<PAGE> 1
ANNUAL REPORT / OCTOBER 31 1999
AIM CAPITAL DEVELOPMENT FUND
[COVER IMAGE]
[AIM LOGO APPEARS HERE]
<PAGE> 2
[ COVER IMAGE ]
------------------------------------
UNION SQUARE GREENMARKET BY PATTI MOLLICA
SMALL-BUSINESS ENTERPRISES ARE FREQUENTLY FOUND NESTLED
AMONG TALL SKYSCRAPERS HOUSING LARGE MULTINATIONAL CORPORA-
TIONS. SOME OF THESE SMALLER BUSINESSES EVENTUALLY CARVE OUT
THEIR OWN PARTICULAR NICHES IN THE MARKET AND EXPERIENCE
STRONG EARNINGS GROWTH. THAT'S THE KIND OF COMPANY WE
ENDEAVOR TO OWN IN AIM CAPITAL DEVELOPMENT FUND, SMALL
FIRMS WITH STRONG LONG-TERM GROWTH PROSPECTS.
------------------------------------
AIM Capital Development Fund is for shareholders who seek long-term growth
through investments in the stocks of small- and medium-sized companies.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Capital Development Fund's performance figures are historical and
reflect reinvestment of all distributions and changes in net asset value.
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
expenses.
o The fund's average annual total returns, including sales charges, for the
periods ended 9/30/99 (the most recent calendar quarter end), were as
follows: For Class A shares, one year, 10.99%, inception (6/17/96), 10.41%.
For Class B shares, one year, 11.60%, inception (10/1/96), 7.52%. For Class
C shares, one year, 15.52%; inception (8/4/97), 2.84%.
o Investing in smaller companies may involve greater risk and potential reward
than investing in more established companies.
o The fund's investment return and principal value will fluctuate, so 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 Dow Jones Industrial Average (the Dow) is a price-weighted average of 30
actively traded primarily industrial stocks.
o The unmanaged Lipper Small Cap Funds Index represents an average of the
performance of the 30 largest small-capitalization growth funds tracked by
Lipper, Inc., an independent mutual fund performance monitor.
o The unmanaged Russell 2000 Index is generally considered representative of
the performance of the stocks of small-capitalization companies.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. THERE IS A RISK THAT YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the fund.
AIM CAPITAL DEVELOPMENT FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
The fiscal year discussed in this report reconfirmed our
[PHOTO OF faith in two long-established principles of investing:
Charles T. portfolio diversification and long-term thinking. We could
Bauer, title this report "What a Difference a Year Makes."
Chairman of An investor surveying conditions when the fiscal year
the Board of opened on October 31, 1998, saw a market dominated by
THE FUND large-capitalization stocks and high-quality bonds,
APPEARS HERE] especially U.S. Treasuries. Ten months into 1998, two
well-known indexes of large-capitalization U.S. company
stocks, the S&P 500 and the Dow Jones Industrial Average,
were up by double digits, but the smaller-company stocks in
the Russell 2000 had lost 12.80%. Overseas, many markets
were languishing, especially in Asia, where many financial
difficulties originated in 1997.
In bond markets also, name-brand quality was the place
to be. The Lehman Corporate/Government Bond Index, which
follows intermediate and long-term government and
investment-grade debt, was up 8.56%, while the Lehman High
Yield Index, which tracks riskier "junk bonds," had dropped
2.30%
It would be easy for an investor to conclude that blue chips, whether equity
or fixed-income, were the only place to be. That investor, of course, would be
wrong.
MARKETS TURN
While large-capitalization stocks continue to do very well, during 1999 markets
broadened considerably, with many investment sectors performing a complete
turnaround. Year to date by October 31, 1999, the small-cap stocks in the
Russell 2000 were back in positive territory, and the many Asian markets had
staged a comeback. The same holds true for bonds. The higher-quality Lehman
index is down 1.49% year to date through October 31, 1999, while high-yield
bonds have moved into positive returns.
The point, at the risk of sounding repetitive to those of you who have
invested with us for a long time, is that this is why diversification is a
fundamental investing principle. Market sectors and asset classes go in and out
of favor, but over the long run--and the long run is several years--the markets'
overall trend has been upward. Selecting an asset class or a market sector on
the basis of a short-term snapshot of conditions is usually unwise, as is
concentrating your portfolio in one asset class. Staying fully invested in a
diversified portfolio remains a compelling strategy and one of your best
prospects for long-term gain.
LOOKING AHEAD
As we look about at the close of this fiscal year, we are encouraged by signs of
economic health in Europe and Asia, not to mention the prolonged U.S. economic
expansion. However, we are aware of how easily an investor could have been
misled by conditions just 12 months ago. For our shareholders, we therefore
reiterate our commitment to investing through a financial advisor. In addition
to helping you select investments appropriate to your time horizon and risk
tolerance, a financial advisor can keep you informed about how changing market
conditions affect you and your portfolio and can help assure that when you do
alter your investments, there's a logical reason for doing so. AIM believes
every investor should be guided by a financial professional.
FUND MANAGERS COMMENT
In the pages that follow, your fund's portfolio managers discuss how they
managed your fund during the year ended October 31, 1999, how the markets
behaved and what they foresee for the near future. We trust you will find their
discussion informative. If you have any questions or comments, we invite you to
contact us, either at our Web site, aimfunds.com, or through our Client
Services department at 800-959-4246. Information about your account is also
available through our automated AIM Investor Line, 800-246-5463.
Thank you for your continued participation in The AIM Family of Funds
- --Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman, A I M Advisors, Inc.
------------------------------------
STAYING FULLY
INVESTED IN A DIVERSIFIED
PORTFOLIO REMAINS
A COMPELLING STRATEGY
AND ONE OF YOUR
BEST PROSPECTS FOR
LONG-TERM GAIN.
------------------------------------
AIM CAPITAL DEVELOPMENT FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
IMPROVING SMALL-CAP MARKET BOOSTS FUND
SMALL-CAP STOCKS POSTED RESPECTABLE GAINS FOR THE FISCAL YEAR. HOW DID AIM
CAPITAL DEVELOPMENT FUND PERFORM?
The fund posted solid returns for the fiscal year ended October 31, 1999.
Excluding sales charges, total returns for Class A, B and C shares were 18.23%,
17.32% and 17.34%, respectively. These returns were better than the 14.87% gain
of its benchmark, the Russell 2000 Index.
WHAT WERE THE MAJOR DEVELOPMENTS IN THE U.S. STOCK MARKET?
When the fiscal year began, the stock market was rebounding from a steep decline
stemming from severe economic problems in Asia, Russia and Latin America. The
rally continued into 1999, and the Dow Jones Industrial Average (the Dow) set a
record in August. However, markets were volatile, as investors worried that
torrid economic growth would prompt the Federal Reserve Board (the Fed) to
tighten monetary policy to head off inflation. In separate moves in June and
August, the central bank raised the key federal funds rate from 4.75% to 5.25%.
Between June and October, stock markets were volatile. Markets rallied in
October after data showed that inflation remained relatively subdued.
For the fiscal year, large-cap stocks outperformed mid- and small-cap
stocks, although all three classes posted impressive gains. Growth stocks
outperformed value stocks. Technology was by far the top-performing sector.
HOW DID SMALL-CAP STOCKS FARE?
At the outset of the fiscal year, small-cap stocks were in the midst of a strong
rally following months of sharp losses. The recovery continued into 1999, before
sustaining a significant setback in February over concerns about inflation and
Fed policy. Small-cap stocks bounced back in April to become the market leaders
during the second quarter of 1999. Investors found small-cap stocks attractive
because of their low prices relative to large-cap stocks and the more favorable
earnings growth prospects for smaller companies. Small-cap stocks declined along
with other equities in August and September before rebounding in October.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO?
We continued to reduce the number of holdings in the portfolio to the stocks of
the companies we believe have the greatest earnings growth potential. We also
favored stocks that were attractively priced relative to the rest of the market.
As of October 31, 1999, the fund had 206 holdings, down from 278 six months
earlier.
Over the last six months of the fiscal year, we increased the fund's
technology holdings from 20% to more than 26% while reducing consumer-cyclical
stocks from 24% to 18% of the portfolio. Please keep in mind that our sector
weightings are the result of our stock-selection process, which is based on
company earnings, not macroeconomic predictions. We are finding more companies
with excellent growth prospects in the technology sector.
HOW DID TECHNOLOGY STOCKS FARE?
Although extremely volatile, technology stocks posted significant gains for the
year. Internet stocks surged with the growth of online commerce. Toward the end
of the reporting period, semiconductor stocks emerged as the sector leaders.
Semiconductor firms benefited from increased demand for microchips for
communications and Internet infrastructure.
Tech stocks we liked included Symantec, the fund's top holding. The company
produces software for combating computer viruses and restoring, backing up and
organizing computer files. Other tech stocks in the portfolio included Check
Point Software Technologies, which provides Internet security products; CSG
Systems International, which helps cable television and telecommunications
companies to automate customer service and billing transactions; and Microchip
Technology, which makes embedded control products for the automotive, consumer,
communications, industrial and office automation markets.
We remain optimistic about the growth prospects for tech companies.
Technology is assuming an increasingly important position in the U.S. and world
economies. Just recently, adjustments were made to the components of the Dow to
reflect this development.
------------------------------------
INVESTORS FOUND SMALL-CAP
STOCKS ATTRACTIVE BECAUSE OF
THEIR LOW PRICES RELATIVE TO
LARGE-CAP STOCKS.
------------------------------------
FUND OUTPERFORMS BENCHMARK
Total return 10/31/98-10/31/99, excluding sales charges
AIM CAPITAL DEVELOPMENT FUND
VS. RUSSELL 2000 INDEX
================================================================================
18.23% 17.32% 17.34% 14.87%
Fund Fund Fund Russell
Class A Class B Class C 2000
Shares Shares Shares Index
================================================================================
See important fund and index disclosures inside front cover.
AIM CAPITAL DEVELOPMENT FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
WHAT WERE SOME OF THE KEY DEVELOPMENTS IN THE CONSUMER-CYCLICAL SECTOR?
Consumer-cyclical stocks performed well, although a significant portion of these
gains was recorded during the first half of the fiscal year. For much of the
period, consumer-cyclical companies benefited from a booming economy, nearly
full employment and robust sales. Within the sector, the stocks of advertisers,
broadcasters, specialty retailers, apparel stores and discounters posted solid
gains.
Consumer-cyclical stocks the fund owned included Entercom Communications
Corp., which operates more than 42 stations, mostly in the Pacific Northwest.
The company will double in size when it completes its acquisition of Sinclair
Broadcasting. Other cyclical stocks we liked included CDW Computer Centers,
which sells more than 46,000 computer products through catalogs, telephone sales
and the Internet, and CEC Entertainment, operator of more than 300 Chuck E.
Cheese restaurants in 44 states.
HOW TAX-EFFICIENT WAS THE FUND?
Since its inception on June 17, 1996, through the end of the most recent fiscal
year, the fund has paid no taxable capital-gains distributions. Although the
fund attempts to invest in a tax-efficient manner, there is no guarantee that it
will not pay taxable capital-gains distributions in the future.
WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
The climate appears favorable for stocks, particularly for small-cap issues. The
economy is growing at a healthy pace and corporate profits are solid, especially
for smaller companies. Although there is still some question about the Fed's
future actions to keep inflation in check, we don't expect the Fed to adopt an
aggressive policy of tightening monetary policy. On November 16, 1999, the
central bank raised the federal funds rate to 5.5% because of the continued
strong economic expansion and adopted a neutral position on further rate hikes.
Moreover, while interest rates increased over the fiscal year, they remain
relatively low.
Perhaps most significant has been the improvement in the performance of
small-cap stocks. We remain optimistic about long-term prospects for these
stocks because of their attractive valuations and the positive earnings-growth
projections of smaller companies.
MERGERS, ACQUISITIONS AND "GRADUATES" SCOREBOARD
Companies in the fund's portfolio continued to be the targets of mergers and
acquisitions. We believe this attests to the attractiveness of these firms.
Through the first 10 months of 1999, 24 companies in the portfolio were involved
in acquisitions or mergers. Since the fund's inception on June 17, 1996, through
the end of the latest reporting period, 135 companies in the portfolio have been
acquired or merged with other firms.
We also sold companies' stocks when they exceeded $10 billion in market
valuation and could no longer be considered smaller companies. Through the first
10 months of 1999, there were 11 "graduates" from the fund.
PORTFOLIO COMPOSITION
As of 10/31/99, based on total net assets
<TABLE>
<CAPTION>
=========================================================================================================================
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Symantec Corp. 1.32% 1. Computers (Software & Services) 11.10%
2. Powerwave Technology, Inc. 1.26 2. Broadcasting (Television, Radio & Cable) 5.59
3. Check Point Software Technologies Ltd. (Israel) 1.12 3. Electronics (Semiconductors) 4.18
4. CSG Systems International, Inc. 1.08 4. Electrical Equipment 4.09
5. Microchip Technology, Inc. 1.08 5. Retail (Specialty) 3.87
6. Cree Research, Inc. 0.97 6. Services (Commercial & Consumer) 3.77
7. Rational Software Corp. 0.95 7. Oil & Gas (Exploration & Production) 3.68
8. Heidrick & Struggles International, Inc 0.90 8. Communications Equipment 3.54
9. AmeriCredit Corp. 0.89 9. Services (Data Processing) 3.40
10. CEC Entertainment, Inc. 0.89 10. Oil & Gas (Drilling & Equipment) 3.21
The fund's portfolio composition is subject to change, and there is no assurance
that the fund will continue to hold any particular security.
=========================================================================================================================
</TABLE>
See important fund and index disclosures inside front cover.
AIM CAPITAL DEVELOPMENT FUND
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM CAPITAL DEVELOPMENT FUND VS. BENCHMARK INDEXES
6/17/96-10/31/99
In thousands
================================================================
AIM
Capital
Development Lipper
Fund, Small Cap Russell
Class A Funds 2000
Shares Index Index
- ----------------------------------------------------------------
6/17/96 9452 10000 10000
10/96 10482 9816 9879
1/97 11134 10258 10767
4/97 9650 9009 10038
7/97 12769 11243 12174
10/97 13771 11633 12777
1/98 13507 11314 12713
4/98 15747 12826 14294
7/98 13800 11423 12456
10/98 12183 10046 11264
1/99 13979 11535 12755
4/99 13308 11528 12972
7/99 14149 12396 13379
10/99 14405 12720 12939
Past performance cannot guarantee comparable future results.
Source: Lipper, Inc.
================================================================
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
ABOUT THIS CHART
The chart compares your fund 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 6/17/96-10/31/99. (Please note that the indexes' performance figures are
for the period 6/30/96-10/31/99.) It is important to understand the difference
between your fund and an index. An index measures the performance of a
hypothetical portfolio. A market index such as the Russell 2000 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 your investment's return. An index of funds such as the Lipper Small Cap
Funds 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.
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/99, including sales charges
================================================================
CLASS A SHARES
Inception (6/17/96) 11.43%
1 year 11.73*
* 18.23% excluding sales charges
CLASS B SHARES
Inception (10/1/96) 8.70%
1 year 12.32*
* 17.32% excluding sales charges
CLASS C SHARES
Inception (8/4/97) 4.54%
1 year 16.34*
* 17.34% excluding sales charges
================================================================
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 expenses. For
fund performance calculations and descriptions of indexes cited on this page,
please refer to the inside front cover.
AIM CAPITAL DEVELOPMENT FUND
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
October 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-95.70%
AEROSPACE/DEFENSE-0.44%
HEICO Corp. 200,000 $ 3,037,500
- ---------------------------------------------------------------
Kroll-O'Gara Co. (The)(a) 110,000 1,746,250
- ---------------------------------------------------------------
4,783,750
- ---------------------------------------------------------------
AIRLINES-0.46%
Ryanair Holdings PLC-ADR
(Ireland)(a) 121,000 4,991,250
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.56%
Dura Automotive Systems, Inc.(a) 160,000 3,000,000
- ---------------------------------------------------------------
Stoneridge, Inc.(a) 200,000 3,100,000
- ---------------------------------------------------------------
6,100,000
- ---------------------------------------------------------------
BANKS (REGIONAL)-2.31%
Bank United Corp.-Class A 119,000 4,641,000
- ---------------------------------------------------------------
Colonial BancGroup, Inc. (The) 499,600 5,963,975
- ---------------------------------------------------------------
Independence Community Bank Corp. 452,000 5,395,750
- ---------------------------------------------------------------
North Fork Bancorporation, Inc. 349,500 7,230,281
- ---------------------------------------------------------------
UCBH Holdings, Inc.(a) 100,000 1,881,250
- ---------------------------------------------------------------
25,112,256
- ---------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.68%
Canandaigua Brands, Inc.-Class
A(a) 121,800 7,368,900
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.22%
IDEXX Laboratories, Inc.(a) 160,000 2,420,000
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-5.59%
Citadel Communications Corp.(a) 149,400 7,217,887
- ---------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 115,000 8,050,000
- ---------------------------------------------------------------
Emmis Broadcasting Corp.-Class
A(a) 100,000 7,212,500
- ---------------------------------------------------------------
Entercom Communications Corp.(a) 191,500 9,539,094
- ---------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 60,000 4,860,000
- ---------------------------------------------------------------
Insight Communications Company,
Inc.(a) 316,300 7,472,587
- ---------------------------------------------------------------
Radio Unica Corp.(a) 25,000 715,625
- ---------------------------------------------------------------
Sinclair Broadcast Group, Inc.(a) 373,700 3,737,000
- ---------------------------------------------------------------
Univision Communications,
Inc.-Class A(a) 54,000 4,593,375
- ---------------------------------------------------------------
Westwood One, Inc.(a) 157,500 7,264,687
- ---------------------------------------------------------------
60,662,755
- ---------------------------------------------------------------
BUILDING MATERIALS-0.69%
TJ International, Inc. 160,000 4,960,000
- ---------------------------------------------------------------
White Cap Industries, Inc.(a) 180,000 2,542,500
- ---------------------------------------------------------------
7,502,500
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.41%
W.R. Grace & Co.(a) 295,400 4,412,537
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.54%
Adtran, Inc.(a) 139,600 5,182,650
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Comverse Technology, Inc.(a)(b) 59,700 $ 6,775,950
- ---------------------------------------------------------------
Davox Corp.(a) 300,000 3,862,500
- ---------------------------------------------------------------
Digital Microwave Corp.(a) 300,000 4,462,500
- ---------------------------------------------------------------
Gilat Satellite Networks Ltd.
(Israel)(a) 82,400 4,295,100
- ---------------------------------------------------------------
NorthEast Optic Network, Inc.(a) 101,100 3,677,512
- ---------------------------------------------------------------
PairGain Technologies, Inc.(a) 100,000 1,225,000
- ---------------------------------------------------------------
REMEC, Inc.(a) 160,700 1,677,306
- ---------------------------------------------------------------
Scientific-Atlanta, Inc. 126,000 7,213,500
- ---------------------------------------------------------------
38,372,018
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.30%
DSP Communications, Inc.(a) 215,000 7,565,312
- ---------------------------------------------------------------
QLogic Corp.(a) 63,000 6,559,875
- ---------------------------------------------------------------
14,125,187
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-11.10%
AppNet Systems, Inc.(a) 100,400 4,373,675
- ---------------------------------------------------------------
Check Point Software Technologies
Ltd. (Israel)(a) 105,000 12,147,187
- ---------------------------------------------------------------
Dendrite International, Inc.(a) 122,700 3,849,712
- ---------------------------------------------------------------
Digital Insight Corp.(a) 70,000 2,773,750
- ---------------------------------------------------------------
Documentum, Inc.(a) 82,900 2,352,287
- ---------------------------------------------------------------
Eclipsys Corp.(a) 260,000 4,127,500
- ---------------------------------------------------------------
HNC Software, Inc.(a) 100,000 3,993,750
- ---------------------------------------------------------------
Hyperion Solutions Corp.(a) 195,000 4,753,125
- ---------------------------------------------------------------
InfoCure Corp.(a) 376,200 5,925,150
- ---------------------------------------------------------------
Interleaf, Inc.(a) 100,000 2,456,250
- ---------------------------------------------------------------
Keynote Systems, Inc.(a) 89,300 4,051,987
- ---------------------------------------------------------------
Mercury Interactive Corp.(a) 74,500 6,043,812
- ---------------------------------------------------------------
Navidec, Inc.(a) 250,000 2,546,875
- ---------------------------------------------------------------
PC-Tel, Inc.(a) 55,700 1,671,000
- ---------------------------------------------------------------
Peregrine Systems, Inc.(a) 115,500 5,067,562
- ---------------------------------------------------------------
Rational Software Corp.(a) 240,000 10,260,000
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 340,000 7,458,750
- ---------------------------------------------------------------
Symantec Corp.(a) 300,000 14,325,000
- ---------------------------------------------------------------
Tanning Technology Corp.(a) 194,900 6,845,862
- ---------------------------------------------------------------
Titan Corp. (The)(a) 300,000 5,025,000
- ---------------------------------------------------------------
Transaction Systems Architects,
Inc.- Class A(a) 174,000 5,350,500
- ---------------------------------------------------------------
Trizetto Group, Inc. (The)(a) 335,400 3,354,000
- ---------------------------------------------------------------
Unigraphics Solutions, Inc.(a) 80,000 1,725,000
- ---------------------------------------------------------------
120,477,734
- ---------------------------------------------------------------
CONSUMER FINANCE-1.90%
American Capital Strategies, Ltd. 403,100 8,439,906
- ---------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER FINANCE-(CONTINUED)
AmeriCredit Corp.(a) 559,500 $ 9,721,312
- ---------------------------------------------------------------
Cash America International, Inc. 255,000 2,406,562
- ---------------------------------------------------------------
20,567,780
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.44%
Performance Food Group Co.(a) 175,000 4,746,875
- ---------------------------------------------------------------
ELECTRIC COMPANIES-0.66%
Avista Corp. 365,000 6,570,000
- ---------------------------------------------------------------
Plug Power, Inc.(a) 38,200 611,200
- ---------------------------------------------------------------
7,181,200
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-4.09%
American Power Conversion
Corp.(a) 285,000 6,394,687
- ---------------------------------------------------------------
Conexant Systems, Inc.(a) 85,000 7,936,875
- ---------------------------------------------------------------
Cree Research, Inc.(a) 246,000 10,501,125
- ---------------------------------------------------------------
DII Group, Inc.(a) 214,900 7,736,400
- ---------------------------------------------------------------
Pinnacle Systems, Inc.(a) 145,000 4,023,750
- ---------------------------------------------------------------
Sawtek, Inc.(a) 150,000 6,150,000
- ---------------------------------------------------------------
SLI, Inc.(a) 150,200 1,614,650
- ---------------------------------------------------------------
44,357,487
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.51%
Power-One, Inc.(a) 275,000 5,500,000
- ---------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.19%
Aeroflex, Inc.(a) 371,700 2,067,581
- ---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-2.29%
Alpha Industries, Inc.(a) 152,800 8,442,200
- ---------------------------------------------------------------
Methode Electronics, Inc.-Class A 304,500 4,872,000
- ---------------------------------------------------------------
Varian Inc.(a) 500,000 9,437,500
- ---------------------------------------------------------------
Varian Medical Systems, Inc. 100,000 2,106,250
- ---------------------------------------------------------------
24,857,950
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-4.18%
Amkor Technology, Inc.(a) 332,900 6,720,419
- ---------------------------------------------------------------
Celestica Inc. (Canada)(a) 95,000 5,284,375
- ---------------------------------------------------------------
Fairchild Semiconductor Corp.(a) 200,000 5,050,000
- ---------------------------------------------------------------
Micrel, Inc.(a) 140,000 7,612,500
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 175,100 11,666,037
- ---------------------------------------------------------------
QuickLogic Corp.(a) 178,100 3,272,587
- ---------------------------------------------------------------
Sipex Corp.(a) 100,000 1,150,000
- ---------------------------------------------------------------
Zoran Corp.(a) 159,900 4,617,112
- ---------------------------------------------------------------
45,373,030
- ---------------------------------------------------------------
ENTERTAINMENT-1.39%
LodgeNet Entertainment Corp.(a) 85,200 1,565,550
- ---------------------------------------------------------------
SFX Entertainment, Inc.(a) 198,400 6,931,600
- ---------------------------------------------------------------
ValueVision International,
Inc.(a) 200,000 6,537,500
- ---------------------------------------------------------------
15,034,650
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
EQUIPMENT (SEMICONDUCTOR)-0.94%
Etec Systems, Inc.(a) 134,000 $ 5,117,125
- ---------------------------------------------------------------
Novellus Systems, Inc.(a) 65,000 5,037,500
- ---------------------------------------------------------------
10,154,625
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.44%
MicroFinancial, Inc. 170,000 1,859,375
- ---------------------------------------------------------------
SEI Investments Co. 30,000 2,924,062
- ---------------------------------------------------------------
4,783,437
- ---------------------------------------------------------------
FOODS-0.82%
American Italian Pasta Co.-Class
A(a) 177,700 4,464,713
- ---------------------------------------------------------------
Keebler Foods Co.(a) 140,500 4,487,219
- ---------------------------------------------------------------
8,951,932
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-1.35%
Alpharma, Inc.-Class A 180,000 6,333,750
- ---------------------------------------------------------------
Jones Pharma, Inc. 268,000 8,308,000
- ---------------------------------------------------------------
14,641,750
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL
MANAGEMENT)-0.71%
LifePoint Hospitals, Inc.(a) 650,100 7,679,306
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.44%
Express Scripts, Inc.-Class A(a) 60,000 2,947,500
- ---------------------------------------------------------------
Trigon Healthcare, Inc.(a) 63,100 1,790,463
- ---------------------------------------------------------------
4,737,963
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.75%
Cyberonics, Inc.(a) 130,000 1,828,125
- ---------------------------------------------------------------
Lifecore Biomedical, Inc.(a) 200,000 2,500,000
- ---------------------------------------------------------------
Sybron International Corp.(a) 160,100 3,812,381
- ---------------------------------------------------------------
8,140,506
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-2.12%
Advance Paradigm, Inc.(a) 92,000 3,921,500
- ---------------------------------------------------------------
MAXIMUS, Inc.(a) 201,800 4,679,238
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 349,900 4,811,125
- ---------------------------------------------------------------
United Payors & United Providers,
Inc.(a) 270,000 4,539,375
- ---------------------------------------------------------------
Veterinary Centers of America,
Inc.(a) 430,000 5,052,500
- ---------------------------------------------------------------
23,003,738
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-2.12%
Annuity and Life Reassurance,
Ltd. (Bermuda) 254,300 5,976,050
- ---------------------------------------------------------------
Clarica Life Insurance Co.
(Canada)(a) 337,900 5,462,216
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 117,400 4,446,525
- ---------------------------------------------------------------
UICI(a) 269,200 7,133,800
- ---------------------------------------------------------------
23,018,591
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.78%
CNA Surety Corp. 249,700 2,871,550
- ---------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (PROPERTY-CASUALTY)-(CONTINUED)
Radian Group, Inc. 106,660 $ 5,632,981
- ---------------------------------------------------------------
8,504,531
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.46%
Affiliated Managers Group,
Inc.(a) 185,000 4,948,750
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.62%
Applied Power, Inc.-Class A 231,700 6,733,781
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.40%
Spartech Corp. 150,000 4,293,750
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.62%
Alpine Group, Inc. (The)(a) 530,000 6,989,375
- ---------------------------------------------------------------
Armor Holdings, Inc.(a) 399,500 3,870,156
- ---------------------------------------------------------------
Mettler-Toledo International,
Inc.(a) 227,000 6,767,438
- ---------------------------------------------------------------
17,626,969
- ---------------------------------------------------------------
NATURAL GAS-0.39%
Kinder Morgan, Inc. 210,000 4,226,250
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.54%
School Specialty, Inc.(a) 393,000 5,821,313
- ---------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-3.21%
BJ Services Co.(a) 198,000 6,793,875
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 173,800 6,723,888
- ---------------------------------------------------------------
Key Energy Services, Inc.(a)(b) 1,978,800 8,904,600
- ---------------------------------------------------------------
Newpark Resources, Inc.(a) 325,000 2,092,188
- ---------------------------------------------------------------
Pride International, Inc.(a) 145,900 2,006,125
- ---------------------------------------------------------------
Tidewater, Inc. 219,000 6,570,000
- ---------------------------------------------------------------
Transocean Offshore, Inc. 62,600 1,701,938
- ---------------------------------------------------------------
34,792,614
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-3.68%
Apache Corp. 100,100 3,903,900
- ---------------------------------------------------------------
Basin Exploration, Inc.(a) 250,000 4,109,375
- ---------------------------------------------------------------
Devon Energy Corp. 158,700 6,169,463
- ---------------------------------------------------------------
Kerr-McGee Corp.-5.50% Pfd. DECS 180,000 6,772,500
- ---------------------------------------------------------------
Newfield Exploration Co.(a) 140,000 4,121,250
- ---------------------------------------------------------------
Nuevo Energy Co.(a) 348,000 4,937,250
- ---------------------------------------------------------------
Santa Fe Snyder Corp.(a) 295,000 2,544,375
- ---------------------------------------------------------------
Spinnaker Exploration Co.(a) 500,000 7,375,000
- ---------------------------------------------------------------
39,933,113
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.22%
Potlatch Corp. 56,600 2,387,813
- ---------------------------------------------------------------
PUBLISHING-0.18%
IDG Books Worldwide, Inc.-Class
A(a) 107,100 1,914,413
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-1.10%
AMRESCO Capital Trust, Inc. 215,500 1,885,625
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS-(CONTINUED)
Apartment Investment & Management
Co. 111,790 $ 4,206,099
- ---------------------------------------------------------------
Colonial Properties Trust 105,100 2,680,050
- ---------------------------------------------------------------
Correctional Properties Trust 237,400 3,130,713
- ---------------------------------------------------------------
11,902,487
- ---------------------------------------------------------------
RESTAURANTS-1.15%
CEC Entertainment, Inc.(a) 302,500 9,698,906
- ---------------------------------------------------------------
Dave & Buster's, Inc.(a) 129,800 1,257,438
- ---------------------------------------------------------------
Rainforest Cafe, Inc.(a) 350,000 1,575,000
- ---------------------------------------------------------------
12,531,344
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.15%
CDW Computer Centers, Inc.(a) 137,700 8,502,975
- ---------------------------------------------------------------
InterTAN, Inc.(a) 175,000 3,937,500
- ---------------------------------------------------------------
12,440,475
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.81%
Ames Department Stores, Inc.(a) 170,000 5,386,875
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 163,600 3,374,250
- ---------------------------------------------------------------
8,761,125
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.47%
BJ's Wholesale Club, Inc.(a) 195,000 6,008,438
- ---------------------------------------------------------------
Grand Union Co. (The)(a) 400,000 5,000,000
- ---------------------------------------------------------------
Wild Oats Markets, Inc.(a)(b) 140,000 4,935,000
- ---------------------------------------------------------------
15,943,438
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-3.87%
CSK Auto Corp.(a) 282,400 5,047,900
- ---------------------------------------------------------------
Linens 'n Things, Inc.(a) 170,300 6,769,425
- ---------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 110,000 2,193,125
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 247,000 8,289,938
- ---------------------------------------------------------------
Rainbow Rentals, Inc.(a) 110,200 978,025
- ---------------------------------------------------------------
Rent-A-Center, Inc.(a) 262,000 4,797,875
- ---------------------------------------------------------------
Rent-Way, Inc.(a) 287,190 4,774,534
- ---------------------------------------------------------------
Sunglass Hut International,
Inc.(a) 183,700 2,215,881
- ---------------------------------------------------------------
Zale Corp.(a) 165,000 6,909,375
- ---------------------------------------------------------------
41,976,078
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.82%
American Eagle Outfitters,
Inc.(a) 130,000 5,565,625
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 246,200 5,401,013
- ---------------------------------------------------------------
Too Inc.(a) 373,700 5,979,200
- ---------------------------------------------------------------
Wet Seal, Inc.-Class A(a) 200,000 2,800,000
- ---------------------------------------------------------------
19,745,838
- ---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-2.10%
Circle.com(a) 43,750 634,375
- ---------------------------------------------------------------
Lamar Advertising Co.(a) 145,000 7,830,000
- ---------------------------------------------------------------
Snyder Communications, Inc.(a) 175,000 2,231,250
- ---------------------------------------------------------------
TeleTech Holdings, Inc.(a) 360,000 5,107,500
- ---------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING)-(CONTINUED)
Young & Rubicam, Inc. 153,500 $ 7,022,625
- ---------------------------------------------------------------
22,825,750
- ---------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-3.77%
Central Parking Corp. 160,000 4,290,000
- ---------------------------------------------------------------
Copart, Inc.(a) 200,000 4,600,000
- ---------------------------------------------------------------
F.Y.I., Inc.(a) 134,800 4,448,400
- ---------------------------------------------------------------
Iron Mountain, Inc.(a) 250,000 7,562,500
- ---------------------------------------------------------------
Pegasus Systems, Inc.(a) 100,000 4,275,000
- ---------------------------------------------------------------
Pre-Paid Legal Services, Inc.(a) 100,000 2,425,000
- ---------------------------------------------------------------
Quanta Services, Inc.(a) 270,000 7,526,250
- ---------------------------------------------------------------
Regis Corp. 312,700 5,804,494
- ---------------------------------------------------------------
40,931,644
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-2.43%
E-Stamp Corp.(a) 125,600 2,920,200
- ---------------------------------------------------------------
Insight Enterprises, Inc.(a) 200,000 7,475,000
- ---------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 76,200 6,410,325
- ---------------------------------------------------------------
SunGard Data Systems, Inc.(a) 185,000 4,520,938
- ---------------------------------------------------------------
Sykes Enterprises, Inc.(a)(b) 161,900 4,998,663
- ---------------------------------------------------------------
26,325,126
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-3.40%
4Front Technologies, Inc.(a) 230,000 3,133,750
- ---------------------------------------------------------------
BISYS Group, Inc. (The)(a) 135,000 6,885,000
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 219,000 5,926,688
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 340,800 11,693,700
- ---------------------------------------------------------------
Lason Holdings, Inc.(a) 141,400 5,253,894
- ---------------------------------------------------------------
MedQuist, Inc.(a) 125,000 4,000,000
- ---------------------------------------------------------------
36,893,032
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-1.52%
Heidrick & Struggles
International, Inc.(a) 425,000 9,775,000
- ---------------------------------------------------------------
Korn/Ferry International(a) 300,000 6,675,000
- ---------------------------------------------------------------
16,450,000
- ---------------------------------------------------------------
SERVICES (FACILITIES &
ENVIRONMENTAL)-1.01%
Cornell Corrections, Inc.(a) 274,600 3,552,638
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (FACILITIES &
ENVIRONMENTAL)-(CONTINUED)
Tetra Tech, Inc.(a) 244,375 $ 3,879,453
- ---------------------------------------------------------------
Wackenhut Corrections Corp.(a) 279,700 3,583,656
- ---------------------------------------------------------------
11,015,747
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-2.41%
Arch Communications, Inc.(a) 1,368,200 6,841,000
- ---------------------------------------------------------------
Powerwave Technologies, Inc.(a) 210,000 13,663,125
- ---------------------------------------------------------------
Western Wireless Corp.-Class A(a) 105,900 5,599,463
- ---------------------------------------------------------------
26,103,588
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-1.74%
CapRock Communications Corp.(a) 160,100 4,612,881
- ---------------------------------------------------------------
ITC DeltaCom, Inc.(a) 225,000 5,400,000
- ---------------------------------------------------------------
IXC Communications, Inc.(a) 125,000 5,398,438
- ---------------------------------------------------------------
Network Plus Corp.(a) 281,900 3,488,513
- ---------------------------------------------------------------
18,899,832
- ---------------------------------------------------------------
TEXTILES (SPECIALTY)-0.45%
Polymer Group, Inc.(a) 250,000 4,890,625
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.76%
Catalytica, Inc.(a) 383,600 4,818,975
- ---------------------------------------------------------------
Safety-Kleen Corp.(a) 300,000 3,431,250
- ---------------------------------------------------------------
8,250,225
- ---------------------------------------------------------------
Total Common Stocks & Other
Equity Interests (Cost
$817,213,729) 1,038,196,939
- ---------------------------------------------------------------
MONEY MARKET FUNDS-5.01%
STIC Liquid Assets Portfolio(c) 27,206,331 27,206,331
- ---------------------------------------------------------------
STIC Prime Portfolio(c) 27,206,331 27,206,331
- ---------------------------------------------------------------
Total Money Market Funds
(Cost $54,412,662) 54,412,662
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.71% 1,092,609,601
- ---------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.71%) (7,755,403)
- ---------------------------------------------------------------
NET ASSETS-100.00% $1,084,854,198
===============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
DECS - Dividend Enhanced Convertible Stock
Pfd. - Preferred
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) The security shares the same investment advisor as the Fund.
See Notes to Financial Statements.
8
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$871,626,391) $1,092,609,601
- ------------------------------------------------------------
Receivables for:
Investments sold 6,415,287
- ------------------------------------------------------------
Capital stock sold 840,723
- ------------------------------------------------------------
Dividends and interest 628,709
- ------------------------------------------------------------
Investment for deferred compensation plan 20,604
- ------------------------------------------------------------
Other assets 50,800
- ------------------------------------------------------------
Total assets 1,100,565,724
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 7,829,939
- ------------------------------------------------------------
Capital stock reacquired 4,662,280
- ------------------------------------------------------------
Deferred compensation 20,604
- ------------------------------------------------------------
Options written (Premiums received
$1,725,877) 1,358,566
- ------------------------------------------------------------
Accrued advisory fees 598,454
- ------------------------------------------------------------
Accrued administrative services fees 11,335
- ------------------------------------------------------------
Accrued directors' fees 7,298
- ------------------------------------------------------------
Accrued distribution fees 777,268
- ------------------------------------------------------------
Accrued transfer agent fees 298,326
- ------------------------------------------------------------
Accrued operating expenses 147,456
- ------------------------------------------------------------
Total liabilities 15,711,526
- ------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,084,854,198
============================================================
NET ASSETS:
Class A $ 579,513,715
============================================================
Class B $ 451,508,436
============================================================
Class C $ 53,832,047
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 38,038,314
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 30,307,455
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 3,615,539
============================================================
Class A:
Net asset value and redemption price per
share $ 15.24
- ------------------------------------------------------------
Offering price per share:
(Net assets value of $15.24 / 94.50%) $ 16.13
============================================================
Class B:
Net asset value and offering price per
share $ 14.90
============================================================
Class C:
Net asset value and offering price per
share $ 14.89
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $7,896 foreign withholding
tax) $ 5,122,516
- ------------------------------------------------------------
Interest 3,156,458
- ------------------------------------------------------------
Total investment income 8,278,974
- ------------------------------------------------------------
EXPENSES:
Advisory fees 8,102,504
- ------------------------------------------------------------
Administrative services fees 111,632
- ------------------------------------------------------------
Custodian fees 142,592
- ------------------------------------------------------------
Directors' fees 23,177
- ------------------------------------------------------------
Distribution fees-Class A 2,355,478
- ------------------------------------------------------------
Distribution fees-Class B 4,981,777
- ------------------------------------------------------------
Distribution fees-Class C 552,292
- ------------------------------------------------------------
Transfer agent fees-Class A 1,906,743
- ------------------------------------------------------------
Transfer agent fees-Class B 1,868,026
- ------------------------------------------------------------
Transfer agent fees-Class C 209,129
- ------------------------------------------------------------
Other 738,152
- ------------------------------------------------------------
Total expenses 20,991,502
- ------------------------------------------------------------
Less: Expenses paid indirectly (40,231)
- ------------------------------------------------------------
Net expenses 20,951,271
- ------------------------------------------------------------
Net investment income (loss) (12,672,297)
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 68,479,789
- ------------------------------------------------------------
Foreign currencies (317)
- ------------------------------------------------------------
Option contracts written (158,316)
- ------------------------------------------------------------
68,321,156
- ------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 142,652,463
- ------------------------------------------------------------
Option contracts written 367,311
- ------------------------------------------------------------
143,019,774
- ------------------------------------------------------------
Net gain from investment securities and
option contracts 211,340,930
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $198,668,633
============================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (12,672,297) $ (8,332,574)
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities, foreign currencies, futures and option
contracts 68,321,156 (67,636,533)
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, futures and
option contracts 143,019,774 (114,227,472)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 198,668,633 (190,196,579)
- ---------------------------------------------------------------------------------------------
Share transactions-net:
Class A (251,714,847) 242,830,301
- ---------------------------------------------------------------------------------------------
Class B (119,088,321) 274,584,791
- ---------------------------------------------------------------------------------------------
Class C (2,560,814) 44,827,215
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (174,695,349) 372,045,728
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,259,549,547 887,503,819
- ---------------------------------------------------------------------------------------------
End of period $1,084,854,198 $1,259,549,547
=============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 874,112,818 $1,260,398,710
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (loss) 170,513 (21,335)
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities, foreign currencies, futures and
option contracts (10,779,655) (79,158,576)
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 221,350,522 78,330,748
- ---------------------------------------------------------------------------------------------
$1,084,854,198 $1,259,549,547
=============================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of ten separate
portfolios. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is long-term growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the closing bid price on that day. Each
security reported on the NASDAQ National Market System is valued at the
last sales price on the valuation date or absent a last sales price, at the
closing bid price. Debt obligations (including convertible bonds) are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value
10
<PAGE> 13
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. For purposes of
determining net asset value per share, futures and options contracts
generally will be valued 15 minutes after the close of trading of the New
York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Directors.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis 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 is recorded on the
ex-dividend date. The Fund may elect to use a portion of the proceeds of
capital stock redemptions as distributions for Federal income tax purposes.
Distributions from income and net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date.
On October 31, 1999, undistributed net investment income was increased by
$12,864,145, undistributed net realized gains increased by $57,765 and
paid-in capital decreased by $12,921,910 as a result of differing book/tax
treatment of foreign currency transactions and net operating loss
reclassifications in order to comply with the requirements of the American
Institute of Certified Public Accountants Statement of Position 93-2. Net
assets of the Fund were unaffected by the reclassification discussed above.
C. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $8,826,774 as of October 31, 1999 which may be carried
forward to offset future taxable gains, if any, which expires, if not
previously utilized, in the year 2006.
D. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
E. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in value of the
contracts may not correlate with changes in the value of the securities
being hedged.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also 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 or if the value of the foreign
currency changes unfavorably.
G. Covered Call Options -- The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying
11
<PAGE> 14
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the
sale of the underlying security and the proceeds of the sale are increased
by the premium originally received.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at
the stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
H. Expenses -- Distribution expenses and transfer agency expenses directly
attributable to a class of shares are charged to that class' operations.
All other expenses which are attributable to more than one class are
allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1999, AIM was
paid $111,632 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 1999, AFS
was paid $2,293,295 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund ,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. During the year ended October 31,
1999, the Class A, Class B and Class C shares paid AIM Distributors $2,355,478,
$4,981,777 and $552,292, respectively, as compensation under the Plans.
AIM Distributors received commissions of $386,856 from sales of the Class A
shares of the Fund during the year ended October 31, 1999. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1999,
AIM Distributors received $120,769 in contingent deferred sales charges imposed
on redemptions of Fund shares. Certain officers and directors of the Company are
officers and directors of AIM, AFS and AIM Distributors.
During the year ended October 31, 1999, the Fund paid legal fees of $5,896 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1999, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$14,979 and $25,252, respectively, under expense offset arrangements. The effect
of the above arrangements resulted in a reduction of the Fund's total expenses
of $40,231 during the year ended October 31, 1999.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid to directors who are not an
"interested person" of AIM. The Company invests directors' fees, if so elected
by a director, in mutual fund shares in accordance with a deferred compensation
plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the year
ended October 31, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. Prior to
May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated
among the funds based on their respective average net assets for the period.
12
<PAGE> 15
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, 1999 was
$1,362,900,625 and $1,707,625,394, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $273,125,832
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (54,095,503)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $219,030,329
===========================================================================
</TABLE>
Cost of investments for tax purposes is $873,579,272.
NOTE 7-CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Beginning of period -- --
- ------------------------------------------------------------------------------------
Written 11,878 $3,353,921
- ------------------------------------------------------------------------------------
Closed (3,698) (468,477)
- ------------------------------------------------------------------------------------
Exercised (2,198) (401,105)
- ------------------------------------------------------------------------------------
Expired (1,000) (758,462)
- ------------------------------------------------------------------------------------
End of period 4,982 $1,725,877
====================================================================================
</TABLE>
Open call option contracts written at October 31, 1999 were as follows:
<TABLE>
<CAPTION>
NUMBER OCTOBER 31, UNREALIZED
CONTRACT STRIKE OF PREMIUMS 1999 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- ----- -------- ------ --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Comverse Technology, Inc. Nov. 99 $105 597 $ 381,917 $ 597,000 $(215,083)
- ---------------------------------------------------------------------------------------------------------------------------------
Key Energy Group, Inc. Jan. 00 5 1,991 170,225 93,328 76,897
- ---------------------------------------------------------------------------------------------------------------------------------
Sykes Enterprises, Inc. Dec. 99 30 994 269,365 291,988 (22,623)
- ---------------------------------------------------------------------------------------------------------------------------------
Wild Oats Markets, Inc. Dec. 99 35 1,400 904,370 376,250 528,120
- ---------------------------------------------------------------------------------------------------------------------------------
4,982 $1,725,877 $1,358,566 $ 367,311
=================================================================================================================================
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in capital stock outstanding during the years ended October 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Sold:
Class A 25,404,762 $ 358,048,933 101,121,530 $1,487,557,560
- ------------------------------------------------------------------------------------------------------------------------
Class B 7,763,785 107,015,784 25,176,788 370,811,453
- ------------------------------------------------------------------------------------------------------------------------
Class C 2,461,885 34,429,174 4,336,475 62,530,399
- ------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Reacquired:
Class A (43,024,621) (609,763,780) (85,122,675) (1,244,727,259)
- ------------------------------------------------------------------------------------------------------------------------
Class B (16,362,323) (226,104,105) (6,860,398) (96,226,662)
- ------------------------------------------------------------------------------------------------------------------------
Class C (2,650,984) (36,989,988) (1,375,616) (17,703,184)
- ------------------------------------------------------------------------------------------------------------------------
(26,407,496) $(373,363,982) 37,276,104 $ 562,242,307
========================================================================================================================
</TABLE>
13
<PAGE> 16
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 three-year period ended October 31,
1999 and the period June 17, 1996 (date operations commenced) through October
31, 1996, for a share of Class B capital stock outstanding during each of the
years in the three-year period ended October 31, 1999 and the period October 1,
1996 (date sales commenced) through October 31, 1996 and for a share of Class C
capital stock outstanding during each of the two years in the period ended
October 31, 1999 and the period August 4, 1997 (date sales commenced) through
October 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------ ------------------------------------------
1999 1998 1997 1996 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 12.89 $14.57 $11.09 $10.00 $ 12.70 $14.46 $11.08 $11.26
- ---------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Income from investment
operations:
Net investment income
(loss) (0.10)(a) (0.06)(a) (0.10)(a) (0.01)(a) (0.20)(a) (0.16)(a) (0.20)(a) (0.01)(a)
- ---------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 2.45 (1.62) 3.58 1.10 2.40 (1.60) 3.58 (0.17)
- ---------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Total from
investment
operations 2.35 (1.68) 3.48 1.09 2.20 (1.76) 3.38 (0.18)
- ---------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Net asset value, end of
period $ 15.24 $12.89 $14.57 $11.09 $ 14.90 $12.70 $14.46 $11.08
============================ ======== ======== ======== ======== ======== ======== ======== =======
Total return(b) 18.23% (11.53)% 31.38% 10.90% 17.32% (12.17)% 30.51% (1.60)%
============================ ======== ======== ======== ======== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $579,514 $717,263 $577,685 $251,253 $451,508 $493,993 $297,623 $22,435
- ---------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Ratio of expenses to average
net assets(c) 1.38%(d) 1.28% 1.33% 1.35%(e) 2.12%(d) 2.02% 2.09% 1.89%(e)
============================ ======== ======== ======== ======== ======== ======== ======== =======
Ratio of net investment
income (loss) to average
net assets(f) (0.70)%(d) (0.40)% (0.83)% (0.29)%(e) (1.44)%(d) (1.14)%(d) (1.59)% (0.83)%(e)
============================ ======== ======== ======== ======== ======== ======== ======== =======
Portfolio turnover rate 117% 78% 41% 13% 117% 78% 41% 13%
============================ ======== ======== ======== ======== ======== ======== ======== =======
<CAPTION>
CLASS C
--------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning
of period $ 12.69 $14.45 $13.48
- ---------------------------- ------- ------- -------
Income from investment
operations:
Net investment income
(loss) (0.20)(a) (0.16) (0.06)(a)
- ---------------------------- ------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 2.40 (1.60) 1.03
- ---------------------------- ------- ------- -------
Total from
investment
operations 2.20 (1.76) 0.97
- ---------------------------- ------- ------- -------
Net asset value, end of
period $ 14.89 $12.69 $14.45
============================ ======= ======= =======
Total return(b) 17.34% (12.18)% 7.20%
============================ ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $53,832 $48,293 $12,195
- ---------------------------- ------- ------- -------
Ratio of expenses to average
net assets(c) 2.12%(d) 2.02% 2.14%(e)
============================ ======= ======= =======
Ratio of net investment
income (loss) to average
net assets(f) (1.44)%(d) (1.14)% (1.64)%(e)
============================ ======= ======= =======
Portfolio turnover rate 117% 78% 41%
============================ ======= ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.38% and 1.60% (annualized) for
1997-1996 for Class A, 2.14% and 2.28% (annualized) for
1997-1996 for Class B and 2.19% (annualized) for 1997 for
Class C.
(d) Ratios are based on average net assets of $672,993,650,
$498,177,719 and $55,229,231 for Class A, Class B and Class
C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of
net investment income (loss) to average net assets prior to
fee waivers and/or expense reimbursements were (0.88)% and
(0.54)% (annualized) for 1997-1996 for Class A, (1.64)% and
(1.22)% (annualized) for 1997-1996 for Class B and (1.69)%
(annualized) for 1997 for Class C.
14
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of AIM Capital Development Fund (a series
portfolio of AIM Equity Funds, Inc.), including the
schedule of investments, as of October 31, 1999, the
related statement of operations for the year then ended,
the statement of changes in net assets for each of the
years in the two-year period then ended, and financial
highlights for each of the years in the three-year period
then ended and the period June 17, 1996 (date operations
commenced) through October 31, 1996. These financial
statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audit.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1999, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of the AIM
Capital Development Fund as of October 31, 1999, 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 three-year period then ended
and the period June 17, 1996 (date operations commenced)
through October 31, 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
December 3, 1999
Houston, Texas
15
<PAGE> 18
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; Carol F. Relihan A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Secretary 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Gary T. Crum Houston, TX 77046
Senior Vice President
Owen Daly II TRANSFER AGENT
Director Edgar M. Larsen
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Dana R. Sutton Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President and Treasurer
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Melville B. Cox
President, Mercantile Bankshares Vice President State Street Bank and Trust Company
225 Franklin Street
Jack Fields Mary J. Benson Boston, MA 02110
Chief Executive Officer Assistant Vice President
Texana Global, Inc.; and Assistant Treasurer COUNSEL TO THE FUND
Formerly Member
of the U.S. House of Representatives Sheri Morris Ballard Spahr
Assistant Vice President Andrews & Ingersoll, LLP
Carl Frischling and Assistant Treasurer 1735 Market Street
Partner Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel LLP Renee A. Friedli
Assistant Secretary COUNSEL TO THE DIRECTORS
Robert H. Graham
President and Chief Executive Officer P. Michelle Grace Kramer, Levin, Naftalis & Frankel LLP
A I M Management Group Inc. Assistant Secretary 919 Third Avenue
New York, NY 10022
Prema Mathai-Davis Nancy L. Martin
Chief Executive Officer, YWCA of the U.S.A.; Assistant Secretary DISTRIBUTOR
Commissioner, New York City Dept. for the
Aging; and member of the Board of Directors, Ofelia M. Mayo A I M Distributors, Inc.
Metropolitan Transportation Authority of Assistant Secretary 11 Greenway Plaza
New York State Suite 100
Lisa A. Moss Houston, TX 77046
Lewis F. Pennock Assistant Secretary
Attorney AUDITORS
Kathleen J. Pflueger
Louis S. Sklar Assistant Secretary KPMG LLP
Executive Vice President 700 Louisiana
Hines Interests Samuel D. Sirko Houston, TX 77002
Limited Partnership Assistant Secretary
Stephen I. Winer
Assistant Secretary
</TABLE>
16
<PAGE> 19
------------------------------------
OUR AUTOMATED
AIM INVESTOR LINE,
800-246-5463,
PROVIDES CURRENT ACCOUNT
INFORMATION AND THE PRICE,
YIELD AND TOTAL RETURN
ON ALL AIM FUNDS
24 HOURS A DAY.
------------------------------------
AIM FUNDS(SM) MAKES INVESTING EASY
o AIM BANK CONNECTION(SM). You can make investments in your AIM account in
amounts from $50 to $100,000 without writing a check. Once you set up this
convenient feature, AIM will draw the funds from your pre-authorized
checking account at your request.
o AIM INTERNET CONNECT(SM). With this service, you can purchase, redeem or
exchange shares of AIM funds in your current AIM account simply by accessing
our Web site at www.aimfunds.com. For a retirement account, such as an IRA
or 403(b), only exchanges are allowed over the Internet because of the
tax-reporting and record-keeping requirements these accounts involve.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. You can receive
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o AUTOMATIC INVESTMENT PLAN. You can add to your account by authorizing your
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o EXCHANGE PRIVILEGE. As your investment goals change, you may exchange part
or all of your shares of one fund for shares of a different AIM fund within
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o E-MAIL ACCESS. You can contact us at [email protected] for general
information. For account information, contact us at
[email protected].
o WWW.AIMFUNDS.COM. Our award-winning Web site provides account information,
shareholder education and fund performance information.
<PAGE> 20
THE AIM FAMILY OF FUNDS --Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS MONEY MARKET FUNDS A I M Management Group Inc.
AIM Aggressive Growth Fund(1) AIM Money Market Fund has provided leadership in the
AIM Blue Chip Fund AIM Tax-Exempt Cash Fund mutual fund industry since
AIM Capital Development Fund 1976 and managed approximately
AIM Constellation Fund INTERNATIONAL GROWTH FUNDS $120 billion in assets for
AIM Dent Demographic Trends Fund AIM Advisor International Value Fund more than 6.4 million
AIM Large Cap Growth Fund AIM Asian Growth Fund shareholders, including
AIM Mid Cap Equity Fund AIM Developing Markets Fund individual investors,
AIM Mid Cap Growth Fund AIM Euroland Growth Fund(4) corporate clients and
AIM Mid Cap Opportunities Fund AIM European Development Fund financial institutions, as of
AIM Select Growth Fund AIM International Equity Fund September 30, 1999.
AIM Small Cap Growth Fund(2) AIM Japan Growth Fund The AIM Family of Funds
AIM Small Cap Opportunities Fund(3) AIM Latin American Growth Fund --Registered Trademark-- is
AIM Value Fund AIM New Pacific Growth Fund distributed nationwide, and
AIM Weingarten Fund AIM today is the 10th-largest
GLOBAL GROWTH FUNDS mutual fund complex in the
GROWTH & INCOME FUNDS AIM Global Aggressive Growth Fund United States in assets under
AIM Advisor Flex Fund AIM Global Growth Fund management, according to
AIM Advisor Large Cap Value Fund Strategic Insight, an
AIM Advisor Real Estate Fund GLOBAL GROWTH & INCOME FUNDS independent mutual fund
AIM Balanced Fund AIM Global Growth & Income Fund monitor.
AIM Basic Value Fund AIM Global Utilities Fund
AIM Charter Fund
GLOBAL INCOME FUNDS
INCOME FUNDS AIM Emerging Markets Debt Fund
AIM Floating Rate Fund AIM Global Government Income Fund
AIM High Yield Fund AIM Global Income Fund
AIM High Yield Fund II AIM Strategic Income Fund
AIM Income Fund
AIM Intermediate Government Fund THEME FUNDS
AIM Limited Maturity Treasury Fund AIM Global Consumer Products and Services Fund
AIM Global Financial Services Fund
TAX-FREE INCOME FUNDS AIM Global Health Care Fund
AIM High Income Municipal Fund AIM Global Infrastructure Fund
AIM Municipal Bond Fund AIM Global Resources Fund
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Telecommunications and Technology Fund(5)
AIM Tax-Free Intermediate Fund AIM Global Trends Fund(6)
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors on November 16, 1998.
(2) AIM Small Cap Growth Fund closed to new investors on November 8, 1999. (3)
AIM Small Cap Opportunities Fund closed to new investors on November 4, 1999.
(4) On September 1, 1999, AIM Europe Growth Fund was renamed AIM Euroland Growth
Fund. Previously the fund invested in all size companies in most areas of
Europe. The fund now seeks to invest at least 65% of its assets in large-cap
companies within countries using the euro as their currency (EMU-member
countries). (5) On June 1, 1999, AIM Global Telecommunications Fund was renamed
AIM Global Telecommunications and Technology Fund. (6) Effective August 27,
1999, AIM Global Trends Fund was restructured to operate as a traditional mutual
fund. Before that date, the fund operated as a fund of funds. For more complete
information about any AIM fund(s), including sales charges and expenses, ask
your financial advisor or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money. If used as
sales material after January 20, 2000, this report must be accompanied by a
current Quarterly Review of Performance for AIM Funds.
[AIM LOGO APPEARS HERE]
Invest with DISCIPLINE
--Registered Trademark--
A I M Distributors, Inc. CDV-AR-1
