900 4,066,356
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 49,800 2,306,362
===============================================================
23,003,968
===============================================================
ENTERTAINMENT-1.35%
Loews Cineplex Entertainment
Corp.(a) 444,500 5,611,812
- ---------------------------------------------------------------
Pixar, Inc.(a) 100,000 4,150,000
- ---------------------------------------------------------------
SFX Entertainment, Inc.-Class
A(a) 100,000 6,175,000
===============================================================
15,936,812
===============================================================
EQUIPMENT (SEMICONDUCTOR)-1.36%
DuPont Photomasks, Inc.(a) 150,000 6,562,500
- ---------------------------------------------------------------
Lam Research Corp.(a) 130,000 4,095,000
- ---------------------------------------------------------------
Teradyne, Inc.(a) 115,000 5,426,562
===============================================================
16,084,062
===============================================================
FINANCIAL (DIVERSIFIED)-1.78%
FINOVA Group, Inc. 100,000 4,831,250
- ---------------------------------------------------------------
FirstCity Financial Corp.(a) 160,000 1,700,000
- ---------------------------------------------------------------
Hamilton Bancorp, Inc.(a) 100,000 2,575,000
- ---------------------------------------------------------------
Insignia Financial Group, Inc.(a) 130,000 1,633,125
- ---------------------------------------------------------------
Medallion Financial Corp. 100,000 1,687,500
- ---------------------------------------------------------------
MicroFinancial Inc. 219,400 3,908,062
- ---------------------------------------------------------------
SEI Investments Co. 50,000 4,750,000
===============================================================
21,084,937
===============================================================
FOODS-1.93%
American Italian Pasta Co.-Class
A(a) 221,000 5,939,375
- ---------------------------------------------------------------
International Home Foods, Inc.(a) 245,000 4,057,812
- ---------------------------------------------------------------
Keebler Foods Co.(a) 140,500 4,513,563
- ---------------------------------------------------------------
Suiza Foods Corp.(a) 99,900 3,752,494
- ---------------------------------------------------------------
United Natural Foods, Inc.(a) 180,000 4,522,500
===============================================================
22,785,744
===============================================================
HEALTH CARE (DIVERSIFIED)-0.28%
IVAX Corp.(a) 250,000 3,281,250
===============================================================
HEALTH CARE (DRUGS-GENERIC &
OTHER)-1.71%
Alpharma, Inc.-Class A 130,000 3,835,000
- ---------------------------------------------------------------
Barr Laboratories, Inc.(a) 150,700 4,530,418
- ---------------------------------------------------------------
Forest Laboratories, Inc.(a) 90,000 4,005,000
- ---------------------------------------------------------------
Jones Medical Industries, Inc. 112,000 3,598,000
- ---------------------------------------------------------------
</TABLE>
FS-21
<PAGE> 123
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-GENERIC &
OTHER)-(CONTINUED)
Parexel International Corp.(a) 175,000 $ 4,210,938
===============================================================
20,179,356
===============================================================
HEALTH CARE (HOSPITAL
MANAGEMENT)-0.26%
Health Management Associates,
Inc.-Class A(a) 197,250 3,082,031
===============================================================
HEALTH CARE (LONG TERM
CARE)-0.36%
Sunrise Assisted Living, Inc.(a) 105,000 4,200,000
===============================================================
HEALTH CARE (MANAGED CARE)-0.37%
Express Scripts, Inc.-Class A(a) 60,000 4,417,500
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.70%
Biomet, Inc. 75,000 3,075,000
- ---------------------------------------------------------------
Cyberonics, Inc.(a) 155,000 1,259,375
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 170,000 4,451,875
- ---------------------------------------------------------------
Lifecore Biomedical, Inc.(a) 248,000 2,077,000
- ---------------------------------------------------------------
MiniMed, Inc.(a) 60,000 3,750,000
- ---------------------------------------------------------------
Sybron International Corp.(a) 199,900 5,534,731
===============================================================
20,147,981
===============================================================
HEALTH CARE (SPECIALIZED
SERVICES)-3.53%
Advance Paradigm, Inc.(a) 92,000 4,830,000
- ---------------------------------------------------------------
Capital Senior Living Corp.(a) 200,000 1,975,000
- ---------------------------------------------------------------
Covance, Inc.(a) 130,000 2,851,875
- ---------------------------------------------------------------
First Consulting Group, Inc.(a) 255,800 2,941,700
- ---------------------------------------------------------------
MAXIMUS, Inc.(a) 177,000 4,602,000
- ---------------------------------------------------------------
Omnicare, Inc. 215,700 5,190,281
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 349,900 4,330,013
- ---------------------------------------------------------------
Renal Care Group, Inc.(a) 180,000 3,757,500
- ---------------------------------------------------------------
Renex Corp.(a) 200,000 800,000
- ---------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 80,000 2,160,000
- ---------------------------------------------------------------
United Payors & United Providers,
Inc.(a) 230,000 4,053,750
- ---------------------------------------------------------------
Ventana Medical Systems, Inc.(a) 173,000 4,216,875
===============================================================
41,708,994
===============================================================
HOUSEHOLD FURNITURE &
APPLIANCES-0.35%
Service Experts, Inc.(a) 252,300 4,084,106
===============================================================
HOUSEWARES-0.15%
Windmere-Durable Holdings Inc.(a) 150,000 1,725,000
===============================================================
INSURANCE (LIFE/HEALTH)-0.96%
Annuity and Life Re, Ltd.
(Bermuda) 134,300 2,652,425
===============================================================
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE
(LIFE/HEALTH)-(CONTINUED)
ESG Re Ltd. (United Kingdom) 77,700 $ 1,320,900
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 105,000 4,869,375
- ---------------------------------------------------------------
Sutton Group Financial Services
Ltd. (Cayman Islands) 253,600 2,536,000
===============================================================
11,378,700
===============================================================
INSURANCE (MULTI-LINE)-0.26%
Century Business Services,
Inc.(a) 260,000 3,120,000
===============================================================
INSURANCE
(PROPERTY-CASUALTY)-1.29%
Amerin Corp.(a) 200,000 4,687,500
- ---------------------------------------------------------------
Automobile Protection Corp.(a) 250,000 2,203,125
- ---------------------------------------------------------------
CNA Surety Corp. 249,700 3,370,950
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 235,000 4,964,375
===============================================================
15,225,950
===============================================================
INVESTMENT
BANKING/BROKERAGE-0.43%
Hambrecht & Quist Group(a) 145,000 5,111,250
===============================================================
INVESTMENT MANAGEMENT-0.55%
Affiliated Managers Group,
Inc.(a) 185,000 5,376,563
- ---------------------------------------------------------------
Conning Corp. 70,000 1,155,000
===============================================================
6,531,563
===============================================================
IRON & STEEL-0.32%
Nucor Corp. 65,000 3,814,688
===============================================================
LAND DEVELOPMENT-0.02%
Silverleaf Resorts, Inc.(a) 24,700 196,056
===============================================================
LEISURE TIME (PRODUCTS)-0.36%
Family Golf Centers, Inc.(a) 99,800 717,313
- ---------------------------------------------------------------
International Speedway
Corp.-Class A 67,700 3,486,550
===============================================================
4,203,863
===============================================================
LODGING-HOTELS-0.35%
Prime Hospitality Corp.(a) 340,000 4,143,750
===============================================================
MACHINERY (DIVERSIFIED)-0.51%
Applied Power, Inc.-Class A 191,400 6,041,063
===============================================================
MANUFACTURING (SPECIALIZED)-2.02%
Alpine Group, Inc. (The)(a) 209,700 2,909,588
- ---------------------------------------------------------------
American Bank Note Holographics,
Inc.(a) 380,500 975,031
- ---------------------------------------------------------------
Amor Holdings, Inc.(a) 100,000 1,262,500
- ---------------------------------------------------------------
First Years, Inc. (The) 300,000 4,556,250
- ---------------------------------------------------------------
Howmet International Inc.(a) 250,000 4,000,000
- ---------------------------------------------------------------
Mettler-Toledo International
Inc.(a) 277,000 7,236,625
- ---------------------------------------------------------------
Superior TeleCom Inc. 118,875 2,964,445
===============================================================
23,904,439
===============================================================
</TABLE>
FS-22
<PAGE> 124
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OFFICE EQUIPMENT & SUPPLIES-0.77%
Daisytek International Corp.(a) 295,000 $ 4,941,250
- ---------------------------------------------------------------
School Specialty, Inc.(a) 219,402 4,141,213
===============================================================
9,082,463
===============================================================
OIL (DOMESTIC INTEGRATED)-0.11%
Pennzoil-Quaker State Co. 100,000 1,293,750
===============================================================
OIL & GAS (DRILLING &
EQUIPMENT)-1.72%
BJ Services Co.(a) 210,000 5,617,500
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 94,800 3,661,650
- ---------------------------------------------------------------
Newpark Resources, Inc.(a) 425,000 3,904,688
- ---------------------------------------------------------------
Petroleum Geo-Services ASA-ADR
(Norway)(a) 255,100 4,272,925
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 180,000 2,880,000
===============================================================
20,336,763
===============================================================
OIL & GAS (EXPLORATION &
PRODUCTION)-2.15%
Anadarko Petroleum Corp. 100,000 3,793,750
- ---------------------------------------------------------------
Apache Corp. 155,000 4,756,563
- ---------------------------------------------------------------
Devon Energy Corp. 185,000 6,151,250
- ---------------------------------------------------------------
Newfield Exploration Co.(a) 140,000 3,762,500
- ---------------------------------------------------------------
Noble Affiliates, Inc. 130,000 4,168,125
- ---------------------------------------------------------------
Union Pacific Resources Group
Inc.(b) 199,800 2,797,200
===============================================================
25,429,388
===============================================================
PAPER & FOREST PRODUCTS-0.65%
Potlatch Corp. 65,000 2,693,438
- ---------------------------------------------------------------
Rayonier Inc. 110,000 5,018,750
===============================================================
7,712,188
===============================================================
PERSONAL CARE-1.43%
Chattem, Inc.(a) 149,900 5,855,469
- ---------------------------------------------------------------
Playtex Products, Inc.(a) 349,700 5,770,050
- ---------------------------------------------------------------
Steiner Leisure Ltd.(a) 165,000 5,238,750
===============================================================
16,864,269
===============================================================
PUBLISHING-0.99%
IDG Books Worldwide, Inc.-Class
A(a) 229,800 4,969,425
- ---------------------------------------------------------------
Scholastic Corp.(a) 120,000 5,673,750
- ---------------------------------------------------------------
Ziff-Davis Inc.(a) 28,900 1,018,725
===============================================================
11,661,900
===============================================================
RAILROADS-0.39%
MotivePower Industries, Inc.(a) 270,000 4,606,875
===============================================================
REAL ESTATE INVESTMENT
TRUST-1.57%
AMRESCO Capital Trust Inc. 240,500 2,525,250
===============================================================
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT
TRUST-(CONTINUED)
Apartment Investment & Management
Co. 126,790 $ 5,079,524
- ---------------------------------------------------------------
Colonial Properties Trust 130,000 3,558,750
- ---------------------------------------------------------------
Correctional Properties Trust 237,400 4,109,988
- ---------------------------------------------------------------
Manufactured Home Communities,
Inc. 130,000 3,290,625
===============================================================
18,564,137
===============================================================
RESTAURANTS-1.69%
Brinker International, Inc.(a) 132,000 3,646,500
- ---------------------------------------------------------------
CEC Entertainment Inc.(a) 205,000 7,687,500
- ---------------------------------------------------------------
Dave & Buster's, Inc.(a) 189,800 3,890,900
- ---------------------------------------------------------------
Luby's, Inc. 100,000 1,675,000
- ---------------------------------------------------------------
Starbucks Corp.(a) 82,000 3,028,875
===============================================================
19,928,775
===============================================================
RETAIL (COMPUTERS &
ELECTRONICS)-0.53%
CDW Computer Centers, Inc.(a) 69,900 6,256,050
===============================================================
RETAIL (DISCOUNTERS)-0.58%
Family Dollar Stores, Inc. 283,600 6,841,850
===============================================================
RETAIL (FOOD CHAINS)-0.98%
BJ's Wholesale Club, Inc.(a) 210,000 5,578,125
- ---------------------------------------------------------------
Wild Oats Markets Inc.(a) 215,000 5,952,813
===============================================================
11,530,938
===============================================================
RETAIL (GENERAL
MERCHANDISE)-0.33%
Signet Group PLC (United
Kingdom)(a) 2,320,000 2,257,830
- ---------------------------------------------------------------
Signet Group PLC-ADR (United
Kingdom) 60,000 1,725,000
===============================================================
3,982,830
===============================================================
RETAIL (SPECIALTY)-4.86%
Casey's General Stores, Inc. 130,000 1,722,500
- ---------------------------------------------------------------
CSK Auto Corp.(a) 252,400 6,310,000
- ---------------------------------------------------------------
Electronics Boutique Holdings
Corp.(a) 200,000 3,175,000
- ---------------------------------------------------------------
Footstar, Inc.(a) 6,600 223,163
- ---------------------------------------------------------------
Guitar Center Inc.(a) 225,000 3,515,625
- ---------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 195,000 5,325,937
- ---------------------------------------------------------------
Just for Feet, Inc.(a) 100,000 1,262,500
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 170,300 7,791,225
- ---------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 200,000 3,762,500
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 122,000 2,760,250
- ---------------------------------------------------------------
Rainbow Rentals, Inc.(a) 172,000 2,021,000
- ---------------------------------------------------------------
Rent-A-Center, Inc.(a) 199,900 6,196,900
- ---------------------------------------------------------------
Rent-Way, Inc.(a) 237,190 6,463,427
- ---------------------------------------------------------------
Select Comfort Corp.(a) 41,900 678,256
- ---------------------------------------------------------------
</TABLE>
FS-23
<PAGE> 125
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY)-(CONTINUED)
Zale Corp.(a) 165,000 $ 6,239,063
===============================================================
57,447,346
===============================================================
RETAIL (SPECIALTY-APPAREL)-1.09%
Abercrombie & Fitch Co.-Class
A(a) 60,000 5,707,500
- ---------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 225,000 2,025,000
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 190,000 5,201,250
===============================================================
12,933,750
===============================================================
SAVINGS & LOAN COMPANIES-0.42%
Allied Capital Corp. 275,000 4,950,000
===============================================================
SERVICES
(ADVERTISING/MARKETING)-4.25%
Abacus Direct Corp.(a) 45,000 3,330,000
- ---------------------------------------------------------------
ACNielsen Corp.(a) 200,000 5,575,000
- ---------------------------------------------------------------
Acxiom Corp.(a) 246,000 6,211,500
- ---------------------------------------------------------------
Forrester Research, Inc.(a) 74,300 2,526,200
- ---------------------------------------------------------------
HA-LO Industries, Inc.(a) 275,000 3,231,250
- ---------------------------------------------------------------
Lamar Advertising Co.(a) 225,000 7,565,625
- ---------------------------------------------------------------
Market Facts, Inc.(a) 173,800 5,300,900
- ---------------------------------------------------------------
Nielsen Media Research(a) 250,000 6,843,750
- ---------------------------------------------------------------
Snyder Communications, Inc.(a) 190,000 5,581,250
- ---------------------------------------------------------------
Young & Rubicam, Inc. 103,500 4,120,594
===============================================================
50,286,069
===============================================================
SERVICES (COMMERCIAL &
CONSUMER)-8.46%
Apollo Group, Inc.(a) 100,000 2,475,000
- ---------------------------------------------------------------
Bright Horizons Family Solutions,
Inc.(a) 189,992 4,084,828
- ---------------------------------------------------------------
Central Parking Corp. 160,000 5,070,000
- ---------------------------------------------------------------
Copart, Inc.(a) 200,000 3,625,000
- ---------------------------------------------------------------
Corporate Executive Board Co.
(The)(a) 100,800 2,835,000
- ---------------------------------------------------------------
F.Y.I. Inc.(a) 115,000 3,565,000
- ---------------------------------------------------------------
Galileo International, Inc. 81,700 4,003,300
- ---------------------------------------------------------------
INSpire Insurance Solutions,
Inc.(a) 300,500 6,535,875
- ---------------------------------------------------------------
Iron Mountain, Inc.(a) 175,000 4,867,188
- ---------------------------------------------------------------
ITT Educational Services, Inc.(a) 79,300 1,947,806
- ---------------------------------------------------------------
Jones Lang LaSalle Inc.(a) 101,900 2,719,456
- ---------------------------------------------------------------
MemberWorks, Inc.(a) 100,000 4,375,000
- ---------------------------------------------------------------
Metzler Group, Inc.(a) 180,000 5,017,500
- ---------------------------------------------------------------
PalEx, Inc.(a) 27,300 170,625
- ---------------------------------------------------------------
Pegasus Systems, Inc.(a) 100,000 4,675,000
- ---------------------------------------------------------------
Pre-Paid Legal Services, Inc.(a) 215,000 6,127,500
- ---------------------------------------------------------------
Primark Corp.(a) 187,000 4,312,688
- ---------------------------------------------------------------
Quanta Services, Inc.(a) 310,300 8,940,518
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL &
CONSUMER)-(CONTINUED)
Regis Corp. 212,700 $ 5,450,437
- ---------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 424,900 8,444,888
- ---------------------------------------------------------------
Strayer Education, Inc. 55,000 1,904,375
- ---------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 225,000 5,653,125
- ---------------------------------------------------------------
Trammell Crow Co.(a) 176,400 3,175,200
===============================================================
99,975,309
===============================================================
SERVICES (COMPUTER SYSTEMS)-1.99%
Insight Enterprises, Inc.(a) 202,300 5,462,100
- ---------------------------------------------------------------
Policy Management Systems
Corp.(a) 135,000 4,244,063
- ---------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 41,200 3,337,200
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 200,000 6,387,500
- ---------------------------------------------------------------
Sykes Enterprises, Inc.(a) 201,900 4,138,950
===============================================================
23,569,813
===============================================================
SERVICES (DATA PROCESSING)-3.25%
4Front Software International,
Inc.(a) 365,000 3,216,563
- ---------------------------------------------------------------
BISYS Group, Inc.(a) 165,000 8,373,750
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 200,000 7,725,000
- ---------------------------------------------------------------
Lason Holdings, Inc.(a) 121,400 4,802,887
- ---------------------------------------------------------------
MedQuist, Inc.(a) 165,000 5,651,250
- ---------------------------------------------------------------
National Data Corp. 105,000 4,843,125
- ---------------------------------------------------------------
NOVA Corp.(a) 144,400 3,754,400
===============================================================
38,366,975
===============================================================
SERVICES (EMPLOYMENT)-1.62%
AHL Services, Inc.(a) 125,500 3,796,375
- ---------------------------------------------------------------
Heidrick & Struggles
International, Inc.(a) 373,900 5,211,231
- ---------------------------------------------------------------
Korn/Ferry International(a) 275,000 3,231,250
- ---------------------------------------------------------------
Labor Ready, Inc.(a) 174,500 6,849,125
===============================================================
19,087,981
===============================================================
SERVICES (FACILITIES &
ENVIRONMENTAL)-2.14%
Casella Waste Systems, Inc.(a) 234,500 5,862,500
- ---------------------------------------------------------------
Cornell Corrections, Inc.(a) 274,600 5,526,325
- ---------------------------------------------------------------
Tetra Tech, Inc.(a) 140,700 3,403,182
- ---------------------------------------------------------------
Wackenhut Corrections Corp.(a) 279,700 5,191,931
- ---------------------------------------------------------------
Waste Connections, Inc.(a) 200,000 5,275,000
===============================================================
25,258,938
===============================================================
SPECIALTY PRINTING-0.38%
World Color Press, Inc.(a) 175,000 4,473,438
===============================================================
</TABLE>
FS-24
<PAGE> 126
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.83%
Associated Group, Inc.
(The)-Class A(a) 120,000 $ 6,840,000
- ---------------------------------------------------------------
Metromedia Fiber Network, Inc.(a) 35,000 2,948,750
===============================================================
9,788,750
===============================================================
TELECOMMUNICATIONS (LONG
DISTANCE)-0.57%
IXC Communications, Inc.(a) 170,000 6,736,250
===============================================================
TELEPHONE-0.91%
Intermedia Communications Inc.(a) 170,000 5,471,875
- ---------------------------------------------------------------
NTL Inc. (United Kingdom)(a) 70,000 5,337,500
===============================================================
10,809,375
===============================================================
WASTE MANAGEMENT-1.77%
Catalytica, Inc.(a) 300,000 4,106,250
- ---------------------------------------------------------------
Safety-Kleen Corp.(a) 375,000 5,953,125
- ---------------------------------------------------------------
Superior Services, Inc.(a) 210,000 3,858,750
- ---------------------------------------------------------------
U.S. Liquids Inc.(a) 261,700 5,299,426
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WASTE MANAGEMENT-(CONTINUED)
Waste Industries, Inc.(a) 92,500 $ 1,711,250
===============================================================
20,928,801
===============================================================
Total Common Stocks & Other
Equity Interests (Cost
$954,293,892) 1,134,739,835
===============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS-3.89%(c)
Credit Swisse First Boston Corp.,
4.93%, 05/03/99(d) $27,011,481 27,011,481
- ---------------------------------------------------------------
Greenwich Capital Markets, Inc.,
4.93%, 05/03/99(e) 18,945,613 18,945,613
===============================================================
Total Repurchase Agreements
(Cost $45,957,094) 45,957,094
===============================================================
TOTAL INVESTMENTS-99.90% 1,180,696,929
===============================================================
OTHER ASSETS LESS
LIABILITIES-0.10% 1,177,367
===============================================================
NET ASSETS-100.00% $1,181,874,296
===============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Pfd. - Preferred
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to insure its market value is at least 102% of the sale price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d) Joint repurchase agreement entered into 04/30/99 with a maturing value of
$500,205,417. Collateralized by $527,642,000 U.S. Government obligations,
4.60% to 9.05% due 05/03/99 to 04/28/14 with an aggregate market value at
04/30/99 of $531,179,320.
(e) Joint repurchase agreement entered into 04/30/99 with a maturing value of
$400,164,333. Collateralized by $419,743,169 U.S. Government obligations, 0%
to 10.00% due 04/01/00 to 05/01/29 with an aggregate market value at
04/30/99 of $408,002,417.
See Notes to Financial Statements.
FS-25
<PAGE> 127
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,000,250,986) $1,180,696,929
- ------------------------------------------------------------
Receivables for:
Investments sold 22,860,649
- ------------------------------------------------------------
Capital stock sold 1,743,331
- ------------------------------------------------------------
Dividends and interest 309,286
- ------------------------------------------------------------
Investment for deferred compensation plan 14,874
- ------------------------------------------------------------
Other assets 118,379
- ------------------------------------------------------------
Total assets 1,205,743,448
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 16,780,752
- ------------------------------------------------------------
Capital stock reacquired 4,838,834
- ------------------------------------------------------------
Deferred compensation 14,874
- ------------------------------------------------------------
Options written (Premiums received
$109,386) 443,306
- ------------------------------------------------------------
Accrued advisory fees 645,088
- ------------------------------------------------------------
Accrued administrative services fees 7,632
- ------------------------------------------------------------
Accrued directors' fees 7,850
- ------------------------------------------------------------
Accrued distribution fees 822,742
- ------------------------------------------------------------
Accrued transfer agent fees 261,630
- ------------------------------------------------------------
Accrued operating expenses 46,444
- ------------------------------------------------------------
Total liabilities 23,869,152
- ------------------------------------------------------------
Net assets applicable to shares outstanding $1,181,874,296
============================================================
NET ASSETS:
Class A $ 644,958,656
============================================================
Class B $ 483,673,180
============================================================
Class C $ 53,242,460
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 45,804,635
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 34,992,803
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 3,854,095
============================================================
Class A:
Net asset value and redemption price per
share $ 14.08
============================================================
Offering price per share:
(Net assets value of $14.08
divided by 94.50%) $ 14.90
============================================================
Class B:
Net asset value and offering price per
share $ 13.82
============================================================
Class C:
Net asset value and offering price per
share $ 13.81
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $2,049 foreign withholding
tax) $ 2,630,878
- -----------------------------------------------------------
Interest 1,645,875
- -----------------------------------------------------------
Total investment income 4,276,753
- -----------------------------------------------------------
EXPENSES:
Advisory fees 4,286,282
- -----------------------------------------------------------
Administrative services fees 48,652
- -----------------------------------------------------------
Custodian fees 72,619
- -----------------------------------------------------------
Directors' fees 11,971
- -----------------------------------------------------------
Distribution fees-Class A 1,265,747
- -----------------------------------------------------------
Distribution fees-Class B 2,619,659
- -----------------------------------------------------------
Distribution fees-Class C 274,848
- -----------------------------------------------------------
Transfer agent fees-Class A 1,018,729
- -----------------------------------------------------------
Transfer agent fees-Class B 981,216
- -----------------------------------------------------------
Transfer agent fees-Class C 102,947
- -----------------------------------------------------------
Other 332,519
- -----------------------------------------------------------
Total expenses 11,015,189
- -----------------------------------------------------------
Less: Expenses paid indirectly (25,503)
- -----------------------------------------------------------
Net expenses 10,989,686
- -----------------------------------------------------------
Net investment income (loss) (6,712,933)
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 16,330,470
- -----------------------------------------------------------
Option contracts written 201,938
- -----------------------------------------------------------
16,532,408
- -----------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 102,115,195
- -----------------------------------------------------------
Option contracts written (333,920)
- -----------------------------------------------------------
101,781,275
- -----------------------------------------------------------
Net gain from investment securities and
option contracts 118,313,683
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $111,600,750
============================================================
</TABLE>
See Notes to Financial Statements.
FS-26
<PAGE> 128
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1999 and the year ended October 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (6,712,933) $ (8,332,574)
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities, foreign currencies, futures and option
contracts 16,532,408 (67,636,533)
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies, futures and option
contracts 101,781,275 (114,227,472)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 111,600,750 (190,196,579)
- ---------------------------------------------------------------------------------------------
Share transactions-net:
Class A (138,084,944) 242,830,301
- ---------------------------------------------------------------------------------------------
Class B (51,952,473) 274,584,791
- ---------------------------------------------------------------------------------------------
Class C 761,416 44,827,215
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (77,675,251) 372,045,728
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,259,549,547 887,503,819
- ---------------------------------------------------------------------------------------------
End of period $1,181,874,296 $1,259,549,547
=============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,071,122,709 $1,260,398,710
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (6,734,268) (21,335)
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities, foreign currencies, futures and
option contracts (62,626,168) (79,158,576)
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 180,112,023 78,330,748
- ---------------------------------------------------------------------------------------------
$1,181,874,296 $1,259,549,547
=============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of nine separate
portfolios. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is long-term capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last 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 closing bid price 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 closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such
as yield, type of issue, coupon rate and maturity date. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Company's officers in a
FS-27
<PAGE> 129
manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair 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 specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income, dividend expense on
short sales and distributions to shareholders are recorded on the ex-dividend
date and are paid annually.
C. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and that a change in value of the contracts may not correlate with changes in
the value of the securities being hedged.
D. Accounting for Securities Sold Short--When the Fund sells common stock short,
an amount equal to the proceeds of the sales is recorded as an asset. This
asset is offset by a liability (representing the borrowed security) recorded
on the books of the Fund at the market value of the common stock determined
each day in accordance with the procedures for security valuations discussed
in "A" above. The Fund's risk is that the value of the security will increase
rather than decline and thus an unrealized loss will be recorded. When the
Fund closes out a short position by delivering the stock sold short, the Fund
will realize a gain or loss and the liability related to such short position
will be eliminated. The Fund will attempt to hedge against market risk by
entering into short sales of securities that it currently owns or has the
right to acquire through the conversion or exchange of other securities that
it owns. Such short sales may protect the Fund against the risk of losses in
the value of its portfolio securities because any unrealized losses with
respect to such securities may be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in
such portfolio may be wholly or partially offset by a corresponding loss in
the short position.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of
$75,941,588 (which may be carried forward to offset future taxable gains, if
any) which expires, if not previously utilized, in the year 2006.
F. 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.
FS-28
<PAGE> 130
G. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized gain or loss from
investments.
H. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in order
to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million.
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 six months ended April 30, 1999, AIM
was reimbursed $48,652 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the six months ended April 30, 1999, AFS was paid
$1,259,748 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the 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. During the six months ended
April 30, 1999, the Class A, Class B and Class C shares paid AIM Distributors
$1,265,747, $2,619,659 and $274,848, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $270,027 from Class A capital stock
transactions during the six months ended April 30, 1999. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A capital stock. During the six months ended April
30, 1999, AIM Distributors received $82,703 in contingent deferred sales charges
imposed on redemptions of capital stock. Certain officers and directors of the
Company are officers and directors of AIM, AIM Distributors and AFS.
During the six months ended April 30, 1999, the Fund paid legal fees of $2,292
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $8,544 and $16,959, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $25,503 during the six months ended April 30, 1999.
NOTE 4-DIRECTOR'S FEES
Director's fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 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. During the six
months ended April 30, 1999, 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.
FS-29
<PAGE> 131
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended April 30, 1999 was
$698,051,770 and $853,872,921, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of April 30, 1999, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $239,500,191
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (59,376,952)
- --------------------------------------------------------------------------
Net unrealized appreciation of
investment securities $180,123,239
==========================================================================
</TABLE>
Cost of investments for tax purposes is $1,000,573,690.
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended April 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period 0 $ 0
- ------------------------------------------------------------------------------------
Written 5,446 792,183
- ------------------------------------------------------------------------------------
Closed (1,999) (194,945)
- ------------------------------------------------------------------------------------
Exercised (250) (86,747)
- ------------------------------------------------------------------------------------
Expired (2,198) (401,105)
- ------------------------------------------------------------------------------------
End of period 999 $ 109,386
====================================================================================
</TABLE>
Open call contracts written at April 30, 1999 were as follows:
<TABLE>
<CAPTION>
APRIL 30,
NUMBER 1999
CONTRACT STRIKE OF PREMIUMS MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
----- -------- ------ --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Union Pacific Resource Group, Inc. July 99 10 999 $109,386 $443,306 $333,920
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in the capital stock outstanding during six months ended April 30, 1999
and the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1999 OCTOBER 31, 1998
--------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 22,713,643 $ 318,873,099 101,121,530 $ 1,487,557,560
- -------------------------------------------------------------------------------------------------------
Class B 6,016,844 82,122,144 25,176,788 370,811,453
- -------------------------------------------------------------------------------------------------------
Class C 1,738,241 23,977,499 4,336,475 62,530,399
- -------------------------------------------------------------------------------------------------------
Reacquired:
Class A (32,567,180) (456,958,043) (85,122,675) (1,244,727,259)
- -------------------------------------------------------------------------------------------------------
Class B (9,930,034) (134,074,617) (6,860,398) (96,226,662)
- -------------------------------------------------------------------------------------------------------
Class C (1,688,785) (23,216,083) (1,375,616) (17,703,184)
- -------------------------------------------------------------------------------------------------------
(13,717,271) $(189,276,001) 37,276,104 $ 562,242,307
=======================================================================================================
</TABLE>
FS-30
<PAGE> 132
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1999, each of the years in the
two-year period ended October 31, 1998 and the period June 17, 1996 (date
operations commenced) through October 31, 1996, for a share of Class B capital
stock outstanding during the six months ended April 30, 1999, each of the years
in the two-year period ended October 31, 1998 and the period October 1, 1996
(date sales commenced) through October 31, 1996 and for a share of Class C
capital stock outstanding during the six months ended April 30, 1999, the year
ended October 31, 1998 and the period August 4, 1997 (date sales commenced)
through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------ ---------------------------------------------
OCTOBER 31, OCTOBER 31,
APRIL 30, --------------------------------- APRIL 30, --------------------------------
1999 1998 1997 1996 1999 1998 1997 1996
--------- -------- -------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 12.89 $ 14.57 $ 11.09 $ 10.00 $ 12.70 $ 14.46 $ 11.08 $ 11.26
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income (loss) (0.05)(a) (0.06)(a) (0.10)(a) (0.01)(a) (0.10)(a) (0.16)(a) (0.20)(a) (0.01)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses)
on securities
(both realized and
unrealized) 1.24 (1.62) 3.58 1.10 1.22 (1.60) 3.58 (0.17)
============================================================================================================================
Total from
investment
operations 1.19 (1.68) 3.48 $ 1.09 1.12 (1.76) 3.38 (0.18)
============================================================================================================================
Net asset value, end of
period $ 14.08 $ 12.89 $ 14.57 $ $11.09 $ 13.82 $ 12.70 $ 14.46 $ 11.08
============================================================================================================================
Total return(b) 9.23% (11.53)% 31.38% 10.90% 8.82% (12.17)% 30.51% (1.60)%
============================================================================================================================
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s omitted) $ 644,959 $717,263 $577,685 $ 251,253 $ 483,673 $493,993 $297,623 $ 22,435
============================================================================================================================
Ratio of expenses to
average net assets(c) 1.36%(d) 1.28% 1.33% 1.35%(e) 2.11%(d) 2.02% 2.09% 1.89%(e)
============================================================================================================================
Ratio of net investment
income (loss) to
average net assets(f) (0.70)%(d) (0.40)% (0.83)% (0.29)%(e) (1.44)%(d) (1.14)% (1.59)% (0.83)%(e)
============================================================================================================================
Portfolio turnover rate 56% 78% 41% 13% 56% 78% 41% 13%
============================================================================================================================
<CAPTION>
CLASS C
-----------------------------------
OCTOBER 31,
APRIL 30, --------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 12.69 $ 14.45 $ 13.48
- -------------------------------------------------------------
Income from investment
operations:
Net investment
income (loss) (0.10) (0.16)(a) (0.06)(a)
- -------------------------------------------------------------
Net gains (losses)
on securities
(both realized and
unrealized) 1.22 (1.60) 1.03
=============================================================
Total from
investment
operations 1.12 (1.76) 0.97
=============================================================
Net asset value, end of
period $ 13.81 $ 12.69 $ 14.45
=============================================================
Total return(b) 8.83% (12.18)% 7.20%
=============================================================
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s omitted) $ 53,242 $ 48,293 $ 12,195
=============================================================
Ratio of expenses to
average net assets(c) 2.10%(d) 2.02% 2.14%(e)
=============================================================
Ratio of net investment
income (loss) to
average net assets(f) (1.44)%(d) (1.14)% (1.64)%(e)
=============================================================
Portfolio turnover rate 56% 78% 41%
=============================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.38% and 1.60% (annualized) for 1997-1996 for Class A, 2.14% and 2.28%
(annualized) for 1997-1996 for Class B and 2.19% (annualized) for 1997 for
Class C.
(d) Ratios are annualized and based on average net assets of $729,278,315,
$528,273,810 and $55,425,119 for Class A, Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.88)% and (0.54)% (annualized) for 1997-1996 for Class
A, (1.64)% and (1.22)% (annualized) for 1997-1996 for Class B and (1.69)%
(annualized) for 1997 for Class C.
FS-31
<PAGE> 133
AIM CHARTER FUND
UNAUDITED FINANCIALS FOR THE
PERIOD ENDED APRIL 30, 1999
SCHEDULE OF INVESTMENTS
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-88.15%
AUTOMOBILES-1.38%
Ford Motor Co. 1,450,000 $ 92,709,375
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.36%
BankBoston Corp. 500,000 24,500,000
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-2.76%
Chase Manhattan Corp. (The) 2,250,000 186,187,500
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-1.37%
Broadcast.com, Inc.(a) 250,000 32,062,500
- ---------------------------------------------------------------
Comcast Corp.-Class A 500,000 32,843,750
- ---------------------------------------------------------------
Infinity Broadcasting
Corp.-Class A(a) 1,000,000 27,687,500
- ---------------------------------------------------------------
92,593,750
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.51%
Monsanto Co. 2,250,000 101,812,500
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.82%
Corning Inc. 800,000 45,800,000
- ---------------------------------------------------------------
Lucent Technologies, Inc. 700,000 42,087,500
- ---------------------------------------------------------------
Motorola, Inc. 850,000 68,106,250
- ---------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR 900,000 66,768,750
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 175,000 35,000,000
- ---------------------------------------------------------------
257,762,500
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-5.21%
Dell Computer Corp.(a) 2,000,000 82,375,000
- ---------------------------------------------------------------
International Business Machines
Corp. 800,000 167,350,000
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 1,700,000 101,681,250
- ---------------------------------------------------------------
351,406,250
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-3.12%
Ascend Communications, Inc.(a) 700,000 67,637,500
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 1,250,000 142,578,125
- ---------------------------------------------------------------
210,215,625
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.75%
EMC Corp.(a) 800,000 87,150,034
- ---------------------------------------------------------------
Lexmark International Group,
Inc.(a) 250,000 30,875,000
- ---------------------------------------------------------------
118,025,034
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-8.81%
America Online, Inc.(a) 1,350,000 192,712,500
- ---------------------------------------------------------------
GeoCities(a) 53,100 6,186,150
- ---------------------------------------------------------------
Microsoft Corp.(a) 3,000,000 243,937,500
- ---------------------------------------------------------------
Novell, Inc.(a) 5,387,100 119,862,975
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Unisys Corp.(a) 1,000,000 $ 31,437,500
- ---------------------------------------------------------------
594,136,625
- ---------------------------------------------------------------
CONSUMER FINANCE-0.86%
Providian Financial Corp. 450,000 58,078,125
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.53%
Cardinal Health, Inc. 600,000 35,887,500
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.35%
General Electric Co. 1,500,000 158,250,000
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-1.11%
Linear Technology Corp. 600,000 34,125,000
- ---------------------------------------------------------------
Texas Instruments, Inc. 400,000 40,850,000
- ---------------------------------------------------------------
74,975,000
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-1.08%
Applied Materials, Inc.(a) 700,000 37,537,500
- ---------------------------------------------------------------
Teradyne, Inc.(a) 750,000 35,390,625
- ---------------------------------------------------------------
72,928,125
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-6.00%
American Express Co. 800,000 104,550,000
- ---------------------------------------------------------------
Citigroup Inc. 1,000,000 75,250,000
- ---------------------------------------------------------------
Fannie Mae 1,400,000 99,312,500
- ---------------------------------------------------------------
Freddie Mac 2,000,000 125,500,000
- ---------------------------------------------------------------
404,612,500
- ---------------------------------------------------------------
FOOTWEAR-0.17%
Nike, Inc.-Class B 183,200 11,392,750
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-5.88%
Abbott Laboratories 1,350,000 65,390,625
- ---------------------------------------------------------------
American Home Products Corp. 1,000,000 61,000,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 1,500,000 95,343,750
- ---------------------------------------------------------------
Johnson & Johnson 400,000 39,000,000
- ---------------------------------------------------------------
Warner-Lambert Co. 2,000,000 135,875,000
- ---------------------------------------------------------------
396,609,375
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-4.36%
Lilly (Eli) & Co. 700,000 51,537,500
- ---------------------------------------------------------------
Merck & Co., Inc. 140,600 9,877,150
- ---------------------------------------------------------------
Pfizer, Inc. 1,150,000 132,321,875
- ---------------------------------------------------------------
Pharmacia & Upjohn, Inc. 1,356,000 75,936,000
- ---------------------------------------------------------------
Schering-Plough Corp. 500,000 24,156,250
- ---------------------------------------------------------------
293,828,775
- ---------------------------------------------------------------
</TABLE>
FS-32
<PAGE> 134
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL MANAGEMENT)-0.37%
Columbia/HCA Healthcare Corp. 1,000,000 $ 24,687,500
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.86%
Guidant Corp. 1,000,000 53,687,500
- ---------------------------------------------------------------
Medtronic, Inc. 1,000,000 71,937,500
- ---------------------------------------------------------------
125,625,000
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.73%
Omnicare, Inc. 2,037,900 49,036,969
- ---------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.41%
Maytag Corp. 400,000 27,350,000
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-1.05%
Clorox Co. 300,000 34,612,500
- ---------------------------------------------------------------
Colgate-Palmolive Co. 350,000 35,853,125
- ---------------------------------------------------------------
70,465,625
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-2.70%
American International Group, Inc. 1,550,000 182,028,125
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-2.84%
Merrill Lynch & Co., Inc. 600,000 50,362,500
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 650,000 64,471,875
- ---------------------------------------------------------------
Schwab (Charles) Corp. 700,000 76,825,000
- ---------------------------------------------------------------
191,659,375
- ---------------------------------------------------------------
LODGING-HOTELS-0.49%
Carnival Corp. 800,000 33,000,000
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-6.17%
Tyco International Ltd. 4,500,000 365,625,000
- ---------------------------------------------------------------
United Technologies Corp. 350,000 50,706,250
- ---------------------------------------------------------------
416,331,250
- ---------------------------------------------------------------
NATURAL GAS-0.56%
Enron Corp. 500,000 37,625,000
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.98%
Halliburton Co. 800,000 34,100,000
- ---------------------------------------------------------------
Schlumberger Ltd. 500,000 31,937,500
- ---------------------------------------------------------------
66,037,500
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-1.55%
Mobil Corp. 1,000,000 104,750,000
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.27%
Georgia Pacific Corp. 200,000 18,500,000
- ---------------------------------------------------------------
PERSONAL CARE-0.58%
Gillette Co. 750,000 39,140,626
- ---------------------------------------------------------------
RAILROADS-0.53%
Kansas City Southern Industries,
Inc. 600,000 35,737,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (BUILDING SUPPLIES)-0.51%
Lowe's Companies, Inc. 650,000 $ 34,287,500
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.30%
Kohl's Corp.(a) 300,000 19,931,250
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.26%
Walgreen Co. 650,000 17,468,750
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.00%
Kroger Co.(a) 600,000 32,587,500
- ---------------------------------------------------------------
Safeway, Inc.(a) 650,000 35,059,375
- ---------------------------------------------------------------
67,646,875
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-4.52%
Costco Companies, Inc.(a) 400,000 32,375,000
- ---------------------------------------------------------------
Dayton Hudson Corp. 2,000,000 134,625,000
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 3,000,000 138,000,000
- ---------------------------------------------------------------
305,000,000
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.17%
First Data Corp. 1,200,000 50,925,000
- ---------------------------------------------------------------
Paychex, Inc. 550,000 28,084,375
- ---------------------------------------------------------------
79,009,375
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-4.01%
AT&T Corp. 1,000,000 50,500,000
- ---------------------------------------------------------------
Global TeleSystems Group, Inc.(a) 400,000 26,450,000
- ---------------------------------------------------------------
MCI WorldCom, Inc.(a) 2,350,000 193,140,625
- ---------------------------------------------------------------
270,090,625
- ---------------------------------------------------------------
TELEPHONE-1.04%
SBC Communications, Inc. 1,250,000 70,000,000
- ---------------------------------------------------------------
TOBACCO-1.82%
Philip Morris Companies, Inc. 3,500,000 122,718,750
- ---------------------------------------------------------------
Total Common Stocks (Cost
$4,088,054,762) 5,944,038,904
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS &
NOTES-4.64%
COMPUTERS (HARDWARE)-0.33%
Candescent Technology Corp.,
Conv. Sr. Sub. Deb., 7.00%,
05/01/03(b) (Acquired
04/17/98-11/30/98; Cost
$27,971,827) $ 28,300,000 $ 22,074,000
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.34%
Veritas Software Corp., Conv.
Sub. Notes, 5.25%, 11/01/04 12,500,000 23,109,375
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.58%
Home Depot, Inc., Conv. Sub
Notes, 3.25%, 10/01/01 15,000,000 39,037,500
- ---------------------------------------------------------------
</TABLE>
FS-33
<PAGE> 135
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RETAIL (SPECIALTY)-1.90%
Amazon.com Inc., Conv. Sub.
Deb., 4.75%, 02/01/09(b)
(Acquired 01/29/99-04/29/99;
Cost $110,132,690) $100,000,000 $ 127,937,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-1.49%
Global TeleSystems Group, Inc.,
Conv. Sr. Unsec. Sub. Notes,
8.75%, 06/30/00(b) (Acquired
02/05/98; Cost $13,002,080) 10,000,000 33,287,500
- ---------------------------------------------------------------
Global TeleSystems Group, Inc.,
Conv. Sr. Sub. Deb., 5.75%,
07/01/10 50,000,000 66,875,000
- ---------------------------------------------------------------
100,162,500
- ---------------------------------------------------------------
Total Convertible Corporate
Bonds & Notes (Cost
$240,831,428) 312,320,875
- ---------------------------------------------------------------
CONVERTIBLE PREFERRED
STOCKS-2.56%
BROADCASTING (TELEVISION, RADIO
& CABLE)-1.07%
Mediaone Group, Inc.-$2.25
Series D Conv. Pfd. 450,000 72,450,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ENTERTAINMENT-1.49%
Reliant Energy, Inc.-$3.22 Conv.
Pfd. $ 850,000 $ 100,300,000
- ---------------------------------------------------------------
Total Convertible Preferred
Stocks (Cost $112,602,801) 172,750,000
- ---------------------------------------------------------------
U.S. TREASURY NOTES-0.89%
9.125%, 05/15/99 (Cost
$61,726,172) 60,000,000 60,097,800
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-4.19%(C)
Chase Securities, Inc.
4.94%, 05/03/99(d) 80,000,000 80,000,000
- ---------------------------------------------------------------
SBC Warburg Dillon Read, Inc.
4.93%, 05/03/1999(e) 160,854,829 160,854,829
- ---------------------------------------------------------------
4.94%, 05/03/1999(f) 41,510,885 41,510,885
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $282,365,714) 282,365,714
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.43% 6,771,573,293
- ---------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.43%) (28,924,273)
- ---------------------------------------------------------------
NET ASSETS-100.00% $6,742,649,020
===============================================================
</TABLE>
Notes to Schedule of Investments
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 04/30/99 was $183,299,000,
which represented 2.72% of the Fund's net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 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 for its affiliates.
(d) Joint repurchase agreement entered into 04/30/99 with a maturing value of
$200,082,333. Collateralized by $204,362,012 U.S. Government obligations, 0%
to 9.50% due 02/01/02 to 06/01/37 with an aggregate market value at 04/30/99
of $204,003,573.
(e) Joint repurchase agreement entered into 04/30/99 with a maturing value of
$500,205,417. Collateralized by $657,973,000 U.S. Government obligations, 0%
to 10.35% due 05/18/99 to 01/15/30 with an aggregate market value at
04/30/99 of $510,002,651.
(f) Joint repurchase agreement entered into 04/30/99 with a maturing value of
$250,102,917. Collateralized by $249,736,152 U.S. Government obligations,
6.00% to 10.50% due 03/15/01 to 01/15/33 with an aggregate market value at
04/30/99 of $255,819,341.
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Pfd. - Preferred
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
FS-34
<PAGE> 136
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$4,785,580,877) $6,771,573,293
- ------------------------------------------------------------
Cash 380,972
- ------------------------------------------------------------
Receivables for:
Investments sold 132,982,122
- ------------------------------------------------------------
Capital stock sold 16,787,862
- ------------------------------------------------------------
Dividends and interest 11,006,924
- ------------------------------------------------------------
Investment for deferred compensation plan 69,365
- ------------------------------------------------------------
Other assets 232,138
- ------------------------------------------------------------
Total assets 6,933,032,676
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 173,299,670
- ------------------------------------------------------------
Capital stock reacquired 9,420,270
- ------------------------------------------------------------
Deferred compensation 69,365
- ------------------------------------------------------------
Accrued advisory fees 3,408,501
- ------------------------------------------------------------
Accrued administrative services fees 15,982
- ------------------------------------------------------------
Accrued directors' fees 18,200
- ------------------------------------------------------------
Accrued distribution fees 3,327,736
- ------------------------------------------------------------
Accrued transfer agent fees 524,200
- ------------------------------------------------------------
Accrued operating expenses 299,732
- ------------------------------------------------------------
Total liabilities 190,383,656
- ------------------------------------------------------------
Net assets applicable to shares outstanding $6,742,649,020
- ------------------------------------------------------------
NET ASSETS:
Class A $4,680,937,706
============================================================
Class B $1,920,528,266
============================================================
Class C $ 82,155,706
============================================================
Institutional Class $ 59,027,342
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 286,251,175
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 118,322,530
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 5,048,163
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 3,583,129
============================================================
Class A:
Net asset value and redemption price per
share $ 16.35
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $16.35
divided by 94.50%) $ 17.30
============================================================
Class B:
Net asset value and offering price per
share $ 16.23
============================================================
Class C:
Net asset value and offering price per
share $ 16.27
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 16.47
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For The Six Months Ended April 30, 1999
(unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $178,340 foreign
withholding tax) $ 27,691,770
- ------------------------------------------------------------
Interest 15,327,232
- ------------------------------------------------------------
Total investment income 43,019,002
- ------------------------------------------------------------
EXPENSES:
Advisory fees 18,998,755
- ------------------------------------------------------------
Administrative services fees 92,412
- ------------------------------------------------------------
Custodian fees 163,248
- ------------------------------------------------------------
Directors' fees 29,205
- ------------------------------------------------------------
Distribution fees-Class A 6,378,547
- ------------------------------------------------------------
Distribution fees-Class B 8,400,680
- ------------------------------------------------------------
Distribution fees-Class C 270,044
- ------------------------------------------------------------
Transfer agent fees-Class A 2,336,290
- ------------------------------------------------------------
Transfer agent fees-Class B 1,374,142
- ------------------------------------------------------------
Transfer agent fees-Class C 50,623
- ------------------------------------------------------------
Transfer agent fees-Institutional Class 2,579
- ------------------------------------------------------------
Other 506,527
- ------------------------------------------------------------
Total expenses 38,603,052
- ------------------------------------------------------------
Less: Fees waived by advisor (506,799)
- ------------------------------------------------------------
Expenses paid indirectly (92,598)
- ------------------------------------------------------------
Net expenses 38,003,655
- ------------------------------------------------------------
Net investment income $ 5,015,347
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 612,487,365
- ------------------------------------------------------------
Foreign currencies (1,105,968)
- ------------------------------------------------------------
Option contracts written (9,533,983)
- ------------------------------------------------------------
601,847,414
- ------------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 820,803,380
- ------------------------------------------------------------
Foreign currencies (48,017)
- ------------------------------------------------------------
Option contracts written 388,911
- ------------------------------------------------------------
821,144,274
- ------------------------------------------------------------
Net gain from investment securities,
foreign currencies and option contracts 1,422,991,688
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $1,428,007,035
============================================================
</TABLE>
See Notes to Financial Statements.
FS-35
<PAGE> 137
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1999 and the year ended October 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,015,347 $ 37,825,223
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 601,847,414 206,268,933
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 821,144,274 254,914,824
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,428,007,035 499,008,980
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (11,677,825) (28,039,987)
- ----------------------------------------------------------------------------------------------
Class B (536,374) (3,013,337)
- ----------------------------------------------------------------------------------------------
Class C (14,809) (47,378)
- ----------------------------------------------------------------------------------------------
Institutional Class (247,665) (445,449)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (145,635,667) (346,531,949)
- ----------------------------------------------------------------------------------------------
Class B (56,570,251) (108,856,197)
- ----------------------------------------------------------------------------------------------
Class C (1,569,913) (819,962)
- ----------------------------------------------------------------------------------------------
Institutional Class (1,712,180) (3,989,466)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 116,760,777 235,195,827
- ----------------------------------------------------------------------------------------------
Class B 179,208,076 350,425,592
- ----------------------------------------------------------------------------------------------
Class C 34,445,580 32,069,085
- ----------------------------------------------------------------------------------------------
Institutional Class 4,905,802 3,464,509
- ----------------------------------------------------------------------------------------------
Net increase in net assets 1,545,362,586 628,420,268
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 5,197,286,434 4,568,866,166
- ----------------------------------------------------------------------------------------------
End of period $6,742,649,020 $5,197,286,434
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,157,224,204 $3,821,903,969
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 1,830,531 9,291,857
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 597,609,975 201,250,572
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 1,985,984,310 1,164,840,036
- ----------------------------------------------------------------------------------------------
$6,742,649,020 $5,197,286,434
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-36
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
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 nine separate portfolios. The
Fund currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and the Institutional Class. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by 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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last 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 closing bid price 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 closing bid price. 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 last bid price 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. Bond Premiums-It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
C. 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 and are paid annually.
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. 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. The
Fund does not separately account for that portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments.
G. Foreign Currency Contracts-A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties
FS-37
<PAGE> 139
to the contracts are unable to meet the terms of their contracts.
H. 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.
I. 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.
J. Put options-The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking a minimum price at which the Fund can sell. If
security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
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 contractually agreed to 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 contractual 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 contractual and may not be terminated without approval of the Board of
Directors. During the six months ended April 30, 1999, AIM waived fees of
$506,799. 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 six months ended April 30,
1999, AIM was reimbursed $92,412 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 1999,
AFS was paid $2,259,697 with respect to the Class A, Class B, Class C and
Institutional Class shares.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to
FS-38
<PAGE> 140
Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares and
Class C shares (the "Class A and C Plan"), and the Fund's Class B shares (the
"Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A
and C Plan, pays AIM Distributors compensation at an annual rate of 0.30% of the
average daily net assets of the Class A shares and 1.00% of the average daily
net assets of Class C shares. The Fund, pursuant to the Class B Plan, pays AIM
Distributors compensation at an annual rate of 1.00% of the average daily net
assets of the Class B shares. Of these amounts, the Fund may pay a service fee
of 0.25% of the average daily net assets of Class A, Class B or C shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own the appropriate
class of shares of the Fund. Any amounts not paid as a service fee under the
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. During the six months ended April 30, 1999, the Class
A, Class B and Class C shares paid AIM Distributors $6,378,547, $8,400,680, and
$270,044, respectively, as compensation under the Plans.
AIM Distributors received commissions of $898,342 from sales of Class A
shares of the Fund during the six months ended April 30, 1999. 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 six months ended April 30,
1999, AIM Distributors received commissions of $54,352 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, and FMC.
During the six months ended April 30, 1999, the Fund paid legal fees of
$5,369 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $39,540 and $53,058, respectively, under expense offset arrangements.
The effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $92,598 during the six months ended April 30, 1999.
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-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) $1,000,000,000 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. During the six
months ended April 30, 1999, 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 six months ended April 30, 1999 was
$4,369,860,119 and $4,334,376,218, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities as of April 30, 1999, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $1,996,840,459
- --------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (27,642,398)
- --------------------------------------------------------------
Net unrealized appreciation of investment
securities $1,969,198,061
==============================================================
</TABLE>
Cost of investments for tax purposes is $4,802,375,232.
FS-39
<PAGE> 141
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
--------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of Period 31,202 $ 8,091,351
- ---------------------------------------------------------------
Written 40,092 14,577,537
- ---------------------------------------------------------------
Closed (54,607) (18,452,622)
- ---------------------------------------------------------------
Exercised (14,921) (4,076,635)
- ---------------------------------------------------------------
Expired (1,766) (139,631)
- ---------------------------------------------------------------
End of period 0 $ 0
===============================================================
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in the capital stock outstanding during the six months ended April 30,
1999 and the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1999 OCTOBER 31, 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold
Class A 29,915,028 $ 457,014,973 65,753,775 $ 868,543,898
- --------------------------------------------------------------------------------
Class B 16,636,975 254,772,037 32,991,364 431,938,545
- --------------------------------------------------------------------------------
Class C* 2,764,108 43,154,162 2,736,777 36,139,093
- --------------------------------------------------------------------------------
Institutional Class 367,416 5,788,239 568,334 7,594,968
- --------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 10,448,868 148,018,497 29,328,588 355,378,824
- --------------------------------------------------------------------------------
Class B 3,859,466 54,290,360 8,807,895 105,930,618
- --------------------------------------------------------------------------------
Class C* 106,186 1,498,498 67,166 810,828
- --------------------------------------------------------------------------------
Institutional Class 133,502 1,911,399 351,483 4,295,496
- --------------------------------------------------------------------------------
Reacquired:
Class A (32,368,241) (488,272,693) (75,327,509) (988,726,895)
- --------------------------------------------------------------------------------
Class B (8,550,619) (129,854,321) (14,417,738) (187,443,571)
- --------------------------------------------------------------------------------
Class C* (673,199) (10,207,080) (376,288) (4,880,836)
- --------------------------------------------------------------------------------
Institutional Class (182,932) (2,793,836) (636,014) (8,425,955)
- --------------------------------------------------------------------------------
22,456,558 $ 335,320,235 49,847,833 $ 621,155,013
================================================================================
</TABLE>
* Class C commenced sales on August 4, 1997.
FS-40
<PAGE> 142
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1999 and each of the years in
the five-year period ended October 31, 1998, for a share of Class B capital
stock outstanding during the six months ended April 30, 1999, each of the years
in the three-year period ended October 31, 1998 and the period June 26, 1995
(date sales commenced) through October 31, 1995, and for a share of Class C
capital stock outstanding during the six months ended April 30, 1999, the year
ended October 31, 1998 and the period August 4, 1997 (date sales commenced)
through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
OCTOBER 31,
APRIL 30, ------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.32 $ 13.41 $ 11.19 $ 10.63 $ 8.90 $ 9.46
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.03 0.12 0.10 0.19 0.15 0.21
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net gains (losses) on securities (both
realized and unrealized) 3.57 1.23 2.91 1.43 2.11 (0.45)
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 3.60 1.35 3.01 1.62 2.26 (0.24)
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.04) (0.10) (0.12) (0.16) (0.20) (0.16)
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Distributions from net realized gains (0.53) (1.34) (0.67) (0.90) (0.33) (0.16)
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total distributions (0.57) (1.44) (0.79) (1.06) (0.53) (0.32)
- ---------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.35 $ 13.32 $ 13.41 $ 11.19 $ 10.63 $ 8.90
============================================== ========== ========== ========== ========== ========== ==========
Total return(a) 27.68% 11.20% 28.57% 16.70% 27.03% (2.55)%
============================================== ========== ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,680,938 $3,706,938 $3,466,912 $2,647,208 $1,974,417 $1,579,074
============================================== ========== ========== ========== ========== ========== ==========
Ratio of expenses (exclusive of interest) to
average net assets(b) 1.05%(c) 1.08% 1.09% 1.12% 1.17% 1.17%
============================================== ========== ========== ========== ========== ========== ==========
Ratio of net investment income to average net
assets(d) 0.38%(c) 0.95% 0.79% 1.81% 1.55% 2.32%
============================================== ========== ========== ========== ========== ========== ==========
Portfolio turnover rate 73% 154% 170% 164% 161% 126%
============================================== ========== ========== ========== ========== ========== ==========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.07% (annualized), 1.10%, 1.10% for 1999-1997.
(c) Ratios are annualized and based on average net assets of $4,287,605,419.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.36% (annualized), 0.93%, 0.78% for 1999-1997.
(e) Averages computed on a daily basis.
FS-41
<PAGE> 143
NOTE 9-FINANCIAL HIGHLIGHTS-continued
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------
OCTOBER 31,
APRIL 30, ------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.24 $ 13.37 $ 11.18 $ 10.62 $ 9.81
- ------------------------------------- ---------- ---------- ---------- -------- -------
Income from investment operations:
Net investment income (loss) (0.03) 0.02 0.01 0.10 0.03
- ------------------------------------- ---------- ---------- ---------- -------- -------
Net gains (losses) on securities
(both realized and unrealized) 3.56 1.22 2.89 1.45 0.80
- ------------------------------------- ---------- ---------- ---------- -------- -------
Total from investment operations 3.53 1.24 2.90 1.55 0.83
- ------------------------------------- ---------- ---------- ---------- -------- -------
Less distributions:
Dividends from net investment income (0.01) (0.03) (0.04) (0.09) (0.02)
- ------------------------------------- ---------- ---------- ---------- -------- -------
Distributions from net realized
gains (0.53) (1.34) (0.67) (0.90) --
- ------------------------------------- ---------- ---------- ---------- -------- -------
Total distributions (0.54) (1.37) (0.71) (0.99) (0.02)
- ------------------------------------- ---------- ---------- ---------- -------- -------
Net asset value, end of period $ 16.23 $ 13.24 $ 13.37 $ 11.18 $ 10.62
===================================== ========== ========== ========== ======== =======
Total return(b) 27.22% 10.33% 27.54% 15.90% 8.48%
===================================== ========== ========== ========== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,920,528 $1,408,687 $1,056,094 $515,672 $67,592
===================================== ========== ========== ========== ======== =======
Ratio of expenses (exclusive of
interest) to average net assets(c) 1.80%(d) 1.84%(d) 1.85% 1.94% 1.98%(f)
===================================== ========== ========== ========== ======== =======
Ratio of net investment income to
average net assets(e) (0.37)%(d) 0.19%(d) 0.03% 0.99% 0.74%(f)
===================================== ========== ========== ========== ======== =======
Portfolio turnover rate 73% 154% 170% 164% 161%
===================================== ========== ========== ========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------
OCTOBER 31,
APRIL 30, ---------------------
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.27 $ 13.39 $ 13.86
- ------------------------------------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (0.03) 0.02(a) --
- ------------------------------------- ------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) 3.57 1.23 (0.45)
- ------------------------------------- ------- ------- -------
Total from investment operations 3.54 1.25 (0.45)
- ------------------------------------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.01) (0.03) --
- ------------------------------------- ------- ------- -------
Distributions from net realized
gains (0.53) (1.34) (0.02)
- ------------------------------------- ------- ------- -------
Total distributions (0.54) (1.37) (0.02)
- ------------------------------------- ------- ------- -------
Net asset value, end of period $ 16.27 $ 13.27 $ 13.39
===================================== ======= ======= =======
Total return(b) 27.23% 10.39% (3.24)%
===================================== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $82,156 $37,846 $ 5,669
===================================== ======= ======= =======
Ratio of expenses (exclusive of
interest) to average net assets(c) 1.80%(d) 1.84% 1.82%(f)
===================================== ======= ======= =======
Ratio of net investment income to
average net assets(e) (0.37)%(d) 0.19% 0.06%(f)
===================================== ======= ======= =======
Portfolio turnover rate 73% 154% 170%
===================================== ======= ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.82% (annualized), 1.86%, 1.86% for 1999-1997 for Class B and 1.82%
(annualized), 1.86%, 1.83% (annualized) for 1999-1997 for Class C.
(d) Ratios are annualized and based on average net assets of $1,694,059,838 and
$54,456,371 for Class B and Class C, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.39)% (annualized), 0.17%, 0.02% for 1999-1997 for
Class B and (0.39)% (annualized), 0.17%, 0.04% (annualized) for 1999-1997
for Class C.
(f) Annualized.
(g) Averages computed on a daily basis.
FS-42
<PAGE> 144
AIM CONSTELLATION FUND
UNAUDITED FINANCIALS FOR THE
PERIOD ENDED APRIL 30, 1999
SCHEDULE OF INVESTMENTS
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-93.00%
AEROSPACE/DEFENSE-0.13%
Gulfstream Aerospace Corp.(a) 400,000 $ 19,500,000
- ---------------------------------------------------------------
AIR FREIGHT-0.33%
Airborne Freight Corp. 1,500,000 48,000,000
- ---------------------------------------------------------------
AIRLINES-0.34%
Southwest Airlines Co. 1,500,000 48,843,750
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.80%
Danaher Corp. 1,250,000 83,046,875
- ---------------------------------------------------------------
SPX Corp.(a) 500,000 32,656,250
- ---------------------------------------------------------------
115,703,125
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.32%
Northern Trust Corp. 500,000 46,562,500
- ---------------------------------------------------------------
BANKS (REGIONAL)-3.17%
AmSouth Bancorporation 750,000 35,671,875
- ---------------------------------------------------------------
Bank United Corp.-Class A 500,000 20,187,500
- ---------------------------------------------------------------
First Tennessee National Corp. 1,250,000 53,906,250
- ---------------------------------------------------------------
Firstar Corp. 4,725,000 142,045,313
- ---------------------------------------------------------------
Golden State Bancorp, Inc.(a) 1,600,000 39,300,000
- ---------------------------------------------------------------
Mercantile Bankshares Corp. 500,000 18,500,000
- ---------------------------------------------------------------
North Fork Bancorporation, Inc. 2,500,000 56,250,000
- ---------------------------------------------------------------
Old Kent Financial Corp. 478,500 22,609,125
- ---------------------------------------------------------------
TCF Financial Corp. 1,000,000 29,000,000
- ---------------------------------------------------------------
Zions Bancorp 650,000 43,346,875
- ---------------------------------------------------------------
460,816,938
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.65%
Biogen, Inc.(a) 1,000,000 95,062,500
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO
& CABLE)-3.17%
AT&T Corp.-Liberty Media
Group(a) 1,500,000 95,812,500
- ---------------------------------------------------------------
Chancellor Media Corp.(a) 1,430,002 78,471,359
- ---------------------------------------------------------------
Comcast Corp.-Class A 1,000,000 65,687,500
- ---------------------------------------------------------------
Cox Communications, Inc.-Class
A(a) 500,000 39,687,500
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 843,300 45,854,437
- ---------------------------------------------------------------
Univision Communications
Inc.(a) 1,465,400 84,810,025
- ---------------------------------------------------------------
USA Networks, Inc.(a) 1,317,800 49,252,775
- ---------------------------------------------------------------
459,576,096
- ---------------------------------------------------------------
BUILDING MATERIALS-0.20%
Masco Corp. 1,000,000 29,375,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-4.67%
ADC Telecommunications, Inc.(a) 1,115,600 53,339,625
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Comverse Technology, Inc.(a) 1,500,000 $ 96,187,500
- ---------------------------------------------------------------
Corning Inc. 3,186,600 182,432,850
- ---------------------------------------------------------------
General Instrument Corp.(a) 1,750,000 63,875,000
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 635,200 127,040,000
- ---------------------------------------------------------------
Scientific-Atlanta, Inc. 2,000,000 63,500,000
- ---------------------------------------------------------------
Uniphase Corp.(a) 750,000 91,031,250
- ---------------------------------------------------------------
677,406,225
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-1.33%
Apple Computer, Inc.(a) 750,000 34,500,000
- ---------------------------------------------------------------
Comdisco, Inc. 4,462,600 117,422,163
- ---------------------------------------------------------------
NCR Corp.(a) 1,000,000 41,000,000
- ---------------------------------------------------------------
192,922,163
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.55%
Ascend Communications, Inc.(a) 2,332,800 225,406,800
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-2.50%
Adaptec, Inc.(a) 2,000,000 48,125,000
- ---------------------------------------------------------------
EMC Corp.(a) 1,750,000 190,640,625
- ---------------------------------------------------------------
Lexmark International Group,
Inc.(a) 1,000,000 123,500,000
- ---------------------------------------------------------------
362,265,625
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-8.16%
America Online, Inc. 1,000,000 142,750,000
- ---------------------------------------------------------------
BMC Software, Inc.(a) 3,500,000 150,718,750
- ---------------------------------------------------------------
Citrix Systems, Inc.(a) 3,000,000 127,500,000
- ---------------------------------------------------------------
Compuware Corp.(a) 5,000,000 121,875,000
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 500,000 25,406,250
- ---------------------------------------------------------------
Electronics for Imaging,
Inc.(a) 1,750,000 82,796,875
- ---------------------------------------------------------------
Intuit, Inc.(a) 725,000 62,440,625
- ---------------------------------------------------------------
Learning Company, Inc. (The)(a) 1,000,000 31,000,000
- ---------------------------------------------------------------
Lycos, Inc.(a) 650,000 64,796,875
- ---------------------------------------------------------------
Microsoft Corp.(a) 500,000 40,656,250
- ---------------------------------------------------------------
Novell, Inc.(a) 2,000,000 44,500,000
- ---------------------------------------------------------------
Siebel Systems, Inc.(a) 600,000 23,062,500
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 500,000 15,656,250
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 1,250,000 25,859,375
- ---------------------------------------------------------------
Synopsys, Inc.(a) 1,500,000 70,687,500
- ---------------------------------------------------------------
USWeb Corp.(a) 1,500,000 33,656,250
- ---------------------------------------------------------------
Verio Inc.(a) 600,000 42,600,000
- ---------------------------------------------------------------
Veritas Software Corp.(a) 1,109,700 78,788,700
- ---------------------------------------------------------------
1,184,751,200
- ---------------------------------------------------------------
CONSUMER FINANCE-2.78%
Capital One Financial Corp. 800,000 138,950,000
- ---------------------------------------------------------------
</TABLE>
FS-43
<PAGE> 145
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER FINANCE-(CONTINUED)
Countrywide Credit Industries,
Inc. 636,900 $ 28,859,531
- ---------------------------------------------------------------
Providian Financial Corp. 1,500,000 193,593,750
- ---------------------------------------------------------------
SLM Holding Corp. 1,000,000 42,687,500
- ---------------------------------------------------------------
404,090,781
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES &
GIFTS)-0.12%
Action Performance Companies,
Inc.(a) 500,000 16,937,500
- ---------------------------------------------------------------
CONTAINERS (METAL &
GLASS)-0.10%
Ball Corp. 266,200 14,624,362
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.53%
Cardinal Health, Inc. 468,167 28,002,239
- ---------------------------------------------------------------
JP Foodservice, Inc.(a) 750,000 31,546,875
- ---------------------------------------------------------------
Patterson Dental Co.(a) 500,000 18,031,250
- ---------------------------------------------------------------
77,580,364
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.61%
American Power Conversion
Corp.(a) 2,500,000 82,500,000
- ---------------------------------------------------------------
Conexant Systems, Inc.(a) 433,300 17,656,975
- ---------------------------------------------------------------
Sanmina Corp.(a) 750,000 49,781,250
- ---------------------------------------------------------------
Solectron Corp.(a) 3,000,000 145,500,000
- ---------------------------------------------------------------
Symbol Technologies, Inc. 1,750,000 83,562,500
- ---------------------------------------------------------------
379,000,725
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.06%
Arrow Electronics, Inc.(a) 500,000 9,093,750
- ---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-0.83%
Perkin-Elmer Corp. 676,300 73,124,937
- ---------------------------------------------------------------
Waters Corp.(a) 450,000 47,306,250
- ---------------------------------------------------------------
120,431,187
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-5.48%
Altera Corp.(a) 1,321,400 95,471,150
- ---------------------------------------------------------------
Analog Devices, Inc.(a) 2,500,000 87,812,500
- ---------------------------------------------------------------
Atmel Corp.(a) 1,704,700 31,110,775
- ---------------------------------------------------------------
Linear Technology Corp. 2,000,000 113,750,000
- ---------------------------------------------------------------
LSI Logic Corp.(a) 2,000,000 68,000,000
- ---------------------------------------------------------------
Maxim Integrated Products,
Inc.(a) 1,500,000 84,000,000
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 1,338,375 46,843,125
- ---------------------------------------------------------------
National Semiconductor Corp.(a) 1,500,000 18,750,000
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 1,250,000 119,843,750
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 835,800 38,707,987
- ---------------------------------------------------------------
Xilinx, Inc.(a) 2,000,000 91,250,000
- ---------------------------------------------------------------
795,539,287
- ---------------------------------------------------------------
ENTERTAINMENT-0.20%
SFX Entertainment, Inc.-Class
A(a) 470,000 29,022,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
EQUIPMENT (SEMICONDUCTOR)-1.44%
Applied Materials, Inc.(a) 1,250,000 $ 67,031,250
- ---------------------------------------------------------------
KLA-Tencor Corp.(a) 1,200,000 59,550,000
- ---------------------------------------------------------------
Novellus Systems, Inc.(a) 500,000 23,625,000
- ---------------------------------------------------------------
Teradyne, Inc.(a) 1,250,000 58,984,375
- ---------------------------------------------------------------
209,190,625
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.69%
FINOVA Group, Inc. 1,065,800 51,491,462
- ---------------------------------------------------------------
MGIC Investment Corp. 1,000,000 48,562,500
- ---------------------------------------------------------------
100,053,962
- ---------------------------------------------------------------
FOODS-0.30%
Flowers Industries, Inc. 1,000,000 21,250,000
- ---------------------------------------------------------------
Keebler Foods Co.(a) 679,400 21,825,725
- ---------------------------------------------------------------
43,075,725
- ---------------------------------------------------------------
FOOTWEAR-0.54%
Nike, Inc.-Class B 1,250,000 77,734,375
- ---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.65%
Circus Circus Enterprises(a) 2,031,000 42,777,937
- ---------------------------------------------------------------
MGM Grand, Inc.(a) 1,160,300 51,053,200
- ---------------------------------------------------------------
93,831,137
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-1.71%
Alpharma, Inc.-Class A 754,967 22,271,526
- ---------------------------------------------------------------
Forest Laboratories, Inc.(a) 500,000 22,250,000
- ---------------------------------------------------------------
Jones Medical Industries,
Inc.(b) 2,350,850 75,521,056
- ---------------------------------------------------------------
Medicis Pharmaceutical-Class
A(a) 1,253,100 30,465,994
- ---------------------------------------------------------------
Mylan Laboratories, Inc. 2,500,000 56,718,750
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 1,000,000 40,500,000
- ---------------------------------------------------------------
247,727,326
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL
MANAGEMENT)-0.84%
Health Management Associates,
Inc.-Class A(a) 2,000,000 31,250,000
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a)(b) 1,750,000 90,671,875
- ---------------------------------------------------------------
121,921,875
- ---------------------------------------------------------------
HEALTH CARE (MANAGED
CARE)-0.87%
Express Scripts, Inc.-Class
A(a) 1,400,000 103,075,000
- ---------------------------------------------------------------
Trigon Healthcare, Inc.(a) 750,000 23,812,500
- ---------------------------------------------------------------
126,887,500
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-3.09%
Bausch & Lomb Inc. 1,000,000 75,000,000
- ---------------------------------------------------------------
Biomet, Inc. 2,000,000 82,000,000
- ---------------------------------------------------------------
Guidant Corp. 3,717,000 199,556,437
- ---------------------------------------------------------------
</TABLE>
FS-44
<PAGE> 146
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-(CONTINUED)
Henry Schein, Inc.(a) 1,000,000 $ 26,187,500
- ---------------------------------------------------------------
Stryker Corp. 500,000 30,593,750
- ---------------------------------------------------------------
Sybron International Corp.(a) 1,250,000 34,609,375
- ---------------------------------------------------------------
447,947,062
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.75%
Covance, Inc.(a) 473,700 10,391,794
- ---------------------------------------------------------------
Omnicare, Inc. 3,000,000 72,187,500
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 524,200 6,486,975
- ---------------------------------------------------------------
Quintiles Transnational
Corp.(a) 500,000 20,281,250
- ---------------------------------------------------------------
109,347,519
- ---------------------------------------------------------------
HOMEBUILDING-0.53%
Clayton Homes, Inc. 3,862,500 42,970,313
- ---------------------------------------------------------------
Fleetwood Enterprises, Inc. 750,000 18,515,625
- ---------------------------------------------------------------
Kaufman and Broad Home
Corporation 616,900 14,998,381
- ---------------------------------------------------------------
76,484,319
- ---------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES-0.74%
Leggett & Platt, Inc. 2,000,000 46,125,000
- ---------------------------------------------------------------
Maytag Corp. 900,000 61,537,500
- ---------------------------------------------------------------
107,662,500
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.77%
Clorox Co. 600,000 69,225,000
- ---------------------------------------------------------------
Dial Corp. (The) 1,250,000 42,500,000
- ---------------------------------------------------------------
111,725,000
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.27%
AFLAC Inc. 925,000 50,181,250
- ---------------------------------------------------------------
Provident Companies, Inc. 1,500,000 59,062,500
- ---------------------------------------------------------------
ReliaStar Financial Corp. 1,502,500 55,216,875
- ---------------------------------------------------------------
Torchmark Corp. 600,000 20,512,500
- ---------------------------------------------------------------
184,973,125
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-2.90%
Bear Stearns Cos., Inc. 1,250,000 58,281,250
- ---------------------------------------------------------------
Lehman Brothers Holdings, Inc. 600,000 33,337,500
- ---------------------------------------------------------------
Schwab (Charles) Corp. 3,000,000 329,250,000
- ---------------------------------------------------------------
420,868,750
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.79%
Federated Investors, Inc.-Class
B 2,064,000 33,153,000
- ---------------------------------------------------------------
T. Rowe Price Associates, Inc. 2,158,600 81,352,238
- ---------------------------------------------------------------
114,505,238
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.75%
Callaway Golf Co. 2,864,000 43,139,000
- ---------------------------------------------------------------
Harley-Davidson, Inc. 2,350,000 140,118,750
- ---------------------------------------------------------------
Hasbro, Inc. 823,200 28,091,700
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LEISURE TIME
(PRODUCTS)-(CONTINUED)
Mattel, Inc. 1,000,000 $ 25,875,000
- ---------------------------------------------------------------
Speedway Motorsports, Inc.(a) 400,000 17,350,000
- ---------------------------------------------------------------
254,574,450
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.02%
Applied Power, Inc.-Class A 95,000 2,998,438
- ---------------------------------------------------------------
MANUFACTURING
(DIVERSIFIED)-0.25%
Crane Co. 464,550 13,442,916
- ---------------------------------------------------------------
Pentair, Inc. 500,000 23,500,000
- ---------------------------------------------------------------
36,942,916
- ---------------------------------------------------------------
MANUFACTURING
(SPECIALIZED)-0.04%
Diebold, Inc. 238,700 5,743,719
- ---------------------------------------------------------------
NATURAL GAS-0.38%
El Paso Energy Corp. 1,500,000 55,125,000
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-2.72%
Baker Hughes, Inc. 2,000,000 59,750,000
- ---------------------------------------------------------------
BJ Services Co.(a) 1,500,000 40,125,000
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 2,000,000 77,250,000
- ---------------------------------------------------------------
Diamond Offshore Drilling, Inc. 1,000,000 33,062,500
- ---------------------------------------------------------------
Global Industries Ltd.(a) 2,450,000 30,165,625
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 2,000,000 32,000,000
- ---------------------------------------------------------------
Smith International, Inc.(a) 1,250,000 56,093,750
- ---------------------------------------------------------------
Transocean Offshore Inc. 1,000,000 29,687,500
- ---------------------------------------------------------------
Varco International, Inc.(a) 3,225,000 36,482,813
- ---------------------------------------------------------------
394,617,188
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-0.43%
Apache Corp. 1,500,000 46,031,250
- ---------------------------------------------------------------
Santa Fe Energy Resources,
Inc.(a) 1,750,000 15,750,000
- ---------------------------------------------------------------
61,781,250
- ---------------------------------------------------------------
PUBLISHING-0.73%
McGraw-Hill Companies, Inc.
(The) 1,100,000 60,775,000
- ---------------------------------------------------------------
Readers Digest Association,
Inc.-Class A 1,250,000 44,453,125
- ---------------------------------------------------------------
105,228,125
- ---------------------------------------------------------------
RAILROADS-0.69%
Kansas City Southern
Industries, Inc. 1,676,600 99,862,488
- ---------------------------------------------------------------
RESTAURANTS-1.60%
Brinker International, Inc.(a) 2,000,000 55,250,000
- ---------------------------------------------------------------
Outback Steakhouse, Inc.(a) 2,000,000 71,625,000
- ---------------------------------------------------------------
Papa John's International,
Inc.(a) 750,000 30,140,625
- ---------------------------------------------------------------
Starbucks Corp.(a) 2,018,600 74,562,038
- ---------------------------------------------------------------
231,577,663
- ---------------------------------------------------------------
</TABLE>
FS-45
<PAGE> 147
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (BUILDING
SUPPLIES)-0.36%
Lowe's Companies, Inc. 1,000,000 $ 52,750,000
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.26%
Best Buy Co., Inc.(a) 1,000,000 47,750,000
- ---------------------------------------------------------------
CDW Computer Centers, Inc.(a) 1,000,000 89,500,000
- ---------------------------------------------------------------
Circuit City Stores-Circuit
City Group 750,000 46,125,000
- ---------------------------------------------------------------
183,375,000
- ---------------------------------------------------------------
RETAIL (DEPARTMENT
STORES)-0.57%
Kohl's Corp.(a) 1,250,000 83,046,875
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.80%
Consolidated Stores Corp.(a) 2,000,000 68,750,000
- ---------------------------------------------------------------
Dollar General Corp. 1,000,000 35,062,500
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 1,810,600 66,086,900
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 2,850,000 68,756,250
- ---------------------------------------------------------------
Ross Stores, Inc. 500,000 22,968,750
- ---------------------------------------------------------------
261,624,400
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.75%
Kroger Co.(a) 2,000,000 108,625,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-2.95%
Bed Bath & Beyond, Inc.(a) 2,750,100 98,144,194
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 285,300 13,052,475
- ---------------------------------------------------------------
Office Depot, Inc.(a) 4,500,000 99,000,000
- ---------------------------------------------------------------
Payless ShoeSource, Inc.(a) 500,000 24,218,750
- ---------------------------------------------------------------
Staples, Inc.(a) 6,000,000 180,000,000
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 486,900 14,120,100
- ---------------------------------------------------------------
428,535,519
- ---------------------------------------------------------------
RETAIL
(SPECIALTY-APPAREL)-2.41%
Abercrombie & Fitch Co.-Class
A(a) 795,000 75,624,375
- ---------------------------------------------------------------
Gap, Inc. (The) 750,000 49,921,875
- ---------------------------------------------------------------
Intimate Brands, Inc. 1,209,100 60,455,000
- ---------------------------------------------------------------
Men's Wearhouse, Inc.
(The)(a)(b) 2,310,075 63,238,303
- ---------------------------------------------------------------
TJX Companies, Inc. 3,000,000 99,937,500
- ---------------------------------------------------------------
349,177,053
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-1.11%
Astoria Financial Corp. 1,000,000 50,125,000
- ---------------------------------------------------------------
Dime Bancorp, Inc. 2,541,500 58,613,344
- ---------------------------------------------------------------
GreenPoint Financial Corp. 1,500,000 52,500,000
- ---------------------------------------------------------------
161,238,344
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-2.52%
Interpublic Group of Companies,
Inc. 500,000 38,781,250
- ---------------------------------------------------------------
Lamar Advertising Co.(a) 1,450,000 48,756,250
- ---------------------------------------------------------------
Omnicom Group, Inc. 2,500,000 181,250,000
- ---------------------------------------------------------------
Outdoor Systems, Inc.(a) 1,500,000 37,781,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/
MARKETING)-(CONTINUED)
Snyder Communications, Inc.(a) 2,000,000 $ 58,750,000
- ---------------------------------------------------------------
365,318,750
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-2.31%
Apollo Group, Inc.(a) 1,500,000 37,125,000
- ---------------------------------------------------------------
ChoicePoint, Inc.(a) 617,300 36,652,188
- ---------------------------------------------------------------
Cintas Corp. 1,500,000 103,125,000
- ---------------------------------------------------------------
Convergys Corp.(a) 1,000,000 18,625,000
- ---------------------------------------------------------------
G & K Services, Inc.-Class A 350,000 16,362,500
- ---------------------------------------------------------------
IMS Health Inc. 810,000 24,300,000
- ---------------------------------------------------------------
Stewart Enterprises, Inc.-Class
A 2,600,000 51,675,000
- ---------------------------------------------------------------
Viad Corp. 1,450,000 47,940,625
- ---------------------------------------------------------------
335,805,313
- ---------------------------------------------------------------
SERVICES (COMPUTER
SYSTEMS)-1.02%
Ciber, Inc.(a) 707,500 13,354,063
- ---------------------------------------------------------------
Keane, Inc.(a) 1,900,000 47,143,750
- ---------------------------------------------------------------
Policy Management Systems
Corp.(a) 750,000 23,578,125
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 2,000,000 63,875,000
- ---------------------------------------------------------------
147,950,938
- ---------------------------------------------------------------
SERVICES (DATA
PROCESSING)-5.02%
Affiliated Computer Services,
Inc.(a) 1,000,000 38,250,000
- ---------------------------------------------------------------
Ceridian Corp.(a) 2,000,000 73,250,000
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 4,500,000 150,187,500
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 1,806,200 69,764,475
- ---------------------------------------------------------------
DST Systems, Inc.(a) 750,000 43,687,500
- ---------------------------------------------------------------
Equifax, Inc. 1,000,000 35,937,500
- ---------------------------------------------------------------
Fiserv, Inc.(a) 2,500,000 146,406,250
- ---------------------------------------------------------------
National Data Corp. 1,000,200 46,134,225
- ---------------------------------------------------------------
NOVA Corp.(a) 1,000,000 26,000,000
- ---------------------------------------------------------------
Paychex, Inc. 1,947,700 99,454,431
- ---------------------------------------------------------------
729,071,881
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.29%
Valassis Communications,
Inc.(a) 750,000 42,000,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.58%
Metromedia Fiber Network,
Inc.(a) 1,000,000 84,250,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-0.68%
Global TeleSystems Group,
Inc.(a) 1,500,000 99,187,500
- ---------------------------------------------------------------
TELEPHONE-0.78%
Century Telephone Enterprises,
Inc. 2,249,925 90,559,481
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 1,000,000 22,625,000
- ---------------------------------------------------------------
113,184,481
- ---------------------------------------------------------------
</TABLE>
FS-46
<PAGE> 148
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-0.67%
Jones Apparel Group, Inc.(a) 1,363,800 $ 45,005,400
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 750,000 52,406,250
- ---------------------------------------------------------------
97,411,650
- ---------------------------------------------------------------
TEXTILES (HOME
FURNISHINGS)-0.22%
Shaw Industries, Inc.(a) 1,750,000 31,718,750
- ---------------------------------------------------------------
WASTE MANAGEMENT-1.18%
Allied Waste Industries,
Inc.(a) 2,693,230 47,636,506
- ---------------------------------------------------------------
Republic Services, Inc.(a) 1,225,000 25,189,062
- ---------------------------------------------------------------
Waste Management, Inc. 1,750,000 98,875,000
- ---------------------------------------------------------------
171,700,568
- ---------------------------------------------------------------
Total Domestic Common
Stocks (Cost
$8,761,596,201) 13,500,871,675
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-2.19%
FINLAND-1.28%
Nokia Oyj A.B.-Class A-ADR
(Communications Equipment) 2,500,000 185,468,750
- ---------------------------------------------------------------
FRANCE-0.07%
Coflexip S.A.-ADR
(Manufacturing-Specialized) 239,500 10,657,750
- ---------------------------------------------------------------
ISRAEL-0.16%
Check Point Software
Technologies Ltd.
(Computers-Software &
Services)(a) 650,000 22,912,500
- ---------------------------------------------------------------
NETHERLANDS-0.27%
ASM Lithography Holding N.V.
(Electronics-Semiconductors)(a) 650,000 25,350,000
- ---------------------------------------------------------------
Core Laboratories N.V. (Oil &
Gas-Drilling & Equipment)(a) 800,000 14,400,000
- ---------------------------------------------------------------
39,750,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-0.41%
NTL Inc. (Telephone)(a) 500,000 $ 38,125,000
- ---------------------------------------------------------------
Stolt Comex Seaway, S.A. (Oil &
Gas-Exploration &
Production)(a)(b) 1,150,000 14,375,000
- ---------------------------------------------------------------
Stolt Comex Seaway, S.A.-ADR
(Oil & Gas-Exploration &
Production)(a) 575,000 6,325,000
- ---------------------------------------------------------------
58,825,000
- ---------------------------------------------------------------
Total Foreign Stocks &
Other Equity Interests
(Cost $180,451,831) 317,614,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS-3.84%(C)
Barclays Securities Inc.,
4.93%, 05/03/99(d) $ 85,530,118 $ 85,530,118
- ---------------------------------------------------------------
Credit Suisse First Boston
Corp., 4.93%, 05/03/99(e) 77,928,557 77,928,557
- ---------------------------------------------------------------
Goldman, Sachs & Co., 4.94%,
05/03/99(f) 52,755,131 52,755,131
- ---------------------------------------------------------------
SBC Warburg Dillon Read, Inc.,
4.89%, 05/03/99(g) 208,288,219 208,288,219
- ---------------------------------------------------------------
SBC Warburg Dillon Read, Inc.,
4.94%, 05/03/99(h) 132,154,348 132,154,348
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $556,656,373) 556,656,373
- ---------------------------------------------------------------
TIME DEPOSIT-0.75%
Dresdner Kleinwort, Benson,
North America LLC, 4.97%,
05/03/99 (Cost $109,489,463) 109,489,463 109,489,463
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.78% 14,484,631,511
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.22% 31,350,564
- ---------------------------------------------------------------
NET ASSETS-100.00% $14,515,982,075
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a)Non-income producing security.
(b)Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities as of 04/30/99
was $243,806,234 which represented 1.68% of the Fund's net assets.
(c)Collateral on repurchase agreements, include the Fund's pro-rata interest in
joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d)Joint repurchase agreement entered into 04/30/99 with a maturing value of
$99,224,689. Collateralized by $102,129,000 U.S. Government obligations, 0%
to 5.875% due 05/17/99 to 10/15/08 with an aggregate market value at 04/30/99
of $101,170,834.
(e)Joint repurchase agreement entered into 04/30/99 with a maturing value of
$500,205,417. Collateralized by $527,642,000 U.S. Government obligations,
4.60% to 9.05% due 05/03/99 to 04/28/14 with an aggregate market value at
04/30/99 of $531,179,320.
(f)Joint repurchase agreement entered into 04/30/99 with a maturing value of
$400,164,667. Collateralized by $407,564,858 U.S. Government obligations,
5.00% to 8.00% due 07/01/03 to 05/01/29 with an aggregate market value at
04/30/99 of $408,000,001.
(g)Joint repurchase agreement entered into 04/30/99 with a maturing value of
$750,305,625. Collateralized by $746,070,000 U.S. Government obligations,
5.625% to 9.125% due 09/30/01 to 05/15/20 with an aggregate market value at
04/30/99 of $765,004,938.
(h)Joint repurchase agreement entered into 04/30/99 with a maturing value of
$250,102,917. Collateralized by $249,736,152 U.S. Government obligations,
6.00% to 10.50% due 03/15/01 to 01/15/33 with an aggregate market value at
04/30/99 of $255,819,341.
Abbreviations:
ADR - American Depositary Receipt
See Notes to Financial Statements.
FS-47
<PAGE> 149
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$9,608,193,868) $14,484,631,511
- ------------------------------------------------------------
Receivables for:
Investments sold 91,379,765
- ------------------------------------------------------------
Capital stock sold 15,911,111
- ------------------------------------------------------------
Dividends and interest 2,247,193
- ------------------------------------------------------------
Investment for deferred compensation plan 158,102
- ------------------------------------------------------------
Other assets 64,314
- ------------------------------------------------------------
Total assets 14,594,391,996
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 20,358,560
- ------------------------------------------------------------
Capital stock reacquired 41,402,282
- ------------------------------------------------------------
Deferred compensation 158,102
- ------------------------------------------------------------
Accrued advisory fees 7,203,398
- ------------------------------------------------------------
Accrued administrative services fees 28,301
- ------------------------------------------------------------
Accrued directors' fees 24,000
- ------------------------------------------------------------
Accrued distribution fees 5,077,788
- ------------------------------------------------------------
Accrued transfer agent fees 3,579,767
- ------------------------------------------------------------
Accrued operating expenses 577,723
- ------------------------------------------------------------
Total liabilities 78,409,921
- ------------------------------------------------------------
Net assets applicable to shares outstanding $14,515,982,075
============================================================
NET ASSETS:
Class A $13,738,864,041
============================================================
Class B $ 445,079,605
============================================================
Class C $ 119,795,895
============================================================
Institutional Class $ 212,242,534
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 1,000,000,000
- ------------------------------------------------------------
Outstanding 441,244,219
============================================================
Class B:
Authorized 1,000,000,000
- ------------------------------------------------------------
Outstanding 14,501,110
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 3,904,524
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 6,573,823
============================================================
Class A:
Net asset value and redemption price per
share $ 31.14
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $31.14
divided by 94.50%) $ 32.95
============================================================
Class B:
Net asset value and offering price per
share $ 30.69
============================================================
Class C:
Net asset value and offering price per
share $ 30.68
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 32.29
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $216,987 foreign
withholding tax) $ 23,110,838
- ------------------------------------------------------------
Interest 22,993,859
- ------------------------------------------------------------
Total investment income 46,104,697
- ------------------------------------------------------------
EXPENSES:
Advisory fees 44,095,525
- ------------------------------------------------------------
Administrative services fees 165,842
- ------------------------------------------------------------
Custodian fees 225,557
- ------------------------------------------------------------
Directors' fees 52,065
- ------------------------------------------------------------
Distribution fees-Class A 20,106,290
- ------------------------------------------------------------
Distribution fees-Class B 1,803,794
- ------------------------------------------------------------
Distribution fees-Class C 482,063
- ------------------------------------------------------------
Transfer agent fees-Class A 12,389,375
- ------------------------------------------------------------
Transfer agent fees-Class B 648,828
- ------------------------------------------------------------
Transfer agent fees-Class C 154,737
- ------------------------------------------------------------
Transfer agent fees-Institutional Class 9,330
- ------------------------------------------------------------
Other 1,087,203
- ------------------------------------------------------------
Total expenses 81,220,609
- ------------------------------------------------------------
Less: Fees waived by advisor (1,510,669)
- ------------------------------------------------------------
Expenses paid indirectly (110,121)
- ------------------------------------------------------------
Net expenses 79,599,819
- ------------------------------------------------------------
Net investment income (loss) (33,495,122)
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,160,822,873
- ------------------------------------------------------------
Option contracts written 1,494,286
- ------------------------------------------------------------
1,162,317,159
- ------------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 1,538,568,508
- ------------------------------------------------------------
Foreign currencies (728)
- ------------------------------------------------------------
Option contracts written (146,707)
- ------------------------------------------------------------
1,538,421,073
- ------------------------------------------------------------
Net gain from investment securities,
foreign currencies, and option
contracts 2,700,738,232
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $2,667,243,110
============================================================
</TABLE>
See Notes to Financial Statements.
FS-48
<PAGE> 150
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1999 and the year ended October 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
---------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (33,495,122) $ (68,697,946)
- --------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, and option contracts 1,162,317,159 459,324,772
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies, and option contracts 1,538,421,073 (647,916,119)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 2,667,243,110 (257,289,293)
- --------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (337,205,925) (1,023,550,465)
- --------------------------------------------------------------------------------------------------
Class B (8,290,208) (2,750,431)
- --------------------------------------------------------------------------------------------------
Class C (2,228,983) (2,040,204)
- --------------------------------------------------------------------------------------------------
Institutional Class (5,075,579) (13,510,099)
- --------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (863,136,201) (667,156,467)
- --------------------------------------------------------------------------------------------------
Class B 114,996,411 292,437,630
- --------------------------------------------------------------------------------------------------
Class C 28,584,239 60,444,760
- --------------------------------------------------------------------------------------------------
Institutional Class (11,985,404) 17,436,212
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 1,582,901,460 (1,595,978,357)
- --------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 12,933,080,615 14,529,058,972
- --------------------------------------------------------------------------------------------------
End of period $ 14,515,982,075 $12,933,080,615
==================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 8,425,307,197 $ 9,156,848,152
- --------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (34,489,836) (994,714)
- --------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, and option contracts 1,248,727,001 439,210,537
- --------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, and option contracts 4,876,437,713 3,338,016,640
- --------------------------------------------------------------------------------------------------
$ 14,515,982,075 $12,933,080,615
==================================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds,
Inc. (the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios. The
Fund currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and the Institutional Class. Class B shares commenced
sales on November 3, 1997. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to seek capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last 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 closing bid price 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
FS-49
<PAGE> 151
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 closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors
such as yield, type of issue, coupon rate and maturity date. Securities for
which market quotations are not readily available or are questionable are
valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized
by the Board of Directors of the Company. Short-term obligations having 60
days or less to maturity are valued at amortized cost which approximates
market value. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the New York
Stock Exchange. The values of such securities used in computing the net
asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at
which they are determined and the close of the New York Stock Exchange
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair
market value as determined in good faith by or under the supervision of the
Board of Directors.
B. 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 and are paid annually.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Expenses--Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
E. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could
be exposed to risk if counterparties to the contracts are unable to meet
the terms of their contracts.
G. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized
gain or loss equal to the difference between the proceeds from, or cost of,
the closing transaction and the Fund's basis in the contract. Risks include
the possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
H. 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
FS-50
<PAGE> 152
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 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 contractually 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 contractual waiver, AIM will receive a fee calculated at the
annual rate of 1.0% of the first $30 million of the Fund's average daily net
assets, plus 0.75% of the Fund's average daily net assets in excess of $30
million to and including $150 million, plus 0.625% of the Fund's average daily
net assets in excess of $150 million to and including $2 billion, plus 0.60% of
the Fund's average daily net assets in excess of $2 billion. During the six
months ended April 30, 1999, AIM waived fees of $1,510,669. The waiver is
contractual and may not be terminated without approval of the Board of
Directors. 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 six months ended April 30, 1999, AIM
was reimbursed $165,842 for such services.
The Fund, pursuant to a transfer agent and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency and shareholder services to the Fund. During the six months ended April
30, 1999, AFS was paid $5,805,957 with respect to the Fund.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.30% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the 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. During the six months ended
April 30, 1999, the Class A shares, Class B shares and Class C shares paid AIM
Distributors $20,106,290, $1,803,794, and $482,063, respectively as compensation
under the Plans.
AIM Distributors received commissions of $1,761,150 from sales of the Class A
shares of the Fund during the six months ended April 30, 1999. 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 six months ended April 30,
1999, AIM Distributors received commissions of $392,190 in contingent deferred
sales charges imposed on the redemptions of Fund shares. Certain officers and
directors of the Company are officers and directors of AIM, AIM Capital, AIM
Distributors, AFS, and FMC.
During the six months ended April 30, 1999, the Fund paid legal fees of
$12,502 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $91,215 and $18,906, respectively, under expense offset arrangements.
The effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $110,121 during the six months ended April 30, 1999.
NOTE 4-DIRECTOR'S FEES
Director's fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
FS-51
<PAGE> 153
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) $1,000,000,000 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. During the six
months ended April 30, 1999, 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 six months ended April 30, 1999 was
$3,855,654,600 and $4,937,353,460, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of April 30, 1999, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $5,190,578,084
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (334,298,334)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $4,856,279,750
==========================================================
</TABLE>
Cost of investments for tax purposes is $9,628,351,761.
NOTE 7-CAPITAL STOCK
Changes in the capital stock outstanding during the six months ended April 30,
and the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1999 OCTOBER 31, 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 69,640,745 $ 2,049,295,548 271,511,337 $ 7,555,171,888
- --------------------------------------------------------------------------------------
Class B* 5,888,567 172,459,725 12,877,388 356,713,527
- --------------------------------------------------------------------------------------
Class C 2,544,647 74,620,746 2,960,570 81,123,332
- --------------------------------------------------------------------------------------
Institutional Class 910,982 28,162,634 2,149,830 60,442,629
- --------------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 11,320,388 318,893,281 38,633,795 977,878,833
- --------------------------------------------------------------------------------------
Class B* 286,888 7,992,643 104,498 2,643,686
- --------------------------------------------------------------------------------------
Class C 75,940 2,114,909 76,723 1,938,518
- --------------------------------------------------------------------------------------
Institutional Class 170,003 4,957,282 494,582 12,886,955
- --------------------------------------------------------------------------------------
Reacquired:
Class A (109,723,989) (3,231,325,030) (330,045,727) (9,200,207,188)
- --------------------------------------------------------------------------------------
Class B* (2,232,453) (65,455,957) (2,423,778) (66,919,583)
- --------------------------------------------------------------------------------------
Class C (1,647,673) (48,151,416) (842,846) (22,617,090)
- --------------------------------------------------------------------------------------
Institutional Class (1,443,930) (45,105,320) (1,977,243) (55,893,372)
- --------------------------------------------------------------------------------------
(24,209,885) $ (731,540,955) (6,480,871) $ (296,837,865)
======================================================================================
</TABLE>
*Class B shares commenced sales on November 3, 1997.
NOTE 8-OPTION CONTRACTS WRITTEN
Transactions in call options written during the six months ended April 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of period 1,875 $ 357,644
- ----------------------------------- ------- -----------
Written 11,320 1,432,816
- ----------------------------------- ------- -----------
Closed (9,375) (1,252,814)
- ----------------------------------- ------- -----------
Expired (3,820) (537,646)
- ----------------------------------- ------- -----------
End of Period 0 $ 0
=================================== ======= ===========
</TABLE>
FS-52
<PAGE> 154
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1999 and each of the years in
the five-year period ended October 31, 1998, for a share of Class B capital
stock outstanding during the six months ended April 30, 1999 and the period
November 3, 1997 (date sales commenced) through October 31, 1998 and for a share
of Class C capital stock outstanding during the six months ended April 30, 1999
and the year ended October 31, 1998 and the period August 4, 1997 (dates sales
commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
OCTOBER 31, 1998
APRIL 30, -----------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 26.37 $ 29.23 $ 25.48 $ 23.69 $ 18.31 $ 17.04
- --------------------------------------------- ----------- ----------- ----------- ----------- ----------
Income from investment operations:
Net investment income (loss) (0.07) (0.14) (0.11) (0.06) (0.05) (0.02)
- --------------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------
Net gains (losses) on securities (both
realized and unrealized) 5.57 (0.62) 4.75 2.60 5.95 1.29
- --------------------------------------------- ----------- ----------- ----------- ----------- ----------
Total from investment operations 5.50 (0.76) 4.64 2.54 5.90 1.27
- --------------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------
Distributions from net realized gains (0.73) (2.10) (0.89) (0.75) (0.52) --
- --------------------------------------------- ----------- ----------- ----------- ----------- ----------
Net asset value, end of period $ 31.14 $ 26.37 $ 29.23 $ 25.48 $ 23.69 $ 18.31
============================================= =========== =========== =========== =========== ========== ==========
Total return(a) 21.15% (2.30)% 18.86% 11.26% 33.43% 7.45%
============================================= =========== =========== =========== =========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $13,738,864 $12,391,844 $14,319,441 $11,255,506 $7,000,350 $3,726,029
============================================= =========== =========== =========== =========== ========== ==========
Ratio of expenses to average net assets(b) 1.11%(c) 1.10%(c) 1.11%() 1.14% 1.16% 1.20%
============================================= =========== =========== =========== =========== ========== ==========
Ratio of net investment income (loss) to
average net assets(d) (0.45)%(c) (0.47)%(c) (0.40)%() (0.27)% (0.32)% (0.15)%
============================================= =========== =========== =========== =========== ========== ==========
Portfolio turnover rate 29% 76% 67% 58% 45% 79%
============================================= =========== =========== =========== =========== ========== ==========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.13% (annualized), 1.12%, 1.13%, 1.16%, 1.18% and 1.21% for 1999-1994.
(c) Ratios are annualized and based on average net assets of $13,515,278,069.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement were (0.48)% (annualized), (0.50)%, (0.42)%, (0.29)%, (0.34)%
and (0.16)% for 1999-1994.
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------ -------------------------------
OCTOBER 31,
APRIL 30, OCTOBER 31, APRIL 30, ------------------
1999 1998 1999 1998 1997
--------- ----------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 26.11 $ 30.04 $ 26.10 $ 29.18 $ 30.32
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Income from investment operations:
Net investment income (loss) (0.19)(a) (0.37)(a) (0.19)(a) (0.37)(a) (0.04)
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 5.50 (1.46) 5.50 (0.61) (1.10)
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Total from investment operations 5.31 (1.83) 5.31 (0.98) (1.14)
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Distributions from net realized gains (0.73) (2.10) (0.73) (2.10) --
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Net asset value, end of period $ 30.69 $ 26.11 $ 30.68 $ 26.10 $ 29.18
============================================================ ======== ======== ======== ======= =======
Total return(b) 20.63% (5.86)% 20.63% (3.12)% (3.76)%
============================================================ ======== ======== ======== ======= =======
Ratios/supplement data:
Net assets, end of period (000s omitted) $445,080 $275,676 $119,796 $76,522 $21,508
============================================================ ======== ======== ======== ======= =======
Ratio of expenses to average net assets(c) 1.99%(d) 1.98%(e) 1.95%(d) 1.97% 1.84%(e)
============================================================ ======== ======== ======== ======= =======
Ratio of net investment income (loss) to average net
assets(f) (1.33)%(d) (1.36)%(e) (1.29)%(d) (1.35)% (1.12)%(e)
============================================================ ======== ======== ======== ======= =======
Portfolio turnover rate 29% 76% 29% 76% 67%
============================================================ ======== ======== ======== ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.01% (annualized), and 2.00% (annualized) for 1999-1998 for Class B and
1.97% (annualized), 1.99% and 1.86% (annualized) for 1999-1997 for Class C.
(d) Ratios are annualized and based on average net assets of $363,748,450 and
$97,211,661 for Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (1.35)% (annualized) and (1.38)% (annualized) for
1999-1998 for Class B and (1.31)% (annualized), (1.37)% and (1.15)%
(annualized) for 1999-1997 for Class C.
FS-53
<PAGE> 155
AIM LARGE CAP GROWTH FUND
UNAUDITED FINANCIALS FOR THE
PERIOD ENDING APRIL 30, 1999
SCHEDULE OF INVESTMENTS
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-83.77%
BEVERAGES (NON-ALCOHOLIC)-1.49%
Coca-Cola Co. (The) 1,230 $ 83,640
- -------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-4.76%
AT&T Corp.-Liberty Media Group(a) 610 38,964
- -------------------------------------------------------------
Cablevision Systems Corp.-Class A(a) 1,200 92,850
- -------------------------------------------------------------
Clear Channel Communications, Inc.(a) 680 47,260
- -------------------------------------------------------------
Comcast Corp.-Class A 985 64,703
- -------------------------------------------------------------
Infinity Broadcasting Corp.-Class A(a) 840 23,258
- -------------------------------------------------------------
267,035
- -------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-6.94%
Lucent Technologies, Inc. 1,460 87,783
- -------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Finland) 2,800 207,725
- -------------------------------------------------------------
Motorola, Inc. 500 40,063
- -------------------------------------------------------------
QUALCOMM, Inc.(a) 270 54,002
- -------------------------------------------------------------
389,573
- -------------------------------------------------------------
COMPUTERS (HARDWARE)-2.30%
Dell Computer Corp.(a) 660 27,184
- -------------------------------------------------------------
International Business Machines Corp. 140 29,286
- -------------------------------------------------------------
Sun Microsystems, Inc.(a) 1,210 72,373
- -------------------------------------------------------------
128,843
- -------------------------------------------------------------
COMPUTERS (NETWORKING)-3.05%
Cisco Systems, Inc.(a) 1,500 171,094
- -------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.94%
EMC Corp.(a) 1,000 108,938
- -------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-8.33%
America Online, Inc.(a) 1,190 169,873
- -------------------------------------------------------------
Microsoft Corp.(a) 3,100 252,069
- -------------------------------------------------------------
Oracle Corp.(a) 375 10,149
- -------------------------------------------------------------
Yahoo! Inc.(a) 200 34,938
- -------------------------------------------------------------
467,029
- -------------------------------------------------------------
CONSUMER FINANCE-1.45%
Capital One Financial Corp. 150 26,053
- -------------------------------------------------------------
Providian Financial Corp. 430 55,497
- -------------------------------------------------------------
81,550
- -------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.28%
General Electric Co. 1,215 128,183
- -------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-2.60%
Intel Corp. 300 18,356
- -------------------------------------------------------------
Linear Technology Corp. 600 34,125
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS (SEMICONDUCTORS)-(CONTINUED)
Texas Instruments, Inc. 490 $ 50,041
- -------------------------------------------------------------
Xilinx, Inc.(a) 950 43,344
- -------------------------------------------------------------
145,866
- -------------------------------------------------------------
ENTERTAINMENT-0.51%
Walt Disney Co. (The) 900 28,575
- -------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-1.24%
Applied Materials, Inc.(a) 650 34,856
- -------------------------------------------------------------
Teradyne, Inc.(a) 735 34,683
- -------------------------------------------------------------
69,539
- -------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.86%
American Express Co. 400 52,275
- -------------------------------------------------------------
Freddie Mac 2,620 164,405
- -------------------------------------------------------------
216,680
- -------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-8.65%
Abbott Laboratories 1,310 63,453
- -------------------------------------------------------------
American Home Products Corp. 1,050 64,050
- -------------------------------------------------------------
Bristol-Myers Squibb Co. 1,775 112,823
- -------------------------------------------------------------
Johnson & Johnson 1,170 114,075
- -------------------------------------------------------------
Warner-Lambert Co. 1,930 131,119
- -------------------------------------------------------------
485,520
- -------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-5.84%
Lilly (Eli) & Co. 1,000 73,626
- -------------------------------------------------------------
Merck & Co., Inc. 635 44,609
- -------------------------------------------------------------
Pfizer Inc. 1,230 141,527
- -------------------------------------------------------------
Schering-Plough Corp. 1,400 67,638
- -------------------------------------------------------------
327,400
- -------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-3.16%
Guidant Corp. 2,100 112,744
- -------------------------------------------------------------
Medtronic, Inc. 900 64,744
- -------------------------------------------------------------
177,488
- -------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-2.22%
Clorox Co. 200 23,075
- -------------------------------------------------------------
Procter & Gamble Co. (The) 1,080 101,318
- -------------------------------------------------------------
124,393
- -------------------------------------------------------------
INSURANCE (MULTI-LINE)-2.59%
American International Group, Inc. 1,235 145,035
- -------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.94%
Schwab (Charles) Corp. 480 52,680
- -------------------------------------------------------------
</TABLE>
FS-54
<PAGE> 156
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LODGING (HOTELS)-0.37%
Carnival Corp. 500 $ 20,625
- -------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.01%
Tyco International Ltd. 1,010 82,062
- -------------------------------------------------------------
United Technologies Corp. 210 30,424
- -------------------------------------------------------------
112,486
- -------------------------------------------------------------
NATURAL GAS-0.60%
Enron Corp. 450 33,862
- -------------------------------------------------------------
PERSONAL CARE-0.74%
Gillette Co. 800 41,750
- -------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-2.26%
Home Depot, Inc. (The) 1,475 88,408
- -------------------------------------------------------------
Lowe's Companies, Inc. 730 38,508
- -------------------------------------------------------------
126,916
- -------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.25%
Best Buy Co., Inc. 290 13,847
- -------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.27%
Kohl's Corp.(a) 225 14,947
- -------------------------------------------------------------
RETAIL (FOOD CHAINS)-2.81%
Kroger Co.(a) 1,900 103,194
- -------------------------------------------------------------
Safeway, Inc.(a) 1,005 54,208
- -------------------------------------------------------------
157,402
- -------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-2.66%
Dayton Hudson Corp. 1,100 74,043
- -------------------------------------------------------------
Wal-Mart Stores, Inc. 1,640 75,440
- -------------------------------------------------------------
149,483
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY)-1.14%
Amazon.com, Inc.(a) 280 $ 48,177
- -------------------------------------------------------------
Staples, Inc.(a) 510 15,300
- -------------------------------------------------------------
63,477
- -------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.14%
Abercrombie & Fitch Co.-Class A(a) 250 23,780
- -------------------------------------------------------------
Gap, Inc. (The) 600 39,936
- -------------------------------------------------------------
63,716
- -------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.00%
Omnicom Group, Inc. 775 56,185
- -------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.28%
Paychex, Inc. 310 15,828
- -------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-4.10%
MCI WorldCom, Inc.(a) 2,800 230,125
- -------------------------------------------------------------
Total Common Stocks (Cost
$4,643,294) 4,699,710
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY BILLS-0.28%(B)
4.237%, 06/24/99 (Cost $15,899) $16,000(c) 15,899
- ---------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITY-11.42%
Federal Home Loan Mortgage Association,
4.90%, 05/03/99 (Cost $640,825) 641,000 640,825
- ---------------------------------------------------------------
TOTAL INVESTMENTS-95.48% 5,356,434
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-4.52% 253,413
- ---------------------------------------------------------------
NET ASSETS-100.00% $5,609,847
===============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contract. See Note 6.
See Notes to Financial Statements.
FS-55
<PAGE> 157
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$5,300,018) $ 5,356.434
- ---------------------------------------------------------
Cash 1,125
- ---------------------------------------------------------
Receivables for:
Capital stock sold 317,658
- ---------------------------------------------------------
Dividends and interest 967
- ---------------------------------------------------------
Other assets 69,776
- ---------------------------------------------------------
Total assets 5,745,960
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 118,757
- ---------------------------------------------------------
Variation margin 2,200
- ---------------------------------------------------------
Accrued administrative services fees 4,000
- ---------------------------------------------------------
Accrued directors' fees 165
- ---------------------------------------------------------
Accrued distribution fees 2,231
- ---------------------------------------------------------
Accrued transfer agent fees 1,882
- ---------------------------------------------------------
Accrued operating expenses 6,878
- ---------------------------------------------------------
Total liabilities 136,113
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $ 5,609,847
- ---------------------------------------------------------
NET ASSETS:
Class A $ 4,365,599
=========================================================
Class B $ 1,155,580
=========================================================
Class C $ 88,668
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 418,099
=========================================================
Class B:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 110,630
=========================================================
Class C:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 8,488
=========================================================
Class A:
Net asset value and redemption price
per share $ 10.44
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $10.44
divided by 94.50%) $ 11.05
=========================================================
Class B:
Net asset value and offering price per
share $ 10.45
=========================================================
Class C:
Net asset value and offering price per
share $ 10.45
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period March 1, 1999 (date operations commenced) through April 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $110 foreign withholding
tax) $ 2,369
- --------------------------------------------------------
Interest 5,219
- --------------------------------------------------------
Total investment income 7,588
- --------------------------------------------------------
EXPENSES:
Advisory fees 4,467
- --------------------------------------------------------
Administrative services fees 4,000
- --------------------------------------------------------
Custodian fees 1,681
- --------------------------------------------------------
Directors' fees 329
- --------------------------------------------------------
Distribution fees -- Class A 1,972
- --------------------------------------------------------
Distribution fees -- Class B 311
- --------------------------------------------------------
Distribution fees -- Class C 11
- --------------------------------------------------------
Transfer agent fees -- Class A 1,933
- --------------------------------------------------------
Transfer agent fees -- Class B 114
- --------------------------------------------------------
Transfer agent fees -- Class C 14
- --------------------------------------------------------
Registration and filing fees 9,023
- --------------------------------------------------------
Professional fees 5,262
- --------------------------------------------------------
Other 34
- --------------------------------------------------------
Total expenses 29,151
- --------------------------------------------------------
Less: Fee waivers and reimbursement (19,667)
- --------------------------------------------------------
Less: Expenses paid indirectly (55)
- --------------------------------------------------------
Net expenses 9,429
- --------------------------------------------------------
Net investment income (loss) (1,841)
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FUTURES:
Net realized gain (loss) from:
Investment securities (15,046)
- --------------------------------------------------------
Futures contracts 853
- --------------------------------------------------------
(14,193)
- --------------------------------------------------------
Net unrealized appreciation of:
Investment securities 56,416
- --------------------------------------------------------
Futures contracts 350
- --------------------------------------------------------
56,766
- --------------------------------------------------------
Net gain from investment securities
and futures 42,573
- --------------------------------------------------------
Net increase in net assets resulting from
operations $ 40,732
========================================================
</TABLE>
See Notes to Financial Statements.
FS-56
<PAGE> 158
STATEMENT OF CHANGES IN NET ASSETS
For the period March 1, 1999 (date operations commenced) through April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30,
1999
----------
<S> <C>
OPERATIONS:
Net investment income (loss) $ (1,841)
- ------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
futures (14,193)
- ------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
futures contracts 56,766
- ------------------------------------------------------------------------
Net increase in net assets resulting from operations 40,732
- ------------------------------------------------------------------------
Share transactions-net:
Class A 4,299,158
- ------------------------------------------------------------------------
Class B 1,179,939
- ------------------------------------------------------------------------
Class C 90,018
- ------------------------------------------------------------------------
Net increase in net assets 5,609,847
- ------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------
End of period $5,609,847
========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $5,569,115
- ------------------------------------------------------------------------
Undistributed net investment income (loss) (1,841)
- ------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and futures (14,193)
- ------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 56,766
- ------------------------------------------------------------------------
$5,609,847
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-57
<PAGE> 159
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of nine separate
portfolios. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares commenced operations
on March 1, 1999. Class B shares and Class C shares commenced sales on April 5,
1999. Class A shares are sold with a front-end sales charge. Class B shares and
Class C shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. The Fund's investment objective
is long-term growth of capital. Information presented in these financial
statements pertains only to the Fund.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last price on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price 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 closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors
such as yield, type of issue, coupon rate and maturity date. Securities for
which market quotations are not readily available or are questionable are
valued at fair value as determined in good faith by or under the supervision
of the Company's officers in a manner specifically authorized by the Board
of Directors of the Company. Short-term obligations having 60 days or less
to maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair market value as determined in good
faith by or under the supervision of the Board of Directors.
B. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for that portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are recorded on a trade date basis. Realized gains or losses on
sales are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date and are paid annually.
E. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
F. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the
FS-58
<PAGE> 160
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at the
end of each day's trading. Variation margin payments are made or received
depending upon whether unrealized gains or losses are incurred. When the
contracts are closed, the Fund recognizes a realized gain or loss equal to
the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in the value of
contracts may not correlate with changes in the value of the securities
being hedged.
G. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $1 billion of the Fund's average daily net assets, plus 0.70% over $1
billion to and including $2 billion of the Fund's average net assets and 0.625%
of the Fund's average net assets over $2 billion.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to reimburse AIM for certain administrative costs incurred in
providing accounting services to the Fund. During the period March 1, 1999 (date
operations commenced) through April 30, 1999, AIM was reimbursed $4,000 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the period March 1, 1999 (date
operations commenced) through April 30, 1999, AFS was paid $1,876 for such
services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the 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.
During the period March 1, 1999 (date operations commenced) through April 30,
1999, the Class A, Class B and Class C shares paid AIM Distributors $1,972,
$311, and $11 respectively, as compensation under the Plans.
AIM Distributors received commissions of $2,239 from sales of Class A shares
of the Fund during the period March 1, 1999 (date operations commenced) through
April 30, 1999. 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 period March 1, 1999 (date operations commenced) through
April 30, 1999, AIM Distributors received commissions of $8 in contingent
deferred sales charges imposed on redemption of Fund shares. Certain officers
and directors of the Company are officers and directors of AIM, AFS and AIM
Distributors.
NOTE 3-INDIRECT EXPENSES
During the period March 1, 1999 (date operations commenced) through April 30,
1999, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) and reductions in custodian fees of $8 and $47, respectively,
under expense offset arrangements. The effect of the above arrangements resulted
in a reduction of the Fund's total expenses of $55 during the period March 1,
1999 (date operations commenced) through April 30, 1999.
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-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the period March 1, 1999 (date operations commenced)
through April 30, 1999 was $4,754,046 and $110,752, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities on a tax basis is as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 186,734
- -----------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (130,318)
- -----------------------------------------------------
Net unrealized appreciation of investment
securities $ 56,416
=====================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6-FUTURES CONTRACTS
On April 30, 1999, $16,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts were as follows:
<TABLE>
<CAPTION>
============================================================
NO. OF MONTH/ UNREALIZED
CONTRACT CONTRACTS COMMITMENT APPRECIATION
- ------------------------------------------------------------
<S> <C> <C> <C>
E-MINI S&P 500 Index 4 Jun 99 $350
============================================================
</TABLE>
FS-59
<PAGE> 161
NOTE 7-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) $1,000,000,000 or (ii) 10% of total assets. 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. During the six months ended April 30, 1999, 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 8-CAPITAL STOCK
Changes in capital stock outstanding during the period March 1, 1999 (date
operations commenced) through April 30, 1999 was as follows:
<TABLE>
<CAPTION>
APRIL 30, 1999
---------------------
SHARES AMOUNT
------- -----------
<S> <C> <C>
Sold:
Class A 425,297 $ 4,378,989
- --------------------------------------------------------------
Class B* 110,630 1,179,939
- --------------------------------------------------------------
Class C* 8,558 90,768
- --------------------------------------------------------------
Reacquired:
Class A (7,198) (79,831)
- --------------------------------------------------------------
Class C* (70) (750)
- --------------------------------------------------------------
537,217 $ 5,569,115
==============================================================
</TABLE>
* Class B and Class C shares commenced sales on April 5, 1999.
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the period March 1, 1999 (date operations commenced) through
April 30, 1999, and for a share of Class B and Class C outstanding during the
period April 5, 1999 (date sales commenced) through April 30, 1999.
<TABLE>
<CAPTION>
CLASS A
---------
APRIL 30,
1999
---------
<S> <C>
Net asset value, beginning of period $10.00
- ------------------------------------------------------------ ------
Income from investment operations:
Net investment income --
- ------------------------------------------------------------ ------
Net gains on securities (both realized and unrealized) 0.44
- ------------------------------------------------------------ ------
Total from investment operations 0.44
- ------------------------------------------------------------ ------
Net asset value, end of period $10.44
============================================================ ======
Total return(a) 4.40%
============================================================ ======
Ratios/supplement data:
Net assets, end of period (000s omitted) $4,366
============================================================ ======
Ratio of expenses to average net assets(b) 1.54%(c)
============================================================ ======
Ratio of net investment income to average net assets(d) (0.27)%(c)
============================================================ ======
Portfolio turnover rate 4%
============================================================ ======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
4.56% (annualized).
(c) Ratios are annualized and based on average net assets of $1,136,292.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements was (3.29)% (annualized).
<TABLE>
<CAPTION>
CLASS B CLASS C
--------- ---------
APRIL 30, APRIL 30,
1999 1999
--------- ---------
<S> <C> <C>
Net asset value, beginning of period $11.02 $11.02
- ------------------------------------------------------------ ------ ------
Income from investment operations:
Net investment income -- --
- ------------------------------------------------------------ ------ ------
Net gains (losses) on securities (both realized and
unrealized) (0.57) (0.57)
- ------------------------------------------------------------ ------ ------
Total from investment operations (0.57) (0.57)
- ------------------------------------------------------------ ------ ------
Net asset value, end of period $10.45 $10.45
============================================================ ====== ======
Total return(a) (5.17)% (5.17)%
============================================================ ====== ======
Ratios/supplement data:
Net assets, end of period (000s omitted) $1,156 $ 89
============================================================ ====== ======
Ratio of expenses to average net assets(b) 2.25%(c) 2.25%(c)
============================================================ ====== ======
Ratio of net investment income (loss) to average net
assets(d) (0.94)%(c) (0.94)%(c)
============================================================ ====== ======
Portfolio turnover rate 4% 4%
============================================================ ====== ======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
10.50% (annualized) for Class B and 10.87% (annualized) for Class C.
(c) Ratios are annualized and based on average net assets of $62,702 and $2,154
for Class B and Class C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (9.19)% (annualized) for Class B and (9.56)%
(annualized) for Class C.
FS-60
<PAGE> 162
AIM WEINGARTEN FUND
UNAUDITED FINANCIALS FOR THE
PERIOD ENDED APRIL 30, 1999
SCHEDULE OF INVESTMENTS
April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-90.83%
BANKS (MONEY CENTER)-0.92%
Chase Manhattan Corp. (The) 1,000,000 $ 82,750,000
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.28%
North Fork Bancorporation, Inc. 1,121,600 25,236,000
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-6.06%
AT&T Corp.-Liberty Media
Group(a) 857,300 54,760,038
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 950,460 66,056,970
- ---------------------------------------------------------------
Comcast Corp.-Class A 1,687,700 110,860,794
- ---------------------------------------------------------------
Cox Communications, Inc.-Class
A(a) 1,141,500 90,606,563
- ---------------------------------------------------------------
Infinity Broadcasting
Corp.-Class A(a) 3,357,000 92,946,937
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 925,000 74,231,250
- ---------------------------------------------------------------
MediaOne Group, Inc.(a) 650,000 53,015,625
- ---------------------------------------------------------------
542,478,177
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.15%
Monsanto Co. 296,800 13,430,200
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.77%
General Instrument Corp.(a) 578,900 21,129,850
- ---------------------------------------------------------------
Lucent Technologies, Inc. 1,802,500 108,375,313
- ---------------------------------------------------------------
Motorola, Inc. 2,038,500 163,334,812
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 222,500 44,500,000
- ---------------------------------------------------------------
337,339,975
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-4.17%
International Business Machines
Corp. 1,000,000 209,187,500
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 2,750,000 164,484,375
- ---------------------------------------------------------------
373,671,875
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-3.39%
Ascend Communications, Inc.(a) 1,369,000 132,279,625
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 1,504,900 171,652,656
- ---------------------------------------------------------------
303,932,281
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.42%
EMC Corp.(a) 600,000 65,362,500
- ---------------------------------------------------------------
Lexmark International Group,
Inc.(a) 500,000 61,750,000
- ---------------------------------------------------------------
127,112,500
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-11.00%
America Online, Inc. 2,925,000 417,543,750
- ---------------------------------------------------------------
Citrix Systems, Inc.(a) 1,303,200 55,386,000
- ---------------------------------------------------------------
Compuware Corp.(a) 2,000,000 48,750,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 1,700,000 138,231,250
- ---------------------------------------------------------------
Oracle Corp.(a) 2,001,500 54,165,594
- ---------------------------------------------------------------
Unisys Corp.(a) 5,000,000 157,187,500
- ---------------------------------------------------------------
Yahoo! Inc.(a) 650,000 $ 113,546,875
- ---------------------------------------------------------------
984,810,969
- ---------------------------------------------------------------
CONSUMER FINANCE-0.91%
Capital One Financial Corp. 169,200 29,387,925
- ---------------------------------------------------------------
Providian Financial Corp. 400,000 51,625,000
- ---------------------------------------------------------------
81,012,925
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.44%
AmeriSource Health Corp.-Class
A(a) 1,433,800 39,698,337
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.15%
Sanmina Corp.(a) 1,063,000 70,556,625
- ---------------------------------------------------------------
Symbol Technologies, Inc. 678,300 32,388,825
- ---------------------------------------------------------------
102,945,450
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-3.23%
Analog Devices, Inc.(a) 1,350,000 47,418,750
- ---------------------------------------------------------------
Intel Corp. 750,000 45,890,625
- ---------------------------------------------------------------
LSI Logic Corp.(a) 382,900 13,018,600
- ---------------------------------------------------------------
Texas Instruments, Inc. 900,000 91,912,500
- ---------------------------------------------------------------
Xilinx, Inc.(a) 2,000,000 91,250,000
- ---------------------------------------------------------------
289,490,475
- ---------------------------------------------------------------
ENTERTAINMENT-1.95%
Time Warner, Inc. 2,500,000 175,000,000
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.30%
Teradyne, Inc.(a) 571,900 26,986,531
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-5.32%
American Express Co. 610,500 79,784,719
- ---------------------------------------------------------------
Fannie Mae 2,500,000 177,343,750
- ---------------------------------------------------------------
Freddie Mac 3,500,000 219,625,000
- ---------------------------------------------------------------
476,753,469
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-7.37%
Abbott Laboratories 3,650,000 176,796,875
- ---------------------------------------------------------------
American Home Products Corp. 1,322,300 80,660,300
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 1,248,600 79,364,137
- ---------------------------------------------------------------
Johnson & Johnson 1,461,900 142,535,250
- ---------------------------------------------------------------
Warner-Lambert Co. 2,661,000 180,781,687
- ---------------------------------------------------------------
660,138,249
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.32%
Watson Pharmaceuticals, Inc.(a) 700,000 28,350,000
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-3.91%
Lilly (Eli) & Co. 1,600,000 117,800,000
- ---------------------------------------------------------------
Pfizer, Inc. 525,000 60,407,813
- ---------------------------------------------------------------
</TABLE>
FS-61
<PAGE> 163
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-(CONTINUED)
Pharmacia & Upjohn, Inc. 2,042,700 $ 114,391,200
- ---------------------------------------------------------------
Schering-Plough Corp. 1,200,000 57,975,000
- ---------------------------------------------------------------
350,574,013
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-6.17%
Bausch & Lomb, Inc. 933,100 69,982,500
- ---------------------------------------------------------------
Baxter International, Inc. 925,000 58,275,000
- ---------------------------------------------------------------
Becton, Dickinson & Co. 3,525,000 131,085,938
- ---------------------------------------------------------------
Boston Scientific Corp.(a) 1,075,500 45,775,969
- ---------------------------------------------------------------
Guidant Corp. 1,924,100 103,300,119
- ---------------------------------------------------------------
Medtronic, Inc. 2,000,000 143,875,000
- ---------------------------------------------------------------
552,294,526
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.75%
American International Group,
Inc. 1,334,625 156,735,023
- ---------------------------------------------------------------
LODGING-HOTELS-0.88%
Carnival Corp. 1,902,800 78,490,500
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-3.31%
Tyco International Ltd. 2,442,830 198,479,938
- ---------------------------------------------------------------
United Technologies Corp. 675,000 97,790,625
- ---------------------------------------------------------------
296,270,563
- ---------------------------------------------------------------
NATURAL GAS-0.50%
Enron Corp. 600,000 45,150,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-2.89%
Home Depot, Inc. (The) 1,900,000 113,881,250
- ---------------------------------------------------------------
Lowe's Companies, Inc. 2,750,000 145,062,500
- ---------------------------------------------------------------
258,943,750
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.32%
Best Buy Co., Inc.(a) 1,340,000 63,985,000
- ---------------------------------------------------------------
Tandy Corp. 750,000 54,328,125
- ---------------------------------------------------------------
118,313,125
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.60%
Dollar Tree Stores, Inc.(a) 1,465,000 53,472,500
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.50%
Kroger Co.(a) 1,727,500 93,824,844
- ---------------------------------------------------------------
Safeway, Inc.(a) 750,000 40,453,125
- ---------------------------------------------------------------
134,277,969
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-1.63%
Dayton Hudson Corp. 1,000,000 67,312,500
- ---------------------------------------------------------------
Fred Meyer, Inc.(a) 272,500 14,749,063
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 1,396,800 64,252,800
- ---------------------------------------------------------------
146,314,363
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-3.83%
Amazon.com, Inc.(a) 498,600 85,790,363
- ---------------------------------------------------------------
Office Depot, Inc.(a) 6,370,050 $ 140,141,100
- ---------------------------------------------------------------
Staples, Inc.(a) 2,965,400 88,962,000
- ---------------------------------------------------------------
Tiffany & Co. 329,500 27,678,000
- ---------------------------------------------------------------
342,571,463
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.88%
Abercrombie & Fitch Co.-Class
A(a) 701,700 66,749,212
- ---------------------------------------------------------------
Gap, Inc. (The) 446,050 29,690,203
- ---------------------------------------------------------------
Intimate Brands, Inc. 1,436,400 71,820,000
- ---------------------------------------------------------------
168,259,415
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.36%
Outdoor Systems, Inc.(a) 4,821,525 121,442,161
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-2.70%
Affiliated Computer Services,
Inc.(a) 896,100 34,275,825
- ---------------------------------------------------------------
Ceridian Corp.(a) 1,290,000 47,246,250
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 1,455,800 56,230,275
- ---------------------------------------------------------------
First Data Corp. 1,500,000 63,656,250
- ---------------------------------------------------------------
Fiserv, Inc.(a) 690,600 40,443,263
- ---------------------------------------------------------------
241,851,863
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-4.45%
MCI WorldCom, Inc.(a) 4,849,800 398,592,937
- ---------------------------------------------------------------
Total Domestic Common
Stocks (Cost
$5,571,719,342) 8,134,691,584
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-5.11%
CANADA-1.30%
Northern Telecom Ltd.-ADR
(Communications Equipment) 1,700,000 115,918,750
- ---------------------------------------------------------------
FINLAND-1.44%
Nokia Oyj (Communications
Equipment) 324,800 25,034,064
- ---------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR
(Communications Equipment) 1,400,000 103,862,500
- ---------------------------------------------------------------
128,896,564
- ---------------------------------------------------------------
IRELAND-0.60%
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic &
Other)(a) 1,043,300 53,729,950
- ---------------------------------------------------------------
NETHERLANDS-1.77%
Koninklijke (Royal) Philips
Electronics N.V. (Electrical
Equipment) 769,000 65,653,375
- ---------------------------------------------------------------
Philips Electronics N.V.
(Household Furniture &
Appliances) 1,081,000 93,083,639
- ---------------------------------------------------------------
158,737,014
- ---------------------------------------------------------------
Total Foreign Stocks &
Other Equity Interests
(Cost $400,758,187) 457,282,278
- ---------------------------------------------------------------
</TABLE>
FS-62
<PAGE> 164
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-3.88%(B)
Goldman, Sachs & Co., 4.94%,
05/03/99 (Cost
$347,244,869)(c) $347,244,869 $ 347,244,869
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.82% 8,939,218,731
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.18% 16,464,806
- ---------------------------------------------------------------
TOTAL NET ASSETS-100.00% $8,955,683,537
===============================================================
</TABLE>
Abbreviation:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) 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 is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 04/30/99 with a maturing value of
$400,164,667. Collateralized by $407,564,858 U.S. Government obligations,
5.00% to 8.00% due 07/01/03 to 05/01/29 with an aggregate market value at
04/30/99 of $408,000,001.
See Notes to Financial Statements.
FS-63
<PAGE> 165
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$6,319,722,398) $8,939,218,731
- --------------------------------------------------------
Receivables for:
Investments sold 180,240,937
- --------------------------------------------------------
Capital stock sold 15,917,032
- --------------------------------------------------------
Dividends and interest 4,648,237
- --------------------------------------------------------
Investment for deferred compensation
plan 115,648
- --------------------------------------------------------
Other assets 198,706
- --------------------------------------------------------
Total assets 9,140,339,291
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 162,360,014
- --------------------------------------------------------
Capital stock reacquired 12,268,301
- --------------------------------------------------------
Deferred compensation 115,648
- --------------------------------------------------------
Accrued advisory fees 4,327,628
- --------------------------------------------------------
Accrued administrative services fees 19,288
- --------------------------------------------------------
Accrued directors' fees 13,350
- --------------------------------------------------------
Accrued distribution fees 3,727,923
- --------------------------------------------------------
Accrued transfer agent fees 800,535
- --------------------------------------------------------
Accrued operating expenses 1,023,067
- --------------------------------------------------------
Total liabilities 184,655,754
- --------------------------------------------------------
Net assets applicable to shares
outstanding $8,955,683,537
- --------------------------------------------------------
NET ASSETS:
Class A $7,717,881,519
========================================================
Class B $1,072,717,717
========================================================
Class C $ 61,899,473
========================================================
Institutional Class $ 103,184,828
========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 291,850,405
========================================================
Class B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 41,915,873
========================================================
Class C:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 2,417,284
========================================================
Institutional Class:
Authorized 200,000,000
- --------------------------------------------------------
Outstanding 3,821,833
========================================================
Class A:
Net asset value and redemption price
per share $ 26.44
- --------------------------------------------------------
Offering price per share:
(Net asset value of $26.44
divided by 94.50%) $ 27.98
========================================================
Class B:
Net asset value and offering price per
share $ 25.59
========================================================
Class C:
Net asset value and offering price per
share $ 25.61
========================================================
Institutional Class:
Net asset value, offering and
redemption price per share $ 27.00
========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $538,610 foreign
withholding tax) $ 19,684,424
- ----------------------------------------------------------
Interest 10,253,425
- ----------------------------------------------------------
Total investment income 29,937,849
- ----------------------------------------------------------
EXPENSES:
Advisory fees 25,796,512
- ----------------------------------------------------------
Administrative services fees 109,744
- ----------------------------------------------------------
Custodian fees 290,748
- ----------------------------------------------------------
Directors' fees 33,673
- ----------------------------------------------------------
Distribution fees-Class A 10,721,830
- ----------------------------------------------------------
Distribution fees-Class B 4,489,959
- ----------------------------------------------------------
Distribution fees-Class C 185,840
- ----------------------------------------------------------
Transfer agent fees-Class A 4,027,404
- ----------------------------------------------------------
Transfer agent fees-Class B 894,615
- ----------------------------------------------------------
Transfer agent fees-Class C 46,974
- ----------------------------------------------------------
Transfer agent fees-Institutional Class 4,664
- ----------------------------------------------------------
Other 1,278,205
- ----------------------------------------------------------
Total expenses 47,880,168
- ----------------------------------------------------------
Less: Fees waived by advisor (1,949,330)
- ----------------------------------------------------------
Expenses paid indirectly (74,354)
- ----------------------------------------------------------
Net expenses 45,856,484
- ----------------------------------------------------------
Net investment income (loss) (15,918,635)
- ----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTION
CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,160,662,484
- ----------------------------------------------------------
Foreign currencies (4,495,922)
- ----------------------------------------------------------
Futures contracts 10,089,965
- ----------------------------------------------------------
Option contracts purchased (3,914,290)
- ----------------------------------------------------------
Option contracts written (29,103,796)
- ----------------------------------------------------------
1,133,238,441
- ----------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 911,257,020
- ----------------------------------------------------------
Foreign currencies (12,453)
- ----------------------------------------------------------
Futures contracts (6,756,866)
- ----------------------------------------------------------
Option contracts purchased (3,182,585)
- ----------------------------------------------------------
Option contracts written (7,126,569)
- ----------------------------------------------------------
894,178,547
- ----------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and option
contracts 2,027,416,988
- ----------------------------------------------------------
Net increase in net assets resulting from
operations $2,011,498,353
==========================================================
</TABLE>
FS-64
<PAGE> 166
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 1999 and the year ended October 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (15,918,635) $ 89,216
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 1,133,238,441 514,276,104
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 894,178,547 255,708,695
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,011,498,353 770,074,015
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (3,891,948) --
- ----------------------------------------------------------------------------------------------
Institutional Class (345,675) --
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (405,150,816) (864,947,763)
- ----------------------------------------------------------------------------------------------
Class B (49,729,963) (76,736,323)
- ----------------------------------------------------------------------------------------------
Class C (1,700,579) (626,936)
- ----------------------------------------------------------------------------------------------
Institutional Class (4,840,109) (9,231,714)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 260,991,725 442,079,076
- ----------------------------------------------------------------------------------------------
Class B 206,395,649 240,674,117
- ----------------------------------------------------------------------------------------------
Class C 33,103,395 21,194,188
- ----------------------------------------------------------------------------------------------
Institutional Class 13,434,732 12,302,794
- ----------------------------------------------------------------------------------------------
Net increase in net assets 2,059,764,764 534,781,454
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 6,895,918,773 6,361,137,319
- ----------------------------------------------------------------------------------------------
End of period $8,955,683,537 $6,895,918,773
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $5,196,302,992 $4,682,377,491
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (16,121,519) 4,034,739
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 1,156,055,229 484,238,255
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 2,619,446,835 1,725,268,288
- ----------------------------------------------------------------------------------------------
$8,955,683,537 $6,895,918,773
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-65
<PAGE> 167
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten 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 nine separate portfolios. The
Fund currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and the Institutional Class. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to seek growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last 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 closing bid price 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 closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors of the Company. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which would not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
market value as determined in good faith by or under the supervision of the
Board of Directors.
B. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for that portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
D. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized gain
or loss equal to the difference between the proceeds from, or cost of, the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Covered Call Options--The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes
FS-66
<PAGE> 168
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.
F. Put Options--The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or
a portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
G. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the specific identification of securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date and are paid annually.
H. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). The terms of the master investment advisory agreement
provide that the Fund shall pay an advisory fee to AIM at an annual rate of 1.0%
of the first $30 million of the Fund's average daily net assets, plus 0.75% of
the Fund's average daily net assets in excess of $30 million to and including
$350 million, plus 0.625% of the Fund's average daily net assets in excess of
$350 million. AIM is currently contractually waiving a portion of its advisory
fees payable by the Fund to AIM to the extent necessary to reduce the fees paid
by the Fund at net asset levels higher than those currently incorporated in the
present advisory fee schedule. AIM will receive a fee calculated at the annual
rate of 1.0% of the first $30 million of the Fund's average daily net assets,
plus 0.75% of the Fund's average daily net assets in excess of $30 million to
and including $350 million, plus 0.625% of the Fund's average daily net assets
in excess of $350 million to and including $2 billion, plus 0.60% of the Fund's
average daily net assets in excess of $2 billion to and including $3 billion,
plus 0.575% of the Fund's average daily net assets in excess of $3 billion to
and including $4 billion, plus 0.55% of the Fund's average daily net assets in
excess of $4 billion. The waiver of fees is contractual and may not be
terminated without approval by the Board of Directors of the Company. During the
six months ended April 30, 1999, AIM waived fees of $1,949,330. 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 six months ended April 30,
1999, AIM was reimbursed $109,744 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended April 30, 1999,
AFS was paid $2,719,811 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan")(collectively, the "Plans"). The Fund,
pursuant to the Class A and C Plan, pays AIM Distributors compensation at an
annual rate of 0.30% of the average daily net assets of the Class A shares and
1.00% of the average daily net assets of Class C shares. The Fund, pursuant to
the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00%
of the average daily net assets of the Class B shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the
FS-67
<PAGE> 169
average daily net assets of the Class A, Class B or C shares to selected dealers
and financial institutions who furnish continuing personal shareholder services
to their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the 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. During the six months ended April 30, 1999, the Class A, Class B and
Class C shares paid AIM Distributors $10,721,830, $4,489,959, and $185,840,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $1,081,813 from sales of the Class
A shares of the Fund during the six months ended April 30, 1999. 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 six months
ended April 30, 1999, AIM Distributors received commissions of $118,545 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 and FMC.
During the six months ended April 30, 1999, the Fund paid legal fees of
$7,269 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $53,442 and $20,912, respectively, under expense offset arrangements.
The effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $74,354 during the six months ended April 30, 1999.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 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. During the six
months ended April 30, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.05% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended April 30, 1999 was $5,976,000,039
and $5,810,462,211, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of April 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $2,631,418,154
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (32,728,604)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $2,598,689,550
==========================================================
</TABLE>
Cost of investments for tax purposes is $6,340,529,181.
FS-68
<PAGE> 170
NOTE 7-CALL OPTION CONTRACTS
Transactions in call options written during the six months ended April 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of period 79,608 $ 44,508,416
- ------------------------------------------------------ -------- ------------
Written 16,655 15,409,447
- ------------------------------------------------------ -------- ------------
Closed (42,149) (32,128,190)
- ------------------------------------------------------ -------- ------------
Exercised (7,902) (3,522,927)
- ------------------------------------------------------ -------- ------------
Expired (46,212) (24,266,746)
- ------------------------------------------------------ -------- ------------
End of period 0 $ 0
====================================================== ======== ============
</TABLE>
NOTE 8-PUT OPTIONS PURCHASED
Transactions in put options purchased during the six months ended April 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS PAID
--------- ------------
<S> <C> <C>
Beginning of period 9,625 $ 3,914,290
- ------------------------------------------------------ -------- ------------
Expired (9,625) (3,914,290)
- ------------------------------------------------------ -------- ------------
End of period 0 $ 0
====================================================== ======== ============
</TABLE>
NOTE 9-CAPITAL STOCK
Changes in the capital stock outstanding during six months ended April 30, 1999
and the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1999 OCTOBER 31, 1998
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 26,149,014 $ 655,880,167 62,788,326 $ 1,368,867,407
- ----------------------------------------------------------------------------------------------------------------------------
Class B 9,565,647 236,334,175 12,056,594 257,385,548
- ----------------------------------------------------------------------------------------------------------------------------
Class C 1,596,692 39,831,471 1,204,025 25,772,311
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 524,593 13,566,195 593,328 13,533,791
- ----------------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 16,540,579 383,079,336 41,795,514 813,441,370
- ----------------------------------------------------------------------------------------------------------------------------
Class B 2,102,818 47,272,428 3,831,332 73,061,374
- ----------------------------------------------------------------------------------------------------------------------------
Class C 71,202 1,602,038 31,251 600,022
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 217,868 5,146,039 456,144 9,035,386
- ----------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (31,482,870) (777,967,778) (79,734,776) (1,740,229,701)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (3,168,749) (77,210,954) (4,228,997) (89,772,805)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (343,916) (8,330,114) (246,074) (5,178,145)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (206,548) (5,277,502) (458,838) (10,266,383)
- ----------------------------------------------------------------------------------------------------------------------------
21,566,330 $ 513,925,501 38,087,829 $ 716,250,175
============================================================================================================================
</TABLE>
FS-69
<PAGE> 171
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the six months ended April 30, 1999, and each of the years in
the five-year period ended October 31, 1998, for a share of Class B capital
stock outstanding during the six months ended April 30, 1999, each of the years
in the three-year period ended October 31, 1998 and the period June 26, 1995
(date sales commenced) through October 31, 1995, and for a share of Class C
capital stock outstanding during the six months ended April 30, 1999, the year
ended October 31, 1998 and the period August 4, 1997 (date sales commenced)
through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
OCTOBER 31,
APRIL 30, ------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.72 $ 22.72 $ 20.19 $ 20.33 $ 17.82 $ 17.62
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.04) 0.02 0.01 0.06 -- 0.07
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net gains on securities (both realized and
unrealized) 6.23 2.38 4.82 2.51 4.36 0.57
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 6.19 2.40 4.83 2.57 4.36 0.64
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.01) -- (0.06) -- (0.07) (0.11)
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Distributions from net realized gains (1.46) (3.40) (2.24) (2.71) (1.78) (0.33)
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total distributions (1.47) (3.40) (2.30) (2.71) (1.85) (0.44)
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 26.44 $ 21.72 $ 22.72 $ 20.19 $ 20.33 $ 17.82
=============================================== ========== ========== ========== ========== ========== ==========
Total return(a) 29.47% 12.34% 26.83% 14.81% 28.20% 3.76%
=============================================== ========== ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,717,882 $6,094,178 $5,810,582 $4,977,493 $4,564,730 $3,965,858
=============================================== ========== ========== ========== ========== ========== ==========
Ratio of expenses to average net assets(b) 1.04%(c) 1.04% 1.07% 1.12% 1.17% 1.21%
=============================================== ========== ========== ========== ========== ========== ==========
Ratio of net investment income (loss) to
average net assets(d) (0.31)%(c) 0.07% 0.07% 0.33% (0.02)% 0.45%
=============================================== ========== ========== ========== ========== ========== ==========
Portfolio turnover rate 75% 125% 128% 159% 139% 136%
=============================================== ========== ========== ========== ========== ========== ==========
</TABLE>
(a) Does not deduct sales charges and are not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.09% (annualized), 1.09%, 1.11%, 1.15%, 1.19% and 1.24% for 1999-1994.
(c) Ratios are annualized and based on average net assets of $7,207,123,369.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.36)% (annualized), 0.02%, 0.03%, 0.30%, (0.04)% and
0.42% for 1999-1994.
(e) Averages computed on a daily basis.
FS-70
<PAGE> 172
NOTE 10-FINANCIAL HIGHLIGHTS-continued
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------------ -----------------------------------
OCTOBER 31, OCTOBER 31,
APRIL 30, ---------------------------------------------- APRIL 30, ----------------------
1999 1998 1997 1996 1995 1999 1998 1997
---------- -------- -------- -------- ---------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 21.12 $ 22.34 $ 19.98 $ 20.28 $ 18.56 $ 21.14 $ 22.34 $ 22.83
- --------------------------- ---------- -------- -------- -------- ------- ------- ------- -------
Income from investment
operations:
Net investment income
(loss) (0.13) (0.15)(a) (0.15)(a) (0.05)(a) (0.03) (0.13)(a) (0.15)(a) (0.04)(a)
- --------------------------- ---------- -------- -------- -------- ------- ------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 6.06 2.33 4.75 2.46 1.75 6.06 2.35 (0.45)
- --------------------------- ---------- -------- -------- -------- ------- ------- ------- -------
Total from investment
operations 5.93 2.18 4.60 2.41 1.72 5.93 2.20 (0.49)
- --------------------------- ---------- -------- -------- -------- ------- ------- ------- -------
Distributions from net
realized gains (1.46) (3.40) (2.24) (2.71) -- (1.46) (3.40) --
- --------------------------- ---------- -------- -------- -------- ------- ------- ------- -------
Net asset value, end of
period $ 25.59 $ 21.12 $ 22.34 $ 19.98 $ 20.28 $ 25.61 $ 21.14 $ 22.34
=========================== ========== ======== ======== ======== ======= ======= ======= =======
Total return(b) 29.02% 11.45% 25.78% 13.95% 9.27% 28.99% 11.54% (2.15)%
=========================== ========== ======== ======== ======== ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000's omitted) $1,072,718 $705,750 $486,105 $267,459 $42,238 $61,899 $23,107 $ 2,326
=========================== ========== ======== ======== ======== ======= ======= ======= =======
Ratio of expenses to
average net assets(c) 1.82%(d) 1.83% 1.87% 1.95% 1.91%(e) 1.82%(d) 1.83% 1.84%(e)
=========================== ========== ======== ======== ======== ======= ======= ======= =======
Ratio of net investment
income (loss) to average
net assets(f) (1.09)%(d) (0.72)% (0.73)% (0.50)% (0.76)%(e) (1.09)%(d) (0.72)% (0.70)%(e)
=========================== ========== ======== ======== ======== ======= ======= ======= =======
Portfolio turnover rate 75% 125% 128% 159% 139% 75% 125% 128%
=========================== ========== ======== ======== ======== ======= ======= ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.87% (annualized), 1.87%, 1.91%, 1.98% and 1.94% (annualized) for 1999-1995
for Class B and 1.87% (annualized), 1.87%, 1.88% (annualized) for 1999-1997
for Class C.
(d) Ratios are annualized and based on average net assets of $905,433,736 and
$37,476,108 for Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (1.14)% (annualized),(0.76)%, (0.77)%, (0.53)% and
(0.79)% (annualized) for 1999-1995 for Class B and (1.14)% (annualized),
(0.76)%, (0.74)% (annualized) for 1999-1997 for Class C.
(g) Averages computed on a daily basis.
FS-71
<PAGE> 173
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of AIM Aggressive Growth Fund (a portfolio of
AIM Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1998, the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended, and the financial
highlights for each of the years in the five-year period
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM
Aggressive Growth Fund as of October 31, 1998, the
results of its operations for the year then ended, the
changes in its net assets for each of the years in the
two-year period then ended and the financial highlights
for each of the years in the five-year period then ended,
in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-72
<PAGE> 174
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-90.80%
AEROSPACE/DEFENSE-0.63%
AAR Corp. 500,000 $ 11,562,500
- ---------------------------------------------------------------
Aviation Sales Co.(a) 150,000 4,987,500
- ---------------------------------------------------------------
16,550,000
- ---------------------------------------------------------------
AIR FREIGHT-0.19%
Expeditors International of
Washington, Inc. 150,000 5,081,250
- ---------------------------------------------------------------
AIRLINES-0.88%
Alaska Air Group, Inc.(a) 100,000 3,593,750
- ---------------------------------------------------------------
ASA Holdings, Inc. 115,000 4,125,625
- ---------------------------------------------------------------
Atlantic Coast Airlines Holdings(a) 400,000 9,600,000
- ---------------------------------------------------------------
Ryanair Holdings plc-ADR(a)(Ireland) 200,000 5,875,000
- ---------------------------------------------------------------
23,194,375
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.01%
Danaher Corp. 200,000 7,987,500
- ---------------------------------------------------------------
Gentex Corp.(a) 500,000 7,343,750
- ---------------------------------------------------------------
Keystone Automotive Industries,
Inc.(a) 250,000 4,671,875
- ---------------------------------------------------------------
Tower Automotive, Inc.(a) 300,000 6,675,000
- ---------------------------------------------------------------
26,678,125
- ---------------------------------------------------------------
BANKS (REGIONAL)-2.80%
Bank United Corp.-Class A 200,000 7,968,750
- ---------------------------------------------------------------
Centennial Bancorp(a) 131,700 2,164,814
- ---------------------------------------------------------------
Centura Banks, Inc. 100,000 6,900,000
- ---------------------------------------------------------------
Community First Bankshares, Inc. 500,000 9,937,500
- ---------------------------------------------------------------
First Republic Bank(a) 300,000 7,425,000
- ---------------------------------------------------------------
First Washington Bancorp, Inc. 165,000 3,630,000
- ---------------------------------------------------------------
Provident Bankshares Corp. 210,000 5,355,000
- ---------------------------------------------------------------
Silicon Valley Bancshares(a) 75,000 1,537,500
- ---------------------------------------------------------------
Southwest Bancorp. of Texas, Inc.(a) 500,000 7,656,250
- ---------------------------------------------------------------
Sterling Bancshares, Inc. 225,000 3,206,250
- ---------------------------------------------------------------
Trustmark Corp. 72,700 1,394,931
- ---------------------------------------------------------------
Westamerica Bancorp. 225,000 7,481,250
- ---------------------------------------------------------------
Zions Bancorp. 175,000 9,285,938
- ---------------------------------------------------------------
73,943,183
- ---------------------------------------------------------------
BIOTECHNOLOGY-1.13%
Curative Health Services, Inc.(a) 300,000 8,175,000
- ---------------------------------------------------------------
ICON plc-ADR(a) (United Kingdom) 50,000 1,400,000
- ---------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 500,000 11,406,250
- ---------------------------------------------------------------
PathoGenesis Corp.(a) 100,000 4,000,000
- ---------------------------------------------------------------
Pharmaceutical Product Development,
Inc.(a) 175,000 4,725,000
- ---------------------------------------------------------------
29,706,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE)-1.28%
Chancellor Media Corp.(a) 200,000 $ 7,675,000
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 633,400 26,048,575
- ---------------------------------------------------------------
33,723,575
- ---------------------------------------------------------------
BUILDING MATERIALS-0.31%
Group Maintenance America Corp.(a) 110,400 1,428,300
- ---------------------------------------------------------------
NCI Building Systems, Inc.(a) 200,000 4,325,000
- ---------------------------------------------------------------
Pameco Corp.(a) 178,300 2,496,200
- ---------------------------------------------------------------
8,249,500
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.25%
OM Group, Inc. 200,000 6,525,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.78%
Brightpoint, Inc.(a) 1,500,000 18,375,000
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 400,000 18,400,000
- ---------------------------------------------------------------
Dycom Industries, Inc.(a) 200,000 7,012,500
- ---------------------------------------------------------------
VideoServer, Inc.(a) 250,000 3,109,375
- ---------------------------------------------------------------
46,896,875
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-1.37%
Brooktrout Technology, Inc.(a) 250,000 3,671,875
- ---------------------------------------------------------------
IDX Systems Corp.(a) 189,000 8,008,875
- ---------------------------------------------------------------
Micron Electronics, Inc.(a) 538,500 11,274,844
- ---------------------------------------------------------------
National Instruments Corp.(a) 275,000 7,528,125
- ---------------------------------------------------------------
Visual Networks, Inc.(a) 200,000 5,700,000
- ---------------------------------------------------------------
36,183,719
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.71%
Broadcom Corp.(a) 150,000 12,440,625
- ---------------------------------------------------------------
International Network Services(a) 150,000 6,375,000
- ---------------------------------------------------------------
18,815,625
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.63%
Cybex Computer Products Corp.(a) 45,700 1,450,975
- ---------------------------------------------------------------
Jabil Circuit, Inc.(a) 125,000 5,789,063
- ---------------------------------------------------------------
Network Appliance, Inc.(a) 300,000 16,425,000
- ---------------------------------------------------------------
QLogic Corp.(a) 50,000 4,618,750
- ---------------------------------------------------------------
SMART Modular Technologies, Inc.(a) 325,000 6,825,000
- ---------------------------------------------------------------
Xircom, Inc.(a) 264,400 7,799,800
- ---------------------------------------------------------------
42,908,588
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-12.26%
American Management Systems, Inc.(a) 32,500 997,344
- ---------------------------------------------------------------
Aspect Development, Inc.(a) 187,700 5,930,147
- ---------------------------------------------------------------
Avant! Corp.(a) 300,000 5,118,750
- ---------------------------------------------------------------
AVT Corp.(a) 375,000 8,203,125
- ---------------------------------------------------------------
</TABLE>
FS-73
<PAGE> 175
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
AXENT Technologies, Inc.(a) 350,000 $ 8,793,750
- ---------------------------------------------------------------
BroadVision, Inc.(a) 150,000 2,250,000
- ---------------------------------------------------------------
Business Objects S.A.-ADR(a)(France) 250,000 4,203,125
- ---------------------------------------------------------------
Check Point Software
Technologies Ltd.(a) (Israel) 225,000 5,118,750
- ---------------------------------------------------------------
Citrix Systems, Inc.(a) 250,000 17,718,750
- ---------------------------------------------------------------
Computer Management Sciences, Inc.(a) 400,000 7,400,000
- ---------------------------------------------------------------
Concord Communications, Inc.(a) 75,000 2,784,375
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 700,000 19,950,000
- ---------------------------------------------------------------
Documentum, Inc.(a) 155,300 5,280,200
- ---------------------------------------------------------------
Eclipsys Corp.(a) 142,200 3,208,388
- ---------------------------------------------------------------
Electronics for Imaging, Inc.(a) 300,000 7,218,750
- ---------------------------------------------------------------
Engineering Animation, Inc.(a) 325,000 14,239,063
- ---------------------------------------------------------------
Gemstar International Group Ltd.(a) 150,000 8,193,750
- ---------------------------------------------------------------
HNC Software, Inc.(a) 225,000 7,565,625
- ---------------------------------------------------------------
Hyperion Solutions Corp.(a) 427,500 12,825,000
- ---------------------------------------------------------------
ISS Group, Inc.(a) 23,000 633,938
- ---------------------------------------------------------------
Jack Henry & Associates 125,000 5,703,125
- ---------------------------------------------------------------
Learning Company, Inc. (The)(a) 250,000 6,453,125
- ---------------------------------------------------------------
Legato Systems, Inc.(a) 200,000 7,825,000
- ---------------------------------------------------------------
Lycos, Inc.(a) 400,000 16,250,000
- ---------------------------------------------------------------
Macromedia(a) 225,000 4,500,000
- ---------------------------------------------------------------
Medical Manager Corp.(a) 500,000 12,437,500
- ---------------------------------------------------------------
Mercury Interactive Corp.(a) 150,000 6,225,000
- ---------------------------------------------------------------
Mobius Management Systems, Inc.(a) 250,000 2,906,250
- ---------------------------------------------------------------
PC Connection, Inc.(a) 280,300 4,274,575
- ---------------------------------------------------------------
Platinum Technology, Inc.(a) 200,000 3,287,500
- ---------------------------------------------------------------
QRS Corp.(a) 101,700 3,864,600
- ---------------------------------------------------------------
QuadraMed Corp.(a) 325,000 6,662,500
- ---------------------------------------------------------------
Rational Software Corp.(a) 625,000 13,984,375
- ---------------------------------------------------------------
RWD Technologies, Inc.(a) 67,800 1,279,725
- ---------------------------------------------------------------
Sapient Corp.(a) 76,000 3,424,750
- ---------------------------------------------------------------
ScanSource, Inc.(a) 200,000 3,875,000
- ---------------------------------------------------------------
Secure Computing Corp.(a) 350,000 4,243,750
- ---------------------------------------------------------------
Siebel Systems, Inc.(a) 50,000 1,021,875
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 200,000 5,237,500
- ---------------------------------------------------------------
Technisource, Inc.(a) 100,000 875,000
- ---------------------------------------------------------------
Transaction Systems Architects, Inc.
-Class A(a) 200,000 7,218,750
- ---------------------------------------------------------------
USWeb Corp.(a) 300,000 4,312,500
- ---------------------------------------------------------------
Verio, Inc.(a) 100,200 1,390,275
- ---------------------------------------------------------------
Veritas Software Corp.(a) 500,000 25,062,500
- ---------------------------------------------------------------
Visio Corp.(a) 325,000 8,653,125
- ---------------------------------------------------------------
Whittman-Hart, Inc.(a) 200,000 3,975,000
- ---------------------------------------------------------------
Wind River Systems(a) 250,000 10,953,125
- ---------------------------------------------------------------
323,529,255
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.70%
Action Performance Companies, Inc.(a) 250,000 $ 7,468,750
- ---------------------------------------------------------------
Blyth Industries, Inc.(a) 400,000 11,050,000
- ---------------------------------------------------------------
18,518,750
- ---------------------------------------------------------------
CONSUMER FINANCE-0.30%
AmeriCredit Corp.(a) 600,000 8,025,000
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.47%
Patterson Dental Co.(a) 300,000 12,375,000
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.32%
AFC Cable Systems, Inc.(a) 150,000 3,693,750
- ---------------------------------------------------------------
Hadco Corp.(a) 150,000 4,725,000
- ---------------------------------------------------------------
Oak Industries, Inc.(a) 200,000 5,412,500
- ---------------------------------------------------------------
Sanmina Corp.(a) 300,000 12,300,000
- ---------------------------------------------------------------
Symbol Technologies, Inc. 450,000 20,137,500
- ---------------------------------------------------------------
Uniphase Corp.(a) 200,000 9,900,000
- ---------------------------------------------------------------
Watsco, Inc. 300,000 5,081,250
- ---------------------------------------------------------------
61,250,000
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.17%
Anicom, Inc.(a) 500,000 4,468,750
- ---------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.25%
Aeroflex, Inc.(a) 575,000 6,468,750
- ---------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION)-0.63%
Sawtek, Inc.(a) 88,200 1,780,574
- ---------------------------------------------------------------
Waters Corp.(a) 200,000 14,700,000
- ---------------------------------------------------------------
16,480,574
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-5.62%
Apex PC Solutions, Inc.(a) 150,000 3,918,750
- ---------------------------------------------------------------
Applied Micro Circuits Corp.(a) 300,000 7,200,000
- ---------------------------------------------------------------
Artisan Components, Inc.(a) 555,000 4,058,438
- ---------------------------------------------------------------
Dallas Semiconductor Corp. 175,000 6,475,000
- ---------------------------------------------------------------
Flextronics International Ltd.(a) 500,000 25,968,750
- ---------------------------------------------------------------
Level One Communications, Inc.(a) 500,000 13,156,250
- ---------------------------------------------------------------
Micrel, Inc.(a) 100,000 3,287,500
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 600,000 16,237,500
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 200,000 8,975,000
- ---------------------------------------------------------------
Semtech Corp.(a) 300,000 7,143,750
- ---------------------------------------------------------------
Sipex Corp.(a)(b) 800,000 22,200,000
- ---------------------------------------------------------------
TranSwitch Corp.(a) 400,000 9,750,000
- ---------------------------------------------------------------
Unitrode Corp.(a) 300,000 3,768,750
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 500,000 16,125,000
- ---------------------------------------------------------------
148,264,688
- ---------------------------------------------------------------
ENTERTAINMENT-0.70%
Cinar Films Inc.-Class B(a)(Canada) 121,000 2,556,125
- ---------------------------------------------------------------
</TABLE>
FS-74
<PAGE> 176
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ENTERTAINMENT-(CONTINUED)
SFX Entertainment, Inc.-Class A(a) 500,000 $ 15,812,500
- ---------------------------------------------------------------
18,368,625
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.06%
Insignia/ESG Holdings, Inc.(a) 266,666 3,399,992
- ---------------------------------------------------------------
NCO Group, Inc.(a) 250,000 7,875,000
- ---------------------------------------------------------------
SEI Investments Co. 200,000 16,575,000
- ---------------------------------------------------------------
27,849,992
- ---------------------------------------------------------------
FOODS-1.27%
American Italian Pasta Co.-Class A(a) 100,000 2,300,000
- ---------------------------------------------------------------
Earthgrains Co. (The) 250,000 7,500,000
- ---------------------------------------------------------------
Fresh Del Monte Produce, Inc.(a) 150,000 2,681,250
- ---------------------------------------------------------------
Hain Food Group, Inc. (The)(a) 300,000 6,037,500
- ---------------------------------------------------------------
International Home Foods, Inc.(a) 200,000 3,550,000
- ---------------------------------------------------------------
Michael Foods, Inc. 50,000 1,200,000
- ---------------------------------------------------------------
Pilgrim's Pride Corp.-Class B 75,500 1,741,219
- ---------------------------------------------------------------
United Natural Foods, Inc.(a) 300,000 8,362,500
- ---------------------------------------------------------------
33,372,469
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.80%
Alpharma, Inc.-Class A 495,834 13,728,404
- ---------------------------------------------------------------
Biovail Corporation International(a)
(Canada) 100,000 3,118,750
- ---------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 400,000 4,825,000
- ---------------------------------------------------------------
Medicis Pharmaceutical-Class A(a) 405,000 20,300,625
- ---------------------------------------------------------------
Parexel International Corp.(a) 250,000 5,515,625
- ---------------------------------------------------------------
47,488,404
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.62%
Health Management Associates, Inc.
-Class A(a) 750,000 13,359,375
- ---------------------------------------------------------------
New American Healthcare Corp.(a) 450,000 4,781,250
- ---------------------------------------------------------------
Province Healthcare Co.(a) 299,200 7,816,600
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 325,000 16,676,563
- ---------------------------------------------------------------
42,633,788
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.66%
Assisted Living Concepts, Inc.(a) 700,000 9,450,000
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 300,000 3,637,500
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 100,000 4,306,250
- ---------------------------------------------------------------
17,393,750
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.46%
Express Scripts, Inc.-Class A(a) 125,000 12,210,938
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-3.62%
ADAC Laboratories(a) 350,000 10,368,750
- ---------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a) 200,000 6,150,000
- ---------------------------------------------------------------
Haemonetics Corp.(a) 83,200 1,793,976
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 600,000 23,212,500
- ---------------------------------------------------------------
MiniMed, Inc.(a) 150,000 8,325,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-(CONTINUED)
Osteotech, Inc.(a) 171,500 $ 4,319,656
- ---------------------------------------------------------------
ResMed, Inc.(a) 100,000 5,100,000
- ---------------------------------------------------------------
Safeskin Corp.(a) 50,000 1,106,250
- ---------------------------------------------------------------
Serologicals Corp.(a) 29,200 660,650
- ---------------------------------------------------------------
Sybron International Corp.(a) 800,000 19,800,000
- ---------------------------------------------------------------
VISX, Inc.(a) 200,000 10,025,000
- ---------------------------------------------------------------
Xomed Surgical Products, Inc.(a) 100,000 4,493,750
- ---------------------------------------------------------------
95,355,532
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-4.34%
Advance Paradigm, Inc.(a) 225,000 7,425,000
- ---------------------------------------------------------------
BioReliance Corp.(a) 200,000 1,600,000
- ---------------------------------------------------------------
Boron, LePore & Associates, Inc.(a) 300,000 8,100,000
- ---------------------------------------------------------------
Covance, Inc.(a) 200,000 5,575,000
- ---------------------------------------------------------------
First Consulting Group, Inc.(a) 150,000 2,465,625
- ---------------------------------------------------------------
Hooper Holmes, Inc. 300,000 7,143,750
- ---------------------------------------------------------------
Lincare Holdings, Inc.(a) 150,000 5,990,625
- ---------------------------------------------------------------
NCS HealthCare, Inc.-Class A(a) 500,000 8,812,500
- ---------------------------------------------------------------
Ocular Sciences, Inc.(a) 300,000 7,537,500
- ---------------------------------------------------------------
Omnicare, Inc. 500,000 17,281,250
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 625,000 11,835,938
- ---------------------------------------------------------------
Res-Care, Inc.(a) 150,000 3,318,750
- ---------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 300,000 11,100,000
- ---------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 300,000 7,350,000
- ---------------------------------------------------------------
Veterinary Centers of America,
Inc.(a) 500,000 8,875,000
- ---------------------------------------------------------------
114,410,938
- ---------------------------------------------------------------
HOMEBUILDING-0.37%
American Homestar Corp.(a) 600,000 9,825,000
- ---------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES-0.20%
International Comfort Products Corp.
(Canada)(a) 300,000 2,718,750
- ---------------------------------------------------------------
Service Experts, Inc.(a) 86,200 2,602,163
- ---------------------------------------------------------------
5,320,913
- ---------------------------------------------------------------
HOUSEWARES-0.56%
Helen of Troy Ltd.(a) 1,000,000 14,875,000
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.19%
Penn Treaty American Corp.(a) 244,200 5,143,465
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.12%
Century Business Services, Inc.(a) 225,000 3,135,938
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.66%
CMAC Investment Corp. 300,000 12,562,500
- ---------------------------------------------------------------
Fidelity National Financial, Inc. 100,000 3,075,000
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 100,000 1,793,750
- ---------------------------------------------------------------
17,431,250
- ---------------------------------------------------------------
</TABLE>
FS-75
<PAGE> 177
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INVESTMENT MANAGEMENT-0.39%
Eaton Vance Corp. 316,100 $ 7,072,738
- ---------------------------------------------------------------
Knight/Trimark Group, Inc.-Class A(a) 400,000 3,250,000
- ---------------------------------------------------------------
10,322,738
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.20%
International Speedway Corp.-Class A 103,100 3,183,213
- ---------------------------------------------------------------
Speedway Motorsports, Inc.(a) 100,000 2,100,000
- ---------------------------------------------------------------
5,283,213
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.26%
Applied Power, Inc.-Class A 250,000 6,890,625
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.27%
Matthews International Corp.-Class A 130,000 3,591,250
- ---------------------------------------------------------------
Spartech Corp. 200,000 3,600,000
- ---------------------------------------------------------------
7,191,250
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.50%
JLG Industries, Inc. 500,000 8,281,250
- ---------------------------------------------------------------
Zebra Technologies Corp.(a) 150,000 4,912,500
- ---------------------------------------------------------------
13,193,750
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-1.13%
Daisytek International Corp.(a)(b) 900,000 13,556,250
- ---------------------------------------------------------------
Herman Miller, Inc. 500,000 11,031,250
- ---------------------------------------------------------------
United Stationers, Inc.(a) 200,000 5,300,000
- ---------------------------------------------------------------
29,887,500
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.74%
Cal Dive International, Inc.(a) 125,000 2,671,875
- ---------------------------------------------------------------
CE Franklin Ltd.(a) 74,100 189,881
- ---------------------------------------------------------------
Core Laboratories N.V.(a)
(Netherlands) 500,000 11,281,250
- ---------------------------------------------------------------
Global Industries Ltd.(a) 550,000 5,293,750
- ---------------------------------------------------------------
19,436,756
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.47%
Cabot Oil & Gas Corp.-Class A 250,000 4,250,000
- ---------------------------------------------------------------
Evergreen Resources, Inc.(a) 150,000 3,393,750
- ---------------------------------------------------------------
Stone Energy Corp.(a) 150,000 4,818,750
- ---------------------------------------------------------------
12,462,500
- ---------------------------------------------------------------
PERSONAL CARE-1.22%
Rexall Sundown, Inc.(a) 700,000 12,556,250
- ---------------------------------------------------------------
Steiner Leisure Ltd.(a) 400,500 9,762,188
- ---------------------------------------------------------------
Twinlab Corp.(a) 450,000 9,984,375
- ---------------------------------------------------------------
32,302,813
- ---------------------------------------------------------------
PUBLISHING-0.52%
IDG Books Worldwide, Inc.-Class A(a) 400,000 6,200,000
- ---------------------------------------------------------------
Meredith Corp. 200,000 7,400,000
- ---------------------------------------------------------------
13,600,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RAILROADS-0.39%
MotivePower Industries, Inc.(a) 400,000 $ 10,175,000
- ---------------------------------------------------------------
RESTAURANTS-1.20%
Buffets, Inc.(a) 350,000 3,784,375
- ---------------------------------------------------------------
CEC Entertainment, Inc.(a) 300,000 8,475,000
- ---------------------------------------------------------------
Papa John's International, Inc.(a) 275,000 10,441,406
- ---------------------------------------------------------------
Sonic Corp.(a) 475,000 9,025,000
- ---------------------------------------------------------------
31,725,781
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-2.01%
Best Buy Co., Inc.(a) 100,000 4,800,000
- ---------------------------------------------------------------
CDW Computer Centers, Inc.(a) 500,000 37,468,750
- ---------------------------------------------------------------
Tech Data Corp.(a) 275,000 10,828,125
- ---------------------------------------------------------------
53,096,875
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.49%
Burlington Coat Factory Warehouse
Corp. 400,000 6,000,000
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 330,750 12,754,547
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 500,000 9,062,500
- ---------------------------------------------------------------
99 Cents Only Stores(a) 249,025 11,517,406
- ---------------------------------------------------------------
39,334,453
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.25%
Casey's General Stores 31,600 442,400
- ---------------------------------------------------------------
Wild Oats Markets, Inc.(a) 251,700 6,198,113
- ---------------------------------------------------------------
6,640,513
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.45%
Fred Meyer, Inc.(a) 225,000 11,995,313
- ---------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.12%
DM Management Company(a) 300,000 3,262,500
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-3.75%
BOWLIN Outdoor Advertising &
Travel Centers, Inc.(a)(b) 250,000 1,218,750
- ---------------------------------------------------------------
Cost Plus, Inc.(a) 113,200 3,396,000
- ---------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a)(b) 400,000 10,825,000
- ---------------------------------------------------------------
Inacom Corp.(a) 350,000 6,781,250
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 400,000 12,375,000
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 575,000 11,500,000
- ---------------------------------------------------------------
Musicland Stores Corp.(a) 250,000 3,296,875
- ---------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 250,000 9,781,250
- ---------------------------------------------------------------
PETsMART, Inc.(a) 400,000 2,875,000
- ---------------------------------------------------------------
Rent-Way, Inc.(a) 193,700 4,576,163
- ---------------------------------------------------------------
Renters Choice, Inc.(a) 500,000 12,406,250
- ---------------------------------------------------------------
Trans World Entertainment Corp.(a) 600,000 12,375,000
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 200,000 5,450,000
- ---------------------------------------------------------------
Zale Corp.(a) 89,500 2,120,037
- ---------------------------------------------------------------
98,976,575
- ---------------------------------------------------------------
</TABLE>
FS-76
<PAGE> 178
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL)-2.96%
Abercrombie & Fitch Co.-Class A(a) 300,000 $ 11,906,250
- ---------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 217,475 8,807,738
- ---------------------------------------------------------------
AnnTaylor Stores Corp.(a) 300,000 8,700,000
- ---------------------------------------------------------------
Buckle, Inc. (The)(a) 650,000 11,781,250
- ---------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 1,000,000 10,687,500
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 550,000 13,337,500
- ---------------------------------------------------------------
Pacific Sunwear of California(a) 596,700 12,903,638
- ---------------------------------------------------------------
78,123,876
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.43%
Abacus Direct Corp.(a) 100,000 4,875,000
- ---------------------------------------------------------------
Acxiom Corp.(a) 350,000 8,793,750
- ---------------------------------------------------------------
ADVO, Inc.(a) 100,000 2,543,750
- ---------------------------------------------------------------
Market Facts, Inc.(a) 375,000 8,765,625
- ---------------------------------------------------------------
Metris Companies, Inc. 225,000 7,396,875
- ---------------------------------------------------------------
Professional Detailing, Inc.(a) 100,000 2,337,500
- ---------------------------------------------------------------
TMP Worldwide, Inc.(a) 100,000 3,000,000
- ---------------------------------------------------------------
37,712,500
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-3.32%
Bright Horizons Family Solutions,
Inc.(a) 150,000 2,775,000
- ---------------------------------------------------------------
Cerner Corp.(a) 325,000 7,271,875
- ---------------------------------------------------------------
Championship Auto Racing Teams,
Inc.(a) 100,000 2,487,500
- ---------------------------------------------------------------
Equity Corp. International(a) 185,100 4,592,794
- ---------------------------------------------------------------
G & K Services, Inc.-Class A 300,000 13,725,000
- ---------------------------------------------------------------
INSpire Insurance Solutions, Inc.(a) 225,000 5,625,000
- ---------------------------------------------------------------
Iron Mountain, Inc.(a) 150,000 4,584,375
- ---------------------------------------------------------------
MSC Industrial Direct Co., Inc.
-Class A(a) 250,000 5,312,500
- ---------------------------------------------------------------
Regis Corp. 225,000 6,904,688
- ---------------------------------------------------------------
Ritchie Bros. Auctioneers Inc.(a)
(Canada) 155,100 3,877,500
- ---------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 800,000 18,450,000
- ---------------------------------------------------------------
Strayer Education, Inc. 350,000 11,900,000
- ---------------------------------------------------------------
87,506,232
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-2.83%
Analysts International Corp. 250,000 4,390,625
- ---------------------------------------------------------------
Ciber, Inc.(a) 150,000 2,943,750
- ---------------------------------------------------------------
Computer Task Group, Inc. 500,000 15,312,500
- ---------------------------------------------------------------
Insight Enterprises, Inc.(a) 750,000 21,750,000
- ---------------------------------------------------------------
Keane, Inc.(a) 200,000 6,650,000
- ---------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 125,300 3,359,606
- ---------------------------------------------------------------
SunGard Data Systems, Inc.(a) 600,000 20,250,000
- ---------------------------------------------------------------
74,656,481
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-4.13%
Affiliated Computer Services, Inc.(a) 550,000 20,350,000
- ---------------------------------------------------------------
Billing Concepts Corp.(a) 1,000,000 14,125,000
- ---------------------------------------------------------------
Computer Horizons Corp.(a) 200,000 4,600,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING)-(CONTINUED)
CSG Systems International, Inc.(a) 500,000 $ 27,250,000
- ---------------------------------------------------------------
FactSet Research Systems, Inc.(a) 190,800 5,724,000
- ---------------------------------------------------------------
MedQuist, Inc.(a) 350,000 9,428,125
- ---------------------------------------------------------------
National Computer Systems, Inc. 450,000 12,600,000
- ---------------------------------------------------------------
NOVA Corp.(a) 514,500 14,856,188
- ---------------------------------------------------------------
108,933,313
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.92%
On Assignment, Inc.(a) 75,000 2,550,000
- ---------------------------------------------------------------
RCM Technologies, Inc.(a) 200,000 3,012,500
- ---------------------------------------------------------------
Robert Half International, Inc.(a) 250,000 10,031,250
- ---------------------------------------------------------------
Romac International, Inc.(a) 500,000 8,750,000
- ---------------------------------------------------------------
24,343,750
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.47%
Cornell Corrections, Inc.(a) 450,000 7,368,750
- ---------------------------------------------------------------
Tetra Tech, Inc.(a) 250,000 5,078,125
- ---------------------------------------------------------------
12,446,875
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.89%
Consolidated Graphics, Inc.(a) 200,000 9,487,500
- ---------------------------------------------------------------
Valassis Communications, Inc.(a) 200,000 7,975,000
- ---------------------------------------------------------------
World Color Press, Inc.(a) 200,000 6,075,000
- ---------------------------------------------------------------
23,537,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.36%
Amdocs Limited(a) 275,000 3,575,000
- ---------------------------------------------------------------
International Telecommunication
Data Systems, Inc.(a) 245,050 5,850,569
- ---------------------------------------------------------------
9,425,569
- ---------------------------------------------------------------
TELEPHONE-0.30%
GeoTel Communications Corp.(a) 300,000 7,800,000
- ---------------------------------------------------------------
TEXTILES (APPAREL)-1.00%
Nautica Enterprises, Inc.(a) 200,000 4,137,500
- ---------------------------------------------------------------
Quicksilver, Inc.(a) 650,000 13,446,875
- ---------------------------------------------------------------
Russell Corp. 125,000 3,070,313
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 125,000 5,804,688
- ---------------------------------------------------------------
26,459,376
- ---------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.43%
Mohawk Industries, Inc.(a) 375,000 11,320,313
- ---------------------------------------------------------------
TRUCKERS-0.40%
M.S. Carriers, Inc.(a) 100,000 2,150,000
- ---------------------------------------------------------------
Swift Transportation Co., Inc.(a) 376,700 8,322,716
- ---------------------------------------------------------------
10,472,716
- ---------------------------------------------------------------
TRUCKS & PARTS-0.34%
Wabash National Corp. 500,000 8,875,000
- ---------------------------------------------------------------
</TABLE>
FS-77
<PAGE> 179
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WASTE MANAGEMENT-1.34%
Allied Waste Industries, Inc.(a) 1,160,000 $ 25,085,000
- ---------------------------------------------------------------
KTI, Inc.(a)(b) 495,000 10,395,000
- ---------------------------------------------------------------
35,480,000
- ---------------------------------------------------------------
Total Common Stocks
(Cost $1,846,469,621) 2,395,524,490
- ---------------------------------------------------------------
PREFERRED STOCKS-0.40%
LODGING-HOTELS-0.40%
Royal Caribbean Cruises Ltd.-
$3.63 Conv. Pfd.
(Cost $7,582,525) 115,000 10,522,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-9.80%(c)
Bear Stearns & Co., Inc.,
5.60%(d) $150,000,000 $ 150,000,000
- ---------------------------------------------------------------
Chase Securities Inc., 5.55%,
11/02/98(e) 38,478,507 $ 38,478,507
- ---------------------------------------------------------------
Deutsche Bank Sec. Corp.,
5.55%(f) 25,000,000 25,000,000
- ---------------------------------------------------------------
Salomon Smith Barney, Inc.,
5.55%(g) 45,000,000 45,000,000
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $258,478,507) 258,478,507
- ---------------------------------------------------------------
TOTAL INVESTMENTS-101.00% 2,664,525,497
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(1.00%) (26,487,841)
- ---------------------------------------------------------------
NET ASSETS-100.00% $2,638,037,656
===============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Pfd. - Preferred
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Funds's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Co. Act of 1940) of
that issuer. The aggregate market value of affiliated issuers as of 10/31/98
was $35,995,000 which represented 1.36% of the Fund's net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d) Open joint repurchase agreement entered into 10/30/98. Either party may
terminate the agreement upon demand. Interest rates, par and collateral are
redetermined daily. Collateralized by $873,414,203 U.S. Government
obligations, 0% to 9.50% due 08/01/01 to 04/01/34 with an aggregate market
value at 10/31/98 of $468,333,240.
(e) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$200,092,500. Collateralized by $254,478,951 U.S. Government obligations,
5.00% to 16.00% due 05/20/02 to 10/15/28 with an aggregate market value at
10/31/98 of $204,000,718.
(f) Open joint repurchase agreement entered into 10/30/98. Either party may
terminate the agreement upon demand. Interest rates, par and collateral are
redetermined daily. Collateralized by $189,108,000 U.S. Government
obligations, 6.00% to 6.21% due 05/15/08 to 08/06/38 with an aggregate
market value at 10/31/98 of $204,000,108.
(g) Open joint repurchase agreement entered into 10/30/98. Either party may
terminate the agreement upon demand. Interest rates, par and collateral are
redetermined daily. Collateralized by $1,159,504,000 U.S. Government
obligations, 0% to 10.70% due 11/01/98 to 07/15/45 with an aggregate market
value at 10/31/98 of $1,020,000,062.
See Notes to Financial Statements.
FS-78
<PAGE> 180
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,112,530,653) $2,664,525,497
- --------------------------------------------------------
Receivables for:
Investments sold 16,167,520
- --------------------------------------------------------
Capital stock sold 2,209,327
- --------------------------------------------------------
Dividends and interest 370,125
- --------------------------------------------------------
Investment for deferred compensation
plan 48,416
- --------------------------------------------------------
Other assets 61,443
- --------------------------------------------------------
Total assets 2,683,382,328
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 34,199,874
- --------------------------------------------------------
Capital stock reacquired 8,197,399
- --------------------------------------------------------
Deferred compensation 48,416
- --------------------------------------------------------
Accrued advisory fees 1,310,118
- --------------------------------------------------------
Accrued administrative services fees 9,386
- --------------------------------------------------------
Accrued distribution fees 873,518
- --------------------------------------------------------
Accrued directors' fees 2,175
- --------------------------------------------------------
Accrued transfer agent fees 422,288
- --------------------------------------------------------
Accrued operating expenses 281,498
- --------------------------------------------------------
Total liabilities 45,344,672
- --------------------------------------------------------
Net assets applicable to shares
outstanding $2,638,037,656
========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 65,707,162
========================================================
Net asset value and redemption price per
share $ 40.15
========================================================
Offering price per share:
(Net asset value of $40.15
divided by 94.50%) $ 42.49
========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $25,661 foreign
withholding tax) $ 3,761,020
- --------------------------------------------------------
Interest 10,737,672
- --------------------------------------------------------
Total investment income 14,498,692
- --------------------------------------------------------
EXPENSES:
Advisory fees 21,617,925
- --------------------------------------------------------
Administrative services fees 108,996
- --------------------------------------------------------
Custodian fees 269,048
- --------------------------------------------------------
Directors' fees 30,960
- --------------------------------------------------------
Distribution fees 8,542,170
- --------------------------------------------------------
Transfer agent fees 4,822,116
- --------------------------------------------------------
Other 1,028,881
- --------------------------------------------------------
Total expenses 36,420,096
- --------------------------------------------------------
Less: Expenses paid indirectly (102,523)
- --------------------------------------------------------
Net expenses 36,317,573
- --------------------------------------------------------
Net investment income (loss) (21,818,881)
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FUTURES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 28,934,402
- --------------------------------------------------------
Futures contracts (6,640,895)
- --------------------------------------------------------
Option contracts written 199,322
- --------------------------------------------------------
22,492,829
- --------------------------------------------------------
Net unrealized appreciation
(depreciation) of:
Investment securities (548,025,194)
- --------------------------------------------------------
Futures contracts 5,238,090
- --------------------------------------------------------
(542,787,104)
- --------------------------------------------------------
Net gain (loss) from investment
securities, futures and option
contracts (520,294,275)
- --------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(542,113,156)
========================================================
</TABLE>
See Notes to Financial Statements.
FS-79
<PAGE> 181
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (21,818,881) $ (19,740,330)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures and
option contracts 22,492,829 143,240,683
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and futures contracts (542,787,104) 435,818,451
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (542,113,156) 559,318,804
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains (135,730,479) (138,552,707)
- ----------------------------------------------------------------------------------------------
Share transactions--net (548,376,018) 692,927,269
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,226,219,653) 1,113,693,366
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 3,864,257,309 2,750,563,943
- ----------------------------------------------------------------------------------------------
End of period $ 2,638,037,656 $3,864,257,309
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 2,060,980,954 $2,631,139,285
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (117,968) (81,400)
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, futures and option contracts 25,179,825 138,417,475
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 551,994,845 1,094,781,949
- ----------------------------------------------------------------------------------------------
$ 2,638,037,656 $3,864,257,309
==============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive Growth Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six separate
portfolios: AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten
Fund. Matters affecting each portfolio or class will be voted on exclusively by
the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund's investment
objective is to achieve long-term growth of capital by investing primarily in
common stocks, convertible bonds, convertible preferred stocks and warrants of
companies which in the opinion of the Fund's investment advisor are expected to
achieve earnings growth over time at a rate in excess of 15% per year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last price on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market quotations are not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the Company's officers in a manner
specifically authorized by the Board of Directors of the Company. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. Generally, trading in foreign securities is
FS-80
<PAGE> 182
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which would
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions-- Securities
transactions are recorded on a trade date basis. Realized gains or losses on
sales are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
$21,782,313 was reclassified from undistributed net investment income (loss)
to paid in capital as a result of a net operating tax loss in order to
comply with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassification discussed above.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the
Fund's basis in the contract. Risks include the possibility of an illiquid
market and that a change in the value of contracts may not correlate with
changes in the value of the securities being hedged.
E. Foreign Currency Transactions--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
F. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
G. 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 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the fund's average daily net assets in excess of $150 million.
FS-81
<PAGE> 183
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, 1998, AIM was
reimbursed $108,996 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the year ended October 31, 1998,
AFS was paid $2,494,291 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Company has adopted a plan pursuant to rule 12b-1 under the 1940 Act
(the "Plan"), whereby the Fund pays to AIM Distributors an annual rate of 0.25%
of the Fund's average daily net assets as compensation for services related to
the sales and distribution of the Fund's shares. The Plan provides that payments
to dealers and financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions, may be characterized as
a service fee. Any amounts not paid as a service fee under the Plan would
constitute an assets-based sales charge. The Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund's shares. During the year ended
October 31, 1998, the Fund paid AIM Distributors $8,542,170 as compensation
under the Plan.
AIM Distributors received commissions of $763,601 from sales of shares of the
Fund's capital stock during the year ended October 31, 1998. Such commissions
are not an expense of the Fund. They are deducted from, and are not included in,
the proceeds from sales of capital stock. During the year ended October 31,
1998, AIM Distributors received $86,211 in contingent deferred sales charges
imposed on redemptions of the Fund's capital stock. Certain officers and
directors of the Company are officers and directors of AIM, AFS and AIM
Distributors.
During the year ended October 31, 1998, the Fund paid legal fees of $10,572
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
During the year ended October 31, 1998 the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$35,949 and $66,574, respectively, under expense offset arrangements. The effect
of the above arrangements resulted in a reduction of the Fund's total expenses
of $102,523 during the year ended October 31, 1998.
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) $1,000,000,000 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended October 31, 1998 were $2,149,715,327
and $2,921,465,631, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 667,335,730
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (127,114,794)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $ 540,220,936
==========================================================
</TABLE>
Cost of investment for tax purposes is $2,124,304,561.
NOTE 7-CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period -- --
- --------------------------------- --------- ---------
Written 741 $ 205,435
- --------------------------------- --------- ---------
Closed (741) (205,435)
- --------------------------------- --------- ---------
End of period -- --
================================= ========= =========
</TABLE>
FS-82
<PAGE> 184
NOTE 8-CAPITAL STOCK
Changes in capital stock outstanding during the years ended October 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold 40,244,020 $ 1,856,544,416 41,558,826 $ 1,826,781,148
- ---------------------------------------------------------- ----------- --------------- ----------- ---------------
Issued as reinvestment of dividends 2,928,346 126,973,169 3,068,800 127,938,198
- ---------------------------------------------------------- ----------- --------------- ----------- ---------------
Reacquired (54,802,587) (2,531,893,603) (28,514,602) (1,261,792,077)
- ---------------------------------------------------------- ----------- --------------- ----------- ---------------
(11,630,221) $ (548,376,018) 16,113,024 $ 692,927,269
========================================================== =========== =============== =========== ===============
</TABLE>
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the five-year period ended October 31,
1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 49.97 $ 44.93 $ 40.13 $ 28.37 $ 23.85
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income (loss) (0.33) (0.26) (0.32) (0.04) (0.05)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- --------
Net gains (losses) on securities (both realized and
unrealized) (7.71) 7.60 6.09 11.80 4.57
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- --------
Total from investment operations (8.04) 7.34 5.77 11.76 4.52
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- --------
Less distributions:
Distributions from net realized gains (1.78) (2.30) (0.97) -- --
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 40.15 $ 49.97 $ 44.93 $ 40.13 $ 28.37
============================================================ ========== ========== ========== ========== ========
Total return(a) (16.36)% 17.35% 14.77% 41.45% 18.96%
============================================================ ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,638,038 $3,864,257 $2,750,564 $2,245,554 $687,238
============================================================ ========== ========== ========== ========== ========
Ratio of expenses to average net assets(b) 1.06%(c) 1.06% 1.11% 1.08% 1.07%
============================================================ ========== ========== ========== ========== ========
Ratio of net investment income (loss) to average net
assets(d) (0.64)%(c) (0.65)% (0.76)% (0.19)% (0.26)%
============================================================ ========== ========== ========== ========== ========
Portfolio turnover rate 69% 73% 79% 52% 75%
============================================================ ========== ========== ========== ========== ========
</TABLE>
(a) Does not deduct sales charges.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.15% and 1.09% for 1995-1994.
(c) Ratios are based on average net assets of $3,416,868,071.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.26)% and (0.28)% for 1995-1994.
FS-83
<PAGE> 185
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
We have audited the accompanying statements of assets and
liabilities of AIM Blue Chip Fund (a portfolio of AIM
Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1998, the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended and financial
highlights for each of the years in the two-year period
then ended, the one month period ended October 31, 1996,
and the year ended September 30, 1996. These financial
statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits. The financial highlights for each of the
years in the two-year period ended September 30, 1995
were audited by other auditors whose report thereon,
dated October 25, 1995, expressed an unqualified opinion
on those financial highlights.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Blue
Chip Fund as of October 31, 1998, 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 financial highlights for each of the years
in the two-year period then ended, the one-month ended
October 31, 1996, and the year ended September 30, 1996
in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-84
<PAGE> 186
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-88.13%
AEROSPACE/DEFENSE-0.37%
Precision Castparts Corp. 160,000 $ 7,040,000
- ---------------------------------------------------------------
AIR FREIGHT-0.24%
CNF Transportation Inc. 152,500 4,613,125
- ---------------------------------------------------------------
AIRLINES-0.39%
Delta Air Lines, Inc. 70,000 7,389,375
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.43%
Lear Corp.(a) 256,000 8,224,000
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.50%
Fifth Third Bancorp 230,000 15,237,500
- ---------------------------------------------------------------
Norwest Corp. 185,000 6,879,688
- ---------------------------------------------------------------
State Street Corp. 175,000 10,915,625
- ---------------------------------------------------------------
UBS A.G. (Switzerland)(a) 44,000 12,067,030
- ---------------------------------------------------------------
Wells Fargo & Co. 7,700 2,849,000
- ---------------------------------------------------------------
47,948,843
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-1.60%
BankAmerica Corp. 203,688 11,699,330
- ---------------------------------------------------------------
Chase Manhattan Corp. (The) 335,000 19,032,187
- ---------------------------------------------------------------
30,731,517
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-1.06%
Coca-Cola Co. (The) 300,000 20,287,500
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-1.09%
CBS Corp.(a) 350,000 9,778,125
- ---------------------------------------------------------------
Comcast Corp.-Class A 225,000 11,109,375
- ---------------------------------------------------------------
20,887,500
- ---------------------------------------------------------------
CHEMICALS-0.58%
Du Pont (E.I.) de Nemours & Co. 195,000 11,212,500
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.64%
Goodrich (B.F.) Co. 225,000 8,100,000
- ---------------------------------------------------------------
Monsanto Co. 400,000 16,250,000
- ---------------------------------------------------------------
PPG Industries, Inc. 125,000 7,148,438
- ---------------------------------------------------------------
31,498,438
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.33%
Crompton & Knowles Corp. 390,000 6,264,375
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.83%
Lucent Technologies, Inc. 300,000 24,056,250
- ---------------------------------------------------------------
Northern Telecom Ltd.-ADR
(Canada) 260,000 11,131,250
- ---------------------------------------------------------------
35,187,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (HARDWARE)-2.37%
Dell Computer Corp.(a) 400,000 $ 26,250,000
- ---------------------------------------------------------------
International Business Machines
Corp. 130,000 19,296,875
- ---------------------------------------------------------------
45,546,875
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.44%
Ascend Communications, Inc.(a) 135,000 6,513,750
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 335,000 21,105,000
- ---------------------------------------------------------------
27,618,750
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.27%
EMC Corp.(a) 380,000 24,462,500
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-5.44%
America Online, Inc. 160,000 20,330,000
- ---------------------------------------------------------------
BMC Software, Inc.(a) 425,000 20,426,563
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 410,000 8,763,750
- ---------------------------------------------------------------
HBO & Co. 480,000 12,600,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 400,000 42,350,000
- ---------------------------------------------------------------
104,470,313
- ---------------------------------------------------------------
CONSUMER FINANCE-0.42%
Household International, Inc. 220,000 8,043,750
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.11%
Cardinal Health, Inc. 225,000 21,276,562
- ---------------------------------------------------------------
ELECTRIC COMPANIES-1.63%
Cinergy Corp. 165,000 5,692,500
- ---------------------------------------------------------------
Duke Power Co. 165,000 10,673,438
- ---------------------------------------------------------------
Edison International 565,000 14,901,875
- ---------------------------------------------------------------
31,267,813
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.93%
Emerson Electric Co. 150,000 9,900,000
- ---------------------------------------------------------------
General Electric Co. 375,000 32,812,500
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 340,000 13,430,000
- ---------------------------------------------------------------
56,142,500
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-1.65%
Intel Corp. 250,000 22,296,875
- ---------------------------------------------------------------
Xilinx, Inc.(a) 209,900 9,373,347
- ---------------------------------------------------------------
31,670,222
- ---------------------------------------------------------------
ENTERTAINMENT-0.42%
Walt Disney Co. (The) 300,000 8,081,250
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.36%
Applied Materials, Inc.(a) 200,000 6,937,500
- ---------------------------------------------------------------
</TABLE>
FS-85
<PAGE> 187
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOODS-0.58%
Nestle SA (Switzerland) 5,200 $ 11,055,662
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-7.29%
American Express Co. 225,000 19,884,375
- ---------------------------------------------------------------
Citigroup Inc. 425,000 20,001,562
- ---------------------------------------------------------------
Fannie Mae 350,000 24,784,375
- ---------------------------------------------------------------
Freddie Mac 430,000 24,725,000
- ---------------------------------------------------------------
MBIA, Inc. 300,000 18,337,500
- ---------------------------------------------------------------
MGIC Investment Corp. 325,600 12,698,400
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 300,000 19,425,000
- ---------------------------------------------------------------
139,856,212
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-4.02%
Abbott Laboratories 260,000 12,203,750
- ---------------------------------------------------------------
American Home Products Corp. 180,000 8,775,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 150,000 16,584,375
- ---------------------------------------------------------------
Johnson & Johnson 125,000 10,187,500
- ---------------------------------------------------------------
Warner-Lambert Co. 375,000 29,390,625
- ---------------------------------------------------------------
77,141,250
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-4.76%
Lilly (Eli) & Co. 250,000 20,234,375
- ---------------------------------------------------------------
Merck & Co., Inc. 155,000 20,963,750
- ---------------------------------------------------------------
Pfizer Inc. 285,000 30,584,063
- ---------------------------------------------------------------
Schering-Plough Corp. 190,000 19,546,250
- ---------------------------------------------------------------
91,328,438
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.55%
HEALTHSOUTH Corp.(a) 875,000 10,609,375
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-3.46%
Allegiance Corp. 375,000 13,945,312
- ---------------------------------------------------------------
Becton, Dickinson & Co. 540,000 22,747,500
- ---------------------------------------------------------------
Guidant Corp. 245,000 18,742,500
- ---------------------------------------------------------------
Medtronic, Inc. 170,000 11,050,000
- ---------------------------------------------------------------
66,485,312
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-1.87%
Colgate-Palmolive Co. 190,000 16,791,250
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 215,000 19,108,125
- ---------------------------------------------------------------
35,899,375
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.82%
American International Group, Inc. 290,000 24,722,500
- ---------------------------------------------------------------
CIGNA Corp. 140,000 10,211,250
- ---------------------------------------------------------------
34,933,750
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-1.38%
Allstate Corp. (The) 290,000 12,488,125
- ---------------------------------------------------------------
Progressive Corp. 95,000 13,988,750
- ---------------------------------------------------------------
26,476,875
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INVESTMENT BANKING/BROKERAGE-0.68%
Merrill Lynch & Co., Inc. 220,000 $ 13,035,000
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.59%
Franklin Resources, Inc. 297,500 11,249,218
- ---------------------------------------------------------------
LODGING-HOTELS-1.22%
Carnival Corp. 725,000 23,471,875
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.87%
Ingersoll-Rand Co. 330,000 16,665,000
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.54%
Tyco International Ltd. 465,000 28,800,938
- ---------------------------------------------------------------
United Technologies Corp. 210,000 20,002,500
- ---------------------------------------------------------------
48,803,438
- ---------------------------------------------------------------
NATURAL GAS-1.29%
El Paso Energy Corp. 400,000 14,175,000
- ---------------------------------------------------------------
Enron Corp. 200,000 10,550,000
- ---------------------------------------------------------------
24,725,000
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-1.14%
Halliburton Co. 300,000 10,781,250
- ---------------------------------------------------------------
Schlumberger Ltd. 210,000 11,025,000
- ---------------------------------------------------------------
21,806,250
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-2.82%
Exxon Corp. 300,000 21,375,000
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 365,000 17,976,250
- ---------------------------------------------------------------
Texaco, Inc. 250,000 14,828,125
- ---------------------------------------------------------------
54,179,375
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.24%
Bowater, Inc. 115,000 4,693,438
- ---------------------------------------------------------------
PERSONAL CARE-0.58%
Avon Products, Inc. 280,000 11,112,500
- ---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.76%
Xerox Corp. 150,000 14,531,250
- ---------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.38%
New York Times Co.-Class A (The) 255,000 7,203,750
- ---------------------------------------------------------------
RAILROADS-0.23%
Canadian National Railway Co.
(Canada) 90,000 4,539,375
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-1.05%
Home Depot, Inc. (The) 465,000 20,227,500
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.37%
Ingram Micro, Inc.-Class A(a) 155,000 7,052,500
- ---------------------------------------------------------------
</TABLE>
FS-86
<PAGE> 188
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DRUG STORES)-1.21%
CVS Corp. 290,000 $ 13,249,375
- ---------------------------------------------------------------
Rite Aid Corp. 250,000 9,921,875
- ---------------------------------------------------------------
23,171,250
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.69%
Kroger Co.(a) 275,000 15,262,500
- ---------------------------------------------------------------
Safeway, Inc.(a) 360,000 17,212,500
- ---------------------------------------------------------------
32,475,000
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-2.27%
Costco Companies, Inc.(a) 330,000 18,727,500
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 360,000 24,840,000
- ---------------------------------------------------------------
43,567,500
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.60%
Staples, Inc.(a) 350,000 11,418,750
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.20%
Gap, Inc. (The) 265,000 15,933,125
- ---------------------------------------------------------------
TJX Companies, Inc. 375,000 7,101,562
- ---------------------------------------------------------------
23,034,687
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.53%
Interpublic Group of Companies, Inc. 175,000 10,237,500
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.80%
Service Corp. International 430,000 15,318,750
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.27%
Equifax, Inc. 250,000 9,671,875
- ---------------------------------------------------------------
Fiserv, Inc.(a) 315,000 14,647,500
- ---------------------------------------------------------------
24,319,375
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.88%
AirTouch Communications, Inc.(a) 300,000 $ 16,800,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-2.93%
AT&T Corp. 300,000 18,675,000
- ---------------------------------------------------------------
MCI WorldCom, Inc.(a) 680,000 37,570,000
- ---------------------------------------------------------------
56,245,000
- ---------------------------------------------------------------
TELEPHONE-2.16%
BellSouth Corp. 260,000 20,751,250
- ---------------------------------------------------------------
SBC Communications, Inc. 450,000 20,840,625
- ---------------------------------------------------------------
41,591,875
- ---------------------------------------------------------------
TOBACCO-1.00%
Philip Morris Companies, Inc. 375,000 19,171,875
- ---------------------------------------------------------------
Total Common Stocks (Cost
$1,411,293,499) 1,691,235,988
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-4.56%(b)
3.998%, 12/24/98 (Cost
$87,502,830) $88,095,000(c) 87,502,830
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-8.62%(d)
Chase Securities Inc., 5.55%,
11/02/98(e) 37,210,796 37,210,796
- ---------------------------------------------------------------
Salomon Smith Barney, Inc.,
5.55%(f) 75,000,000 75,000,000
- ---------------------------------------------------------------
SBC Warburg Dillon Read Inc.,
5.40%, 11/02/98(g) 53,261,739 53,261,739
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $165,472,535) 165,472,535
- ---------------------------------------------------------------
TOTAL INVESTMENTS-101.31% 1,944,211,353
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(1.31%) (25,147,938)
- ---------------------------------------------------------------
NET ASSETS-100.00% $1,919,063,415
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contract. See Note 8.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$200,092,500. Collateralized by $254,478,951 U.S. Government obligations,
5.00% to 16.00% due 05/20/02 to 10/15/28 with an aggregate market value at
10/31/98 of $204,000,718.
(f) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates and collateral are redetermined daily.
Collateralized by $1,159,504,000 U.S. Government obligations, 0% to 10.70%
due 11/01/98 to 07/15/45 with an aggregate market value at 10/31/98 of
$1,020,000,062.
(g) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$1,300,585,000. Collateralized by $2,856,569,000 U.S. Government
obligations, 0% to 5.50% due 11/15/98 to 02/15/25 with an aggregate market
value at 10/31/98 of $1,326,231,109.
See Notes to Financial Statements.
FS-87
<PAGE> 189
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,664,268,864) $1,944,211,353
- ---------------------------------------------------------
Cash 1,378,300
- ---------------------------------------------------------
Receivables for:
Investments sold 5,584,228
- ---------------------------------------------------------
Capital stock sold 14,336,913
- ---------------------------------------------------------
Dividends and interest 1,265,705
- ---------------------------------------------------------
Variation margin 739,500
- ---------------------------------------------------------
Investment for deferred compensation plan 12,713
- ---------------------------------------------------------
Other assets 98,212
- ---------------------------------------------------------
Total assets 1,967,626,924
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 37,343,642
- ---------------------------------------------------------
Capital stock reacquired 9,004,946
- ---------------------------------------------------------
Deferred compensation 12,713
- ---------------------------------------------------------
Accrued advisory fees 959,109
- ---------------------------------------------------------
Accrued administrative services fees 7,800
- ---------------------------------------------------------
Accrued directors' fees 1,452
- ---------------------------------------------------------
Accrued distribution fees 987,390
- ---------------------------------------------------------
Accrued transfer agent fees 210,587
- ---------------------------------------------------------
Accrued operating expenses 35,870
- ---------------------------------------------------------
Total liabilities 48,563,509
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $1,919,063,415
- ---------------------------------------------------------
NET ASSETS:
Class A $1,085,648,288
=========================================================
Class B $ 745,861,572
=========================================================
Class C $ 87,553,555
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 30,041,070
=========================================================
Class B:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 20,875,655
=========================================================
Class C:
Authorized 750,000,000
- ---------------------------------------------------------
Outstanding 2,451,052
=========================================================
Class A:
Net asset value and redemption price
per share $ 36.14
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $36.14
divided by 94.50%) $ 38.24
=========================================================
Class B:
Net asset value and offering price per
share $ 35.73
=========================================================
Class C:
Net asset value and offering price per
share $ 35.72
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $175,822 foreign
withholding tax) $ 12,101,918
- --------------------------------------------------------
Interest 8,459,233
- --------------------------------------------------------
Total investment income 20,561,151
- --------------------------------------------------------
EXPENSES:
Advisory fees 8,680,763
- --------------------------------------------------------
Administrative services fees 85,043
- --------------------------------------------------------
Custodian fees 104,809
- --------------------------------------------------------
Directors' fees 15,156
- --------------------------------------------------------
Distribution fees -- Class A 2,772,279
- --------------------------------------------------------
Distribution fees -- Class B 4,951,474
- --------------------------------------------------------
Distribution fees -- Class C 315,731
- --------------------------------------------------------
Transfer agent fees -- Class A 1,291,649
- --------------------------------------------------------
Transfer agent fees -- Class B 1,138,355
- --------------------------------------------------------
Transfer agent fees -- Class C 72,588
- --------------------------------------------------------
Other 484,609
- --------------------------------------------------------
Total expenses 19,912,456
- --------------------------------------------------------
Less: Expenses paid indirectly (15,314)
- --------------------------------------------------------
Net expenses 19,897,142
- --------------------------------------------------------
Net investment income 664,009
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 984,557
- --------------------------------------------------------
Foreign currencies 84,040
- --------------------------------------------------------
Futures contracts (21,242)
- --------------------------------------------------------
Option contracts purchased 33,822
- --------------------------------------------------------
Option contracts written 119,473
- --------------------------------------------------------
1,200,650
- --------------------------------------------------------
Net unrealized appreciation of:
Investment securities 168,942,445
- --------------------------------------------------------
Foreign currencies 7,223
- --------------------------------------------------------
Futures contracts 6,832,971
- --------------------------------------------------------
175,782,639
- --------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and
option contracts 176,983,289
- --------------------------------------------------------
Net increase in net assets resulting from
operations $177,647,298
========================================================
</TABLE>
See Notes to Financial Statements.
FS-88
<PAGE> 190
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 664,009 $ 1,263,308
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 1,200,650 16,831,389
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies and futures contracts 175,782,639 82,786,779
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 177,647,298 100,881,476
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (1,249,305) (271,127)
- --------------------------------------------------------------------------------------------
Class B -- (24,561)
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (10,987,892) (12,005,450)
- --------------------------------------------------------------------------------------------
Class B (6,118,620) (1,655,534)
- --------------------------------------------------------------------------------------------
Class C (150,526) --
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 486,282,009 314,611,429
- --------------------------------------------------------------------------------------------
Class B 425,444,112 232,350,533
- --------------------------------------------------------------------------------------------
Class C 81,733,726 4,027,493
- --------------------------------------------------------------------------------------------
Net increase in net assets 1,152,600,802 637,914,259
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 766,462,613 128,548,354
- --------------------------------------------------------------------------------------------
End of period $1,919,063,415 $766,462,613
============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,631,900,085 $638,472,344
- --------------------------------------------------------------------------------------------
Undistributed net investment income 706,247 1,185,397
- --------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 655,618 16,786,046
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 285,801,465 110,018,826
- --------------------------------------------------------------------------------------------
$1,919,063,415 $766,462,613
============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-89
<PAGE> 191
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc.
(the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios: AIM
Blue Chip Fund, AIM Aggressive Growth Fund, AIM Capital Development Fund, AIM
Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. The Fund currently
offers three different classes of shares: Class A shares, Class B shares and
Class C shares. Class A shares are sold with a front-end sales charge. Class B
shares and Class C shares are sold with a contingent deferred sales charge.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. The Fund's investment objective
is long-term growth of capital. Information presented in these financial
statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last price on the exchange where the
security is principally traded, or lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on
that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. If a mean is not available, as in the
case of some foreign markets, the closing bid will be used absent a last
sales price. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean of the closing bid and asked prices. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Company's officers in a manner specifically authorized
by the Board of Directors of the Company. Short-term obligations having 60
days or less to maturity are valued at amortized cost which approximates
market value. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New
York Stock Exchange. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they
are determined and the close of the New York Stock Exchange which will not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair market value as determined
in good faith by or under the supervision of the Board of Directors.
B. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in order
to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are recorded on a trade date basis. Realized gains or losses on
sales are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $106,146, undistributed
net realized gains decreased by $74,040 and paid-in capital decreased by
$32,106 in order to comply with the requirements of the American Institute of
Certified Public Accountants Statement of Position 93-2. Net assets of the
Fund were unaffected by the reclassifications discussed above.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
F. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of
FS-90
<PAGE> 192
specific securities or cash, and/or by securing a standby letter of credit
from a major commercial bank, as collateral, for the account of the broker
(the Fund's agent in acquiring the futures position). During the period the
futures contracts are open, changes in the value of the contracts are
recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the market value of the contracts at the end of each day's
trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and that a change in the value of contracts may not correlate with changes in
the value of the securities being hedged.
G. 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.
H. Put options--The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the options'
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the maximum
the Fund has at risk is the cost of the option, purchasing put options does
not eliminate the potential for the Fund to profit from an increase in the
value of the securities hedged.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million.
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, 1998, AIM was
reimbursed $85,043 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the year ended October 31, 1998,
AFS was paid $1,587,149 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the 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.
During the year ended October 31, 1998,
FS-91
<PAGE> 193
the Class A, Class B and Class C shares paid AIM Distributors $2,772,279,
$4,951,474, and $315,731 respectively, as compensation under the Plans.
AIM Distributors received commissions of $1,557,995 from sales of Class A
shares of the Fund during the year ended October 31, 1998. 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, 1998,
AIM Distributors received commissions of $61,498 in contingent deferred sales
charges imposed on redemption of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, AFS and AIM Distributors.
During the year ended October 31, 1998, the Fund paid legal fees of $5,463,
respectively, for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$13,605 and $1,709, respectively, under expense offset arrangements. The effect
of the above arrangements resulted in a reduction of the Fund's total expenses
of $15,314 during the year ended October 31, 1998.
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) $1,000,000,000 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended October 31, 1998 was $1,125,601,391 and
$314,119,411, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis is as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 335,618,824
- ------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (56,138,489)
- ------------------------------------------------------
Net unrealized appreciation of
investment securities $ 279,480,335
======================================================
</TABLE>
Costs of investments for tax purposes is $1,664,731,018.
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of year -- --
- -----------------------------------------------------------
Written 1,700 $ 262,670
- -----------------------------------------------------------
Closed (800) (181,073)
- -----------------------------------------------------------
Exercised (900) (81,597)
- -----------------------------------------------------------
End of year -- $ --
===========================================================
</TABLE>
NOTE 8-FUTURES CONTRACTS
On October 31, 1998, $5,100,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
NO. OF MONTH/ UNREALIZED
CONTRACT CONTRACTS COMMITMENT APPRECIATION
-------- --------- ---------- ------------
<S> <C> <C> <C>
S&P 500 Index 340 Dec. 98 $5,851,595
- -----------------------------------------------------
</TABLE>
NOTE 9-CAPITAL STOCK
Changes in capital stock outstanding during the years ended October 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 26,179,983 $ 915,652,812 16,335,583 $ 455,558,096
- -------------------------------------------------------------------------------
Class B 14,239,927 492,929,849 8,938,415 251,600,263
- -------------------------------------------------------------------------------
Class C* 2,711,151 95,200,193 130,145 4,084,511
- -------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 371,504 11,699,310 475,797 11,419,078
- -------------------------------------------------------------------------------
Class B 184,940 5,805,443 59,879 1,437,104
- -------------------------------------------------------------------------------
Class C* 3,949 128,203 -- --
- -------------------------------------------------------------------------------
Reacquired:
Class A (12,601,919) (441,070,113) (5,338,702) (152,365,745)
- -------------------------------------------------------------------------------
Class B (2,143,627) (73,291,180) (714,558) (20,686,834)
- -------------------------------------------------------------------------------
Class C* (392,399) (13,594,670) (1,794) (57,018)
- -------------------------------------------------------------------------------
28,553,509 $ 993,459,847 19,884,765 $ 550,989,455
===============================================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
FS-92
<PAGE> 194
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended October 31,
1998, the one month ended October 31, 1996 and each of the years in the
three-year period ended September 30, 1996, for a share of Class B capital stock
outstanding during each of the years in the two-year period ended October 31,
1998 and the period October 1, 1996 (date sales commenced) through October 31,
1996, and for a share of Class C capital stock outstanding during the year ended
October 31, 1998 and the period August 4, 1997 (date sales commenced) through
October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
OCTOBER 31, SEPTEMBER 30,
-------------------------------------- ---------------------------------
1998 1997 1996 1996(a) 1995 1994
----------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 30.96 $ 26.08 $ 25.56 $ 23.83 $ 19.22 $ 18.89
- --------------------------------------------------- ----------- --------- --------- --------- -------- --------
Income from investment operations:
Net investment income 0.13(b) 0.17(b) -- 0.33 0.14 0.15
- --------------------------------------------------- ----------- --------- --------- --------- -------- --------
Net gains on securities (both realized and
unrealized) 5.75 6.93 0.52 4.61 5.05 1.24
- --------------------------------------------------- ----------- --------- --------- --------- -------- --------
Total from investment operations 5.88 7.10 0.52 4.94 5.19 1.39
- --------------------------------------------------- ----------- --------- --------- --------- -------- --------
Less distributions:
Dividends from net investment income (0.07) (0.05) -- (0.21) (0.12) (0.21)
- --------------------------------------------------- ----------- --------- --------- --------- -------- --------
Distributions from net realized gains (0.63) (2.17) -- (3.00) (0.46) (0.85)
- --------------------------------------------------- ----------- --------- --------- --------- -------- --------
Total distributions (0.70) (2.22) -- (3.21) (0.58) (1.06)
- --------------------------------------------------- ----------- --------- --------- --------- -------- --------
Net asset value, end of period $ 36.14 $ 30.96 $ 26.08 $ 25.56 $ 23.83 $ 19.22
=================================================== =========== ========= ========= ========= ======== ========
Total return(c) 19.36% 29.68% 2.04% 22.39% 27.84% 7.69%
=================================================== =========== ========= ========= ========= ======== ========
Ratios/supplement data:
Net assets, end of period (000s omitted) $ 1,085,648 $ 498,178 $ 120,448 $ 106,415 $ 71,324 $ 60,115
=================================================== =========== ========= ========= ========= ======== ========
Ratio of expenses to average net assets(d) 1.22%(e) 1.31% 1.30%(f) 1.26% 1.3% 1.4%
=================================================== =========== ========= ========= ========= ======== ========
Ratio of net investment income to average net
assets(g) 0.33%(e) 0.50% 0.12%(f) 0.53% 0.7% 0.8%
=================================================== =========== ========= ========= ========= ======== ========
Portfolio turnover rate 27% 43% 10% 58% 17% 13%
=================================================== =========== ========= ========= ========= ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 3, 1996.
(b) Calculated using average shares outstanding.
(c) Does not deduct sales charges and is not annualized for periods less than
one year.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.32%, 1.37% (annualized) and 1.28% for the periods 1997-1996, and September
30, 1996.
(e) Ratios are based on average net assets of $792,079,631.
(f) Annualized.
(g) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.49%, 0.05% (annualized) and 0.51% for the periods
1997-1996 and September 30, 1996.
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------------- ----------------------
1998 1997 1996 1998 1997
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 30.76 $ 26.07 $ 25.56 $ 30.75 $ 31.72
- ------------------------------------------------------------ -------- -------- -------- --------- --------
Income from investment operations:
Net investment income (loss) (0.12) (0.03)(a) (0.01) (0.12)(a) (0.01)(a)
- ------------------------------------------------------------ -------- -------- -------- --------- --------
Net gains (losses) on securities (both realized and
unrealized) 5.72 6.92 0.52 5.72 (0.96)
- ------------------------------------------------------------ -------- -------- -------- --------- --------
Total from investment operations 5.60 6.89 0.51 5.60 (0.97)
- ------------------------------------------------------------ -------- -------- -------- --------- --------
Less distributions:
Dividends from net investment income -- (0.03) -- -- --
- ------------------------------------------------------------ -------- -------- -------- --------- --------
Distributions from net realized gains (0.63) (2.17) -- (0.63) --
- ------------------------------------------------------------ -------- -------- -------- --------- --------
Total distributions (0.63) (2.20) -- (0.63) --
- ------------------------------------------------------------ -------- -------- -------- --------- --------
Net asset value, end of period $ 35.73 $ 30.76 $ 26.07 $ 35.72 $ 30.75
============================================================ ======== ======== ======== ========= ========
Total return(b) 18.52% 28.81% 2.00% 18.52% (3.06)%
============================================================ ======== ======== ======== ========= ========
Ratios/supplement data:
Net assets, end of period (000s omitted) $745,862 $264,337 $ 8,101 $ 87,554 $ 3,947
============================================================ ======== ======== ======== ========= ========
Ratio of expenses to average net assets(c) 1.94%(d) 2.10% 2.01%(e) 1.94%(d) 2.10%(e)
============================================================ ======== ======== ======== ========= ========
Ratio of net investment income (loss) to average net
assets(f) (0.38)%(d) (0.28)% (0.58)%(e) (0.38)%(d) (0.28)%(e)
============================================================ ======== ======== ======== ========= ========
Portfolio turnover rate 27% 43% 10% 27% 43%
============================================================ ======== ======== ======== ========= ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not
annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursement. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 2.12% and 2.08% (annualized) for
1997-1996 for Class B and 2.12% (annualized) for 1997 for
Class C.
(d) Ratios are based on average net assets of $495,147,421 and
$31,573,149 for Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of
net investment income (loss) to average net assets prior to
fee waivers and/or expense reimbursements were (0.31)% and
(0.65)% (annualized) for 1997-1996 for Class B and (0.31)%
(annualized) for 1997 for Class C.
FS-93
<PAGE> 195
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of AIM Capital Development Fund (a series
portfolio of AIM Equity Funds, Inc.), including the
schedule of investments, as of October 31, 1998, the
related statement of operations for the year then ended,
the statement of changes in net assets for each of the
years in the two-year period then ended, and financial
highlights for each of the years in the two-year period
then ended and the period June 17, 1996 (date operations
commenced) through October 31, 1996. These financial
statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audit.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of the AIM
Capital Development Fund as of October 31, 1998, the
results of its operations for the year then ended, the
changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights
for each of the years in the two-year period then ended
and the period June 17, 1996 (date operations commenced)
through October 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-94
<PAGE> 196
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-93.06%
AEROSPACE/DEFENSE-0.99%
Gulfstream Aerospace Corp.(a) 75,000 $ 3,318,750
- ---------------------------------------------------------------
Hawk Corp.(a) 120,700 1,207,000
- ---------------------------------------------------------------
Kroll-O'Gara Co. (The)(a) 210,000 5,171,250
- ---------------------------------------------------------------
Moog Inc.(a) 22,200 681,262
- ---------------------------------------------------------------
Tri Star Aerospace Co.(a) 200,000 2,050,000
- ---------------------------------------------------------------
12,428,262
- ---------------------------------------------------------------
AIR FREIGHT-0.11%
Dynamex Inc.(a) 201,000 1,394,438
- ---------------------------------------------------------------
AIRLINES-0.72%
Atlantic Coast Airlines
Holdings(a) 120,000 2,880,000
- ---------------------------------------------------------------
Midway Airlines, Corp.(a) 220,000 2,970,000
- ---------------------------------------------------------------
Ryanair Holdings PLC-ADR
(Ireland)(a) 110,000 3,231,250
- ---------------------------------------------------------------
9,081,250
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.58%
Aftermarket Technology Corp.(a) 134,300 839,375
- ---------------------------------------------------------------
Keystone Automotive Industries,
Inc.(a) 247,900 4,632,631
- ---------------------------------------------------------------
Stoneridge, Inc.(a) 126,300 1,886,606
- ---------------------------------------------------------------
7,358,612
- ---------------------------------------------------------------
BANKS (REGIONAL)-1.49%
Banknorth Group, Inc. 32,000 1,020,000
- ---------------------------------------------------------------
Bank United Corp.-Class A 100,000 3,984,375
- ---------------------------------------------------------------
Golden State Bancorp, Inc.(a) 225,000 4,317,188
- ---------------------------------------------------------------
Golden State Bancorp, Litigation
Warrants, expiring 01/01/01(a) 75,000 365,625
- ---------------------------------------------------------------
Independence Community Bank Corp. 227,000 3,107,062
- ---------------------------------------------------------------
Marshall & Ilsley Corp. 35,000 1,706,250
- ---------------------------------------------------------------
North Fork Bancorporation, Inc. 175,000 3,478,125
- ---------------------------------------------------------------
Southwest Bancorp. of Texas,
Inc.(a) 50,000 765,625
- ---------------------------------------------------------------
18,744,250
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.24%
Triarc Companies, Inc.(a) 190,000 2,968,750
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.71%
Genzyme Corp.(a) 30,000 1,261,875
- ---------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 160,000 3,650,000
- ---------------------------------------------------------------
Pharmaceutical Product
Development, Inc.(a) 150,000 4,050,000
- ---------------------------------------------------------------
8,961,875
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-2.28%
Capstar Broadcasting Corp.-Class
A(a) 228,200 3,964,975
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO &
CABLE)-(CONTINUED)
Chancellor Media Corp.(a) 100,000 $ 3,837,500
- ---------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 85,000 3,182,188
- ---------------------------------------------------------------
Emmis Broadcasting Corp.-Class
A(a) 110,000 3,602,500
- ---------------------------------------------------------------
Hearst-Argyle Television Inc.(a) 35,070 973,192
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 85,000 3,495,625
- ---------------------------------------------------------------
Metro Networks, Inc.(a) 120,000 4,395,000
- ---------------------------------------------------------------
Univision Communications, Inc.(a) 178,000 5,251,000
- ---------------------------------------------------------------
28,701,980
- ---------------------------------------------------------------
BUILDING MATERIALS-0.30%
Pameco Corp.(a) 130,000 1,820,000
- ---------------------------------------------------------------
Pentacon, Inc.(a) 100,000 512,500
- ---------------------------------------------------------------
White Cap Industries, Inc.(a) 140,000 1,470,000
- ---------------------------------------------------------------
3,802,500
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.95%
ADC Telecommunications, Inc.(a) 165,000 3,795,000
- ---------------------------------------------------------------
Aspect Telecommunications
Corp.(a) 110,600 1,672,825
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 140,000 6,440,000
- ---------------------------------------------------------------
DSET Corp.(a) 92,200 1,152,500
- ---------------------------------------------------------------
Excel Switching Corp.(a) 155,000 3,138,750
- ---------------------------------------------------------------
NICE-Systems Ltd.-ADR (Israel)(a) 125,000 2,375,000
- ---------------------------------------------------------------
North East Optic Network, Inc.(a) 400,000 2,450,000
- ---------------------------------------------------------------
Tekelec(a) 200,000 3,587,500
- ---------------------------------------------------------------
24,611,575
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-0.60%
Bell & Howell Co.(a) 125,000 3,312,500
- ---------------------------------------------------------------
Gateway 2000, Inc.(a) 65,000 3,627,813
- ---------------------------------------------------------------
National Instruments Corp.(a) 25,000 684,375
- ---------------------------------------------------------------
7,624,688
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.39%
FORE Systems, Inc.(a) 285,000 4,453,125
- ---------------------------------------------------------------
Fvc.com Inc.(a) 50,000 425,000
- ---------------------------------------------------------------
4,878,125
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-9.12%
Avant! Corp.(a) 130,419 2,225,274
- ---------------------------------------------------------------
Best Software, Inc.(a) 355,000 8,697,500
- ---------------------------------------------------------------
BrightStar Information Technology
Group, Inc.(a) 131,900 906,812
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 205,000 4,381,875
- ---------------------------------------------------------------
Complete Business Solutions,
Inc.(a) 205,000 4,868,750
- ---------------------------------------------------------------
Concord Communications, Inc.(a) 62,300 2,312,888
- ---------------------------------------------------------------
</TABLE>
FS-95
<PAGE> 197
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Concord EFS, Inc.(a) 230,000 $ 6,555,000
- ---------------------------------------------------------------
DA Consulting Group, Inc.(a) 160,800 2,412,000
- ---------------------------------------------------------------
Datastream Systems, Inc.(a) 182,400 1,835,400
- ---------------------------------------------------------------
Dendrite International, Inc.(a) 128,800 2,656,500
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 45,000 1,850,625
- ---------------------------------------------------------------
Hyperion Solutions Corporation(a) 147,250 4,417,500
- ---------------------------------------------------------------
Intuit, Inc.(a) 75,000 3,787,500
- ---------------------------------------------------------------
JDA Software Group, Inc.(a) 170,000 1,615,000
- ---------------------------------------------------------------
Learning Company, Inc. (The)(a) 275,000 7,098,438
- ---------------------------------------------------------------
Manhattan Associates, Inc.(a) 68,200 1,091,200
- ---------------------------------------------------------------
MAPICS, Inc.(a) 70,000 1,321,250
- ---------------------------------------------------------------
Mastech Corp.(a) 210,000 4,935,000
- ---------------------------------------------------------------
Medical Manager Corp.(a) 400,000 9,950,000
- ---------------------------------------------------------------
Mercury Interactive Corp.(a) 115,000 4,772,500
- ---------------------------------------------------------------
MTI Technology Corp.(a) 200,000 650,000
- ---------------------------------------------------------------
Network Associates, Inc.(a) 120,500 5,121,250
- ---------------------------------------------------------------
Network Solutions, Inc.-Class
A(a) 105,000 5,604,375
- ---------------------------------------------------------------
Platinum Technology, Inc.(a) 212,250 3,488,859
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 143,500 5,058,375
- ---------------------------------------------------------------
Synopsys, Inc.(a) 81,084 3,669,051
- ---------------------------------------------------------------
Transaction Systems Architects,
Inc.-Class A(a) 100,000 3,609,375
- ---------------------------------------------------------------
USWeb Corp.(a) 330,000 4,743,750
- ---------------------------------------------------------------
Visio Corp.(a) 140,000 3,727,500
- ---------------------------------------------------------------
Walker Interactive Systems,
Inc.(a) 306,000 1,530,000
- ---------------------------------------------------------------
114,893,547
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.43%
Blyth Industries, Inc.(a) 195,000 5,386,875
- ---------------------------------------------------------------
CONSUMER FINANCE-0.43%
American Capital Strategies, Ltd. 85,100 1,127,575
- ---------------------------------------------------------------
Cash America International, Inc. 205,000 2,562,500
- ---------------------------------------------------------------
Investors Financial Services
Corp. 10,000 538,750
- ---------------------------------------------------------------
United Panam Financial Corp.(a) 242,500 1,242,813
- ---------------------------------------------------------------
5,471,638
- ---------------------------------------------------------------
CONTAINERS (METAL & GLASS)-0.46%
Silgan Holdings, Inc.(a) 230,000 5,750,000
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-1.15%
AmeriSource Health Corp.-Class
A(a) 95,000 4,981,563
- ---------------------------------------------------------------
JP Foodservice, Inc.(a) 100,750 4,785,625
- ---------------------------------------------------------------
Performance Food Group Co.(a) 175,000 4,243,750
- ---------------------------------------------------------------
Weider Nutrition International,
Inc. 100,000 493,750
- ---------------------------------------------------------------
14,504,688
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.14%
American Power Conversion
Corp.(a) 110,000 4,668,125
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-(CONTINUED)
PCD, Inc.(a) 150,000 $ 1,912,500
- ---------------------------------------------------------------
Pinnacle Systems, Inc.(a) 120,000 4,080,000
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 95,000 3,752,500
- ---------------------------------------------------------------
14,413,125
- ---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-0.36%
EFTC Corp.(a) 100,000 262,500
- ---------------------------------------------------------------
Quanta Services, Inc.(a) 300,300 4,335,581
- ---------------------------------------------------------------
4,598,081
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-1.08%
Apex PC Solutions, Inc.(a) 180,000 4,702,500
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 160,000 4,330,000
- ---------------------------------------------------------------
Sipex Corp.(a) 165,000 4,578,750
- ---------------------------------------------------------------
13,611,250
- ---------------------------------------------------------------
ENTERTAINMENT-0.66%
Alliance Atlantis Communications
Corp.-Class B (Canada)(a) 60,000 1,117,500
- ---------------------------------------------------------------
Loews Cineplex Entertainment
Corp.(a) 319,500 3,354,750
- ---------------------------------------------------------------
Metro-Goldwyn-Mayer Inc.(a) 100,000 968,750
- ---------------------------------------------------------------
Metro-Goldwyn-Mayer Inc.,
Rights(a) 128,900 161,125
- ---------------------------------------------------------------
Metromedia International Group,
Inc.(a) 200,000 1,225,000
- ---------------------------------------------------------------
Sports Club Co., Inc. (The)(a) 302,300 1,435,925
- ---------------------------------------------------------------
8,263,050
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.71%
AMRESCO, Inc.(a) 60,000 416,250
- ---------------------------------------------------------------
FirstCity Financial Corp.(a) 160,000 2,120,000
- ---------------------------------------------------------------
Hamilton Bancorp, Inc.(a) 100,000 2,750,000
- ---------------------------------------------------------------
Insignia/ESG Holdings, Inc.(a) 30,000 382,500
- ---------------------------------------------------------------
Medallion Financial Corp. 227,000 4,029,250
- ---------------------------------------------------------------
MGIC Investment Corp. 20,000 780,000
- ---------------------------------------------------------------
Mutual Risk Management Ltd. 30,000 1,014,375
- ---------------------------------------------------------------
PMI Group, Inc. (The) 39,000 1,967,063
- ---------------------------------------------------------------
Rock Financial Corp. 200,000 1,012,500
- ---------------------------------------------------------------
SEI Corp. 85,000 7,044,375
- ---------------------------------------------------------------
21,516,313
- ---------------------------------------------------------------
FOODS-1.63%
American Italian Pasta Co.-Class
A(a) 256,000 5,888,000
- ---------------------------------------------------------------
International Home Foods, Inc.(a) 195,000 3,461,250
- ---------------------------------------------------------------
Keebler Foods Co.(a) 155,500 4,470,625
- ---------------------------------------------------------------
Suiza Foods Corp.(a) 104,900 3,422,363
- ---------------------------------------------------------------
Universal Foods Corp. 149,800 3,248,787
- ---------------------------------------------------------------
20,491,025
- ---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.42%
Harrah's Entertainment, Inc.(a) 154,800 2,186,550
- ---------------------------------------------------------------
</TABLE>
FS-96
<PAGE> 198
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-(CONTINUED)
International Game Technology 135,000 $ 3,045,938
- ---------------------------------------------------------------
5,232,488
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-0.56%
Allergan, Inc. 75,000 4,682,813
- ---------------------------------------------------------------
IVAX Corp.(a) 250,000 2,375,000
- ---------------------------------------------------------------
7,057,813
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.21%
Barr Laboratories, Inc.(a) 150,700 5,152,056
- ---------------------------------------------------------------
Forest Laboratories, Inc.(a) 110,000 4,599,375
- ---------------------------------------------------------------
Jones Medical Industries, Inc. 142,000 4,588,375
- ---------------------------------------------------------------
Mylan Laboratories, Inc. 130,000 4,476,875
- ---------------------------------------------------------------
North American Vaccine, Inc.(a) 60,000 907,500
- ---------------------------------------------------------------
Parexel International Corp.(a) 75,000 1,654,688
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 115,000 6,396,875
- ---------------------------------------------------------------
27,775,744
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.49%
Health Management Associates,
Inc.-Class A(a) 197,250 3,513,516
- ---------------------------------------------------------------
New American Healthcare Corp.(a) 250,000 2,656,250
- ---------------------------------------------------------------
6,169,766
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.50%
Mariner Post-Acute Network,
Inc.(a) 185,000 1,075,313
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 120,000 5,167,500
- ---------------------------------------------------------------
6,242,813
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.53%
Alternative Living Services,
Inc.(a) 85,000 2,220,625
- ---------------------------------------------------------------
American Oncology Resources,
Inc.(a) 45,000 599,063
- ---------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 40,000 3,907,500
- ---------------------------------------------------------------
6,727,188
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-3.39%
Biomet, Inc. 110,000 3,733,125
- ---------------------------------------------------------------
Coopers Companies, Inc.(a) 208,000 4,940,000
- ---------------------------------------------------------------
Cyberonics, Inc. 105,000 630,000
- ---------------------------------------------------------------
DVI, Inc.(a) 77,000 1,203,125
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 120,000 4,642,500
- ---------------------------------------------------------------
Lifecore Biomedical, Inc.(a) 272,100 1,938,713
- ---------------------------------------------------------------
Maxxim Medical, Inc.(a) 140,000 3,535,000
- ---------------------------------------------------------------
Mini Med, Inc.(a) 55,000 3,052,500
- ---------------------------------------------------------------
PSS World Medical, Inc.(a) 230,000 5,088,750
- ---------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 45,000 4,573,125
- ---------------------------------------------------------------
Steris Corp.(a) 75,000 1,725,000
- ---------------------------------------------------------------
Sybron International Corp.(a) 234,900 5,813,775
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-(CONTINUED)
Trex Medical Corp.(a) 150,000 $ 1,837,500
- ---------------------------------------------------------------
42,713,113
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-3.62%
Advance Paradigm, Inc.(a) 220,000 7,260,000
- ---------------------------------------------------------------
BioReliance Corp(a) 50,000 400,000
- ---------------------------------------------------------------
Boron, LePore & Associates,
Inc.(a) 94,900 2,562,300
- ---------------------------------------------------------------
Capital Senior Living Corp.(a) 270,000 3,172,500
- ---------------------------------------------------------------
Covance, Inc.(a) 105,000 2,926,875
- ---------------------------------------------------------------
First Consulting Group, Inc.(a) 255,800 4,204,713
- ---------------------------------------------------------------
MAXIMUS, Inc.(a) 39,000 1,131,000
- ---------------------------------------------------------------
Ocular Sciences, Inc.(a) 171,100 4,298,888
- ---------------------------------------------------------------
Omnicare, Inc. 125,700 4,344,506
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 289,900 5,489,981
- ---------------------------------------------------------------
PharMerica, Inc.(a) 365,000 1,231,875
- ---------------------------------------------------------------
Renex Corp.(a) 200,000 900,000
- ---------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 105,000 3,885,000
- ---------------------------------------------------------------
Ventana Medical Systems, Inc.(a) 208,000 3,848,000
- ---------------------------------------------------------------
45,655,638
- ---------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.29%
Service Experts, Inc.(a) 122,300 3,691,931
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.23%
Dial Corp. (The) 105,000 2,894,063
- ---------------------------------------------------------------
HOUSEWARES-0.49%
Central Garden and Pet Co.(a) 188,000 3,713,000
- ---------------------------------------------------------------
Helen of Troy Ltd.(a) 100,000 1,487,500
- ---------------------------------------------------------------
Windmere-Durable Holdings Inc.(a) 125,000 960,938
- ---------------------------------------------------------------
6,161,438
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.83%
ESG Re Ltd. (United Kingdom) 77,700 1,437,450
- ---------------------------------------------------------------
Healthcare Recoveries, Inc.(a) 279,800 2,832,975
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 120,000 4,980,000
- ---------------------------------------------------------------
PAULA Financial 151,500 1,202,531
- ---------------------------------------------------------------
10,452,956
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.18%
Horace Mann Educators Corp. 81,000 2,318,625
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-1.99%
Amerin Corp.(a) 220,000 4,702,500
- ---------------------------------------------------------------
CMAC Investment Corp. 73,000 3,056,875
- ---------------------------------------------------------------
CNA Surety Corp.(a) 249,700 3,511,406
- ---------------------------------------------------------------
Everest Reinsurance Holdings,
Inc. 86,000 2,961,626
- ---------------------------------------------------------------
Fidelity National Financial, Inc. 90,000 2,767,500
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 150,000 2,690,625
- ---------------------------------------------------------------
Reliance Group Holdings, Inc. 220,000 3,066,250
- ---------------------------------------------------------------
</TABLE>
FS-97
<PAGE> 199
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (PROPERTY-CASUALTY)-(CONTINUED)
Transatlantic Holdings, Inc. 30,000 $ 2,340,000
- ---------------------------------------------------------------
25,096,782
- ---------------------------------------------------------------
INSURANCE BROKERS-0.16%
Annuity and Life Re, Ltd.
(Bermuda)(a) 87,400 2,042,975
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-0.20%
EVEREN Capital Corp. 125,000 2,546,875
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.94%
Affiliated Managers Group,
Inc.(a) 225,000 5,006,250
- ---------------------------------------------------------------
Conning Corp. 70,000 1,032,500
- ---------------------------------------------------------------
Knight/Trimark Group, Inc.(a) 400,000 3,250,000
- ---------------------------------------------------------------
Waddell & Reed Financial, Inc. 125,000 2,617,188
- ---------------------------------------------------------------
11,905,938
- ---------------------------------------------------------------
INVESTMENTS-0.05%
Security Capital Group Inc.-Class
B(a) 36,700 584,906
- ---------------------------------------------------------------
LAND DEVELOPMENT-0.25%
Silverleaf Resorts, Inc.(a) 268,000 3,165,750
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.88%
Family Golf Centers, Inc.(a) 149,800 3,155,163
- ---------------------------------------------------------------
GTECH Holdings Corp.(a) 55,000 1,320,000
- ---------------------------------------------------------------
International Speedway Corp. 122,600 3,785,275
- ---------------------------------------------------------------
North Face, Inc. (The)(a) 165,000 1,969,687
- ---------------------------------------------------------------
Travis Boats & Motors, Inc.(a) 49,500 813,656
- ---------------------------------------------------------------
11,043,781
- ---------------------------------------------------------------
LODGING-HOTELS-0.82%
American Skiing Co.(a) 70,000 625,625
- ---------------------------------------------------------------
Four Seasons Hotels, Inc.
(Canada) 100,000 2,300,000
- ---------------------------------------------------------------
Prime Hospitality Corp.(a) 120,000 1,095,000
- ---------------------------------------------------------------
Royal Caribbean Cruises Ltd. 140,000 3,902,500
- ---------------------------------------------------------------
Vail Resorts Inc.(a) 91,700 2,452,975
- ---------------------------------------------------------------
10,376,100
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.03%
Industrial Distribution Group,
Inc.(a) 45,100 326,975
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-2.55%
Alpine Group, Inc.(The)(a) 169,700 2,863,688
- ---------------------------------------------------------------
American Bank Note Holographics,
Inc.(a) 545,500 5,148,156
- ---------------------------------------------------------------
Amor Holdings, Inc.(a) 100,000 1,043,750
- ---------------------------------------------------------------
First Years, Inc. (The) 390,000 6,142,500
- ---------------------------------------------------------------
Howmet International Inc.(a) 290,000 4,350,000
- ---------------------------------------------------------------
Mettler-Toledo International
Inc.(a) 202,000 4,418,750
- ---------------------------------------------------------------
Superior TeleCom Inc. 70,100 3,014,300
- ---------------------------------------------------------------
U.S.A. Floral Products, Inc.(a) 120,000 1,095,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-(CONTINUED)
US Filter Corp.(a) 190,000 $ 4,025,625
- ---------------------------------------------------------------
32,101,769
- ---------------------------------------------------------------
METAL FABRICATORS-0.38%
Metal USA Inc.(a) 480,000 4,770,000
- ---------------------------------------------------------------
NATURAL GAS-0.26%
KN Energy, Inc. 65,000 3,229,688
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.76%
Daisytek International Corp.(a) 230,000 3,464,375
- ---------------------------------------------------------------
Knoll, Inc.(a) 100,000 2,700,000
- ---------------------------------------------------------------
School Specialty, Inc.(a) 214,102 3,372,107
- ---------------------------------------------------------------
9,536,482
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.07%
Tuboscope Vetco International
Corp.(a) 70,000 866,250
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-2.19%
Anadarko Petroleum Corp. 104,600 3,543,325
- ---------------------------------------------------------------
Apache Corp. 135,000 3,822,188
- ---------------------------------------------------------------
Benton Oil & Gas Co.(a) 90,000 461,250
- ---------------------------------------------------------------
Devon Energy Corp. 125,000 4,234,375
- ---------------------------------------------------------------
Newfield Exploration Co.(a) 50,000 1,215,625
- ---------------------------------------------------------------
Noble Affiliates, Inc. 130,000 4,257,500
- ---------------------------------------------------------------
Ocean Energy, Inc.(a) 150,000 1,875,000
- ---------------------------------------------------------------
Snyder Oil Corp. 205,000 3,267,187
- ---------------------------------------------------------------
Stolt Comex Seaway, S.A. (United
Kingdom)(a) 100,000 1,031,250
- ---------------------------------------------------------------
Union Pacific Resources Group
Inc. 299,800 3,897,400
- ---------------------------------------------------------------
27,605,100
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.21%
Pope & Talbot, Inc. 96,500 910,719
- ---------------------------------------------------------------
Wausau-Mosinee Paper Corp. 100,000 1,743,750
- ---------------------------------------------------------------
2,654,469
- ---------------------------------------------------------------
PERSONAL CARE-1.69%
Chattem, Inc.(a) 149,900 4,159,725
- ---------------------------------------------------------------
NBTY, Inc.(a) 434,700 3,477,600
- ---------------------------------------------------------------
Playtex Products, Inc.(a) 251,700 3,319,294
- ---------------------------------------------------------------
Rexall Sundown, Inc.(a) 200,000 3,587,500
- ---------------------------------------------------------------
Steiner Leisure Ltd.(a) 130,000 3,168,750
- ---------------------------------------------------------------
Twinlab Corp.(a) 160,000 3,550,000
- ---------------------------------------------------------------
21,262,869
- ---------------------------------------------------------------
PUBLISHING-1.01%
IDG Books Worldwide, Inc.(a) 329,800 5,111,900
- ---------------------------------------------------------------
Petersen Companies, Inc.
(The)-Class A(a) 110,000 2,921,875
- ---------------------------------------------------------------
Scholastic Corp.(a) 120,000 4,732,500
- ---------------------------------------------------------------
12,766,275
- ---------------------------------------------------------------
</TABLE>
FS-98
<PAGE> 200
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RAILROADS-0.34%
Kansas City Southern Industries,
Inc. 110,300 $ 4,260,338
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUST-2.67%
AMRESCO Capital Trust Inc. 265,500 2,157,188
- ---------------------------------------------------------------
Apartment Investment & Management
Co. 100,000 3,493,750
- ---------------------------------------------------------------
Apartment Investment & Management
Co., Series E Conv. Pfd. 11,790 468,653
- ---------------------------------------------------------------
CarrAmerica Realty Corp. 100,000 2,250,000
- ---------------------------------------------------------------
CCA Prison Realty Trust 50,000 1,175,000
- ---------------------------------------------------------------
Colonial Properties Trust 100,000 2,750,000
- ---------------------------------------------------------------
Corporate Office Properties
Trust, Inc. 380,000 2,897,500
- ---------------------------------------------------------------
Correctional Properties Trust 207,400 4,031,337
- ---------------------------------------------------------------
Equity Office Properties Trust 108,000 2,592,000
- ---------------------------------------------------------------
Great Lakes REIT, Inc. 40,000 657,500
- ---------------------------------------------------------------
Kilroy Realty Corp. 150,000 3,328,125
- ---------------------------------------------------------------
Manufactured Home Communities,
Inc. 130,000 3,241,875
- ---------------------------------------------------------------
MeriStar Hospitality Corp. 85,000 1,572,500
- ---------------------------------------------------------------
Weeks Corp. 105,000 3,051,562
- ---------------------------------------------------------------
33,666,990
- ---------------------------------------------------------------
RESTAURANTS-1.58%
Avado Brands, Inc. 300,000 2,362,500
- ---------------------------------------------------------------
Brinker International, Inc.(a) 192,000 4,644,000
- ---------------------------------------------------------------
CEC Entertainment Inc.(a) 150,000 4,237,500
- ---------------------------------------------------------------
Dave & Buster's, Inc.(a) 144,900 2,716,875
- ---------------------------------------------------------------
Logan's Roadhouse, Inc.(a) 40,000 700,000
- ---------------------------------------------------------------
Rainforest Cafe, Inc.(a) 150,000 993,750
- ---------------------------------------------------------------
Starbucks Corp.(a) 97,000 4,207,375
- ---------------------------------------------------------------
19,862,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.18%
Eagle Hardware & Garden, Inc.(a) 100,000 2,325,000
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.79%
CDW Computer Centers, Inc.(a) 60,000 4,496,250
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 61,800 2,811,900
- ---------------------------------------------------------------
Tech Data Corp.(a) 67,000 2,638,125
- ---------------------------------------------------------------
9,946,275
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.58%
Consolidated Stores Corp.(a) 56,400 927,075
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 283,600 5,140,250
- ---------------------------------------------------------------
K & G Men's Center, Inc.(a) 149,100 1,248,712
- ---------------------------------------------------------------
7,316,037
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.92%
Dominick's Supermarkets, Inc.(a) 48,100 2,347,881
- ---------------------------------------------------------------
Whole Foods Market, Inc.(a) 100,000 4,006,250
- ---------------------------------------------------------------
Wild Oats Markets Inc.(a) 210,000 5,171,250
- ---------------------------------------------------------------
11,525,381
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (GENERAL
MERCHANDISE)-0.18%
Signet Group PLC (United
Kingdom)(a) 2,320,000 $ 1,239,610
- ---------------------------------------------------------------
Signet Group PLC-ADR (United
Kingdom)(a) 60,000 967,500
- ---------------------------------------------------------------
2,207,110
- ---------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.36%
Micro Warehouse, Inc.(a) 205,000 4,471,563
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-5.62%
Bed Bath & Beyond, Inc.(a) 100,000 2,756,250
- ---------------------------------------------------------------
Brookstone, Inc.(a) 85,000 972,188
- ---------------------------------------------------------------
Casey's General Stores, Inc. 130,000 1,820,000
- ---------------------------------------------------------------
Cole National Corp.-Class A(a) 70,000 1,452,500
- ---------------------------------------------------------------
CSK Auto Corp.(a) 147,400 3,841,612
- ---------------------------------------------------------------
Electronics Boutique Holdings
Corp.(a) 200,000 2,500,000
- ---------------------------------------------------------------
Finish Line, Inc. (The)-Class
A(a) 70,000 743,750
- ---------------------------------------------------------------
Group 1 Automotive, Inc.(a) 90,000 1,541,250
- ---------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 170,000 4,600,625
- ---------------------------------------------------------------
Home Choice Holdings Inc.(a) 189,100 2,470,119
- ---------------------------------------------------------------
Hot Topic, Inc.(a) 86,000 1,612,500
- ---------------------------------------------------------------
Just for Feet, Inc.(a) 198,900 3,368,869
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 310,300 9,599,906
- ---------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 135,000 2,025,000
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 172,000 3,440,000
- ---------------------------------------------------------------
Musicland Stores Corp.(a) 300,000 3,956,250
- ---------------------------------------------------------------
PETsMART Inc.(a) 180,000 1,293,750
- ---------------------------------------------------------------
Pier 1 Imports, Inc. 232,500 2,150,625
- ---------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 100,000 2,081,250
- ---------------------------------------------------------------
Rainbow Rentals, Inc.(a) 172,000 1,709,250
- ---------------------------------------------------------------
Renters Choice, Inc.(a) 129,900 3,223,144
- ---------------------------------------------------------------
Rent-Way, Inc.(a) 97,900 2,312,887
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 185,000 5,041,250
- ---------------------------------------------------------------
Zale Corp.(a) 265,000 6,277,188
- ---------------------------------------------------------------
70,790,163
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.52%
Abercrombie & Fitch Co.-Class
A(a) 70,000 2,778,125
- ---------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 82,500 881,718
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 90,000 2,182,500
- ---------------------------------------------------------------
Stage Stores, Inc.(a) 50,000 662,500
- ---------------------------------------------------------------
6,504,843
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.26%
Allied Capital Corp. 175,000 3,281,250
- ---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-3.46%
Abacus Direct Corp.(a) 115,000 5,606,250
- ---------------------------------------------------------------
Acxiom Corp.(a) 196,000 4,924,500
- ---------------------------------------------------------------
Forrester Research, Inc.(a) 109,300 3,524,925
- ---------------------------------------------------------------
Getty Images, Inc. (United
Kingdom)(a) 30,000 369,375
- ---------------------------------------------------------------
</TABLE>
FS-99
<PAGE> 201
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING)-(CONTINUED)
Hagler Bailly, Inc.(a) 160,000 $ 3,760,000
- ---------------------------------------------------------------
HA-LO Industries, Inc.(a) 150,000 4,237,500
- ---------------------------------------------------------------
Information Resources, Inc.(a) 155,000 1,230,312
- ---------------------------------------------------------------
Lamar Advertising Co.(a) 225,000 7,024,218
- ---------------------------------------------------------------
Market Facts, Inc.(a) 173,800 4,062,575
- ---------------------------------------------------------------
Nielsen Media Research 200,000 2,837,500
- ---------------------------------------------------------------
Snyder Communications, Inc.(a) 90,000 3,211,875
- ---------------------------------------------------------------
Young & Rubicam, Inc.(a) 108,500 2,834,563
- ---------------------------------------------------------------
43,623,593
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-7.21%
ABR Information Services, Inc.(a) 239,900 4,528,112
- ---------------------------------------------------------------
Advantage Learning Systems,
Inc.(a) 55,400 2,548,400
- ---------------------------------------------------------------
Avis Rent A Car, Inc.(a) 140,400 2,860,650
- ---------------------------------------------------------------
Bright Horizons Family Solutions,
Inc.(a) 189,992 3,514,852
- ---------------------------------------------------------------
Career Education Corp.(a) 51,700 1,266,650
- ---------------------------------------------------------------
Cerner Corp.(a) 45,000 1,006,875
- ---------------------------------------------------------------
Equity Corp. International(a) 200,000 4,962,500
- ---------------------------------------------------------------
G & K Services, Inc.-Class A 53,500 2,447,625
- ---------------------------------------------------------------
Galileo International, Inc. 126,700 4,806,681
- ---------------------------------------------------------------
Hertz Corp.-Class A 87,000 3,115,687
- ---------------------------------------------------------------
Inspire Insurance Solutions,
Inc.(a) 172,500 4,312,500
- ---------------------------------------------------------------
Iron Mountain, Inc.(a) 150,000 4,584,375
- ---------------------------------------------------------------
LaSalle Partners, Inc.(a) 71,900 2,103,075
- ---------------------------------------------------------------
MemberWorks, Inc.(a) 100,000 2,312,500
- ---------------------------------------------------------------
Metzler Group, Inc.(a) 180,000 7,560,000
- ---------------------------------------------------------------
PalEx, Inc.(a) 125,000 875,000
- ---------------------------------------------------------------
Pegasus Systems, Inc.(a) 250,000 4,343,750
- ---------------------------------------------------------------
Pittston Brink's Group 70,000 2,082,500
- ---------------------------------------------------------------
Primark Corp.(a) 143,000 3,861,000
- ---------------------------------------------------------------
Protection One, Inc. 281,000 3,161,250
- ---------------------------------------------------------------
Regis Corp. 156,800 4,811,800
- ---------------------------------------------------------------
Rental Service Corp.(a) 140,000 3,115,000
- ---------------------------------------------------------------
Sotheby's Holdings, Inc.-Class A 55,000 1,189,375
- ---------------------------------------------------------------
Strayer Education, Inc. 25,000 850,000
- ---------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 205,000 6,329,375
- ---------------------------------------------------------------
Trammell Crow Co.(a) 46,600 1,007,725
- ---------------------------------------------------------------
Travel Services International,
Inc.(a) 260,000 5,265,000
- ---------------------------------------------------------------
United Rentals, Inc.(a) 38,500 1,034,688
- ---------------------------------------------------------------
United Road Services, Inc.(a) 60,000 960,000
- ---------------------------------------------------------------
90,816,945
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-3.07%
Cotelligent Group, Inc.(a) 187,500 3,539,063
- ---------------------------------------------------------------
Gartner Group, Inc.-Class A(a) 157,000 3,120,375
- ---------------------------------------------------------------
Insight Enterprises, Inc.(a) 150,000 4,350,000
- ---------------------------------------------------------------
Keane, Inc.(a) 95,000 3,158,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMPUTER SYSTEMS)-(CONTINUED)
Policy Management Systems
Corp.(a) 155,000 $ 7,042,812
- ---------------------------------------------------------------
Shared Medical Systems Corp. 40,000 1,995,000
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 341,900 11,539,125
- ---------------------------------------------------------------
Sykes Enterprises, Inc.(a) 196,900 3,864,162
- ---------------------------------------------------------------
38,609,287
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-3.64%
4Front Software International,
Inc.(a) 335,000 2,721,875
- ---------------------------------------------------------------
Billing Concepts Corp.(a) 106,700 1,507,138
- ---------------------------------------------------------------
BISYS Group, Inc.(a) 200,000 8,750,000
- ---------------------------------------------------------------
Computer Horizons Corp.(a) 85,000 1,955,000
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 150,000 8,175,000
- ---------------------------------------------------------------
DST Systems, Inc.(a) 45,000 2,250,000
- ---------------------------------------------------------------
Fiserv, Inc.(a) 115,000 5,347,500
- ---------------------------------------------------------------
Lason Holdings, Inc.(a) 76,400 4,182,900
- ---------------------------------------------------------------
MedQuist, Inc.(a) 97,900 2,637,180
- ---------------------------------------------------------------
NOVA Corp.(a) 144,400 4,169,550
- ---------------------------------------------------------------
Transaction Network Services,
Inc.(a) 151,900 4,158,262
- ---------------------------------------------------------------
45,854,405
- ---------------------------------------------------------------
SERVICES (ELECTRONICS MANUFACTURING)-0.18%
Celestica Inc. (Canada)(a) 125,000 2,289,062
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.72%
Metamor Worldwide, Inc.(a) 135,000 3,467,813
- ---------------------------------------------------------------
Syntel, Inc.(a) 165,000 2,310,000
- ---------------------------------------------------------------
Vincam Group, Inc. (The)(a) 209,850 3,318,252
- ---------------------------------------------------------------
9,096,065
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-1.03%
Casella Waste Systems, Inc.(a) 190,000 5,605,000
- ---------------------------------------------------------------
Wackenhut Corrections Corp.(a) 179,700 4,413,880
- ---------------------------------------------------------------
Waste Connections, Inc(a) 156,900 2,981,100
- ---------------------------------------------------------------
12,999,980
- ---------------------------------------------------------------
SERVICES (GLOBAL INTERNET &
TELECOMMUNICATION)-0.27%
Global Crossing Ltd. (Bermuda)(a) 120,000 3,450,000
- ---------------------------------------------------------------
SERVICES (INTERNATIONAL DATA NETWORK)-0.24%
Equant N.V.-New York Registered
Shares (Netherlands) 70,000 3,062,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-1.15%
Associated Group, Inc.
(The)-Class A(a) 150,000 5,062,500
- ---------------------------------------------------------------
International Telecommunication
Data Systems, Inc.(a) 210,000 5,013,750
- ---------------------------------------------------------------
Metromedia Fiber Network, Inc.(a) 115,000 4,355,625
- ---------------------------------------------------------------
14,431,875
- ---------------------------------------------------------------
</TABLE>
FS-100
<PAGE> 202
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-0.65%
Columbia Sportswear Co.(a) 155,000 $ 2,712,500
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 90,000 1,861,875
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 77,400 3,594,262
- ---------------------------------------------------------------
8,168,637
- ---------------------------------------------------------------
TRUCKERS-0.02%
Jevic Transportation, Inc.(a) 40,000 285,000
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.71%
Superior Services, Inc.(a) 160,000 3,360,000
- ---------------------------------------------------------------
U.S. Liquids Inc.(a) 225,000 3,403,125
- ---------------------------------------------------------------
Waste Industries, Inc.(a) 92,500 2,162,187
- ---------------------------------------------------------------
8,925,312
- ---------------------------------------------------------------
Total Common Stocks & Other
Equity Interests (Cost
$1,093,871,320) 1,172,202,068
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-6.44%(B)
Chase Securities, Inc., 5.55%,
11/02/98(c) $81,076,324 $ 81,076,324
- ---------------------------------------------------------------
Total Repurchase Agreement
(Cost $81,076,324) 81,076,324
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.50% 1,253,278,392
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.50% 6,271,155
- ---------------------------------------------------------------
NET ASSETS-100.00% $1,259,549,547
===============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) 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 is at least 102% of the sale price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 10/30/98 with a maturing value
$200,092,500. Collateralized by $254,478,951 U.S. Government obligations,
5.00% to 16.00% due 05/20/02 to 10/15/28 with an aggregate market value at
10/31/98 of $204,000,718.
See Notes to Financial Statements.
FS-101
<PAGE> 203
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,174,947,644) $1,253,278,392
- ------------------------------------------------------------
Receivables for:
Investments sold 10,646,034
- ------------------------------------------------------------
Capital stock sold 6,011,040
- ------------------------------------------------------------
Dividends and interest 274,546
- ------------------------------------------------------------
Investment for deferred compensation plan 12,692
- ------------------------------------------------------------
Other assets 95,850
- ------------------------------------------------------------
Total assets 1,270,318,554
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 7,028,076
- ------------------------------------------------------------
Capital stock reacquired 2,011,607
- ------------------------------------------------------------
Deferred compensation 12,692
- ------------------------------------------------------------
Accrued advisory fees 638,189
- ------------------------------------------------------------
Accrued administrative services fees 7,097
- ------------------------------------------------------------
Accrued directors' fees 1,308
- ------------------------------------------------------------
Accrued distribution fees 694,253
- ------------------------------------------------------------
Accrued transfer agent fees 286,577
- ------------------------------------------------------------
Accrued operating expenses 89,208
- ------------------------------------------------------------
Total liabilities 10,769,007
- ------------------------------------------------------------
Net assets applicable to shares outstanding $1,259,549,547
- ------------------------------------------------------------
NET ASSETS:
Class A $ 717,263,173
============================================================
Class B $ 493,992,893
============================================================
Class C $ 48,293,481
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 55,658,172
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 38,905,993
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 3,804,639
============================================================
Class A:
Net asset value and redemption price per
share $ 12.89
============================================================
Offering price per share:
(Net assets value of $12.89 divided by
94.50%) $ 13.64
============================================================
Class B:
Net asset value and offering price per
share $ 12.70
============================================================
Class C:
Net asset value and offering price per
share $ 12.69
============================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $7,234 foreign withholding
tax) $ 5,602,027
- ------------------------------------------------------------
Interest 4,885,477
- ------------------------------------------------------------
Total investment income 10,487,504
- ------------------------------------------------------------
EXPENSES:
Advisory fees 7,886,238
- ------------------------------------------------------------
Administrative services fees 85,252
- ------------------------------------------------------------
Custodian fees 123,565
- ------------------------------------------------------------
Directors' fees 14,203
- ------------------------------------------------------------
Distribution fees-Class A 2,504,089
- ------------------------------------------------------------
Distribution fees-Class B 4,422,958
- ------------------------------------------------------------
Distribution fees-Class C 340,482
- ------------------------------------------------------------
Transfer agent fees-Class A 1,551,766
- ------------------------------------------------------------
Transfer agent fees-Class B 1,356,637
- ------------------------------------------------------------
Transfer agent fees-Class C 110,412
- ------------------------------------------------------------
Other 470,468
- ------------------------------------------------------------
Total expenses 18,866,070
- ------------------------------------------------------------
Less: Expenses paid indirectly (45,992)
- ------------------------------------------------------------
Net expenses 18,820,078
- ------------------------------------------------------------
Net investment income (loss) (8,332,574)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (67,546,256)
- ------------------------------------------------------------
Foreign currencies (63,343)
- ------------------------------------------------------------
Futures contracts (261,825)
- ------------------------------------------------------------
Option contracts written 234,891
- ------------------------------------------------------------
(67,636,533)
- ------------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities (113,912,197)
- ------------------------------------------------------------
Futures contracts (315,275)
- ------------------------------------------------------------
(114,227,472)
- ------------------------------------------------------------
Net gain (loss) from investment
securities, foreign currencies, futures
and option contracts (181,864,005)
- ------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(190,196,579)
============================================================
</TABLE>
See Notes to Financial Statements.
FS-102
<PAGE> 204
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (8,332,574) $ (5,256,151)
- -------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities, foreign currencies, futures and option
contracts (67,636,533) (6,205,853)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies, futures and option
contracts (114,227,472) 159,137,915
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (190,196,579) 147,675,911
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A 242,830,301 218,214,845
- -------------------------------------------------------------------------------------------
Class B 274,584,791 235,598,112
- -------------------------------------------------------------------------------------------
Class C 44,827,215 12,327,342
- -------------------------------------------------------------------------------------------
Net increase in net assets 372,045,728 613,816,210
- -------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 887,503,819 273,687,609
- -------------------------------------------------------------------------------------------
End of period $1,259,549,547 $887,503,819
===========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,260,398,710 $706,543,586
- -------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (21,335) (10,996)
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities, foreign currencies, futures and
option contracts (79,158,576) (11,586,991)
- -------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 78,330,748 192,558,220
- -------------------------------------------------------------------------------------------
$1,259,549,547 $887,503,819
===========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six separate
portfolios: AIM Capital Development Fund, AIM Aggressive Growth Fund, AIM Blue
Chip Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. The
Fund currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors such as yield, type of issue,
coupon rate and maturity date. Securities for which market quotations are not
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
FS-103
<PAGE> 205
close of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair 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 specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income, dividend expense on
short sales and distributions to shareholders are recorded on the ex-dividend
date. On October 31, 1998, undistributed net investment income was increased
by $8,322,235, undistributed net realized gains increased by 64,948 and
paid-in capital decreased by 8,387,183 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and that a change in value of the contracts may not correlate with changes in
the value of the securities being hedged.
D. Accounting for Securities Sold Short--When the Fund sells common stock short,
an amount equal to the proceeds of the sales is recorded as an asset. This
asset is offset by a liability (representing the borrowed security) recorded
on the books of the Fund at the market value of the common stock determined
each day in accordance with the procedures for security valuations discussed
in "A" above. The Fund's risk is that the value of the security will increase
rather than decline and thus an unrealized loss will be recorded. When the
Fund closes out a short position by delivering the stock sold short, the Fund
will realize a gain or loss and the liability related to such short position
will be eliminated. The Fund will attempt to hedge against market risk by
entering into short sales of securities that it currently owns or has the
right to acquire through the conversion or exchange of other securities that
it owns. Such short sales may protect the Fund against the risk of losses in
the value of its portfolio securities because any unrealized losses with
respect to such securities may be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in
such portfolio may be wholly or partially offset by a corresponding loss in
the short position.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of
$75,941,588 (which may be carried forward to offset future taxable gains, if
any) which expires, if not previously utilized, in the year 2006.
F. 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
FS-104
<PAGE> 206
may be higher than that received when the call option was written) a call
option identical to the one originally written.
G. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
H. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in order
to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million.
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, 1998, AIM was
reimbursed $85,252 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the year ended October 31, 1998, AFS was paid
$1,770,783 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the 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. During the year ended
October 31, 1998, the Class A, Class B and Class C shares paid AIM Distributors
$2,504,089, $4,422,958 and $340,482, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $1,536,318 from Class A capital stock
transactions during the year ended October 31, 1998. Such commissions are not an
expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A capital stock. During the year ended October 31,
1998, AIM Distributors received $108,532 in contingent deferred sales charges
imposed on redemptions of capital stock. Certain officers and directors of the
Company are officers and directors of AIM, AIM Distributors and AFS.
During the year ended October 31, 1998, the Fund paid legal fees of $5,579 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
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$12,462 and $33,530, respectively, under expense offset arrangements. The effect
of the above arrangements resulted in a reduction of the Fund's total expenses
of $45,992 during the year ended October 31, 1998.
NOTE 4-DIRECTOR'S FEES
Director's fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, 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.
FS-105
<PAGE> 207
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, 1998 was
$1,412,034,539 and $857,601,297, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 200,538,389
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (124,243,306)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 76,295,083
===========================================================================
</TABLE>
Cost of investments for tax purposes is $1,176,983,309.
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period - $ -
- ------------------------------------------------------------------------------------
Written 1,600 321,591
- ------------------------------------------------------------------------------------
Closed (1,350) (272,341)
- ------------------------------------------------------------------------------------
Exercised (100) (11,575)
- ------------------------------------------------------------------------------------
Expired (150) (37,675)
- ------------------------------------------------------------------------------------
End of period - $ -
====================================================================================
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 101,121,530 $ 1,487,557,560 33,846,855 $ 430,979,375
- ---------------------------------------------------------------------------------------------------------------------------
Class B 25,176,788 370,811,453 20,627,807 261,084,351
- ---------------------------------------------------------------------------------------------------------------------------
Class C* 4,336,475 62,530,399 850,531 12,426,338
- ---------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (85,122,675) (1,244,727,259) (16,847,317) (212,764,530)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (6,860,398) (96,226,662) (2,062,227) (25,486,239)
- ---------------------------------------------------------------------------------------------------------------------------
Class C* (1,375,616) (17,703,184) (6,751) (98,996)
- ---------------------------------------------------------------------------------------------------------------------------
37,276,104 $ 562,242,307 36,408,898 $ 466,140,299
===========================================================================================================================
* Class C shares commenced sales on August 4, 1997.
</TABLE>
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended October 31,
1998 and the period June 17, 1996 (date operations commenced) through October
31, 1996, for a share of Class B capital stock outstanding during each of the
years in the two-year period ended October 31, 1998 and the period October 1,
1996 (date sales commenced) through October 31, 1996 and for a share of Class C
capital stock outstanding during the year ended October 31, 1998 and the period
August 4, 1997 (date sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------------- --------------------------------- ---------------------
1998 1997 1996 1998 1997 1996 1998 1997
---- -------- -------- ---- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 14.57 $ 11.09 $ 10.00 $ 14.46 $ 11.08 $ 11.26 $ 14.45 $ 13.48
- ------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income
(loss)() (0.06)(a) (0.10)(a) (0.01)(a) (0.16)(a) (0.20)(a) (0.01)(a) (0.16)(a) (0.06)(a)
- ------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on
securities (both
realized and unrealized) (1.62) 3.58 1.10 (1.60) 3.58 (0.17) (1.60) 1.03
- ------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations (1.68) 3.48 1.09 (1.76) 3.38 (0.18) (1.76) 0.97
- ------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 12.89 $ 14.57 $ 11.09 $ 12.70 $ 14.46 $ 11.08 $ 12.69 $ 14.45
============================== ======== ======== ======== ======== ======== ======== ======== ========
Total return(b) (11.53)% 31.38% 10.90% (12.17)% 30.51% (1.60)% (12.18)% 7.20%
============================== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $717,263 $577,685 $251,253 $493,993 $297,623 $ 22,435 $ 48,293 $ 12,195
============================== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average
net assets(c) 1.28%(d) 1.33% 1.35%(e) 2.02%(d) 2.09% 1.89%(e) 2.02%(d) 2.14%(e)
============================== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income
(loss) to average net
assets(f) (0.40)%(d) (0.83)% (0.29)%(e) (1.14)%(d) (1.59)% (0.83)%(e) (1.14)%(d) (1.64)%(e)
============================== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 78% 41% 13% 78% 41% 13% 78% 41%
============================== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<S> <C>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.38% and 1.60% (annualized) for
1997-1996, for Class A, 2.14% and 2.28% (annualized) for
1997-1996 for Class B and 2.19% (annualized) for 1997 for
Class C.
(d) Ratios are based on average net assets of $715,454,107,
$442,295,823 and $34,048,155 for Class A, Class B and Class
C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of
net investment income (loss) to average net assets prior to
fee waivers and/or expense reimbursements were (0.88)% and
(0.54)% (annualized) for 1997-1996 for Class A, (1.64)% and
(1.22)% (annualized) for 1997-1996 for Class B and (1.69)%
(annualized) for 1997 for Class C.
</TABLE>
FS-106
<PAGE> 208
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
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, 1998, the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended and the financial
highlights for each of the years in the five-year period
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, 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, 1998, the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended and the financial highlights for each of the
years in the five-year period then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-107
<PAGE> 209
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-76.39%
AIR FREIGHT-0.35%
CNF Transportation Inc. 600,000 $ 18,150,000
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.53%
UBS A.G. (Switzerland)(a) 100,001 27,425,406
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-2.52%
BankAmerica Corp. 500,000 28,718,750
- ---------------------------------------------------------------
Chase Manhattan Corp. (The) 1,800,000 102,262,500
- ---------------------------------------------------------------
130,981,250
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.62%
Comcast Corp.-Class A 650,000 32,093,750
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.02%
Monsanto Co. 1,300,000 52,812,500
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.62%
Lucent Technologies, Inc. 400,000 32,075,000
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-2.31%
Compaq Computer Corp.(b) 798,000 25,236,750
- ---------------------------------------------------------------
Dell Computer Corp.(a) 650,000 42,656,250
- ---------------------------------------------------------------
International Business Machines
Corp. 350,000 51,953,125
- ---------------------------------------------------------------
119,846,125
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.58%
Ascend Communications, Inc.(a) 400,000 19,300,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 1,000,000 63,000,000
- ---------------------------------------------------------------
82,300,000
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-4.30%
BMC Software, Inc.(a) 400,000 19,225,000
- ---------------------------------------------------------------
Computer Sciences Corp.(a) 500,000 26,375,000
- ---------------------------------------------------------------
Compuware Corp.(a) 300,000 16,256,250
- ---------------------------------------------------------------
HBO & Co. 1,000,000 26,250,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 1,000,000 105,875,000
- ---------------------------------------------------------------
Novell, Inc.(a) 2,000,000 29,750,000
- ---------------------------------------------------------------
223,731,250
- ---------------------------------------------------------------
CONSUMER FINANCE-1.74%
Household International, Inc. 500,000 18,281,250
- ---------------------------------------------------------------
MBNA Corp. 800,000 18,250,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER FINANCE-(CONTINUED)
Providian Financial Corp.(b) 678,000 $ 53,816,250
- ---------------------------------------------------------------
90,347,500
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.83%
Bergen Brunswig Corp.-Class A 300,000 14,643,750
- ---------------------------------------------------------------
Cardinal Health, Inc. 300,000 28,368,750
- ---------------------------------------------------------------
43,012,500
- ---------------------------------------------------------------
ELECTRIC COMPANIES-0.72%
Edison International 700,000 18,462,500
- ---------------------------------------------------------------
FPL Group, Inc. 300,000 18,768,750
- ---------------------------------------------------------------
37,231,250
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.49%
General Electric Co. 1,250,000 109,375,000
- ---------------------------------------------------------------
Honeywell, Inc. 250,000 19,968,750
- ---------------------------------------------------------------
129,343,750
- ---------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.32%
Raytheon Co.-Class A 300,000 16,800,000
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.51%
Intel Corp. 300,000 26,756,250
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.37%
Applied Materials, Inc.(a) 550,000 19,078,125
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-7.95%
American Express Co. 850,000 75,118,750
- ---------------------------------------------------------------
Associates First Capital
Corp.-Class A(b) 350,000 24,675,000
- ---------------------------------------------------------------
Citigroup Inc. 1,500,000 70,593,750
- ---------------------------------------------------------------
Fannie Mae 1,000,000 70,812,500
- ---------------------------------------------------------------
Freddie Mac 1,400,000 80,500,000
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 650,000 42,087,500
- ---------------------------------------------------------------
SunAmerica, Inc. 700,000 49,350,000
- ---------------------------------------------------------------
413,137,500
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-4.86%
Abbott Laboratories 500,000 23,468,750
- ---------------------------------------------------------------
American Home Products Corp. 500,000 24,375,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 600,000 66,337,500
- ---------------------------------------------------------------
Johnson & Johnson 400,000 32,600,000
- ---------------------------------------------------------------
</TABLE>
FS-108
<PAGE> 210
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED)-(CONTINUED)
Warner-Lambert Co.(b) 1,350,000 $ 105,806,250
- ---------------------------------------------------------------
252,587,500
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-7.22%
Lilly (Eli) & Co. 800,000 64,750,000
- ---------------------------------------------------------------
Merck & Co., Inc. 500,000 67,625,000
- ---------------------------------------------------------------
Pfizer Inc. 1,400,000 150,237,500
- ---------------------------------------------------------------
Pharmacia & Upjohn, Inc.(b) 1,750,000 92,640,625
- ---------------------------------------------------------------
375,253,125
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.66%
Allegiance Corp. 755,000 28,076,563
- ---------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a)(b) 600,000 18,450,000
- ---------------------------------------------------------------
Baxter International Inc. 300,000 17,981,250
- ---------------------------------------------------------------
Becton, Dickinson & Co. 600,000 25,275,000
- ---------------------------------------------------------------
Guidant Corp. 250,000 19,125,000
- ---------------------------------------------------------------
Medtronic, Inc. 450,000 29,250,000
- ---------------------------------------------------------------
138,157,813
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.53%
Omnicare, Inc. 800,000 27,650,000
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-1.36%
Colgate-Palmolive Co. 500,000 44,187,500
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 300,000 26,662,500
- ---------------------------------------------------------------
70,850,000
- ---------------------------------------------------------------
HOUSEWARES-0.48%
Rubbermaid, Inc. 750,000 24,890,625
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.31%
Ace, Ltd. 500,000 16,937,500
- ---------------------------------------------------------------
American International Group, Inc. 600,000 51,150,000
- ---------------------------------------------------------------
68,087,500
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.50%
Allstate Corp. (The) 600,000 25,837,500
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.80%
Merrill Lynch & Co., Inc. 700,000 41,475,000
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.54%
Franklin Resources, Inc. 744,100 28,136,281
- ---------------------------------------------------------------
LODGING-HOTELS-1.09%
Carnival Corp. 1,750,000 56,656,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MACHINERY (DIVERSIFIED)-0.39%
Ingersoll-Rand Co. 400,000 $ 20,200,000
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.64%
Illinois Tool Works Inc. 250,000 16,031,250
- ---------------------------------------------------------------
Tyco International Ltd. 1,650,000 102,196,875
- ---------------------------------------------------------------
United Technologies Corp. 200,000 19,050,000
- ---------------------------------------------------------------
137,278,125
- ---------------------------------------------------------------
NATURAL GAS-1.43%
El Paso Energy Corp. 550,000 19,490,625
- ---------------------------------------------------------------
Enron Corp. 675,000 35,606,250
- ---------------------------------------------------------------
Williams Companies, Inc. (The) 700,000 19,206,250
- ---------------------------------------------------------------
74,303,125
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-1.59%
Baker Hughes, Inc. 1,250,000 27,578,125
- ---------------------------------------------------------------
Halliburton Co. 800,000 28,750,000
- ---------------------------------------------------------------
Schlumberger Ltd. 500,000 26,250,000
- ---------------------------------------------------------------
82,578,125
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-1.08%
Conoco Inc.-Class A(a) 2,250,000 55,968,750
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-1.61%
Amoco Corp. 300,000 16,837,500
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-New
York Shares (Netherlands) 1,000,000 49,250,000
- ---------------------------------------------------------------
Texaco, Inc. 300,000 17,793,750
- ---------------------------------------------------------------
83,881,250
- ---------------------------------------------------------------
PERSONAL CARE-0.23%
Avon Products, Inc. 298,900 11,862,594
- ---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.75%
Xerox Corp. 400,000 38,750,000
- ---------------------------------------------------------------
PUBLISHING-0.35%
Dow Jones & Co., Inc. 400,000 18,325,000
- ---------------------------------------------------------------
RAILROADS-0.40%
Kansas City Southern Industries,
Inc. 542,700 20,961,787
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-0.19%
Crescent Real Estate Equities, Co. 400,000 10,025,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.32%
Lowe's Companies, Inc. 500,000 16,843,750
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.19%
Ingram Micro, Inc.-Class A(a)(b) 222,200 10,110,100
- ---------------------------------------------------------------
</TABLE>
FS-109
<PAGE> 211
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DEPARTMENT STORES)-1.31%
Federated Department Stores,
Inc.(a) 600,000 $ 23,062,500
- ---------------------------------------------------------------
Kohl's Corp.(a) 350,000 16,734,375
- ---------------------------------------------------------------
Saks Inc.(a) 1,233,300 28,057,575
- ---------------------------------------------------------------
67,854,450
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.35%
Family Dollar Stores, Inc. 1,000,000 18,125,000
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.69%
CVS Corp.(b) 150,000 6,853,125
- ---------------------------------------------------------------
Walgreen Co. 600,000 29,212,500
- ---------------------------------------------------------------
36,065,625
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-2.41%
Dayton Hudson Corp. 1,000,000 42,375,000
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 1,200,000 82,800,000
- ---------------------------------------------------------------
125,175,000
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.32%
Washington Mutual, Inc. 450,000 16,846,875
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.24%
Service Corp. International 350,000 12,468,750
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.07%
Ceridian Corp.(a) 325,000 18,646,875
- ---------------------------------------------------------------
Equifax, Inc. 475,000 18,376,563
- ---------------------------------------------------------------
Fiserv, Inc.(a) 400,000 18,600,000
- ---------------------------------------------------------------
55,623,438
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-3.19%
MCI WorldCom, Inc.(a)(b) 3,000,000 165,750,000
- ---------------------------------------------------------------
TELEPHONE-2.56%
Ameritech Corp. 600,000 32,362,500
- ---------------------------------------------------------------
BellSouth Corp. 450,000 35,915,625
- ---------------------------------------------------------------
SBC Communications, Inc.(b) 1,400,000 64,837,500
- ---------------------------------------------------------------
133,115,625
- ---------------------------------------------------------------
TOBACCO-2.95%
Philip Morris Companies, Inc. 3,000,000 153,375,000
- ---------------------------------------------------------------
Total Common Stocks (Cost
$2,927,834,541) 3,970,191,119
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS & NOTES-12.98%
AUTO PARTS & EQUIPMENT-0.22%
Magna International, Inc., Conv.
Sub. Deb., 4.875%, 02/15/05 $ 11,000,000 $ 11,247,500
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.30%
Jacor Communications, Inc.,
Conv. Sr. LYON, 5.50%,
06/12/11(c) 20,000,000 15,450,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.48%
Comverse Technology, Inc., Conv.
Sub. Deb., 4.50%, 07/01/05(d)
(Acquired 06/25/98-10/15/98;
Cost $17,000,000) 17,500,000 16,253,125
- ---------------------------------------------------------------
Global Telesystems Group, Inc.,
Conv. Sr. Sub. Deb., 5.75%,
07/01/10 42,250,000 37,708,125
- ---------------------------------------------------------------
Global Telesystems Group, Inc.,
Conv. Sr. Sub. Notes, 8.75%,
06/30/00 1,100,000 2,283,875
- ---------------------------------------------------------------
Global Telesystems Group, Inc.,
Conv. Sr. Sub. Notes, 8.75%,
06/30/00(d) (Acquired
02/05/98; Cost $13,002,080) 10,000,000 20,762,500
- ---------------------------------------------------------------
77,007,625
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-0.40%
Candescent Technology Corp.,
Conv. Sr. Sub. Deb., 7.00%,
05/01/03(d) (Acquired
04/17/98; Cost $25,000,000) 25,000,000 21,000,000
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.39%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 25,000,000 72,218,750
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-3.58%
America Online, Inc., Conv. Sub.
Notes, 4.00%, 11/15/02 37,500,000 94,265,625
- ---------------------------------------------------------------
America Online, Inc., Conv. Sub.
Notes, 4.00%, 11/15/02(d)
(Acquired 02/10/98; Cost
$15,619,768) 12,500,000 31,421,875
- ---------------------------------------------------------------
Network Associates, Inc., Conv.
Sub. Deb., 4.00%, 02/13/18(c) 45,000,000 19,575,000
- ---------------------------------------------------------------
Platinum Technology, Inc., Conv.
Sub. Notes, 6.25%, 12/15/02 10,000,000 8,250,000
- ---------------------------------------------------------------
Platinum Technology, Inc., Conv.
Sub. Notes, 6.25%, 12/15/02(d)
(Acquired 12/11/97-01/12/98;
Cost $9,961,125) 10,000,000 8,250,000
- ---------------------------------------------------------------
Veritas Software Corp., Conv.
Sub. Notes, 5.25%, 11/01/04 17,500,000 24,368,750
- ---------------------------------------------------------------
186,131,250
- ---------------------------------------------------------------
</TABLE>
FS-110
<PAGE> 212
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-0.48%
SCI Systems, Inc., Conv. Sub.
Notes, 5.00%, 05/01/06(d)
(Acquired 10/20/98; Cost
$20,135,415) $ 15,000,000 $ 24,806,250
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.29%
Amkor Technology, Inc., Conv.
Sub Notes, 5.75%, 05/01/03 26,000,000 14,885,000
- ---------------------------------------------------------------
FOOD-MISC. (DIVERSIFIED)-0.54%
Nestle Holding, Inc., Conv.
Bond, 3.00%, 06/17/02
(Switzerland) 20,000,000 28,110,540
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.62%
Omnicare, Inc., Conv. Bond,
5.00%, 12/01/07 10,000,000 10,800,000
- ---------------------------------------------------------------
Omnicare, Inc., Conv. Sub. Deb.,
5.00%, 12/01/07(d) (Acquired
12/04/97; Cost $20,000,000) 20,000,000 21,600,000
- ---------------------------------------------------------------
32,400,000
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.40%
Loews Corp., Conv. Sub. Notes,
3.125%, 09/15/07 25,000,000 20,500,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.55%
Home Depot, Inc., Conv. Sub.
Notes, 3.25%, 10/01/01 15,000,000 28,500,000
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.49%
Ingram Micro, Inc., Conv. Deb.,
5.375%, 06/09/18(c) 70,000,000 25,637,500
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.37%
Rite Aid Corp., Conv. Sub.
Notes, 5.25%, 09/15/02 15,000,000 19,012,500
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.54%
Costco Companies, Inc., Conv.
Sub. Notes, 3.50%, 08/19/17(c) 40,000,000 28,250,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.43%
Staples Inc., Conv. Sub. Deb.,
4.50%, 10/01/00(d) (Acquired
10/23/97-12/30/97; Cost
$13,054,000) 10,000,000 22,225,000
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.39%
Affiliated Computer Services,
Conv. Sub. Notes, 4.00%,
03/15/05 9,250,000 9,862,813
- ---------------------------------------------------------------
Affiliated Computer Services,
Conv. Sub. Notes, 4.00%,
03/15/05(d) (Acquired
03/17/98; Cost $10,004,125) 10,000,000 10,662,500
- ---------------------------------------------------------------
20,525,313
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
WASTE MANAGEMENT-0.51%
United Waste Systems, Inc.,
Conv. Sub. Notes, 4.50%,
06/01/01 $ 17,500,000 $ 26,753,125
- ---------------------------------------------------------------
Total Convertible Corporate
Bonds & Notes (Cost
$587,314,953) 674,660,353
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS-5.93%
BROADCASTING (TELEVISION, RADIO & CABLE)-1.65%
Chancellor Media Corp.-$3.00
Conv. Pfd. 275,000 $ 22,275,000
- ---------------------------------------------------------------
MediaOne Group, Inc.-$2.25
Series D Conv. Pfd. 550,000 47,746,875
- ---------------------------------------------------------------
MediaOne Group, Inc.-$3.625
Conv. Pfd. 300,000 16,162,500
- ---------------------------------------------------------------
86,184,375
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.29%
Microsoft Corp.-$2.196 Series A
Conv. Pfd. 154,000 15,053,500
- ---------------------------------------------------------------
ELECTRIC COMPANIES-0.96%
Houston Industries, Inc.-$3.22
Conv. Pfd. 615,000 49,853,437
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.31%
McKesson Financing Trust, $2.50
Conv. Pfd. 150,000 15,975,000
- ---------------------------------------------------------------
HOME DECORATION PRODUCTS-0.36%
Newell Financial Trust,
Inc.-$2.625 Conv. Pfd. 350,000 18,856,250
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.68%
Conseco, Inc.-$4.278 Conv.
PRIDES 300,000 35,700,000
- ---------------------------------------------------------------
LODGING-HOTELS-0.48%
Royal Caribbean Cruises
Ltd.-$3.63 Conv. Pfd. 271,700 24,860,550
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.50%
CVS Corp.-$4.23 Conv. Pfd. 300,000 25,800,000
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.15%
Kmart Financing, Inc.-$3.875
Conv. Pfd. 140,000 7,761,250
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.28%
TJX Companies, Inc.-$7.00 Series
E Conv. Pfd. 35,000 14,348,425
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.27%
AirTouch Communications,
Inc.-$1.74 Series B Conv. Pfd. 300,000 13,800,000
- ---------------------------------------------------------------
Total Convertible Preferred
Stocks (Cost $271,494,583) 308,192,787
- ---------------------------------------------------------------
</TABLE>
FS-111
<PAGE> 213
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-1.28%
9.125%, 05/15/99 $ 20,000,000 $ 20,488,800
- ---------------------------------------------------------------
11.75%, 02/15/01 40,000,000 46,394,000
- ---------------------------------------------------------------
Total U.S. Treasury Notes
(Cost $68,093,945) 66,882,800
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-3.90%(e)
Dresdner Kleinwort, Benson,
North America LLC, 5.55%,
11/02/98(f) (Cost
$202,557,788) 202,557,788 202,557,788
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.48% 5,222,484,847
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.48%) (25,198,413)
- ---------------------------------------------------------------
NET ASSETS-100.00% $5,197,286,434
===============================================================
</TABLE>
Abbreviations:
Conv. - Convertible
Deb. - Debentures
LYON - Liquid Yield Option Notes
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Sr. - Senior
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
7.
(c) Zero coupon bonds. Interest rate shown represents the rate of original issue
discount.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 10/31/98 was $176,981,250,
which represented 3.41% of the Fund's net assets.
(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 is at least 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 for its affiliates.
(f) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$300,138,750. Collateralized by $485,457,284 U.S. Government obligations, 0%
to 8.50% due 01/07/99 to 08/01/37 with an aggregate market value at 10/31/98
of $306,003,830.
See Notes to Financial Statements.
FS-112
<PAGE> 214
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$4,057,295,810) $5,222,484,847
- ------------------------------------------------------------
Receivables for:
Investments sold 13,449,956
- ------------------------------------------------------------
Capital stock sold 5,474,436
- ------------------------------------------------------------
Dividends and interest 15,664,282
- ------------------------------------------------------------
Investment for deferred compensation plan 62,521
- ------------------------------------------------------------
Other assets 133,187
- ------------------------------------------------------------
Total assets 5,257,269,229
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 36,176,235
- ------------------------------------------------------------
Capital stock reacquired 9,083,225
- ------------------------------------------------------------
Deferred compensation 62,521
- ------------------------------------------------------------
Options written (premiums received
$8,091,351) 8,480,263
- ------------------------------------------------------------
Accrued advisory fees 2,504,651
- ------------------------------------------------------------
Accrued administrative services fees 12,550
- ------------------------------------------------------------
Accrued directors' fees 4,000
- ------------------------------------------------------------
Accrued distribution fees 2,409,172
- ------------------------------------------------------------
Accrued transfer agent fees 923,434
- ------------------------------------------------------------
Accrued operating expenses 326,744
- ------------------------------------------------------------
Total liabilities 59,982,795
- ------------------------------------------------------------
Net assets applicable to shares outstanding $5,197,286,434
============================================================
NET ASSETS:
Class A $3,706,938,087
============================================================
Class B $1,408,687,133
============================================================
Class C $ 37,846,445
============================================================
Institutional Class $ 43,814,769
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 278,255,520
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 106,376,708
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 2,851,068
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 3,265,143
============================================================
Class A:
Net asset value and redemption price per
share $ 13.32
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $13.32
divided by 94.50%) $ 14.10
============================================================
Class B:
Net asset value and offering price per
share $ 13.24
============================================================
Class C:
Net asset value and offering price per
share $ 13.27
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 13.42
============================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $827,299 foreign
withholding tax) $ 61,756,240
- -----------------------------------------------------------
Interest 40,582,343
- -----------------------------------------------------------
Total investment income 102,338,583
- -----------------------------------------------------------
EXPENSES:
Advisory fees 31,820,925
- -----------------------------------------------------------
Administrative services fees 152,008
- -----------------------------------------------------------
Custodian fees 327,507
- -----------------------------------------------------------
Directors' fees 38,648
- -----------------------------------------------------------
Distribution fees-Class A 11,101,044
- -----------------------------------------------------------
Distribution fees-Class B 12,843,741
- -----------------------------------------------------------
Distribution fees-Class C 216,922
- -----------------------------------------------------------
Interest (Note 5) 412,451
- -----------------------------------------------------------
Transfer agent fees-Class A 4,902,143
- -----------------------------------------------------------
Transfer agent fees-Class B 2,508,122
- -----------------------------------------------------------
Transfer agent fees-Class C 49,570
- -----------------------------------------------------------
Transfer agent fees-Institutional Class 3,895
- -----------------------------------------------------------
Other 1,138,589
- -----------------------------------------------------------
Total expenses 65,515,565
- -----------------------------------------------------------
Less: Fees waived by advisor (762,337)
- -----------------------------------------------------------
Expenses paid indirectly (239,868)
- -----------------------------------------------------------
Net expenses 64,513,360
- -----------------------------------------------------------
Net investment income 37,825,223
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 204,168,591
- -----------------------------------------------------------
Foreign currencies 985,214
- -----------------------------------------------------------
Futures contracts (3,768,370)
- -----------------------------------------------------------
Option contracts purchased 2,119,600
- -----------------------------------------------------------
Option contracts written 2,763,898
- -----------------------------------------------------------
206,268,933
- -----------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 256,495,600
- -----------------------------------------------------------
Foreign currencies 39,913
- -----------------------------------------------------------
Futures contracts 2,332,675
- -----------------------------------------------------------
Option contracts written (3,953,364)
- -----------------------------------------------------------
254,914,824
- -----------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and option
contracts 461,183,757
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $499,008,980
============================================================
</TABLE>
See Notes to Financial Statements.
FS-113
<PAGE> 215
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 37,825,223 $ 25,716,155
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 206,268,933 471,905,541
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 254,914,824 453,826,181
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 499,008,980 951,447,877
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (28,039,987) (29,364,689)
- ----------------------------------------------------------------------------------------------
Class B (3,013,337) (2,392,475)
- ----------------------------------------------------------------------------------------------
Class C (47,378) --
- ----------------------------------------------------------------------------------------------
Institutional Class (445,449) (438,502)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (346,531,949) (162,219,599)
- ----------------------------------------------------------------------------------------------
Class B (108,856,197) (34,439,480)
- ----------------------------------------------------------------------------------------------
Class C (819,962) (2,594)
- ----------------------------------------------------------------------------------------------
Institutional Class (3,989,466) (1,797,486)
- ----------------------------------------------------------------------------------------------
Net equalization credits (See Note 1):
Class A -- 292,768
- ----------------------------------------------------------------------------------------------
Class B -- 189,770
- ----------------------------------------------------------------------------------------------
Institutional Class -- 6,698
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 235,195,827 247,700,247
- ----------------------------------------------------------------------------------------------
Class B 350,425,592 397,291,935
- ----------------------------------------------------------------------------------------------
Class C 32,069,085 5,872,568
- ----------------------------------------------------------------------------------------------
Institutional Class 3,464,509 4,247,713
- ----------------------------------------------------------------------------------------------
Net increase in net assets 628,420,268 1,376,394,751
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 4,568,866,166 3,192,471,415
- ----------------------------------------------------------------------------------------------
End of period $5,197,286,434 $4,568,866,166
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $3,821,903,969 $3,199,855,109
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 9,291,857 2,895,981
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 201,250,572 456,189,864
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 1,164,840,036 909,925,212
- ----------------------------------------------------------------------------------------------
$5,197,286,434 $4,568,866,166
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-114
<PAGE> 216
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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 separate 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. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last 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, 1998,
undistributed net investment income was increased by $1,010,651 and
undistributed net realized gains decreased by $1,010,651 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statements of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
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 previously followed 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. Effective November 1, 1997, the Fund discontinued equalization
accounting and reclassified the cumulative equalization credits of $893,847
from undistributed net investment income to paid-in capital.
FS-115
<PAGE> 217
This change has no effect on the net assets, the results of operations or
the net asset value per share of the Fund.
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 foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
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.
K. Put options-The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking a minimum price at which the Fund can sell. If
security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
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, 1998, AIM waived fees of $762,337. Under the terms of a master sub-advisory
agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM
pays AIM Capital 50% of the amount paid by the Fund to AIM.
FS-116
<PAGE> 218
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, 1998, AIM was
reimbursed $152,008 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. On September 20, 1997, the Board of Directors
approved appointment of AFS as transfer agent of the Institutional Class
effective December 29, 1997. During the year ended October 31, 1998, AFS was
paid $4,080,187 with respect to the Class A, Class B, and Class C shares and for
the period December 29, 1997 through October 31, 1998, AFS was paid $3,312 with
respect to the Institutional Class. Prior to the effective date of the agreement
with AFS, the Fund paid A I M Institutional Fund Services, Inc. $583 pursuant to
a transfer agency and shareholder services agreement with respect to the
Institutional Class for the period November 1, 1997 through December 28, 1997.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.30% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of Class
A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the 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. During the year ended
October 31, 1998, the Class A, Class B and Class C shares paid AIM Distributors
$11,101,044, $12,843,741, and $216,922, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $1,892,699 from sales of Class A
shares of the Fund during the year ended October 31, 1998. 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, 1998,
AIM Distributors received commissions of $161,792 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, and FMC.
During the year ended October 31, 1998, the Fund paid legal fees of $12,926
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
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$52,292 and $187,576, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $239,868 during the year ended October 31, 1998.
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-BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an
agreed-upon price and date. Proceeds from reverse repurchase agreements are
treated as borrowings. The agreements are collateralized by the underlying
securities and are carried at the amount at which the securities will
subsequently be repurchased as specified in the agreements. The maximum amount
outstanding during the period ended October 31, 1998 was $117,134,000 while
borrowings averaged $7,046,827 per day with a weighted average interest rate of
5.85%.
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) $1,000,000,000 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, 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, 1998 was
$7,658,867,434 and $7,675,681,041, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,195,598,611
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (60,184,443)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment
securities $1,135,414,168
=========================================================================
</TABLE>
Cost of investments for tax purposes is $4,087,070,679.
FS-117
<PAGE> 219
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER
OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of Period 26,305 $ 5,836,484
- -------------------------------- ---------- -----------
Written 301,649 69,039,606
- -------------------------------- ---------- -----------
Closed (221,962) (55,174,709)
- -------------------------------- ---------- -----------
Exercised (31,495) (6,226,655)
- -------------------------------- ---------- -----------
Expired (43,295) (5,383,375)
- -------------------------------- ---------- -----------
End of period 31,202 $ 8,091,351
================================ ========== ===========
</TABLE>
Open call option contracts written at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
NUMBER 1998 UNREALIZED
CONTRACT STRIKE OF PREMIUMS MARKET APPRECIATION/
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
----- -------- ------ --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Associates First
Capital Corp.-Class
A Nov $ 70 1,000 $ 595,980 $ 331,250 $ 264,730
- --------------------- ------ ---- ------- ---------- ---------- -----------
Associates First
Capital Corp.-Class
A Nov 75 1,000 520,983 150,000 370,983
- --------------------- ------ ---- ------- ---------- ---------- -----------
Arterial Vascular
Engineering, Inc. Nov 35 4,500 586,057 323,437 262,620
- --------------------- ------ ---- ------- ---------- ---------- -----------
CVS Corp Nov 43 1,500 623,762 553,125 70,637
- --------------------- ------ ---- ------- ---------- ---------- -----------
Compaq Computer Corp. Nov 30 7,980 774,033 1,895,250 (1,121,217)
- --------------------- ------ ---- ------- ---------- ---------- -----------
Ingram Micro, Inc. Nov 45 2,222 798,782 569,388 229,394
- --------------------- ------ ---- ------- ---------- ---------- -----------
MCI WorldCom, Inc. Nov 55 2,500 539,357 414,063 125,294
- --------------------- ------ ---- ------- ---------- ---------- -----------
Pharmacia & Upjohn,
Inc. Nov 50 2,500 648,728 859,375 (210,647)
- --------------------- ------ ---- ------- ---------- ---------- -----------
Providian Financial
Corp. Nov 75 1,000 870,971 681,250 189,721
- --------------------- ------ ---- ------- ---------- ---------- -----------
Providian Financial
Corp. Nov 80 1,500 893,970 571,875 322,095
- --------------------- ------ ---- ------- ---------- ---------- -----------
SBC Communications,
Inc. Nov 45 4,000 513,502 837,500 (323,998)
- --------------------- ------ ---- ------- ---------- ---------- -----------
Warner-Lambert Co. Nov 70 1,500 725,226 1,293,750 (568,524)
- --------------------- ------ ---- ------- ---------- ---------- -----------
$8,091,351 $8,480,263 $ (388,912)
===================== ====== ==== ======= ========== ========== ===========
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold
Class A 65,753,775 $868,543,898 64,563,425 $804,527,781
- --------------------- ------------- ------------ ----------- ------------
Class B 32,991,364 431,938,545 37,105,082 454,511,843
- --------------------- ------------- ------------ ----------- ------------
Class C* 2,736,777 36,139,093 437,883 6,069,012
- --------------------- ------------- ------------ ----------- ------------
Institutional Class 568,334 7,594,968 600,091 7,589,130
- --------------------- ------------- ------------ ----------- ------------
Issued as
reinvestment of
dividends:
Class A 29,328,588 355,378,824 16,507,011 181,612,880
- --------------------- ------------- ------------ ----------- ------------
Class B 8,807,895 105,930,618 3,210,439 35,080,359
- --------------------- ------------- ------------ ----------- ------------
Class C* 67,166 810,828 159 2,155
- --------------------- ------------- ------------ ----------- ------------
Institutional Class 351,483 4,295,496 193,613 2,149,460
- --------------------- ------------- ------------ ----------- ------------
Reacquired:
Class A (75,327,509) (988,726,895) (59,039,148) (738,440,414)
- --------------------- ------------- ------------ ----------- ------------
Class B (14,417,738) (187,443,571) (7,456,466) (92,300,267)
- --------------------- ------------- ------------ ----------- ------------
Class C* (376,288) (4,880,836) (14,629) (198,599)
- --------------------- ------------- ------------ ----------- ------------
Institutional Class (636,014) (8,425,955) (445,517) (5,490,877)
- --------------------- ------------- ------------ ----------- ------------
49,847,833 $621,155,013 55,661,943 $655,112,463
===================== ============= ============ =========== ============
</TABLE>
* Class C commenced sales on August 4, 1997.
FS-118
<PAGE> 220
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the five-year period ended October 31,
1998, for a share of Class B capital stock outstanding during each of the years
in the three-year period ended October 31, 1998 and the period June 26, 1995
(date sales commenced) through October 31, 1995, and for a share of Class C
capital stock outstanding during the year ended October 31, 1998 and the period
August 4, 1997 (date sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.41 $ 11.19 $ 10.63 $ 8.90 $ 9.46
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.12 0.10 0.19 0.15 0.21
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net gains (losses) on securities (both realized and
unrealized) 1.23 2.91 1.43 2.11 (0.45)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total from investment operations 1.35 3.01 1.62 2.26 (0.24)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.10) (0.12) (0.16) (0.20) (0.16)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Distributions from net realized gains (1.34) (0.67) (0.90) (0.33) (0.16)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total distributions (1.44) (0.79) (1.06) (0.53) (0.32)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 13.32 $ 13.41 $ 11.19 $ 10.63 $ 8.90
============================================================ ========== ========== ========== ========== ==========
Total return(a) 11.20% 28.57% 16.70% 27.03% (2.55)%
============================================================ ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,706,938 $3,466,912 $2,647,208 $1,974,417 $1,579,074
============================================================ ========== ========== ========== ========== ==========
Ratio of expenses (exclusive of interest) to average net
assets(b) 1.08%(c) 1.09% 1.12% 1.17% 1.17%
============================================================ ========== ========== ========== ========== ==========
Ratio of net investment income to average net assets(d) 0.95%(c) 0.79% 1.81% 1.55% 2.32%
============================================================ ========== ========== ========== ========== ==========
Portfolio turnover rate 154% 170% 164% 161% 126%
============================================================ ========== ========== ========== ========== ==========
Borrowings for the period:
Amount of debt outstanding at end of period (000s omitted) -- -- -- -- --
============================================================ ========== ========== ========== ========== ==========
Average amount of debt outstanding during the period (000s
omitted)(e) $ 5,164 -- -- -- --
============================================================ ========== ========== ========== ========== ==========
Average number of shares outstanding during the period (000s
omitted)(e) 280,987 -- -- -- --
============================================================ ========== ========== ========== ========== ==========
Average amount of debt per share during the period $ 0.0184 -- -- -- --
============================================================ ========== ========== ========== ========== ==========
</TABLE>
(a) Does not deduct sales charges.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.10% and 1.10% for 1998-1997.
(c) Ratios are based on average net assets of $3,700,347,957.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.93% and 0.78% for 1998-1997.
(e) Averages computed on a daily basis.
FS-119
<PAGE> 221
NOTE 9-FINANCIAL HIGHLIGHTS-continued
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------- ------------------
1998 1997 1996 1995 1998 1997
---------- ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.37 $ 11.18 $ 10.62 $ 9.81 $ 13.39 $ 13.86
- ------------------------------------------------------ ---------- ---------- -------- ------- ------- -------
Income from investment operations:
Net investment income 0.02 0.01 0.10 0.03 0.02(a) --
- ------------------------------------------------------ ---------- ---------- -------- ------- ------- -------
Net gains (losses) on securities (both
realized and unrealized) 1.22 2.89 1.45 0.80 1.23 (0.45)
- ------------------------------------------------------ ---------- ---------- -------- ------- ------- -------
Total from investment operations 1.24 2.90 1.55 0.83 1.25 (0.45)
- ------------------------------------------------------ ---------- ---------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.03) (0.04) (0.09) (0.02) (0.03) --
- ------------------------------------------------------ ---------- ---------- -------- ------- ------- -------
Distributions from net realized gains (1.34) (0.67) (0.90) -- (1.34) (0.02)
- ------------------------------------------------------ ---------- ---------- -------- ------- ------- -------
Total distributions (1.37) (0.71) (0.99) (0.02) (1.37) (0.02)
- ------------------------------------------------------ ---------- ---------- -------- ------- ------- -------
Net asset value, end of period $ 13.24 $ 13.37 $ 11.18 $ 10.62 $ 13.27 $ 13.39
====================================================== ========== ========== ======== ======= ======= =======
Total return(b) 10.33% 27.54% 15.90% 8.48% 10.39% (3.24)%
====================================================== ========== ========== ======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,408,687 $1,056,094 $515,672 $67,592 $37,846 $ 5,669
====================================================== ========== ========== ======== ======= ======= =======
Ratio of expenses (exclusive of interest)
to average net assets(c) 1.84%(d) 1.85% 1.94% 1.98%(f) 1.84%(d) 1.82%(f)
====================================================== ========== ========== ======== ======= ======= =======
Ratio of net investment income to average
net assets(e) 0.19%(d) 0.03% 0.99% 0.74%(f) 0.19%(d) 0.06%(f)
====================================================== ========== ========== ======== ======= ======= =======
Portfolio turnover rate 154% 170% 164% 161% 154% 170%
====================================================== ========== ========== ======== ======= ======= =======
Borrowings for the period:
Amount of debt outstanding at end of period
(000s omitted) -- -- -- -- -- --
====================================================== ========== ========== ======== ======= ======= =======
Average amount of debt outstanding during
the period (000s omitted)(g) $ 1,793 -- -- -- $ 30 --
====================================================== ========== ========== ======== ======= ======= =======
Average number of shares outstanding during
the period (000s omitted)(g) 98,052 -- -- -- 1,654 --
====================================================== ========== ========== ======== ======= ======= =======
Average amount of debt per share during the period $ 0.0184 -- -- -- $0.0184 --
====================================================== ========== ========== ======== ======= ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.86% and 1.86% for 1998-1997 for Class B and 1.86% and 1.83% (annualized)
for 1998-1997 for Class C.
(d) Ratios are based on average net assets of $1,284,374,113 and $21,692,212 for
Class B and Class C, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.17% and 0.02% for 1998-1997 for Class B and 0.17% and
0.04% (annualized) for 1998-1997 for Class C.
(f) Annualized.
(g) Averages computed on a daily basis.
FS-120
<PAGE> 222
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of the AIM Constellation Fund (a portfolio of
AIM Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1998, and the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended, and the financial
highlights for each of the years in the five-year period
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM
Constellation Fund as of October 31, 1998, and the
results of its operations for the year then ended, the
changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights
for each of the years in the five-year period then ended,
in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-121
<PAGE> 223
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-91.01%
AEROSPACE/DEFENSE-0.60%
AAR Corp. 1,000,000 $ 23,125,000
- ---------------------------------------------------------------
BE Aerospace, Inc.(a) 500,000 10,750,000
- ---------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 400,000 17,700,000
- ---------------------------------------------------------------
Sundstrand Corp. 557,400 26,162,963
- ---------------------------------------------------------------
77,737,963
- ---------------------------------------------------------------
AIRLINES-0.15%
Southwest Airlines Co. 900,000 19,068,750
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.39%
Danaher Corp. 1,250,000 49,921,875
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.29%
Northern Trust Corp. 500,000 36,875,000
- ---------------------------------------------------------------
BANKS (REGIONAL)-2.54%
AmSouth Bancorporation 750,000 30,046,875
- ---------------------------------------------------------------
First Tennessee National Corp. 510,200 16,166,963
- ---------------------------------------------------------------
Golden State Bancorp, Inc.(a) 1,350,000 25,903,125
- ---------------------------------------------------------------
Hibernia Corp.-Class A 1,250,000 20,859,375
- ---------------------------------------------------------------
Mercantile Bankshares Corp. 500,000 16,312,500
- ---------------------------------------------------------------
North Fork Bancorporation, Inc. 2,500,000 49,687,500
- ---------------------------------------------------------------
Star Banc Corp. 1,575,000 119,109,375
- ---------------------------------------------------------------
TCF Financial Corp. 1,000,000 23,562,500
- ---------------------------------------------------------------
Zions Bancorp 500,000 26,531,250
- ---------------------------------------------------------------
328,179,463
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.71%
Biogen, Inc.(a) 1,000,000 69,500,000
- ---------------------------------------------------------------
Curative Health Services,
Inc.(a)(b) 795,000 21,663,750
- ---------------------------------------------------------------
91,163,750
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-2.08%
Chancellor Media Corp.(a) 280,002 10,745,077
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 800,000 36,450,000
- ---------------------------------------------------------------
Comcast Corp.-Class A 1,500,000 74,062,500
- ---------------------------------------------------------------
Cox Communications, Inc.-Class
A(a) 500,000 27,437,500
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 501,000 20,603,625
- ---------------------------------------------------------------
Liberty Media Group(a) 1,500,000 57,093,750
- ---------------------------------------------------------------
Univision Communications Inc.(a) 1,465,400 43,229,300
- ---------------------------------------------------------------
269,621,752
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.49%
Andrew Corp.(a) 563,400 9,225,675
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Comverse Technology, Inc.(a) 850,000 $ 39,100,000
- ---------------------------------------------------------------
General Instrument Corp.(a) 2,000,000 51,375,000
- ---------------------------------------------------------------
Global TeleSystems Group,
Inc.(a) 1,176,400 47,129,525
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 586,000 32,596,250
- ---------------------------------------------------------------
Tellabs, Inc.(a) 250,000 13,750,000
- ---------------------------------------------------------------
193,176,450
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-2.94%
Apple Computer, Inc.(a) 750,000 27,843,750
- ---------------------------------------------------------------
Comdisco, Inc. 4,200,000 64,837,500
- ---------------------------------------------------------------
Dell Computer Corp.(a) 2,400,000 157,500,000
- ---------------------------------------------------------------
Gateway 2000, Inc.(a) 1,500,000 83,718,750
- ---------------------------------------------------------------
IDX Systems Corp.(a) 670,800 28,425,150
- ---------------------------------------------------------------
Micron Electronics, Inc.(a) 884,000 18,508,750
- ---------------------------------------------------------------
380,833,900
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-2.54%
Ascend Communications, Inc.(a) 3,500,000 168,875,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 525,000 33,075,000
- ---------------------------------------------------------------
3Com Corp.(a) 3,500,000 126,218,750
- ---------------------------------------------------------------
328,168,750
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-2.11%
Adaptec, Inc.(a) 987,500 15,985,156
- ---------------------------------------------------------------
EMC Corp.(a) 2,400,000 154,500,000
- ---------------------------------------------------------------
Lexmark International Group,
Inc.(a) 1,000,000 69,937,500
- ---------------------------------------------------------------
Seagate Technology , Inc.(a) 1,250,000 32,968,750
- ---------------------------------------------------------------
273,391,406
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-10.97%
America Online, Inc. 1,564,700 198,814,693
- ---------------------------------------------------------------
Aspect Development, Inc.(a) 976,000 30,835,500
- ---------------------------------------------------------------
BMC Software, Inc.(a) 3,500,000 168,218,750
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 1,250,000 26,718,750
- ---------------------------------------------------------------
Citrix Systems, Inc.(a) 1,500,000 106,312,500
- ---------------------------------------------------------------
Computer Sciences Corp.(a) 750,000 39,562,500
- ---------------------------------------------------------------
Compuware Corp.(a) 2,500,000 135,468,750
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 4,780,100 136,232,850
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 500,000 20,562,500
- ---------------------------------------------------------------
HBO & Co. 1,000,000 26,250,000
- ---------------------------------------------------------------
Intuit, Inc.(a) 725,000 36,612,500
- ---------------------------------------------------------------
J.D. Edwards & Co.(a) 1,050,000 34,387,500
- ---------------------------------------------------------------
</TABLE>
FS-122
<PAGE> 224
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Learning Company, Inc. (The)(a) 2,000,000 $ 51,625,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 300,000 31,762,500
- ---------------------------------------------------------------
Network Associates, Inc.(a) 704,700 29,949,750
- ---------------------------------------------------------------
Parametric Technology Co.(a) 2,500,000 41,562,500
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 1,450,000 51,112,500
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 1,250,000 32,734,375
- ---------------------------------------------------------------
Synopsys, Inc.(a) 1,500,000 67,875,000
- ---------------------------------------------------------------
Veritas Software Corp.(a) 859,700 43,092,463
- ---------------------------------------------------------------
Wind River Systems(a) 1,000,000 43,812,500
- ---------------------------------------------------------------
Yahoo! Inc.(a) 500,000 65,421,875
- ---------------------------------------------------------------
1,418,925,256
- ---------------------------------------------------------------
CONSUMER FINANCE-2.28%
Capital One Financial Corp. 800,000 81,400,000
- ---------------------------------------------------------------
Countrywide Credit Industries,
Inc. 636,900 27,506,118
- ---------------------------------------------------------------
MBNA Corp. 1,875,000 42,773,438
- ---------------------------------------------------------------
Providian Financial Corp. 1,304,000 103,505,000
- ---------------------------------------------------------------
SLM Holding Corp. 1,000,000 40,062,500
- ---------------------------------------------------------------
295,247,056
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.30%
Action Performance Companies,
Inc.(a) 500,000 14,937,500
- ---------------------------------------------------------------
Blyth Industries, Inc.(a) 806,200 22,271,275
- ---------------------------------------------------------------
37,208,775
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-2.70%
Bergen Brunswig Corp.-Class A 1,000,000 48,812,500
- ---------------------------------------------------------------
Cardinal Health, Inc. 1,445,445 136,684,892
- ---------------------------------------------------------------
JP Foodservice, Inc. 547,900 26,025,250
- ---------------------------------------------------------------
McKesson Corp. 1,422,400 109,524,800
- ---------------------------------------------------------------
Patterson Dental Co.(a) 18,500 763,125
- ---------------------------------------------------------------
SUPERVALU, INC 1,125,900 27,021,600
- ---------------------------------------------------------------
348,832,167
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.55%
American Power Conversion
Corp.(a) 2,000,000 84,875,000
- ---------------------------------------------------------------
Sanmina Corp.(a) 387,400 15,883,400
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 1,000,000 39,500,000
- ---------------------------------------------------------------
Solectron Corp.(a) 1,500,000 85,875,000
- ---------------------------------------------------------------
Symbol Technologies, Inc. 1,750,000 78,312,500
- ---------------------------------------------------------------
Uniphase Corp.(a) 500,000 24,750,000
- ---------------------------------------------------------------
329,195,900
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.17%
Arrow Electronics, Inc.(a) 1,000,000 21,812,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS
(INSTRUMENTATION)-0.40%
Perkin-Elmer Corp. 176,300 $ 14,864,293
- ---------------------------------------------------------------
Waters Corp.(a) 500,000 36,750,000
- ---------------------------------------------------------------
51,614,293
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-3.05%
Altera Corp.(a) 1,321,400 55,003,275
- ---------------------------------------------------------------
Linear Technology Corp. 1,000,000 59,625,000
- ---------------------------------------------------------------
Maxim Integrated Products,
Inc.(a) 2,000,000 71,375,000
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 2,500,175 67,660,985
- ---------------------------------------------------------------
Micron Technology, Inc.(a) 1,750,000 66,500,000
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 1,000,000 44,875,000
- ---------------------------------------------------------------
Xilinx, Inc.(a) 650,000 29,026,563
- ---------------------------------------------------------------
394,065,823
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.57%
FINOVA Group, Inc. 706,400 34,437,000
- ---------------------------------------------------------------
MGIC Investment Corp. 1,000,000 39,000,000
- ---------------------------------------------------------------
73,437,000
- ---------------------------------------------------------------
FOODS-0.36%
Earthgrains Co. (The) 260,300 7,809,000
- ---------------------------------------------------------------
Quaker Oats Co. (The) 650,000 38,390,625
- ---------------------------------------------------------------
46,199,625
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.30%
Alpharma, Inc. 254,967 7,059,399
- ---------------------------------------------------------------
Forest Laboratories, Inc.(a) 750,000 31,359,375
- ---------------------------------------------------------------
Jones Medical Industries,
Inc.(b) 2,350,850 75,961,840
- ---------------------------------------------------------------
Medicis Pharmaceutical-Class
A(a) 826,900 41,448,363
- ---------------------------------------------------------------
Mylan Laboratories, Inc. 2,500,000 86,093,750
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 1,000,000 55,625,000
- ---------------------------------------------------------------
297,547,727
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.31%
Health Management Associates,
Inc.-Class A(a) 4,500,045 80,157,051
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a)(b) 1,750,000 89,796,875
- ---------------------------------------------------------------
169,953,926
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.47%
HCR Manor Care, Inc.(a) 751,700 24,430,250
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 3,000,000 36,375,000
- ---------------------------------------------------------------
60,805,250
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.84%
Express Scripts, Inc.-Class
A(a)(b) 700,000 68,381,250
- ---------------------------------------------------------------
PacifiCare Health Systems,
Inc.-Class B(a) 150,000 11,812,500
- ---------------------------------------------------------------
</TABLE>
FS-123
<PAGE> 225
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MANAGED CARE)-(CONTINUED)
Trigon Healthcare, Inc.(a) 750,000 $ 28,125,000
- ---------------------------------------------------------------
108,318,750
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-5.07%
Allegiance Corp. 2,540,400 94,471,125
- ---------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a) 1,000,000 30,750,000
- ---------------------------------------------------------------
Bausch & Lomb Inc. 59,700 2,488,743
- ---------------------------------------------------------------
Becton, Dickinson & Co. 3,500,000 147,437,500
- ---------------------------------------------------------------
Biomet, Inc. 2,500,000 84,843,750
- ---------------------------------------------------------------
Boston Scientific Corp.(a)(c) 750,000 40,828,125
- ---------------------------------------------------------------
Guidant Corp. 1,708,500 130,700,250
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 900,000 34,818,750
- ---------------------------------------------------------------
Safeskin Corp.(a) 362,100 8,011,462
- ---------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 500,000 50,812,500
- ---------------------------------------------------------------
Sybron International Corp.(a) 1,250,000 30,937,500
- ---------------------------------------------------------------
656,099,705
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-2.77%
Alza Corp.(a) 1,200,000 57,450,000
- ---------------------------------------------------------------
Covance, Inc.(a) 1,609,600 44,867,600
- ---------------------------------------------------------------
Lincare Holdings, Inc.(a) 1,000,000 39,937,500
- ---------------------------------------------------------------
Omnicare, Inc. 2,950,100 101,962,832
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 524,200 9,927,037
- ---------------------------------------------------------------
Quintiles Transnational Corp.(a) 1,000,000 45,250,000
- ---------------------------------------------------------------
Total Renal Care Holdings,
Inc.(a) 2,417,933 59,239,358
- ---------------------------------------------------------------
358,634,327
- ---------------------------------------------------------------
HOMEBUILDING-0.69%
Clayton Homes, Inc. 3,090,000 47,701,875
- ---------------------------------------------------------------
Fleetwood Enterprises, Inc. 750,000 24,187,500
- ---------------------------------------------------------------
Kaufman and Broad Home Corp. 616,900 17,620,206
- ---------------------------------------------------------------
89,509,581
- ---------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES-0.65%
Leggett & Platt, Inc. 2,000,000 46,750,000
- ---------------------------------------------------------------
Maytag Corp. 750,000 37,078,125
- ---------------------------------------------------------------
83,828,125
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.35%
Clorox Co. 300,000 32,775,000
- ---------------------------------------------------------------
Dial Corp. (The) 450,900 12,427,931
- ---------------------------------------------------------------
45,202,931
- ---------------------------------------------------------------
HOUSEWARES-0.17%
Central Garden and Pet Co.(a) 485,500 9,588,625
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEWARES-(CONTINUED)
Helen of Troy Ltd.(a) 846,400 $ 12,590,200
- ---------------------------------------------------------------
22,178,825
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.16%
AFLAC Inc. 925,000 35,265,625
- ---------------------------------------------------------------
Provident Companies, Inc. 1,500,000 43,593,750
- ---------------------------------------------------------------
ReliaStar Financial Corp. 1,502,500 65,828,281
- ---------------------------------------------------------------
Torchmark Corp. 129,200 5,652,500
- ---------------------------------------------------------------
150,340,156
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.11%
Progressive Corp. 96,800 14,253,800
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-1.04%
Edwards (A.G.), Inc. 750,000 25,921,875
- ---------------------------------------------------------------
Lehman Brothers Holdings, Inc. 350,000 13,278,125
- ---------------------------------------------------------------
Schwab (Charles) Corp. 2,000,000 95,875,000
- ---------------------------------------------------------------
135,075,000
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.46%
T. Rowe Price Associates, Inc. 1,658,600 58,983,963
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.77%
Harley-Davidson, Inc. 2,350,000 91,062,500
- ---------------------------------------------------------------
Speedway Motorsports, Inc.(a) 400,000 8,400,000
- ---------------------------------------------------------------
99,462,500
- ---------------------------------------------------------------
LODGING-HOTELS-0.10%
Host Marriott Corp.(a) 896,000 12,992,000
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.02%
Applied Power, Inc.-Class A 95,000 2,618,438
- ---------------------------------------------------------------
MANUFACTURING
(DIVERSIFIED)-0.76%
Corning Inc. 1,000,000 36,312,500
- ---------------------------------------------------------------
Crane Co. 464,550 13,384,846
- ---------------------------------------------------------------
Hillenbrand Industries, Inc. 500,000 29,593,750
- ---------------------------------------------------------------
Pentair, Inc. 500,000 18,812,500
- ---------------------------------------------------------------
98,103,596
- ---------------------------------------------------------------
MANUFACTURING
(SPECIALIZED)-0.15%
Avery Dennison Corp. 471,000 19,517,063
- ---------------------------------------------------------------
NATURAL GAS-0.80%
El Paso Energy Corp. 1,500,000 53,156,250
- ---------------------------------------------------------------
KN Energy, Inc. 1,000,000 49,687,500
- ---------------------------------------------------------------
102,843,750
- ---------------------------------------------------------------
OFFICE EQUIPMENT &
SUPPLIES-0.27%
Herman Miller, Inc. 1,100,000 24,268,750
- ---------------------------------------------------------------
</TABLE>
FS-124
<PAGE> 226
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OFFICE EQUIPMENT & SUPPLIES-(CONTINUED)
HON INDUSTRIES, Inc. 529,000 $ 11,208,187
- ---------------------------------------------------------------
35,476,937
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-2.04%
Baker Hughes, Inc. 2,000,000 44,125,000
- ---------------------------------------------------------------
BJ Services Co.(a) 1,500,000 30,656,250
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 1,500,000 52,125,000
- ---------------------------------------------------------------
Diamond Offshore Drilling, Inc. 1,000,000 30,687,500
- ---------------------------------------------------------------
Global Industries Ltd.(a) 2,450,000 23,581,250
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 2,000,000 29,125,000
- ---------------------------------------------------------------
Transocean Offshore Inc. 500,000 18,468,750
- ---------------------------------------------------------------
Varco International, Inc.(a)(b) 3,225,000 34,870,312
- ---------------------------------------------------------------
263,639,062
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.44%
Apache Corp. 1,500,000 42,468,750
- ---------------------------------------------------------------
Santa Fe Energy Resources,
Inc.(a) 1,750,000 14,218,750
- ---------------------------------------------------------------
56,687,500
- ---------------------------------------------------------------
PERSONAL CARE-0.26%
Rexall Sundown, Inc.(a) 1,891,800 33,934,163
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.32%
AES Corp.(a) 1,000,000 40,937,500
- ---------------------------------------------------------------
PUBLISHING-0.38%
McGraw-Hill Companies, Inc.
(The) 550,000 49,465,625
- ---------------------------------------------------------------
RAILROADS-0.37%
Kansas City Southern Industries,
Inc. 1,250,000 48,281,250
- ---------------------------------------------------------------
RESTAURANTS-1.58%
Brinker International, Inc.(a) 2,000,000 48,375,000
- ---------------------------------------------------------------
Outback Steakhouse, Inc.(a) 1,125,000 38,953,125
- ---------------------------------------------------------------
Papa John's International,
Inc.(a) 689,300 26,171,859
- ---------------------------------------------------------------
Starbucks Corp.(a) 1,000,000 43,375,000
- ---------------------------------------------------------------
Tricon Global Restaurants,
Inc.(a) 1,100,000 47,850,000
- ---------------------------------------------------------------
204,724,984
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.33%
Lowe's Companies, Inc. 1,250,000 42,109,375
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.90%
Best Buy Co., Inc.(a) 500,000 24,000,000
- ---------------------------------------------------------------
CDW Computer Centers, Inc.(a) 1,000,000 74,937,500
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 750,000 34,125,000
- ---------------------------------------------------------------
Tandy Corp. 1,250,000 61,953,125
- ---------------------------------------------------------------
Tech Data Corp.(a) 1,299,300 51,159,938
- ---------------------------------------------------------------
246,175,563
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DEPARTMENT STORES)-0.46%
Kohl's Corp.(a) 1,250,000 $ 59,765,625
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.27%
Consolidated Stores Corp.(a) 1,000,000 16,437,500
- ---------------------------------------------------------------
Dollar General Corp. 1,000,000 23,875,000
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 1,810,600 69,821,262
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 2,100,000 38,062,500
- ---------------------------------------------------------------
Ross Stores, Inc. 500,000 16,250,000
- ---------------------------------------------------------------
164,446,262
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.80%
Rite Aid Corp. 2,600,040 103,189,088
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.62%
Kroger Co.(a) 2,637,400 146,375,700
- ---------------------------------------------------------------
Safeway, Inc.(a) 1,325,000 63,351,563
- ---------------------------------------------------------------
209,727,263
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-0.86%
Dayton Hudson Corp. 750,000 31,781,250
- ---------------------------------------------------------------
Fred Meyer, Inc.(a) 1,500,000 79,968,750
- ---------------------------------------------------------------
111,750,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-2.60%
Bed Bath & Beyond, Inc.(a) 2,750,100 75,799,631
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 285,300 8,826,468
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 1,000,000 20,000,000
- ---------------------------------------------------------------
Office Depot, Inc.(a) 2,000,000 50,000,000
- ---------------------------------------------------------------
Staples, Inc.(a) 4,750,000 154,968,750
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 1,000,000 27,250,000
- ---------------------------------------------------------------
336,844,849
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.53%
Abercrombie & Fitch Co.-Class
A(a) 795,000 31,551,563
- ---------------------------------------------------------------
Gap, Inc. (The) 1,000,000 60,125,000
- ---------------------------------------------------------------
Men's Wearhouse, Inc.
(The)(a)(b) 2,250,075 54,564,318
- ---------------------------------------------------------------
TJX Companies, Inc. 2,700,000 51,131,250
- ---------------------------------------------------------------
197,372,131
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.72%
Dime Bancorp, Inc. 2,541,500 60,519,469
- ---------------------------------------------------------------
GreenPoint Financial Corp. 1,000,000 32,812,500
- ---------------------------------------------------------------
93,331,969
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.89%
Interpublic Group of Companies,
Inc. 500,000 29,250,000
- ---------------------------------------------------------------
Lamar Advertising Co.(a) 450,000 14,048,439
- ---------------------------------------------------------------
Omnicom Group, Inc. 2,500,000 123,593,750
- ---------------------------------------------------------------
</TABLE>
FS-125
<PAGE> 227
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING)-(CONTINUED)
Outdoor Systems, Inc.(a) 1,500,000 $ 33,093,750
- ---------------------------------------------------------------
Snyder Communications, Inc.(a) 1,250,000 44,609,375
- ---------------------------------------------------------------
244,595,314
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-2.92%
Apollo Group, Inc.(a) 1,000,000 32,125,000
- ---------------------------------------------------------------
ChoicePoint, Inc.(a) 467,300 22,079,926
- ---------------------------------------------------------------
Cintas Corp. 1,315,900 70,400,650
- ---------------------------------------------------------------
G & K Services, Inc.-Class A 350,000 16,012,500
- ---------------------------------------------------------------
IMS Health Inc. 677,000 45,020,500
- ---------------------------------------------------------------
Service Corp. International 2,626,500 93,569,062
- ---------------------------------------------------------------
Stewart Enterprises, Inc.- Class
A 2,600,000 59,962,500
- ---------------------------------------------------------------
Viad Corp. 1,382,400 37,929,600
- ---------------------------------------------------------------
377,099,738
- ---------------------------------------------------------------
SERVICES (COMPUTER
SYSTEMS)-1.23%
Ciber, Inc.(a) 500,000 9,812,500
- ---------------------------------------------------------------
Gartner Group, Inc.-Class A(a) 1,300,000 25,837,500
- ---------------------------------------------------------------
Keane, Inc.(a) 1,050,000 34,912,500
- ---------------------------------------------------------------
Policy Management Systems
Corp.(a) 474,400 21,555,550
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 2,000,000 67,500,000
- ---------------------------------------------------------------
159,618,050
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-4.36%
Affiliated Computer Services,
Inc.(a) 1,000,000 37,000,000
- ---------------------------------------------------------------
Billing Concepts Corp.(a) 1,596,800 22,554,800
- ---------------------------------------------------------------
Ceridian Corp.(a) 1,300,000 74,587,500
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 903,100 49,218,950
- ---------------------------------------------------------------
DST Systems, Inc.(a) 750,000 37,500,000
- ---------------------------------------------------------------
Equifax, Inc. 1,750,000 67,703,125
- ---------------------------------------------------------------
Fiserv, Inc.(a) 2,500,000 116,250,000
- ---------------------------------------------------------------
National Data Corp. 1,000,200 33,881,775
- ---------------------------------------------------------------
NOVA Corp.(a) 893,750 25,807,032
- ---------------------------------------------------------------
Paychex, Inc. 2,000,000 99,500,000
- ---------------------------------------------------------------
564,003,182
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.23%
Robert Half International,
Inc.(a) 750,000 30,093,750
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.23%
Valassis Communications, Inc.(a) 750,000 29,906,250
- ---------------------------------------------------------------
TELEPHONE-0.86%
Century Telephone Enterprises,
Inc. 1,499,950 85,215,909
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 1,000,000 25,937,500
- ---------------------------------------------------------------
111,153,409
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-0.61%
Jones Apparel Group, Inc.(a) 1,250,000 $ 21,562,500
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 1,000,000 20,687,500
- ---------------------------------------------------------------
Russell Corp. 912,900 22,423,107
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 300,000 13,931,250
- ---------------------------------------------------------------
78,604,357
- ---------------------------------------------------------------
TEXTILES (HOME
FURNISHINGS)-0.22%
Shaw Industries, Inc. 1,650,000 28,668,750
- ---------------------------------------------------------------
WASTE MANAGEMENT-1.53%
Allied Waste Industries, Inc.(a) 2,693,230 58,241,099
- ---------------------------------------------------------------
Republic Services, Inc.(a) 1,225,000 26,796,876
- ---------------------------------------------------------------
Waste Management, Inc. 2,500,000 112,812,501
- ---------------------------------------------------------------
197,850,476
- ---------------------------------------------------------------
Total Domestic Common Stocks
(Cost $8,593,150,443) 11,770,399,289
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-2.90%
CANADA-0.41%
CanWest Global Communications
Corp.
(Broadcasting-Television,
Radio & Cable) 1,500,000 17,531,250
- ---------------------------------------------------------------
Newcourt Credit Group, Inc.
(Financial-Diversified) 1,087,500 35,751,562
- ---------------------------------------------------------------
53,282,812
- ---------------------------------------------------------------
FINLAND-1.16%
Nokia Oyj A.B.-Class A-ADR
(Communications Equipment) 1,610,300 149,858,544
- ---------------------------------------------------------------
FRANCE-0.09%
Coflexip S.A.-ADR
(Manufacturing-Specialized) 239,500 11,525,938
- ---------------------------------------------------------------
IRELAND-0.81%
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 1,500,000 105,093,750
- ---------------------------------------------------------------
ISRAEL-0.13%
ECI Telecommunications Ltd.
(Communications Equipment) 500,000 16,562,500
- ---------------------------------------------------------------
NETHERLANDS-0.14%
Core Laboratories N.V. (Oil &
Gas-Drilling & Equipment)(a) 800,000 18,050,000
- ---------------------------------------------------------------
UNITED KINGDOM-0.16%
Stolt Comex Seaway, S.A. (Oil &
Gas-Exploration &
Production)(a)(b) 1,150,000 14,662,500
- ---------------------------------------------------------------
</TABLE>
FS-126
<PAGE> 228
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Stolt Comex Seaway, S.A. - ADR
(Oil & Gas-Exploration &
Production)(a) 575,000 $ 5,929,687
- ---------------------------------------------------------------
20,592,187
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$240,390,852) 374,965,731
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS-0.39%
COMPUTERS (PERIPHERALS)-0.39%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 (Cost
$23,700,075) $ 17,500,000 50,553,125
- ---------------------------------------------------------------
SHARES
WARRANTS-0.03%
BANKS (REGIONAL)-0.04%
Golden State Bancorp,
Litigation Wts., expiring
01/01/01 (Cost $5,682,639) 1,000,000 4,875,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
MASTER NOTE AGREEMENT-1.00%
Merrill Lynch Co. Inc.,
5.9675%(d)(Cost $129,000,000) $129,000,000 $ 129,000,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-3.28%(E)
Dresdner Kleinwort, Benson,
North America LLC, 5.55%,
11/02/98(f) $ 9,350,759 $ 9,350,759
- ---------------------------------------------------------------
Goldman, Sachs & Co., 5.55%,
11/02/98(g) 115,090,451 115,090,451
- ---------------------------------------------------------------
Salomon Smith Barney, Inc.,
5.55%(h) 300,000,000 300,000,000
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $424,441,210) 424,441,210
- ---------------------------------------------------------------
TIME DEPOSITS-2.09%
Societe Generale Bank, 5.25%,
11/02/98 108,141,977 108,141,977
- ---------------------------------------------------------------
State Street Cayman, 5.00%,
11/02/98 161,909,549 161,909,549
- ---------------------------------------------------------------
Total Time Deposits (Cost
$270,051,526) 270,051,526
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.71% 13,024,285,881
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(0.71%) (91,205,266)
- ---------------------------------------------------------------
NET ASSETS-100.00% $12,933,080,615
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities as of 10/31/98
was $359,900,845 which represented 2.78% of the Fund's net assets.
(c) A portion of this security is subject to call options written. See Note 8.
(d) Master Note Purchase Agreement may be terminated by either party upon two
business days' prior written notice, at which time all amounts outstanding
under notes purchased under the Master Note Agreement will become payable.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on 10/31/98.
(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 is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$300,138,750. Collateralized by $485,457,284 U.S. Government obligations, 0%
to 8.50% due 01/07/99 to 08/01/37 with an aggregate market value at 10/31/98
of $306,003,830.
(g) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$277,128,113. Collateralized by $273,207,000 U.S. Government obligations
5.00% to 9.40% due 11/10/98 to 12/15/43 with an aggregate market value at
10/31/98 of $282,540,300.
(h) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates are redetermined daily. Collateralized by
$1,159,504,000 U.S. Government obligations 0% to 10.70% due 11/01/98 to
07/15/45 with an aggregate market value at 10/31/98 of $1,020,000,062.
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Sub. - Subordinated
Wts. - Warrants
See Notes to Financial Statements.
FS-127
<PAGE> 229
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$9,686,416,745) $13,024,285,881
- ------------------------------------------------------------
Receivables for:
Investments sold 81,487,021
- ------------------------------------------------------------
Capital stock sold 25,412,005
- ------------------------------------------------------------
Dividends and interest 2,838,985
- ------------------------------------------------------------
Investment for deferred compensation plan 142,702
- ------------------------------------------------------------
Other assets 20,271
- ------------------------------------------------------------
Total assets 13,134,186,865
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 131,879,165
- ------------------------------------------------------------
Capital stock reacquired 53,735,073
- ------------------------------------------------------------
Deferred compensation 142,702
- ------------------------------------------------------------
Options written (premiums received
$357,644) 210,938
- ------------------------------------------------------------
Accrued advisory fees 6,134,883
- ------------------------------------------------------------
Accrued administrative services fees 26,319
- ------------------------------------------------------------
Accrued directors' fees 6,500
- ------------------------------------------------------------
Accrued distribution fees 4,590,417
- ------------------------------------------------------------
Accrued transfer agent fees 3,529,174
- ------------------------------------------------------------
Accrued operating expenses 851,079
- ------------------------------------------------------------
Total liabilities 201,106,250
- ------------------------------------------------------------
Net assets applicable to shares outstanding $12,933,080,615
- ------------------------------------------------------------
NET ASSETS:
Class A $12,391,844,029
============================================================
Class B $ 275,675,564
============================================================
Class C $ 76,521,669
============================================================
Institutional Class $ 189,039,353
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 470,007,075
============================================================
Class B:
Authorized 1,000,000,000
- ------------------------------------------------------------
Outstanding 10,558,108
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 2,931,610
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 6,936,768
============================================================
Class A:
Net asset value and redemption price per
share $ 26.37
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $26.37
divided by 94.50%) $ 27.90
============================================================
Class B:
Net asset value and offering price per
share $ 26.11
============================================================
Class C:
Net asset value and offering price per
share $ 26.10
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 27.25
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $564,597 foreign
withholding tax) $ 40,677,717
- ------------------------------------------------------------
Interest 48,508,823
- ------------------------------------------------------------
Total investment income 89,186,540
- ------------------------------------------------------------
EXPENSES:
Advisory fees 89,630,173
- ------------------------------------------------------------
Administrative services fees 295,926
- ------------------------------------------------------------
Custodian fees 637,815
- ------------------------------------------------------------
Directors' fees 96,730
- ------------------------------------------------------------
Distribution fees-Class A 41,684,536
- ------------------------------------------------------------
Distribution fees-Class B 1,576,409
- ------------------------------------------------------------
Distribution fees-Class C 506,546
- ------------------------------------------------------------
Transfer agent fees-Class A 24,340,018
- ------------------------------------------------------------
Transfer agent fees-Class B 601,845
- ------------------------------------------------------------
Transfer agent fees-Class C 169,272
- ------------------------------------------------------------
Transfer agent fees-Institutional Class 17,618
- ------------------------------------------------------------
Other 1,734,916
- ------------------------------------------------------------
Total expenses 161,291,804
- ------------------------------------------------------------
Less: Fees waived by advisor (3,074,705)
- ------------------------------------------------------------
Expenses paid indirectly (332,613)
- ------------------------------------------------------------
Net expenses 157,884,486
- ------------------------------------------------------------
Net investment income (loss) (68,697,946)
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 482,260,826
- ------------------------------------------------------------
Foreign currencies 1,025,913
- ------------------------------------------------------------
Futures contracts (24,781,162)
- ------------------------------------------------------------
Option contracts written 819,195
- ------------------------------------------------------------
459,324,772
- ------------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities (664,462,047)
- ------------------------------------------------------------
Foreign currencies (1,413)
- ------------------------------------------------------------
Futures contracts 16,400,635
- ------------------------------------------------------------
Option contracts written 146,706
- ------------------------------------------------------------
(647,916,119)
- ------------------------------------------------------------
Net gain (loss) from investment
securities, foreign currencies,
futures and option contracts (188,591,347)
- ------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (257,289,293)
============================================================
</TABLE>
See Notes to Financial Statements.
FS-128
<PAGE> 230
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (68,697,946) $ (51,626,612)
- -------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 459,324,772 1,046,160,029
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies, futures and option
contracts (647,916,119) 1,234,273,644
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (257,289,293) 2,228,807,061
- -------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (1,023,550,465) (401,536,883)
- -------------------------------------------------------------------------------------------------
Class B (2,750,431) --
- -------------------------------------------------------------------------------------------------
Class C (2,040,204) --
- -------------------------------------------------------------------------------------------------
Institutional Class (13,510,099) (10,336,039)
- -------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (667,156,467) 1,280,740,251
- -------------------------------------------------------------------------------------------------
Class B 292,437,630 --
- -------------------------------------------------------------------------------------------------
Class C 60,444,760 22,611,449
- -------------------------------------------------------------------------------------------------
Institutional Class 17,436,212 (139,767,829)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,595,978,357) 2,980,518,010
- -------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 14,529,058,972 11,548,540,962
- -------------------------------------------------------------------------------------------------
End of period $12,933,080,615 $14,529,058,972
=================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 9,156,848,152 $ 9,520,633,579
- -------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (994,714) (270,243)
- -------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 439,210,537 1,022,762,877
- -------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 3,338,016,640 3,985,932,759
- -------------------------------------------------------------------------------------------------
$12,933,080,615 $14,529,058,972
=================================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds,
Inc. (the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios: AIM
Constellation Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund and AIM Weingarten Fund. The Fund currently
offers four different classes of shares: Class A shares, Class B shares, Class C
shares and the Institutional Class. Class B shares commenced sales on November
3, 1997. Class A shares are sold with a front-end sales charge. Class B shares
and Class C shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's investment objective
is to seek capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
FS-129
<PAGE> 231
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which
would not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair market value as
determined in good faith by or under the supervision of the Board of
Directors.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
paid in capital was decreased by $66,947,562, undistributed net investment
income was increased by $67,973,475 and undistributed net realized gains
decreased by $1,025,913 in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position
93-2. Net assets of the fund were unaffected by the reclassifications
discussed above.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Expenses--Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
E. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
F. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could
be exposed to risk if counterparties to the contracts are unable to meet
the terms of their contracts.
G. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized
gain or loss equal to the difference between the proceeds from, or cost of,
the closing transaction and the Fund's basis in the contract. Risks include
the possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
H. 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
FS-130
<PAGE> 232
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 agreement with A I M Advisors,
Inc. ("AIM"). Under the terms of the master investment advisory agreement, the
Fund pays an advisory fee to AIM at the annual rate of 1.0% of the first $30
million of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $30 million to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million. AIM has
agreed to voluntarily waive a portion of its advisory fees paid by the Fund to
AIM to the extent necessary to reduce the fees paid by the Fund at net asset
levels higher than those currently incorporated in the present advisory fee
schedule. Under the voluntary waiver, AIM will receive a fee calculated at the
annual rate of 1.0% of the first $30 million of the Fund's average daily net
assets, plus 0.75% of the Fund's average daily net assets in excess of $30
million to and including $150 million, plus 0.625% of the Fund's average daily
net assets in excess of $150 million to and including $2 billion, plus 0.60% of
the Fund's average daily net assets in excess of $2 billion. During the year
ended October 31, 1998, AIM waived fees of $3,074,705. The waiver is entirely
voluntary but approval is required by the Board of Directors for any decision by
AIM to discontinue the waiver. Under the terms of a master sub-advisory
agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM
pays AIM Capital 50% of the amount paid by the Fund to AIM.
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, 1998, AIM was
reimbursed $295,926 for such services.
The Fund, pursuant to a transfer agent and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency and shareholder services to the Fund. On September 20, 1997, the Board of
Directors approved appointment of AFS as transfer agent of the Institutional
Class effective December 29, 1997. During the year ended October 31, 1998, AFS
was paid $11,110,534 with respect to the Class A, Class B and Class C shares and
for the period December 29, 1997 through October 31, 1998, AFS was paid $14,933
with respect to the Institutional Class. Prior to the effective date of the
agreement with AFS, the Fund paid A I M Institutional Fund Services, Inc. $2,685
pursuant to a transfer agency and shareholder services agreement with respect to
the Institutional Class for the period November 1, 1997 through December 28,
1997.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.30% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the 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. During the year ended
October 31, 1998, the Class A shares, Class B shares and Class C shares paid AIM
Distributors $41,684,536, $1,576,409, and $506,546, respectively as compensation
under the Plans.
AIM Distributors received commissions of $5,261,392 from sales of the Class A
shares of the Fund during the year ended October 31, 1998. 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, 1998,
AIM Distributors received commissions of $510,316 in contingent deferred sales
charges imposed on the redemptions of Fund shares. Certain officers and
directors of the Company are officers and directors of AIM, AIM Capital, AIM
Distributors, AFS, and FMC.
During the year ended October 31, 1998, the Fund paid legal fees of $31,902
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
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$147,814 and $184,799, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $332,613 during the year ended October 31, 1998.
FS-131
<PAGE> 233
NOTE 4-DIRECTOR'S FEES
Director's fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, 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, 1998 was
$10,221,437,067 and $11,626,322,625, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $3,684,499,221
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (373,354,606)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $3,311,144,615
==========================================================
</TABLE>
Cost of investments for tax purposes is $9,713,141,266.
NOTE 7-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 271,511,337 $ 7,555,171,888 211,624,665 $ 5,717,830,615
- --------------------------------------------------------------------------------------
Class B* 12,877,388 356,713,527 -- --
- --------------------------------------------------------------------------------------
Class C** 2,960,570 81,123,332 745,655 22,872,597
- --------------------------------------------------------------------------------------
Institutional Class 2,149,830 60,442,629 5,274,034 141,917,489
- --------------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 38,633,795 977,878,833 15,529,296 381,406,093
- --------------------------------------------------------------------------------------
Class B* 104,498 2,643,686 -- --
- --------------------------------------------------------------------------------------
Class C** 76,723 1,938,518 -- --
- --------------------------------------------------------------------------------------
Institutional Class 494,582 12,886,955 387,258 9,720,186
- --------------------------------------------------------------------------------------
Reacquired:
Class A (330,045,727) (9,200,207,188) (178,999,514) (4,818,496,457)
- --------------------------------------------------------------------------------------
Class B* (2,423,778) (66,919,583) -- --
- --------------------------------------------------------------------------------------
Class C** (842,846) (22,617,090) (8,492) (261,148)
- --------------------------------------------------------------------------------------
Institutional Class (1,977,243) (55,893,372) (10,657,023) (291,405,504)
- --------------------------------------------------------------------------------------
(6,480,871) $ (296,837,865) 43,895,879 $ 1,163,583,871
======================================================================================
</TABLE>
*Class B Shares commenced sales on November 3, 1997.
**Class C Shares commenced sales on August 4, 1997.
NOTE 8-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of period -- --
- ----------------------------------- ------- -----------
Written 29,238 $ 7,032,081
- ----------------------------------- ------- -----------
Closed (17,332) (3,926,728)
- ----------------------------------- ------- -----------
Expired (6,031) (484,785)
- ----------------------------------- ------- -----------
Exercised (4,000) (2,262,924)
- ----------------------------------- ------- -----------
End of Period 1,875 $ 357,644
=================================== ======= ===========
</TABLE>
Open call option contracts written at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT STRIKE NUMBER OF PREMIUM OCTOBER 31, 1998 UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
- ----- -------- ------ --------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Boston Scientific Corp. Dec. 98 $65 1,875 $357,644 $210,938 $146,706
======================== ======== === ===== ======== ======== ========
</TABLE>
FS-132
<PAGE> 234
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the five-year period ended October 31,
1998, for a share of Class B capital stock outstanding during the period
November 3, 1997 (date sales commenced) through October 31, 1998 and for a share
of Class C capital stock outstanding during the year ended October 31, 1998 and
the period August 4, 1997 (dates sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 29.23 $ 25.48 $ 23.69 $ 18.31 $ 17.04
- ----------------------------------------------------------- ----------- ----------- ----------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.14) (0.11) (0.06) (0.05) (0.02)
- ----------------------------------------------------------- ----------- ----------- ----------- ---------- ----------
Net gains (losses) on securities (both realized and
unrealized) (0.62) 4.75 2.60 5.95 1.29
- ----------------------------------------------------------- ----------- ----------- ----------- ---------- ----------
Total from investment operations (0.76) 4.64 2.54 5.90 1.27
- ----------------------------------------------------------- ----------- ----------- ----------- ---------- ----------
Distributions from net realized gains (2.10) (0.89) (0.75) (0.52) --
- ----------------------------------------------------------- ----------- ----------- ----------- ---------- ----------
Net asset value, end of period $ 26.37 $ 29.23 $ 25.48 $ 23.69 $ 18.31
=========================================================== =========== =========== =========== ========== ==========
Total return(a) (2.30)% 18.86% 11.26% 33.43% 7.45%
=========================================================== =========== =========== =========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $12,391,844 $14,319,441 $11,255,506 $7,000,350 $3,726,029
=========================================================== =========== =========== =========== ========== ==========
Ratio of expenses to average net assets(b) 1.10%(c) 1.11%() 1.14% 1.16% 1.20%
=========================================================== =========== =========== =========== ========== ==========
Ratio of net investment income (loss) to average net
assets(d) (0.47)%(c) (0.40)%() (0.27)% (0.32)% (0.15)%
=========================================================== =========== =========== =========== ========== ==========
Portfolio turnover rate 76% 67% 58% 45% 79%
=========================================================== =========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<S> <C>
(a) Does not deduct sales charges.
(b) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.12%, 1.13%, 1.16%, 1.18% and
1.21% for 1998-1994.
(c) Ratios are based on average net assets of $13,894,845,349.
(d) After fee waivers and/or expense reimbursements. Ratios of
net investment income (loss) to average net assets prior to
fee waivers and/or expense reimbursement were (0.50)%,
(0.42)%, (0.29)%, (0.34)% and (0.16)% for 1998-1994.
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
--------- -------------------------
1998 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 30.04 $ 29.18 $ 30.32
- ------------------------------------------------------------ -------- ------- -------
Income from investment operations:
Net investment income (loss) (0.37)(a) (0.37)(a) (0.04)
- ------------------------------------------------------------ -------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) (1.46) (0.61) (1.10)
- ------------------------------------------------------------ -------- ------- -------
Total from investment operations (1.83) (0.98) (1.14)
- ------------------------------------------------------------ -------- ------- -------
Distributions from net realized gains (2.10) (2.10) --
- ------------------------------------------------------------ -------- ------- -------
Net asset value, end of period $ 26.11 $ 26.10 $ 29.18
============================================================ ======== ======= =======
Total return(b) (5.86)% (3.12)% (3.76)%
============================================================ ======== ======= =======
Ratios/supplement data:
Net assets, end of period (000s omitted) $275,676 $76,522 $21,508
============================================================ ======== ======= =======
Ratio of expenses to average net assets(c) 1.98%(d)(e) 1.97%(d) 1.84%(e)
============================================================ ======== ======= =======
Ratio of net investment income (loss) to average net
assets(f) (1.36)%(d)(e) (1.35)%(d) (1.12)%(e)
============================================================ ======== ======= =======
Portfolio turnover rate 76% 76% 67%
============================================================ ======== ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.00% (annualized) for 1998 for Class B and 1.99% and 1.86% (annualized) for
1998-1997 for Class C.
(d) Ratios are based on average net assets of $158,509,468 and $50,654,588 for
Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (1.38)% (annualized) for 1998 for Class B and (1.37)%
and (1.15)% (annualized), for 1998-1997 for Class C.
FS-133
<PAGE> 235
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of AIM Weingarten Fund (a portfolio of AIM
Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1998, the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended, and financial
highlights for each of the years in the five-year period
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM
Weingarten Fund as of October 31, 1998, the results of
its operations for the year then ended, the changes in
its net assets for each of the years in the two-year
period then ended, and the financial highlights for each
of the years in the five-year period then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-134
<PAGE> 236
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-87.33%
BANKS (REGIONAL)-0.46%
North Fork Bancorporation, Inc. 1,600,000 $ 31,800,000
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.34%
PepsiCo, Inc. 702,100 23,695,875
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.74%
Amgen, Inc.(a) 650,000 51,065,625
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-5.48%
Chancellor Media Corp.(a) 1,200,000 46,050,000
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 1,030,460 46,950,334
- ---------------------------------------------------------------
Comcast Corp.-Class A 1,500,000 74,062,500
- ---------------------------------------------------------------
Cox Communications, Inc.-Class
A(a) 281,400 15,441,825
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 925,000 50,875,000
- ---------------------------------------------------------------
Liberty Media Group(a) 299,800 11,411,137
- ---------------------------------------------------------------
MediaOne Group, Inc.(a) 950,500 40,218,031
- ---------------------------------------------------------------
Tele-Communications, Inc.-Class
A(a) 2,200,000 92,675,000
- ---------------------------------------------------------------
377,683,827
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.59%
Monsanto Co. 1,000,000 40,625,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.61%
Lucent Technologies, Inc.(b) 525,000 42,098,438
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-4.45%
Dell Computer Corp.(a)(b) 1,700,000 111,562,500
- ---------------------------------------------------------------
International Business Machines
Corp. 1,034,800 153,603,125
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 713,400 41,555,550
- ---------------------------------------------------------------
306,721,175
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.91%
Ascend Communications, Inc.(a) 1,444,000 69,673,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 850,000 53,550,000
- ---------------------------------------------------------------
3Com Corp.(a) 236,900 8,543,206
- ---------------------------------------------------------------
131,766,206
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.90%
EMC Corp.(a) 959,000 61,735,625
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-9.75%
America Online, Inc.(a)(b) 1,350,000 171,534,375
- ---------------------------------------------------------------
BMC Software, Inc.(a) 1,500,000 72,093,750
- ---------------------------------------------------------------
Cadence Design Systems,
Inc.(a)(b) 600,000 12,825,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Computer Sciences Corp.(a)(b) 685,500 $ 36,160,125
- ---------------------------------------------------------------
Compuware Corp.(a) 1,100,000 59,606,250
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 1,013,300 28,879,050
- ---------------------------------------------------------------
HBO & Co. 1,200,000 31,500,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 2,166,500 229,378,188
- ---------------------------------------------------------------
Unisys Corp.(a) 1,150,000 30,618,750
- ---------------------------------------------------------------
672,595,488
- ---------------------------------------------------------------
CONSUMER FINANCE-0.50%
Providian Financial Corp. 434,500 34,488,437
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-2.32%
AmeriSource Health Corp.-Class
A(a) 600,000 31,462,500
- ---------------------------------------------------------------
Cardinal Health, Inc. 1,000,000 94,562,500
- ---------------------------------------------------------------
McKesson Corp. 149,600 11,519,200
- ---------------------------------------------------------------
Sysco Corp. 835,700 22,511,668
- ---------------------------------------------------------------
160,055,868
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.68%
AMP Inc.(b) 1,000,000 41,062,500
- ---------------------------------------------------------------
General Electric Co. 912,100 79,808,750
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 612,800 24,205,600
- ---------------------------------------------------------------
Symbol Technologies, Inc. 885,450 39,623,887
- ---------------------------------------------------------------
184,700,737
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-1.49%
Altera Corp.(a) 266,100 11,076,413
- ---------------------------------------------------------------
Intel Corp. 898,000 80,090,375
- ---------------------------------------------------------------
Xilinx, Inc.(a) 255,700 11,418,603
- ---------------------------------------------------------------
102,585,391
- ---------------------------------------------------------------
ENTERTAINMENT-0.83%
Time Warner, Inc. 408,800 37,941,750
- ---------------------------------------------------------------
Viacom, Inc.-Class B(a) 326,500 19,549,187
- ---------------------------------------------------------------
57,490,937
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-7.83%
American Express Co. 400,000 35,350,000
- ---------------------------------------------------------------
Citigroup, Inc. 405,050 19,062,666
- ---------------------------------------------------------------
Federal National Mortgage
Association 1,340,700 94,938,319
- ---------------------------------------------------------------
Freddie Mac 2,725,000 156,687,500
- ---------------------------------------------------------------
Heller Financial, Inc. 965,400 23,169,600
- ---------------------------------------------------------------
</TABLE>
FS-135
<PAGE> 237
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL
(DIVERSIFIED)-(CONTINUED)
MBIA, Inc. 1,375,000 $ 84,046,875
- ---------------------------------------------------------------
MGIC Investment Corp. 1,127,940 43,989,660
- ---------------------------------------------------------------
SunAmerica, Inc. 1,175,000 82,837,500
- ---------------------------------------------------------------
540,082,120
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-6.39%
Abbott Laboratories 1,287,400 60,427,338
- ---------------------------------------------------------------
American Home Products Corp. 390,200 19,022,250
- ---------------------------------------------------------------
Bristol-Myers Squibb Co.(b) 1,836,100 203,003,806
- ---------------------------------------------------------------
Johnson & Johnson 500,000 40,750,000
- ---------------------------------------------------------------
Warner-Lambert Co. 1,495,000 117,170,625
- ---------------------------------------------------------------
440,374,019
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.03%
ICN Pharmaceuticals, Inc. 1,310,200 30,625,925
- ---------------------------------------------------------------
Mylan Laboratories, Inc. 1,350,000 46,490,625
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 1,130,600 62,889,625
- ---------------------------------------------------------------
140,006,175
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-7.92%
Lilly (Eli) & Co. 1,498,900 121,317,219
- ---------------------------------------------------------------
Merck & Co., Inc. 525,000 71,006,250
- ---------------------------------------------------------------
Pfizer, Inc. 1,316,800 141,309,100
- ---------------------------------------------------------------
Pharmacia & Upjohn, Inc. 2,615,000 138,431,563
- ---------------------------------------------------------------
Schering-Plough Corp.(b) 717,200 73,781,950
- ---------------------------------------------------------------
545,846,082
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.09%
Universal Health Services,
Inc.-Class B(a) 114,000 5,849,625
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.17%
HEALTHSOUTH Corp.(a) 985,300 11,946,763
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-4.84%
Baxter International, Inc. 1,000,000 59,937,500
- ---------------------------------------------------------------
Becton, Dickinson & Co. 3,160,400 133,131,850
- ---------------------------------------------------------------
Biomet, Inc. 1,098,500 37,280,343
- ---------------------------------------------------------------
Guidant Corp. 850,000 65,025,000
- ---------------------------------------------------------------
Stryker Corp. 684,900 28,722,993
- ---------------------------------------------------------------
Sybron International Corp.(a) 393,200 9,731,700
- ---------------------------------------------------------------
333,829,386
- ---------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES-0.06%
Furniture Brands International,
Inc.(a)(b) 191,800 4,123,700
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.66%
Dial Corp. (The) 574,700 15,840,169
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD PRODUCTS (NON-DURABLES)-(CONTINUED)
Procter & Gamble Co. (The) 330,000 $ 29,328,750
- ---------------------------------------------------------------
45,168,919
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.71%
Equitable Companies, Inc. 670,000 32,830,000
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 389,500 16,164,250
- ---------------------------------------------------------------
48,994,250
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.41%
American International Group,
Inc. 330,000 28,132,500
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-0.42%
Paine Webber Group, Inc. 875,000 29,257,813
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.94%
Franklin Resources, Inc. 900,000 34,031,250
- ---------------------------------------------------------------
T. Rowe Price Associates, Inc. 867,100 30,836,244
- ---------------------------------------------------------------
64,867,494
- ---------------------------------------------------------------
LODGING-HOTELS-1.76%
Carnival Corp. 3,750,000 121,406,250
- ---------------------------------------------------------------
MANUFACTURING
(DIVERSIFIED)-0.72%
Tyco International Ltd. 800,000 49,550,000
- ---------------------------------------------------------------
NATURAL GAS-0.47%
Enron Corp. 620,000 32,705,000
- ---------------------------------------------------------------
PERSONAL CARE-0.42%
Avon Products, Inc. 729,600 28,956,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-2.84%
Home Depot, Inc. (The) 2,800,000 121,800,000
- ---------------------------------------------------------------
Lowe's Companies, Inc. 2,200,000 74,112,500
- ---------------------------------------------------------------
195,912,500
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.97%
Best Buy Co., Inc.(a) 775,000 37,200,000
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 648,200 29,493,100
- ---------------------------------------------------------------
66,693,100
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.28%
Saks, Inc.(a) 855,700 19,467,175
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.14%
Ross Stores, Inc. 300,000 9,750,000
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.95%
CVS Corp. 700,000 31,981,250
- ---------------------------------------------------------------
</TABLE>
FS-136
<PAGE> 238
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DRUG STORES)-(CONTINUED)
Rite Aid Corp. 848,500 $ 33,674,844
- ---------------------------------------------------------------
65,656,094
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.17%
Albertson's, Inc. 154,000 8,556,625
- ---------------------------------------------------------------
Kroger Co.(a) 1,000,000 55,500,000
- ---------------------------------------------------------------
Safeway, Inc.(a) 340,600 16,284,937
- ---------------------------------------------------------------
80,341,562
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-2.08%
Costco Companies, Inc.(a)(b) 725,000 41,143,750
- ---------------------------------------------------------------
Dayton Hudson Corp. 670,000 28,391,250
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 1,075,000 74,175,000
- ---------------------------------------------------------------
143,710,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-2.10%
Office Depot, Inc.(a) 2,850,000 71,250,000
- ---------------------------------------------------------------
Staples, Inc.(a) 2,250,000 73,406,250
- ---------------------------------------------------------------
144,656,250
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.54%
Gap, Inc. (The) 625,000 37,578,125
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.00%
Outdoor Systems, Inc.(a) 3,131,625 69,091,477
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.34%
Service Corp. International 650,000 23,156,250
- ---------------------------------------------------------------
SERVICES (COMPUTER
SYSTEMS)-0.48%
Keane, Inc.(a) 1,000,000 33,250,000
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.21%
Equifax, Inc. 1,332,300 51,543,356
- ---------------------------------------------------------------
Fiserv, Inc.(a) 690,600 32,112,900
- ---------------------------------------------------------------
83,656,256
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-4.34%
MCI WorldCom, Inc.(a) 5,410,965 298,955,816
- ---------------------------------------------------------------
Total Domestic Common Stocks
(Cost $4,374,224,596) 6,022,079,330
- ---------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE BONDS & NOTES-0.26%
RETAIL (DEPARTMENT STORES)-0.26%
Saks Holdings, Inc., Conv. Sub.
Notes, 5.50%, 09/15/06 (Cost
$18,304,125) $ 18,350,000 $ 18,235,313
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED FOREIGN BONDS & NOTES-0.61%
SWITZERLAND-0.61%
Nestle Holding Inc. (Foods),
Conv. Bond, 3.00%, 06/17/02
(Cost $40,041,900) 30,000,000 42,165,810
- ---------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS-4.30%
FRANCE-0.37%
Renault S.A. (Automobiles) 600,000 25,658,570
- ---------------------------------------------------------------
IRELAND-1.12%
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 1,100,000 77,068,750
- ---------------------------------------------------------------
ITALY-0.86%
Telecom Italia Mobile S.p.A.
(Telephone) 6,000,000 34,868,132
- ---------------------------------------------------------------
Telecom Italia S.p.A.
(Telephone) 3,333,333 24,106,632
- ---------------------------------------------------------------
58,974,764
- ---------------------------------------------------------------
SWITZERLAND-1.95%
UBS A.G. (Banks-Major
Regional)(a) 242,500 66,505,795
- ---------------------------------------------------------------
Nestle S.A. (Foods) 32,000 68,034,844
- ---------------------------------------------------------------
134,540,639
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$237,913,241) 296,242,723
- ---------------------------------------------------------------
OPTIONS PURCHASED-0.10%
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE EXPIRATION MARKET
CONTRACTS PRICE DATE VALUE
<S> <C> <C> <C> <C>
PUTS-0.10%
Cadence Design Systems,
Inc. (Computers-Software
& Services) 6,000 22.50 Nov-98 $1,387,500
- -------------------------------------------------------------------------
Lucent Technologies, Inc.
(Communications
Equipment) 3,625 95.00 Jan-99 5,709,375
- -------------------------------------------------------------------------
Total Options
Purchased (Cost
$3,914,290) 7,096,875
- --------------------------------------------------
</TABLE>
FS-137
<PAGE> 239
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY
BILLS-1.94%(c)
3.998%, 12/24/98 (Cost
$133,693,439) $134,435,000(d) $133,693,439
- ------------------------------------------------------------
REPURCHASE
AGREEMENTS-6.79%(e)
Bear, Stearns & Co.,
5.52%(f) 180,000,000 180,000,000
- ------------------------------------------------------------
Dresdner Kleinwort,
Benson, North America
LLC, 5.55%, 11/2/98(g) 88,091,453 88,091,453
- ------------------------------------------------------------
SBC Warburg Dillon Read
Inc., 5.55%, 11/2/98(h) 200,000,000 200,000,000
- ------------------------------------------------------------
Total Repurchase
Agreements (Cost
$468,091,453) 468,091,453
- ------------------------------------------------------------
TOTAL INVESTMENTS-101.33% $6,987,604,943
- ------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(1.33)% (91,686,170)
- ------------------------------------------------------------
TOTAL NET ASSETS-100.00% $6,895,918,773
============================================================
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Sub - Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 8.
(c) U.S. Treasury Bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(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 at least 102% of the sales price
of the repurchase agreement. The investments in some repurchase agreements
are through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates are redetermined daily. Collateralized by
$353,825,000 U.S. Government obligations, 0% to 6.745% due 01/15/99 to
08/03/18 with an aggregate market value at 10/31/98 of $357,771,886.
(g) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$300,138,750. Collateralized by $485,457,284 U.S. Government obligations, 0%
to 8.50% due 01/07/99 to 08/01/37 with an aggregate market value at 10/31/98
of $306,003,830.
(h) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$200,092,500. Collateralized by $339,879,000 U.S. Government obligations, 0%
to 8.50% due 07/15/01 to 01/15/30 with an aggregate market value at 10/31/98
of $204,017,333.
See Notes to Financial Statements.
FS-138
<PAGE> 240
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$5,276,183,044) $6,987,604,943
- --------------------------------------------------------
Foreign currencies, at value (cost
$2,570,450) 2,565,915
- --------------------------------------------------------
Cash 3,996,858
- --------------------------------------------------------
Receivables for:
Investments sold 31,213,312
- --------------------------------------------------------
Capital stock sold 8,295,922
- --------------------------------------------------------
Dividends and interest 4,152,383
- --------------------------------------------------------
Variation margin 1,111,425
- --------------------------------------------------------
Investment for deferred compensation
plan 105,518
- --------------------------------------------------------
Other assets 163,186
- --------------------------------------------------------
Total assets 7,039,209,462
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 91,742,610
- --------------------------------------------------------
Capital stock reacquired 6,659,959
- --------------------------------------------------------
Deferred compensation 105,518
- --------------------------------------------------------
Options written (premiums received
$44,508,416) 37,381,847
- --------------------------------------------------------
Accrued advisory fees 3,226,589
- --------------------------------------------------------
Accrued administrative services fees 16,296
- --------------------------------------------------------
Accrued directors' fees 3,500
- --------------------------------------------------------
Accrued distribution fees 2,769,404
- --------------------------------------------------------
Accrued transfer agent fees 948,313
- --------------------------------------------------------
Accrued operating expenses 436,653
- --------------------------------------------------------
Total liabilities 143,290,689
- --------------------------------------------------------
Net assets applicable to shares
outstanding $6,895,918,773
========================================================
NET ASSETS:
Class A $6,094,177,561
========================================================
Class B $ 705,750,126
========================================================
Class C $ 23,107,031
========================================================
Institutional Class $ 72,884,055
========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Class A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 280,643,682
========================================================
Class B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 33,416,157
========================================================
Class C:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 1,093,306
========================================================
Institutional Class:
Authorized 200,000,000
- --------------------------------------------------------
Outstanding 3,285,920
========================================================
Class A:
Net asset value and redemption price
per share $ 21.72
- --------------------------------------------------------
Offering price per share:
(Net asset value of
$21.72 divided by 94.50%) $ 22.98
========================================================
Class B:
Net asset value and offering price per
share $ 21.12
========================================================
Class C:
Net asset value and offering price per
share $ 21.14
========================================================
Institutional Class:
Net asset value, offering and
redemption price per share $ 22.18
========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $1,357,955 foreign
withholding tax) $ 49,728,636
- ---------------------------------------------------------
Interest 26,746,186
- ---------------------------------------------------------
Total investment income 76,474,822
- ---------------------------------------------------------
EXPENSES:
Advisory fees 43,574,677
- ---------------------------------------------------------
Administrative services fees 179,633
- ---------------------------------------------------------
Custodian fees 667,786
- ---------------------------------------------------------
Directors' fees 45,123
- ---------------------------------------------------------
Distribution fees-Class A 18,567,575
- ---------------------------------------------------------
Distribution fees-Class B 6,185,890
- ---------------------------------------------------------
Distribution fees-Class C 125,198
- ---------------------------------------------------------
Transfer agent fees-Class A 7,790,643
- ---------------------------------------------------------
Transfer agent fees-Class B 1,316,441
- ---------------------------------------------------------
Transfer agent fees-Class C 35,743
- ---------------------------------------------------------
Transfer agent fees-Institutional Class 6,988
- ---------------------------------------------------------
Other 984,467
- ---------------------------------------------------------
Total expenses 79,480,164
- ---------------------------------------------------------
Less: Fees waived by advisor (2,917,461)
- ---------------------------------------------------------
Expenses paid indirectly (177,097)
- ---------------------------------------------------------
Net expenses 76,385,606
- ---------------------------------------------------------
Net investment income 89,216
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 510,689,133
- ---------------------------------------------------------
Foreign currencies 4,256,163
- ---------------------------------------------------------
Futures contracts 9,427,467
- ---------------------------------------------------------
Option contracts purchased 735,202
- ---------------------------------------------------------
Option contracts written (10,831,861)
- ---------------------------------------------------------
514,276,104
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 239,037,008
- ---------------------------------------------------------
Foreign currencies (41,394)
- ---------------------------------------------------------
Futures contracts 7,020,866
- ---------------------------------------------------------
Option contracts purchased 3,182,585
- ---------------------------------------------------------
Option contracts written 6,509,630
- ---------------------------------------------------------
255,708,695
- ---------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and option
contracts 769,984,799
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $770,074,015
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-139
<PAGE> 241
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 89,216 $ 1,100,893
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 514,276,104 933,882,009
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 255,708,695 438,536,902
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 770,074,015 1,373,519,804
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A -- (14,688,010)
- ----------------------------------------------------------------------------------------------
Institutional Class -- (444,894)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (864,947,763) (552,547,910)
- ----------------------------------------------------------------------------------------------
Class B (76,736,323) (32,151,485)
- ----------------------------------------------------------------------------------------------
Class C (626,936) --
- ----------------------------------------------------------------------------------------------
Institutional Class (9,231,714) (6,655,833)
- ----------------------------------------------------------------------------------------------
Net equalization credits (charges) (See Note 1):
Class A -- 436,828
- ----------------------------------------------------------------------------------------------
Class B -- 62,469
- ----------------------------------------------------------------------------------------------
Class C -- --
- ----------------------------------------------------------------------------------------------
Institutional Class -- (91,147)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 442,079,076 126,373,106
- ----------------------------------------------------------------------------------------------
Class B 240,674,117 166,861,272
- ----------------------------------------------------------------------------------------------
Class C 21,194,188 2,401,569
- ----------------------------------------------------------------------------------------------
Institutional Class 12,302,794 (7,373,537)
- ----------------------------------------------------------------------------------------------
Net increase in net assets 534,781,454 1,055,702,232
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 6,361,137,319 5,305,435,087
- ----------------------------------------------------------------------------------------------
End of period $6,895,918,773 $6,361,137,319
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,682,377,491 $3,937,446,869
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 4,034,739 28,516,289
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 484,238,255 925,614,568
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 1,725,268,288 1,469,559,593
- ----------------------------------------------------------------------------------------------
$6,895,918,773 $6,361,137,319
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-140
<PAGE> 242
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten 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 separate portfolios: AIM
Weingarten Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund and AIM Constellation Fund. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and the Institutional Class. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to seek growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on
the NASDAQ National Market System is valued at the last sales price on the
valuation date or absent a last sales price, at the mean of the closing bid
and asked prices. Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market quotations
are not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors of
the Company. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair market value as determined in good faith by or
under the supervision of the Board of Directors.
B. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
D. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized gain
or loss equal to the difference between the proceeds from, or cost of, the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Covered Call Options--The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-
FS-141
<PAGE> 243
market" to reflect the current market value of the option written. The
current market value of a written option is the mean between the last bid
and asked prices on that day. If a written call option expires on the
stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or a loss if the closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a written
option is exercised, the Fund realizes a gain or a loss from the sale of the
underlying security and the proceeds of the sale are increased by the
premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
F. Put Options--The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or
a portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
G. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the specific identification of securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $4,109,681 and
undistributed net realized gains decreased by $4,109,681 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
H. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
J. Equalization--The Fund previously followed 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. Effective November 1, 1997, the Fund discontinued equalization
accounting and reclassified the cumulative equalization credits of
$28,680,447 from undistributed net investment income to paid-in capital.
This change has no effect on the net assets, the results of operations or
the net asset value per share of the Fund.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). The terms of the master investment advisory agreement
provide that the Fund shall pay an advisory fee to AIM at an annual rate of 1.0%
of the first $30 million of the Fund's average daily net assets, plus 0.75% of
the Fund's average daily net assets in excess of $30 million to and including
$350 million, plus 0.625% of the Fund's average daily net assets in excess of
$350 million. AIM is currently voluntarily waiving a portion of its advisory
fees payable by the Fund to AIM to the extent necessary to reduce the fees paid
by the Fund at net asset levels higher than those currently incorporated in the
present advisory fee schedule. AIM will receive a fee calculated at the annual
rate of 1.0% of the first $30 million of the Fund's average daily net assets,
plus 0.75% of the Fund's average daily net assets in excess of $30 million to
and including $350 million, plus 0.625% of the Fund's average daily net assets
in excess of $350 million to and including $2 billion, plus 0.60% of the Fund's
average daily net assets in excess of $2 billion to and including $3 billion,
plus 0.575% of the Fund's average daily net assets in excess of $3 billion to
and including $4 billion, plus 0.55% of the Fund's average daily net assets in
excess of $4 billion. The waiver of fees is entirely voluntary but approval is
required by the Board of Directors of the Company for any decision by AIM to
discontinue the waiver. During the year ended October 31, 1998, AIM waived fees
of $2,917,461. 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, 1998, AIM was
reimbursed $179,633 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. On September 20, 1997, the Board of Directors
approved appointment
FS-142
<PAGE> 244
of AFS as transfer agent of the Institutional Class effective December 29, 1997.
During the year ended October 31, 1998, AFS was paid $4,650,330 with respect to
the Class A, Class B, and Class C shares and for the period December 29, 1997
through October 31, 1998, AFS was paid $5,316 with respect to the Institutional
Class. Prior to the effective date of the agreement with AFS, the Fund paid
A I M Institutional Fund Services, Inc. $952 pursuant to a transfer agency and
shareholder services agreement with respect to the Institutional Class for the
period November 1, 1997 through December 28, 1997.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for 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 and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan")(collectively, the "Plans"). The Fund,
pursuant to the Class A and C Plan, pays AIM Distributors compensation at an
annual rate of 0.30% of the average daily net assets of the Class A shares and
1.00% of the average daily net assets of Class C shares. The Fund, pursuant to
the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00%
of the average daily net assets of the Class B shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the 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. During the year ended
October 31, 1998, the Class A, Class B and Class C shares paid AIM Distributors
$18,567,575, $6,185,890, and $125,198, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $1,654,675 from sales of the Class A
shares of the Fund during the year ended October 31, 1998. 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, 1998,
AIM Distributors received commissions of $55,685 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 and FMC.
During the year ended October 31, 1998, the Fund paid legal fees of $16,595
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
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$71,260 and $105,837, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $177,097 during the year ended October 31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended October 31, 1998 was $7,912,654,088 and
$8,399,566,587, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of October 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $1,717,839,274
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (45,966,154)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $1,671,873,120
==========================================================
</TABLE>
Cost of investments for tax purposes is $5,315,731,823.
NOTE 7-FUTURES CONTRACTS
On October 31, 1998, $7,665,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
NO. OF UNREALIZED
CONTRACTS CONTRACTS MONTH/COMMITMENT APPRECIATION
- --------------------- --------- ---------------- --------------
<S> <C> <C> <C>
S&P 500 Index 511 Dec. 98/Buy $6,756,866
- --------------------------------------------------------------------
</TABLE>
FS-143
<PAGE> 245
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of period 3,000 $ 1,216,939
- -------------------------------------------------------------- --------- ------------
Written 298,491 124,583,917
- -------------------------------------------------------------- --------- ------------
Closed (159,249) (64,917,081)
- -------------------------------------------------------------- --------- ------------
Exercised (36,794) (8,353,416)
- -------------------------------------------------------------- --------- ------------
Expired (29,215) (8,021,943)
- -------------------------------------------------------------- --------- ------------
End of period 76,233 $ 44,508,416
============================================================== ========= ============
</TABLE>
Open call option contracts written at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 1998 APPRECIATION
MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
ISSUE -------- ------ --------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online, Inc. Jan-99 120 3,375 $ 4,922,273 $ 5,906,250 $ (983,977)
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Amp, Inc. Feb-99 35 10,000 6,560,980 8,312,500 (1,751,520)
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Bristol-Myers Squibb Co. Dec-98 110 13,038 6,498,312 7,170,900 (672,588)
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Cadence Design Systems, Inc. Nov-98 25 6,000 1,143,861 262,500 881,361
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Computer Sciences Corp. Dec-98 70 6,855 4,770,920 407,015 4,363,905
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Costco Companies, Inc. Jan-99 55 7,250 4,411,478 4,168,750 242,728
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Dell Computer Corp. Jan-99 70 17,000 9,706,674 10,306,250 (599,576)
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Furniture Brands International, Inc. Jan-99 20 959 200,904 272,716 (71,812)
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Furniture Brands International, Inc. Jan-99 25 959 284,813 80,916 203,897
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Lucent Technologies, Inc. Jan-99 110 3,625 3,111,958 90,625 3,021,333
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
Schering-Plough Corp. Nov-98 110 7,172 2,896,243 403,425 2,492,818
- --------------------------------------------- -------- ------ --------- ----------- ------------ --------------
76,233 $44,508,416 $ 37,381,847 $ 7,126,569
============================================= ========= =========== ============ ==============
</TABLE>
NOTE 9-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 62,788,326 $ 1,368,867,407 36,066,523 $ 748,100,033
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Class B 12,056,594 257,385,548 9,401,446 192,004,936
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Class C* 1,204,025 25,772,311 117,736 2,708,502
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Institutional Class 593,328 13,533,791 377,655 7,900,669
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Issued as a reinvestment of dividends:
Class A 41,795,514 813,441,370 29,415,559 528,061,835
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Class B 3,831,332 73,061,374 1,715,350 30,687,644
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Class C* 31,251 600,022 -- --
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Institutional Class 456,144 9,035,386 313,585 5,650,803
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Reacquired:
Class A (79,734,776) (1,740,229,701) (56,267,501) (1,149,788,762)
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Class B (4,228,997) (89,772,805) (2,748,694) (55,831,308)
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Class C* (246,074) (5,178,145) (13,632) (306,933)
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
Institutional Class (458,838) (10,266,383) (951,830) (20,925,009)
- -------------------------------------------------------- ----------- --------------- ----------- ---------------
38,087,829 $ 716,250,175 17,426,197 $ 288,262,410
======================================================== =========== =============== =========== ===============
</TABLE>
* Class C shares commenced sales on August 4, 1997.
FS-144
<PAGE> 246
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the five-year period ended October 31,
1998, for a share of Class B capital stock outstanding during each of the years
in the three-year period ended October 31, 1998 and the period June 26, 1995
(date sales commenced) through October 31, 1995, and for a share of Class C
capital stock outstanding during the year ended October 31, 1998 and the period
August 4, 1997 (date sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.72 $ 20.19 $ 20.33 $ 17.82 $ 17.62
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.02 0.01 0.06 -- 0.07
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net gains on securities (both realized and unrealized) 2.38 4.82 2.51 4.36 0.57
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total from investment operations 2.40 4.83 2.57 4.36 0.64
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income -- (0.06) -- (0.07) (0.11)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Distributions from net realized gains (3.40) (2.24) (2.71) (1.78) (0.33)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total distributions (3.40) (2.30) (2.71) (1.85) (0.44)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.72 $ 22.72 $ 20.19 $ 20.33 $ 17.82
============================================================ ========== ========== ========== ========== ==========
Total return(a) 12.34% 26.83% 14.81% 28.20% 3.76%
============================================================ ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,094,178 $5,810,582 $4,977,493 $4,564,730 $3,965,858
============================================================ ========== ========== ========== ========== ==========
Ratio of expenses to average net assets(b) 1.04%(c) 1.07% 1.12% 1.17% 1.21%
============================================================ ========== ========== ========== ========== ==========
Ratio of net investment income (loss) to average net
assets(d) 0.07%(c) 0.07% 0.33% (0.02)% 0.45%
============================================================ ========== ========== ========== ========== ==========
Portfolio turnover rate 125% 128% 159% 139% 136%
============================================================ ========== ========== ========== ========== ==========
Borrowings for the period:
Amount of debt outstanding at end of period (000s omitted) -- -- -- -- --
============================================================ ========== ========== ========== ========== ==========
Average amount of debt outstanding during the period (000s
omitted)(e) -- -- -- $ 593 --
============================================================ ========== ========== ========== ========== ==========
Average number of shares outstanding during the period (000s
omitted)(e) 282,998 262,563 248,189 229,272 249,351
============================================================ ========== ========== ========== ========== ==========
Average amount of debt per share during the period -- -- -- $ 0.0026 --
============================================================ ========== ========== ========== ========== ==========
</TABLE>
(a) Does not deduct sales charges.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.09%, 1.11%, 1.15%, 1.19% and 1.24% for 1998-1994.
(c) Ratios are based on average net assets of $6,189,191,748.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.02%, 0.03%, 0.30%, (0.04%) and 0.42% for 1998-1994.
(e) Averages computed on a daily basis.
FS-145
<PAGE> 247
NOTE 10-FINANCIAL HIGHLIGHTS-continued
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------------------- -------------------
1998 1997 1996 1995 1998 1997
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.34 $ 19.98 $ 20.28 $ 18.56 $ 22.34 $ 22.83
- ----------------------------------------------------- -------- -------- -------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.15)(a) (0.05)(a) (0.03) (0.15)(a) (0.04)(a)
- ----------------------------------------------------- -------- -------- -------- ------- ------- -------
Net gains (losses) on securities (both realized
and unrealized) 2.33 4.75 2.46 1.75 2.35 (0.45)
- ----------------------------------------------------- -------- -------- -------- ------- ------- -------
Total from investment operations 2.18 4.60 2.41 1.72 2.20 (0.49)
- ----------------------------------------------------- -------- -------- -------- ------- ------- -------
Distributions from net realized gains (3.40) (2.24) (2.71) -- (3.40) --
- ----------------------------------------------------- -------- -------- -------- ------- ------- -------
Net asset value, end of period $ 21.12 $ 22.34 $ 19.98 $ 20.28 $ 21.14 $ 22.34
===================================================== ======== ======== ======== ======= ======= =======
Total return(b) 11.45% 25.78% 13.95% 9.27% 11.54% (2.15)%
===================================================== ======== ======== ======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000's omitted) $705,750 $486,105 $267,459 $42,238 $23,107 $ 2,326
===================================================== ======== ======== ======== ======= ======= =======
Ratio of expenses to average net assets(c) 1.83%(d) 1.87% 1.95% 1.91%(e) 1.83%(d) 1.84%(e)
===================================================== ======== ======== ======== ======= ======= =======
Ratio of net investment income (loss) to average
net assets(f) (0.72)%(d) (0.73)% (0.50)% (0.76)%(e) (0.72)%(d) (0.70)%(e)
===================================================== ======== ======== ======== ======= ======= =======
Portfolio turnover rate 125% 128% 159% 139% 125% 128%
===================================================== ======== ======== ======== ======= ======= =======
Borrowings for the period:
Amount of debt outstanding at end of period (000s
omitted) -- -- -- -- -- --
===================================================== ======== ======== ======== ======= ======= =======
Average amount of debt outstanding during the
period (000s omitted)(g) -- -- -- $ 3 -- --
===================================================== ======== ======== ======== ======= ======= =======
Average number of shares outstanding during the
period (000s omitted)(g) 28,946 18,505 7,956 1,036 586 41,282
===================================================== ======== ======== ======== ======= ======= =======
Average amount of debt per share during the
period -- -- -- $0.0029 -- --
===================================================== ======== ======== ======== ======= ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.87%, 1.91%, 1.98% and 1.94% (annualized) for 1998-1995 for Class B and
1.87% and 1.88% (annualized) for 1998-1997 for Class C.
(d) Ratios are based on average net assets of $618,589,002 and $12,519,780 for
Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.76)%, (0.77)%, (0.53)% and (0.79)% (annualized) for
1998-1995 for Class B and (0.76)% and (0.74)% (annualized) for 1998-1997
for Class C.
(g) Averages computed on a daily basis.
FS-146
