<PAGE> 1
[COVER IMAGE]
AIM CHARTER FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT OCTOBER 31, 1998
INVEST WITH DISCIPLINE -- REGISTERED TRADEMARK --
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-------------------------------------------------------------
FULL SAIL, 1907, BY JAMES G. TYLER, 1855-1931
A CLIPPER WITH BILLOWING SAILS CUTTING THROUGH A CALM BLUE
COVER
IMAGE SEA, THIS MARITIME SCENE DEPICTS OPTIMISM, CONFIDENCE, AND A
SENSE OF PURPOSE, THE SAME QUALITIES EXHIBITED BY AIM CHARTER
FUND. CELEBRATING ITS 30TH ANNIVERSARY THIS YEAR, THE AIM
CHARTER FUND IS ONE OF THE PREMIER FUNDS OF ITS ERA.
-------------------------------------------------------------
AIM Charter Fund is for shareholders who seek growth and income by investing
primarily in stocks of large-cap, well-run companies with a history of stable
and improving earnings and generally increasing dividend payouts.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Charter Fund performance figures are historical and reflect reinvestment
of all distributions and changes in net asset value. Unless otherwise
indicated, the Fund's performance is computed at net asset value without a
sales charge.
o During the fiscal year ended 10/31/98 the Fund paid distributions of $1.4370
per share for Class A shares and $1.3685 per share for Class B and Class C
shares.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the Fund's Class B and Class C shares will differ from
that of Class A shares due to differences in sales charge structure and Fund
expenses.
o The Fund's average annual total returns, including sales charges, for
periods ended 9/30/98 (the most recent calendar quarter end), are as
follows: For Class A shares, one year, -7.35%; five years, 12.60%; 10 years,
15.58%. Class B shares, one year, -7.12%; since inception (6/26/95), 15.56%.
Class C shares, one year, -3.55%; since inception (8/4/97), -1.21%.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged Lipper Growth & Income Fund Index represents an average of the
performance of the 30 largest growth-and-income mutual funds.
o The unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P 500) is
widely regarded by investors as representative of the stock market in
general.
o The Standard & Poor's 400 Mid-cap Index (S&P 400) is an unmanaged index
comprising common stocks of approximately 400 mid-capitalization companies.
o The Dow Jones Industrial Average (the Dow) is a price-weighted average of 30
actively traded primarily industrial stocks.
o The Russell 2000 Stock Index is an unmanaged index generally considered
representative of small-capitalization stocks.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE;
AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
AIM CHARTER FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
Throughout the fiscal year covered by this report, markets
[PHOTO OF vacillated between optimism that Asia's woes would be
Charles T. contained and worry that they would become a major drag on
Bauer, the U.S. and other economies. Changes in investor sentiment
Chairman of affected various financial markets differently. The stock
the Board of market was especially volatile. Uncertainty in stocks
THE FUND bolstered U.S. Treasury issues, whose safety attracts
APPEARS HERE] investors in doubtful times.
We understand how unnerving this year's level of
volatility can be. Undoubtedly, many of you were tempted to
simply exit the stock market. Our reaction, of course, is
that you should not. The abrupt reversals of sentiment this
fiscal year reinforce our conviction that markets are
unpredictable in the short term. Since even the best money
managers cannot know when to enter and exit a market, we
think the wisest strategy is to stay fully invested despite
volatility and short-term disappointment.
MARKET RECAP
Financial crises overseas and widespread decline in the rate of U.S. corporate
earnings growth helped foster uncertainty. During the summer of 1998, a
worldwide loss of confidence led to a major market correction for equities,
including the blue chips that had led the market. In August, the Dow Jones
Industrial Average (the Dow) had its worst performing month in a decade.
Fortunately, the U.S. Federal Reserve Board (the Fed) intervened, cutting
interest rates twice, on September 29 and October 15, to pump liquidity and
confidence into the markets. As investors responded favorably, the fiscal year
closed with domestic equities rallying again and bonds in retreat--a complete
about-face from just a few weeks earlier. October 1998 ended up being the Dow's
best month in 11 years. (After the fiscal year closed, as this report was being
written, the Fed cut rates a third time.)
Some major stock indexes produced excellent total results for the fiscal
year, with the S&P 500 up more than 20%. But focusing on one market benchmark
may give you an incomplete view. The divergence between the S&P 500 and other
market segments was quite dramatic this fiscal year: the midcap S&P 400 rose
only 6.71%, while the Russell 2000 Index of small-company stocks declined
11.84%. Even within the S&P 500 itself, the bigger the company, the better the
performance.
However unsettling markets have been, the fundamental principles of
investing remain unchanged: long-term thinking, broad portfolio diversification,
and realistic expectations, recognizing the potential for downturns. Your
financial consultant is your best resource for helping you construct a
diversified portfolio and weather turbulent markets.
YOUR FUND MANAGERS' COMMENTS
We are pleased to send you this report on your Fund's fiscal year. On the pages
that follow, your Fund's management team offers more detailed discussion of how
markets behaved, how they managed the portfolio, and what they foresee for
markets and your Fund. We hope you find their discussion informative. If you
have any questions or comments, please contact our Client Services department at
800-959-4246, or e-mail your inquiry to us at [email protected]. You can
access information about your account through our AIM Investor Line at
800-246-5463 or at our Web site, www.aimfunds.com. We often post market updates
on our Web site.
We thank you for your continued participation in The AIM Family of Funds
- --Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
---------------------------------
THE ABRUPT REVERSALS OF SENTIMENT
THIS FISCAL YEAR
REINFORCE OUR CONVICTION THAT
MARKETS ARE UNPREDICTABLE
IN THE SHORT TERM.
---------------------------------
AIM CHARTER FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND POSTS STRONG RESULTS IN TURBULENT YEAR
THIS YEAR WAS PARTICULARLY UNSETTLING FOR THE STOCK MARKET. HOW DID THE AIM
CHARTER FUND PERFORM?
The AIM Charter Fund reported solid results during record market
volatility. The Fund's Class A shares produced a total annual return of 11.20%,
outpacing its peer group, represented by the 9.45% return of the Lipper Growth
and Income Fund Index. Class B shares reported a total annual return for the
fiscal year of 10.33%, while Class C shares had a total annual return of 10.39%.
Net assets climbed from $4.6 billion as of October 31, 1997 to $5.2 billion as
of October 31, 1998.
WHAT WERE MARKET CONDITIONS LIKE DURING THE FISCAL YEAR?
The first half of the reporting period saw strong performance from the U.S.
and European stock markets. But beginning in July, markets fell as fears of
a global credit crunch spread from emerging markets to the developed markets
of the United States and Europe. Other factors adding to the market decline
included a Russian default on government debt, the Asian financial crisis,
and the collapse of some highly leveraged hedge funds. Near the end of the
fiscal year, the U.S. Federal Reserve Board addressed concerns about credit
by lowering the short-term target federal funds rate. Equity markets rallied
in response.
HAVE YOU CHANGED THE WAY YOU MANAGE THE FUND AS A RESULT OF MARKET
CONDITIONS?
We reduced the number of holdings over the fiscal year as we began to see
earnings deterioration throughout many sectors of the economy. At the same
time, we increased our emphasis on companies with less exposure to global
economic problems and therefore, less risk to their future growth prospects.
We also focused on companies that benefited from a healthy, albeit slowing,
U.S. economy. Stocks we favored included pharmaceutical companies such as
Warner-Lambert and Pfizer, and retailers such as Dayton Hudson and
Walgreens. We also increased our position in MCI Worldcom, which was created
in September 1998 by one of the largest mergers in corporate history. We
expect this global telecommunications powerhouse to produce solid earnings
growth into the next century.
We also raised our stake in convertible securities. At the end of the
fiscal year, 12.98% of the portfolio consisted of convertible corporate
bonds and 5.93% was in convertible preferred stocks.
Our convertible holdings include names like Internet provider America
Online, retailer Home Depot, computer memory firm EMC, and cable operator
Media One Group.
The Fund invests in convertibles because these securities have the
characteristics of both stocks and bonds. Since the Fund's investment goals
are to seek growth and income, convertible securities offer the best of both
worlds.
HOW DOES A GROWTH MANAGER INVEST FOR BOTH GROWTH AND INCOME?
Basically, the Fund tries to balance earnings growth and income. We invest
in high-growth and low-income stocks, and in low-growth, high-income stocks.
Dividend-paying growth stocks make up about 70% to 80% of the portfolio.
Low-growth and high-income stocks, such as energy and utilities holdings,
make up 5% to 10% of the portfolio. The remainder of the Fund, about 10% to
20%, is invested in convertible securities. We believe this strategy helps
to maximize total return and reduce volatility.
WHAT SECTORS DID THE FUND TARGET?
The Fund maintained its positions in its top three sectors: health care,
especially pharmaceutical stocks; financial stocks including major credit
card companies and mortgage securities firms; and computer software and
services companies.
WHY ARE PHARMACEUTICAL STOCKS ATTRACTIVE?
Earnings growth for major U.S. drug companies has been strong in recent
years for several reasons, including expedited product approval by the
Federal Drug Administration, growing demand from an aging population, and
the recent success of new drugs. Top holdings for the AIM
FUND PROVIDES SOLID RETURNS
One year total returns, as of 10/31/98
================================================================================
1. AIM Charter Fund Class A Shares 11.20%
2. AIM Charter Fund Class B Shares 10.33%
3. AIM Charter Fund Class C Shares 10.39%
4. Lipper Growth & Income Fund Index 9.45%
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BECAUSE OF OUR CONSERVATIVE INVESTMENT
APPROACH, WHICH FOCUSES ON COMPANIES
WITH STRONG EARNINGS PROSPECTS, WE
REMAIN CONFIDENT THAT THE FUND IS
POSITIONED WELL AS WE ENTER THE
COMING YEAR.
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See important Fund and index disclosures inside front cover.
AIM CHARTER FUND
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
Charter Fund included Pfizer, maker of the blockbuster drug Viagra. We also
own Pharmacia & Upjohn, Merck, Warner-Lambert, and Eli Lilly.
WHAT HAS HAPPENED WITH FINANCIAL STOCKS?
In the first quarter of the fiscal year, America's biggest banks reported
solid earnings, and a number of proposed mergers created a positive ripple
effect throughout the rest of the financial sector. Banks joining forces
included BankAmerica and NationsBank and Citicorp and Travelers Group. The
Fund held positions in these merged corporations.
The Fund's other financial holdings included banking firm Chase
Manhattan, brokerage firms Merrill Lynch and Morgan Stanley Dean Witter,
insurance provider American International Group, and credit card company
American Express. In the last quarter of the fiscal year, many financial
stocks in the Fund's portfolio were significantly affected by the global
economic crisis. But we continue to hold these stocks because we believe
these are solid companies with strong franchises. In fact, we consider many
of these stocks to be long-term buying opportunities. We believe these
companies eventually will emerge as leaders in the increasingly
consolidating global financial environment.
HOW ARE COMPUTER SOFTWARE AND SERVICES STOCKS PERFORMING?
The Fund held Microsoft as a major technology position because of its
outstanding earnings performance, especially in its most recent quarter. The
software giant reported a fiscal first-quarter profit of $1.68 billion, or
62 cents a share, up from $663 million, or 25 cents a share, a year earlier.
Stocks of computer service firms benefited from an expansion in
outsourcing, where outside firms are hired to perform software management
functions. The so-called Year 2000 bug also provided plenty of work for
information technology companies, such as Compuware.
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND EQUITY MARKETS?
We expect the markets to experience continued volatility. We also believe
that the decline near the end of the reporting period was a normal
correction, rather than the beginning of a true bear market. After three
years of extraordinary returns of 20% and 30%, U.S. equity markets may be
returning to more historic growth rates, closer to 10%.
We're optimistic that the United States will avoid a recession in 1999.
The economy is likely to experience annual gross domestic product growth in
the 1.5% to 2% range, so low inflation and low interest rates should
continue. However, with global markets, especially in Asia, experiencing
weakness and the U.S. economy expanding more slowly, many companies will
find it difficult to produce earnings growth. Because of our conservative
investment approach, which focuses on companies with strong earnings
prospects, we remain confident that the Fund is positioned well as we enter
the coming year.
PORTFOLIO COMPOSITION
As of 10/31/98, based on total net assets
<TABLE>
<CAPTION>
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TOP 10 HOLDINGS TOP 10 INDUSTRIES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. MCI WorldCom, Inc. 3.19% 1. Computers (Software & Services) 8.17%
2. Philip Morris Companies, Inc. 2.95 2. Financial (Diversified) 7.95
3. Pfizer Inc. 2.89 3. Health Care (Drugs--Major 7.22
Pharmaceuticals)
4. America Online, Inc. 2.42
4. Health Care (Diversified) 4.86
5. General Electric Co. 2.10
5. Telecommunications (Long Distance) 3.19
6. Microsoft Corp. 2.04
6. Retail (General Merchandise) 3.10
7. Warner-Lambert Co. 2.04
7. Electrical Equipment 2.97
8. Chase Manhattan Corp. (The) 1.97
8. Health Care (Medical Products 2.97
9. Tyco International Ltd. 1.97 & Supplies)
10. Pharmacia & Upjohn, Inc. 1.78 9. Tobacco 2.95
10. Computers (Hardware) 2.71
================================================================================================
</TABLE>
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PERCENTAGE OF HOLDINGS
- --------------------------------------------------------------------------------
U.S. Government Bonds 1.28%
Cash & Cash Equivalents 3.42%
Convertible Preferred Stock 5.93%
Convertible Bonds 12.98%
Common Stock 76.39%
Number of Holdings: 145
================================================================================
Please keep in mind the Fund's portfolio is subject to change and there is no
assurance the Fund will continue to hold any particular security.
See important Fund and index disclosures inside front cover.
AIM CHARTER FUND
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM CHARTER FUND VS. BENCHMARK INDEX
11/26/68-10/31/98
<TABLE>
<CAPTION>
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AIM CHARTER FUND S&P 500 INDEX LIPPER GROWTH & INCOME
CLASS A SHARES FUND INDEX
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C> <C>
11/26/68 9,446 10,000 10,000
10/31/69 9,562 9,261 9,021
10/31/70 7,024 8,235 7,799
10/31/71 9,170 9,623 9,110
10/31/72 12,768 11,731 10,509
10/31/73 14,160 11,733 10,360
10/31/74 9,720 8,355 7,891
10/31/75 11,892 10,527 9,912
10/31/76 14,361 12,649 11,936
10/31/77 16,072 11,885 11,723
10/31/78 21,504 12,639 12,662
10/31/79 27,400 14,592 15,052
10/31/80 42,232 19,270 19,849
10/31/81 45,389 19,381 20,371
10/31/82 49,226 22,537 24,322
10/31/83 63,796 28,835 30,952
10/31/84 58,881 30,671 32,352
10/31/85 67,367 36,600 38,411
10/31/86 88,645 48,746 50,076
10/31/87 94,606 51,866 51,255
10/31/88 100,188 59,597 60,569
10/31/89 133,926 75,258 73,179
10/31/90 139,089 69,646 64,719
10/31/91 191,451 92,948 86,510
10/31/92 199,439 102,190 94,214
10/31/93 233,177 117,423 112,580
10/31/94 227,232 121,944 116,140
10/31/95 288,652 154,120 139,691
10/31/96 336,862 191,195 169,575
10/31/97 433,117 252,549 217,109
10/31/98 483,071 307,342 237,632
Past performance cannot guarantee comparable future results.
================================================================================
</TABLE>
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/98, including sales charges
CLASS A SHARES
Inception (11/26/68) 13.83%
10 years 16.35
5 years 14.31
1 year 5.09*
**11.20% excluding sales charges
CLASS B SHARES
Inception (6/15/95) 17.97%
1 Year 5.37*
*10.33% excluding sales charges
CLASS C SHARES
Inception (8/4/97) 5.46%
1 year 9.40*
*10.39% excluding sales charges
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--
Your Fund's total return includes sales charges, expenses, and management
fees. The performance of the Fund's Class B and Class C shares will differ from
that of Class A shares due to differences in sales charge structure and Fund
expenses. For Fund performance calculations and descriptions of indexes cited on
this page, please refer to the inside front cover.
ABOUT THIS CHART
The chart compares your Fund's Class A shares to benchmark indexes. It is
intended to give you a general idea of how your Fund performed compared to the
stock market over the period 11/26/68-10/31/98. (Please note that the S&P 500
and the Lipper Growth and Income performance figures are for the period
11/30/68-10/31/98.) It is important to understand differences between your Fund
and these indexes. An index measures performance of a hypothetical portfolio. A
market index such as the S&P 500 is not managed, incurring no sales charges,
expenses, or fees. If you could buy all the securities that make up a market
index, you would incur expenses that would affect the return on your investment.
An index of funds such as the Lipper Growth and Income Fund Index includes a
number of mutual funds grouped by investment objective. Each of those funds
interprets that objective differently, and each employs a different management
style and investment strategy.
AIM CHARTER FUND
<PAGE> 7
ANNUAL REPORT / FUND HISTORY
AIM CHARTER FUND: 30 YEARS
OF OUTSTANDING PERFORMANCE
The Charter Fund started 30 years ago with $1,000 and an idea. Both belonged to
Julian Lerner, a Dallas lawyer who had the vision of creating a mutual fund to
invest in diversified corporate stocks.
Back in 1968, few investors knew what mutual funds were. Mutual fund
listings made up only about a column in the newspapers compared with entire
sections dedicated to their coverage now.
Mr. Lerner essentially taught himself the fund business. "I had a lot of
enthusiasm but little money," he said. He contributed $1,000 from his own
pocket, and four life insurance firms eventually invested a total of $1 million
in the fund. The fund management company's office consisted of three rooms, and
its staff included Mr. Lerner, a bookkeeper, and a few "helpers."
He bought out his investors in the management company in 1975 and continued
as a one-man show for 11 years. "I did everything," he said, from fund
management to administration.
In 1986, Mr. Lerner accepted an offer from A I M Management Group Inc. (AIM)
to purchase the Charter Fund's management company. He decided to sell to AIM
because he realized he alone couldn't provide the distribution the growing Fund
needed. At the time, the Fund had about $82 million in assets. With AIM the Fund
has seen explosive growth over the past 12 years, soaring to 400,000 investors
and $5.2 billion in net assets as of October 31, 1998.
The AIM Charter Fund has been one of the company's premier funds, along with
Weingarten and Constellation, which AIM also acquired in 1986. Mr. Lerner
managed the Charter Fund until he retired from AIM in 1994.
Today, he can scarcely believe how much the Fund has grown. "My original
plan was to reach $25 million in assets and make a living. I never intended for
it to get this big," he said.
The Fund is now managed by Lanny Sachnowitz, its second senior manager in 30
years. Mr. Sachnowitz joined AIM in 1987 after earning a bachelor's degree from
the University of Southern California. He started working with Mr. Lerner on
Charter Fund in 1991, the same year he received his MBA from the University of
Houston. Mr. Sachnowitz became senior portfolio manager in 1994.
"Julian was a terrific mentor. He taught me many things, mostly about how
humbling the market can be. Stocks have a way of surprising you both on the
upside and downside," Mr. Sachnowitz said. "The bottom line is you can build a
solid long-term record in this business if you let your winners run and don't
let the losers get the best of you.
"Mr. Lerner characterized their relationship as a partnership. "Lanny didn't
need my help. I may have taught him broad things, like make money by not losing
it and be careful."
Over its 30-year history, the Fund has weathered recessions, wars, political
upheaval, and a stock market crash. Since its inception, the Fund has posted a
total average annual return of 13.83% for Class A shares, as of October 31,
1998. It has outperformed the S&P 500, which posted a total average return of
12.13% over the same 30-year time frame.
Only a handful of funds have performed as well as Charter Fund over the past
three decades. In fact, of the 193 mutual funds that have been in existence for
30 years, Charter Fund ranks 7th in terms of total annual return, according to
Lipper Analytical Services, Inc.
While much has changed in the mutual fund industry, many long-time
principles still hold true. The AIM Charter Fund maintains its conservative
strategy of investing in large, well established, income-producing stocks. In
fact, the Fund still invests heavily in pharmaceutical company Pfizer Inc., one
of Mr. Lerner's longtime favorite stocks.
"There aren't too many funds that have 30 years of proven performance," Mr.
Sachnowitz said. "Charter Fund has a terrific legacy and a bright future."
[Photo]
The AIM Charter Fund has had just two senior portfolio managers over its long
history: Lanny Sachnowitz (left) and Julian Lerner.
-------------------------------------
WITH AIM THE FUND HAS SEEN EXPLOSIVE
GROWTH OVER THE PAST 12 YEARS,
SOARING TO ABOUT 400,000 INVESTORS
AND $5.2 BILLION IN NET ASSETS AS OF
OCTOBER 31, 1998.
-------------------------------------
AIM CHARTER FUND
<PAGE> 8
ANNUAL REPORT / FUND HISTORY
GORDON ROUNTREE ON 30 YEARS
OF INVESTING IN CHARTER FUND
Gordon Rountree is a man who holds on to things. The founder of Rountree
Oldsmobile-Cadillac-Mitsubishi in Waco, Texas, he has had the same desk in the
same office for 43 years. He has been married for 59 years to Frances, his
college sweetheart. The couple has lived in their sweeping, antique-filled home
for 51 years. They've watched the live oaks and the city of Waco grow tall
around them.
Mr. Rountree looks at Waco like a gardener who knows every bloom in the
flowerbed. Over the years, he helped create Waco's Little League, Ridgewood
Country Club, and Paul Quinn College. He has been a trustee of the school
district, a lifetime director of the chamber of commerce, and an organizer of
the local symphony. Dr. Robert Sloan Jr., president of Baylor University in
Waco, attended the college years ago on a scholarship donated by Mr. Rountree.
As he drives down Waco's main street, Mr. Rountree points out the businesses he
helped lure to his town.
"I just did this to be a good citizen. I didn't do it to get any brags on
me," Mr. Rountree says. "We're just happy to see a small town grow up.
"His investment style fits his nurturing, long-term outlook. Mr. Rountree
has been an investor in AIM Charter Fund since its inception in 1968. His
initial investment of $7,152 has grown more than 48-fold over the course of 30
years. As of October 31, 1998, the investment's average annual rate of return
was 13.83%.
"Most of it was reinvested distributions," he says. "The Charter Fund has
been a good investment."
Mr. Rountree hasn't made many additions to his account and has never
withdrawn from it. He liked the Fund so much that he gave some of his shares to
his three children in 1986. His daughter Nannette Wheelis says her AIM Charter
Fund investment helped pay college tuition for her two daughters.
Mr. Rountree's children now run the car dealership, but at age 82, he still
goes to the office four days a week to read his mail and occasionally give
advice. His kids and employees affectionately call him "Chief."
--------------------------------------
Photo of Mr. Rountree
MR. ROUNTREE HAS BEEN AN INVESTOR IN
AIM CHARTER FUND SINCE ITS INCEPTION
IN 1968. HIS INITIAL INVESTMENT OF
$7,152 HAS GROWN MORE THAN 48-FOLD
OVER THE COURSE OF 30 YEARS. AS OF
OCTOBER 31, 1998, THE INVESTMENT'S
AVERAGE ANNUAL RATE OF RETURN WAS
13.83%. "MOST OF IT WAS REINVESTED
DISTRIBUTIONS," HE SAYS. "THE CHARTER
FUND HAS BEEN A GOOD INVESTMENT."
This is not a paid testimonial. it
may not represent the experience of
other AIM Charter Fund shareholders and
may not indicate future performance.
--------------------------------------
AIM CHARTER FUND
<PAGE> 9
ANNUAL REPORT / FUND HISTORY
His office is filled with the memorabilia of his life, even the old football
from a 1933 championship game at San Jacinto High School in Houston, where he
was captain of the football team.
On the wall near his desk is a photograph of his father, a dapper-looking
man who introduced Mr. Rountree to his lifelong love affair with cars.
"My father started in the car business in Houston in 1916," Mr. Rountree
says. At 10 years old, he started washing cars and sweeping floors at his dad's
dealership. "Back then, you could drive at 10. There weren't any licenses. But I
didn't do it much," he says.
As a boy, he fell in love with the sleek, sophisticated Pierce-Arrow. The
Rountrees also sold Auburns, Cords, and Duesenbergs. During the Depression, his
father switched exclusively to Oldsmobile because he believed it would be the
brand of the future. He bet right.
The younger Rountree took over the Houston car dealership at age 26, when
his father passed away. He moved to Waco in 1947 to open a Lincoln-Mercury
dealership, then switched back to Oldsmobiles in 1950, adding the Cadillac line
as well. A photo in the Rountree dealership lobby shows the room back in 1955,
filled with classic chromed Caddies.
Among all the memorabilia at Mr. Rountree's dealership and antiques at his
home, there is one interesting absence. There are no old cars anywhere.
Mr. Rountree loves new cars, especially the Cadillac Seville.
"Cars today," he says, "are better than they've ever been."
----------------------------------------
MR. ROUNTREE HASN'T MADE MANY
ADDITIONS TO HIS ACCOUNT AND HAS NEVER
WITHDRAWN FROM IT. HE LIKED THE FUND SO
MUCH THAT HE GAVE SOME OF HIS SHARES TO
HIS THREE CHILDREN IN 1986. HIS DAUGHTER
NANNETTE WHEELIS SAYS HER AIM
CHARTER FUND INVESTMENT HELPED PAY
COLLEGE TUITION FOR HER TWO DAUGHTERS.
Top left: Gordon Rountree Sr. at his
Waco dealership. Bottom right: Frances
and Gordon enjoy a moment in
their garden.
Photo of Mr. & Mrs. Rountree
----------------------------------------
AIM CHARTER FUND
<PAGE> 10
ANNUAL REPORT / FUND HISTORY
THE AIM CHARTER FUND GROWTH STORY
RESULTS OF A $10,000 INVESTMENT
AIM CHARTER FUND VS. BENCHMARK INDEX
11/26/68-10/31/98
<TABLE>
<CAPTION>
================================================================================
AIM CHARTER FUND S&P 500 INDEX LIPPER GROWTH & INCOME
CLASS A SHARES with monthly FUND INDEX
with dividends dividends
reinvested
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
11/26/68 9,446 10,000 10,000
Anti-Vietnam War Demonstrations Peak
10/31/69 9,562 9,261 9,021
Cambodia Invaded, War Spreads
10/31/70 7,024 8,235 7,799
90-Day Freeze on Wages and Prices
10/31/71 9,170 9,623 9,110
New York City Near Bankruptcy
10/31/72 12,768 11,731 10,509
Arab Oil Embargo - Prices Quadruple from Approximately $3
to $12 per Barrel
10/31/73 14,160 11,733 10,360
Steepest market Decline in 40 years; S&P down 26%
10/31/74 9,720 8,355 7,891
Economic Recession
10/31/75 11,892 10,527 9,912
Record Trade Deficit at $5 Billion
10/31/76 14,361 12,649 11,936
S&P Declines 7%
10/31/77 16,072 11,885 11,723
OPEC Raises Prices 14%
10/31/78 21,504 12,639 12,662
Annual Inflation Rate Hits 13%
10/31/79 27,400 14,592 15,052
Prime Interest Rate Reaches 20%
10/31/80 42,232 19,270 19,849
Assassination Attempt on President Reagan
10/31/81 45,389 19,381 20,371
Unemployment Reaches 10.8%
10/31/82 49,226 22,537 24,322
Terrorist Bomb Kills 241 U.S. Marines in Beirut
10/31/83 63,796 28,835 30,952
Federal Deficit Tops Record $185 Billion
10/31/84 58,881 30,671 32,352
U.S. Dollar at Lowest Level in Five Years
10/31/85 67,367 36,600 38,411
Tax Reform Act Cuts IRA Deduction
10/31/86 88,645 48,746 50,076
Stock Market Crash - DJIA Down 25% in Five Weeks
10/31/87 94,606 51,866 51,255
Savings and Loan Insolvencies
10/31/88 100,188 59,597 60,569
Junk Bond Market Collapses
10/31/89 133,926 75,258 73,179
Iraq Invades Kuwait
10/31/90 139,089 69,646 64,719
Recession Persists
10/31/91 191,451 92,948 86,510
Unemployment Reaches 10-Year High
10/31/92 199,439 102,190 94,214
Economic Growth Remains Sluggish
10/31/93 233,177 117,423 112,580
Fed Raises Federal Fund Interest Rate Six Times
10/31/94 227,232 121,944 116,140
Mexican Peso Devaluation
10/31/95 288,652 154,120 139,691
Weakened Markets in Europe and Japan Limit U.S. Exports
10/31/96 336,862 191,195 169,575
Asian Market Meltdown
10/31/97 433,117 252,549 217,109
Stock Market Sees Record Volatility
10/31/98 483,071 307,342 237,632
================================================================================
</TABLE>
<TABLE>
11/26/68 10/69 10/70 10/71 10/72 10/73 10/74 10/75 10/76
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Dividends Reinvested $0,000 94 228 214 135 0 34 157 139
Capital Gains Reinvested $0,000 0 114 0 0 1,240 0 0 0
Total Distributions Reinvested $0,000 94 342 214 135 1,240 34 157 139
Total Account Value $9,446 9,562 7,024 9,170 12,768 14,160 9,720 11,892 14,361
<CAPTION>
10/77 10/78 10/79 10/80 10/81 10/82 10/83
<S> <C> <C> <C> <C> <C> <C> <C>
Income Dividends Reinvested 147 222 364 866 1,190 2,287 2,585
Capital Gains Reinvested 0 1,219 4,972 2,625 6,476 3,670 0
Total Distributions Reinvested 147 1,441 5,336 3,491 7,666 5,957 2,585
Total Account Value 16,072 21,504 27,400 42,232 45,389 49,226 63,796
Past performance cannot guarantee comparable future results.
===============================================================================================================================
</TABLE>
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
AIM CHARTER FUND
<PAGE> 11
ANNUAL REPORT / FUND HISTORY
Only time can put an investment through perhaps the most significant,
truth-revealing test. Even through the traumatic events illustrated in this
chart, AIM Charter Fund has consistently appreciated over long-term periods,
outpacing the major benchmark averages for common stocks and for comparable
funds.
<TABLE>
================================================================================================================================
10/84 10/85 10/86 10/87 10/88 10/89 10/90 10/91 10/92 10/93 10/94
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,475 1,723 1,677 1,893 1,718 3,432 4,900 3,185 3,752 6,868 4,023
5,560 0 5,030 20,211 20,038 0 8,070 6,583 5,287 0 3,882
7,035 1,723 6,707 22,104 21,756 3,432 12,970 9,768 9,039 6,868 7,905
58,881 67,367 88,645 94,606 100,188 133,926 139,089 191,451 199,439 233,177 227,232
<CAPTION>
10/95 10/96 10/97 10/98
<S> <C> <C> <C>
5,275 4,672 5,056 3,572
8,298 24,466 19,086 43,345
13,573 29,138 24,142 46,917
288,652 336,862 434,421 483,071
================================================================================================================================
</TABLE>
Source: Towers Data Systems HYPO--Registered Trademark--
For important information on your Fund's performance calculations, please see
page 6. For descriptions of the indexes cited on this page, please see the
inside front COVER.
AIM CHARTER FUND
<PAGE> 12
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>
10
<PAGE> 13
<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>
11
<PAGE> 14
<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>
12
<PAGE> 15
<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>
13
<PAGE> 16
<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.
14
<PAGE> 17
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.
15
<PAGE> 18
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.
16
<PAGE> 19
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.
17
<PAGE> 20
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.
18
<PAGE> 21
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.
19
<PAGE> 22
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.
20
<PAGE> 23
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.
21
<PAGE> 24
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.
22
<PAGE> 25
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
23
<PAGE> 26
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II SUB-ADVISOR
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Capital Management, Inc.
11 Greenway Plaza
Edward K. Dunn Jr. Jonathan C. Schoolar Suite 100
Chairman, Mercantile Mortgage Corp.; Senior Vice President Houston, TX 77046
Formerly Vice Chairman and President,
Mercantile-Safe Deposit & Trust Co.; and Dana R. Sutton TRANSFER AGENT
President, Mercantile Bankshares Vice President and Assistant Treasurer
A I M Fund Services, Inc.
Jack Fields Melville B. Cox P.O. Box 4739
Chief Executive Officer Vice President Houston, TX 77210-4739
Texana Global, Inc.;
Formerly Member Renee A. Friedli CUSTODIAN
of the U.S. House of Representatives Assistant Secretary
State Street Bank and Trust Company
Carl Frischling P. Michelle Grace 225 Franklin Street
Partner Assistant Secretary Boston, MA 02110
Kramer, Levin, Naftalis & Frankel
Jeffrey H. Kupor COUNSEL TO THE FUND
Robert H. Graham Assistant Secretary
President and Chief Executive Officer Ballard Spahr
A I M Management Group Inc. Nancy L. Martin Andrews & Ingersoll, LLP
Assistant Secretary 1735 Market Street
Prema Mathai-Davis Philadelphia, PA 19103
Chief Executive Officer, YWCA of the U.S.A.; Ofelia M. Mayo
Commissioner, New York City Dept. for the Assistant Secretary COUNSEL TO THE DIRECTORS
Aging; and member of the Board of Directors,
Metropolitan Transportation Authority of Lisa A. Moss Kramer, Levin, Naftalis & Frankel
New York State Assistant Secretary 919 Third Avenue
New York, NY 10022
Lewis F. Pennock Kathleen J. Pflueger
Attorney Assistant Secretary DISTRIBUTOR
Ian W. Robinson Samuel D. Sirko A I M Distributors, Inc.
Consultant; Formerly Executive Assistant Secretary 11 Greenway Plaza
Vice President and Suite 100
Chief Financial Officer Stephen I. Winer Houston, TX 77046
Bell Atlantic Management Assistant Secretary
Services, Inc. AUDITORS
Mary J. Benson
Louis S. Sklar Assistant Treasurer KPMG Peat Marwick LLP
Executive Vice President 700 Louisiana
Hines Interests Houston, TX 77002
Limited Partnership
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Charter Fund Class A, Class B, and Class C shares paid ordinary dividends in
the amount of $0.8720, $0.8035, and $0.8035 per share, respectively, during the
Fund's tax year ended October 31, 1998. Of this amount 23.93% is eligible for
the dividends received deduction for corporations. The Fund also distributed
long-term capital gains of $0.637 per share for Class A and Class B shares
during the Fund's tax year ended October 31, 1998.
REQUIRED STATE INCOME TAX INFORMATION
Of the total income dividends paid, 20.80% was derived from U.S. Treasury
obligations.
24
<PAGE> 27
HOW AIM MAKES INVESTING
EASY FOR YOU
o LOW INITIAL INVESTMENT. You can get your investment program started for as
little as $500. Subsequent investments can be made for only $50.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. Distributions may
be received in cash or reinvested in the Fund free of charge. Over time, the
power of compounding can significantly increase the value of your assets.
o AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $50 or more can be
drafted monthly from your personal checking account.
o EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset value
any day the New York Stock Exchange is open. The price of shares sold may be
more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least $50
monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds(R). The exchange privilege may be modified or discontinued
for any of the AIM funds. Certain restrictions apply.
o RETIREMENT PLANS. You may purchase shares of an AIM fund for your Individual
Retirement Account (IRA), Roth IRA, or any other type of retirement plan,
and earn tax-deferred dollars for your retirement.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-hour-a-day account information. Or, of course, you may
contact your financial consultant for assistance.
o www.aimfunds.com. As a current shareholder, you can check account balances
24 hours a day over the Internet. State-of-the-art encryption lets you send
us questions that include confidential information without the fear of
eavesdropping, tampering, or forgery.
--------------------
CURRENT SHAREHOLDERS
CAN CALL OUR
AIM INVESTOR LINE AT
800-246-5463
FOR 24-HOUR-A-DAY
ACCOUNT INFORMATION.
--------------------
<PAGE> 28
THE AIM FAMILY OF FUNDS--REGISTERED TRADEMARK--
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund leadership in the mutual fund industry
AIM Blue Chip Fund AIM Asian Growth Fund since 1976 and managed approximately $91
AIM Capital Development Fund AIM Developing Markets Fund(2) billion in assets for more than 5.5 million
AIM Constellation Fund AIM Emerging Markets Fund(2) shareholders, including individual investors,
AIM Mid Cap Equity Fund(2), (A) AIM Europe Growth Fund(2) corporate clients, and financial institutions,
AIM Select Growth Fund(3) AIM European Development Fund as of September 30, 1998.
AIM Small Cap Growth Fund(2), (B) AIM International Equity Fund The AIM Family of Funds--Registered
AIM Small Cap Opportunities Fund AIM International Growth Fund(2) Trademark-- is distributed nationwide, and AIM
AIM Value Fund AIM Japan Growth Fund(2) today is the 11th-largest mutual fund complex in
AIM Weingarten Fund AIM Latin American Growth Fund(2) the U.S. in assets under management, according
AIM New Pacific Growth Fund(2) to Strategic Insight, an independent mutual fund
GROWTH & INCOME FUNDS monitor.
AIM Advisor Flex Fund GLOBAL GROWTH FUNDS
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund
AIM Advisor MultiFlex Fund AIM Global Growth Fund
AIM Advisor Real Estate Fund AIM Worldwide Growth Fund(2)
AIM Balanced Fund
AIM Basic Value Fund(2), (C) GLOBAL GROWTH & INCOME FUNDS
AIM Charter Fund AIM Global Growth & Income Fund(2)
AIM Global Utilities Fund
INCOME FUNDS
AIM Floating Rate Fund(2) GLOBAL INCOME FUNDS
AIM High Yield Fund AIM Emerging Markets Debt Fund(2), (D)
AIM High Yield Fund II AIM Global Government Income Fund(2)
AIM Income Fund AIM Global Income Fund
AIM Intermediate Government Fund AIM Strategic Income Fund(2)
AIM Limited Maturity Treasury Fund
THEME FUNDS
TAX-FREE INCOME FUNDS AIM Global Consumer Products and Services Fund(2)
AIM High Income Municipal Fund AIM Global Financial Services Fund)(2)
AIM Municipal Bond Fund AIM Global Health Care Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Infrastructure Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Resources Fund(2)
AIM Global Telecommunications Fund(2)
MONEY MARKET FUNDS AIM Global Trends Fund(2), (E)
AIM Dollar Fund(2)
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998.
(2) Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds.
(3) On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth Fund.
(A) On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund.
(B) On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM Small Cap
Growth Fund.
(C) On September 8, 1998, AIM America Value Fund was renamed AIM Basic Value
Fund.
(D) On September 8, 1998, AIM Global High Income Fund was renamed AIM Emerging
Markets Debt Fund.
(E) On September 8, 1998, AIM New Dimension Fund was renamed AIM Global Trends
Fund. For more complete information about any AIM Fund(s), including sales
charges and expenses, ask your financial consultant or securities dealer for
a free prospectus(es). Please read the prospectus(es) carefully before you
invest or send money.
