<PAGE> 1
AIM EQUITY FUNDS, INC.
INSTITUTIONAL CLASSES
AIM CHARTER FUND
AIM CONSTELLATION FUND
AIM WEINGARTEN FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT OCTOBER 31, 1998
<PAGE> 2
TABLE OF CONTENTS
AIM Charter Fund 2-17
AIM Constellation Fund 18-33
AIM Weingarten Fund 34-48
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE;
AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
<PAGE> 3
Dear Fellow Shareholder:
Throughout the fiscal year covered by this report, markets
[PHOTO OF vacillated between optimism that Asia's woes would be
Charles T. contained and worry that they would become a major drag on
Bauer, the U.S. and other economies. Changes in investor sentiment
Chairman of affected various financial markets differently. The stock
the Board of market was especially volatile. Uncertainty in stocks
THE FUND bolstered U.S. Treasury issues, whose safety attracts
APPEARS HERE] investors in doubtful times.
We understand how unnerving this year's level of
volatility can be. Undoubtedly, many of you were tempted to
simply exit the stock market. Our reaction, of course, is
that you should not. The abrupt reversals of sentiment this
fiscal year reinforce our conviction that markets are
unpredictable in the short term. Since even the best money
managers cannot know when to enter and exit a market, we
think the wisest strategy is to stay fully invested despite
volatility and short-term disappointment.
MARKET RECAP
Financial crises overseas and widespread decline in the rate of U.S. corporate
earnings growth helped foster uncertainty. During the summer of 1998, a
worldwide loss of confidence led to a major market correction for equities,
including the blue chips that had led the market. In August, the Dow Jones
Industrial Average (the Dow) had its worst-performing month in a decade.
Fortunately, the U.S. Federal Reserve Board (the Fed) intervened, cutting
interest rates twice, on September 29 and October 15, to pump liquidity and
confidence into the markets. As investors responded favorably, the fiscal year
closed with domestic equities rallying again and bonds in retreat--a complete
about-face from just a few weeks earlier. October 1998 ended up being the Dow's
best month in 11 years. (After the fiscal year closed, as this report was being
written, the Fed cut rates a third time.)
Some major stock indexes produced excellent total results for the fiscal
year, with the S&P 500 up more than 20%. But focusing on one market benchmark
may give you an incomplete view. The divergence between the S&P 500 and other
market segments was quite dramatic this fiscal year: the mid-cap S&P 400 rose
only 6.71%, while the Russell 2000 Index of small-company stocks declined
11.84%. Even within the S&P 500 itself, the bigger the company, the better the
performance.
However unsettling markets have been, the fundamental principles of
investing remain unchanged: long-term thinking, broad portfolio diversification,
and realistic expectations, recognizing the potential for downturns. Your
financial consultant is your best resource for helping you construct a
diversified portfolio and weather turbulent markets.
YOUR FUND MANAGERS' COMMENTS
We are pleased to send you this report on your Fund's fiscal year. If you have
any questions or comments, please contact Client Services at 800-659-1005.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
--------------------------------------
Since even the best money managers
cannot know when to enter and exit
a market, we think the wisest strategy
is to stay fully invested
despite volatility and
short-term disappointment.
--------------------------------------
<PAGE> 4
LONG-TERM PERFORMANCE
AIM CHARTER FUND
For shareholders who seek growth and income by investing primarily in stocks of
large-cap, well-run companies with a history of stable and improving earnings
and generally increasing dividend payouts.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Charter Fund Institutional Class performance figures are historical and
reflect reinvestment of all distributions and changes in net asset value.
o One-year performance includes reinvested distributions of $1.48 per share.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Dow Jones Industrial Average (the Dow) is a price-weighted average of 30
actively traded primarily industrial stocks.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
o The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of
the stock market in general. Results shown assume the reinvestment of
dividends.
o The Standard & Poor's 400 Mid-Cap Index is an unmanaged index comprising
common stocks of approximately 400 mid-capitalization companies.
o The NASDAQ (National Association of Securities Dealers Automated Quotation
system) Composite Index is a group of more than 4,500 unmanaged
over-the-counter securities widely regarded by investors to be
representative of the small- and medium-sized company stock universe.
o The Russell 2000 Stock Index is an unmanaged index generally considered
representative of small-capitalization stocks.
o The unmanaged Lipper Growth & Income Fund Index represents an average of the
performance of the 30 largest growth-and-income mutual funds.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
================================================================================
AIM CHARTER FUND INSTITUTIONAL CLASS
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 10/31/98
1 Year 11.69%
5 Years 16.12
Inception (7/30/91) 14.80
================================================================================
GROWTH OF A $10,000 INVESTMENT
7/30/91-10/31/98
- --------------------------------------------------------------------------------
STANDARD & POOR'S LIPPER GROWTH AND AIM CHARTER FUND,
500 INCOME FUND INDEX INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
7/91 $10,000 $10,000 $10,000
10/91 10,288 10,512 10,316
10/92 11,245 10,988 11,234
10/93 12,921 12,898 13,424
10/94 13,418 12,637 13,849
10/95 16,959 16,105 16,657
10/96 21,038 18,891 20,220
10/97 27,789 24,379 25,889
10/98 33,904 27,230 28,336
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
2
CHARTER
<PAGE> 5
THE MANAGERS' OVERVIEW
FUND POSTS STRONG RESULTS IN TURBULENT YEAR
A roundtable discussion with the Fund management team for AIM Charter Fund for
the fiscal year ended October 31, 1998.
- --------------------------------------------------------------------------------
Q. THIS YEAR WAS PARTICULARLY UNSETTLING FOR THE STOCK MARKET. HOW DID THE AIM
CHARTER FUND PERFORM?
A. The AIM Charter Fund reported solid results during record market volatility,
posting a total annual return of 11.69%, outpacing its peer group,
represented by the 9.45% return of the Lipper Growth and Income Fund Index.
Net assets climbed from $40.2 million as of October 31, 1997 to $43.8
million as of October 31, 1998.
Q. WHAT WERE MARKET CONDITIONS LIKE DURING THE FISCAL YEAR?
A. The first half of the reporting period saw strong performance from the U.S.
and European stock markets. But beginning in July, markets fell as fears of
a global credit crunch spread from emerging markets to the developed markets
of the United States and Europe. Other factors adding to the market decline
included a Russian default on government debt, the Asian financial crisis,
and the collapse of some highly leveraged hedge funds. Near the end of the
fiscal year, the Federal Reserve Board (the Fed) addressed concerns about
credit by lowering the short-term target federal funds rate. Equity markets
rallied in response.
Q. HAVE YOU CHANGED THE WAY YOU MANAGE THE FUND AS A RESULT OF MARKET
CONDITIONS?
A. We reduced the number of holdings over the fiscal year as we began to see
earnings deterioration throughout many sectors of the economy. At the same
time, we increased our emphasis on companies with less exposure to global
economic problems and therefore, less risk to their future growth prospects.
We also focused on companies that benefited from a healthy, albeit slowing,
U.S. economy. Stocks we favored included pharmaceutical companies such as
Warner-Lambert Co. and Pfizer, Inc. and retailers such as Dayton Hudson
Corp. and Walgreen Co. We also increased our position in MCI Worldcom, Inc.,
which was created in September 1998 by one of the largest mergers in
corporate history. We expect this global telecommunications powerhouse to
produce solid earnings growth into the next century.
We also raised our stake in convertible securities. At the end of the
fiscal year, 12.98% of the portfolio consisted of convertible corporate
bonds and 5.93% was in convertible preferred stocks.
Our convertible holdings include names like Internet provider America
Online, Inc., retailer Home Depot, Inc., computer memory firm EMC Corp., and
cable operator Media One Group.
The Fund invests in convertibles because these securities have the
characteristics of both stocks and bonds. Since the Fund's investment goals
are to seek growth and income, convertible securities offer the best of both
worlds.
Q. HOW DOES A GROWTH MANAGER INVEST FOR BOTH GROWTH AND INCOME?
A. Basically, the Fund tries to balance earnings growth and income. We invest
in high-growth and low-income stocks, and in low-growth, high-income stocks.
Dividend-paying growth stocks make up about 70% to 80% of the portfolio.
Low-growth and high-income stocks, such as energy and utilities holdings,
make up 5% to 10% of the portfolio. The remainder of the Fund, about 10% to
20%, is invested in convertible securities. We believe this strategy helps
to maximize total return and reduce volatility.
Q. WHAT SECTORS DID THE FUND TARGET?
A. The Fund maintained its positions in its top three sectors: health care,
especially pharmaceutical stocks; financial stocks including major credit
card companies and mortgage securities firms; and computer software and
services companies.
Q. WHY ARE PHARMACEUTICAL STOCKS ATTRACTIVE?
A. Earnings growth for major U.S. drug companies has been strong in recent
years for several reasons, including expedited product approval by the
Federal Drug Administration, growing demand from an aging population, and
the recent success of new drugs. Top holdings for the Fund included Pfizer,
Inc., maker of the blockbuster
----------------------------------
Because of our conservative
investment approach, which focuses
on companies with
strong earnings prospects,
we remain confident that the Fund
is positioned well as we enter
the coming year.
----------------------------------
3
CHARTER
<PAGE> 6
THE MANAGERS' OVERVIEW
Number of Holdings: 145
U.S. Government Bonds 1.28% Convertible Bonds 12.95%
Cash & Cash Equivalents 3.42% Common Stock 76.39%
Convertible Preferred Stock 5.93%
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION
As of 10/31/98, based on total net assets
================================================================================
Top 10 Holdings
- --------------------------------------------------------------------------------
<S> <C>
1. MCI WorldCom, Inc. 3.19%
2. Philip Morris Companies Inc. 2.95
3. Pfizer, Inc. 2.89
4. General Electric Co. 2.10
5. Microsoft Corp. 2.04
6. Warner-Lambert Co. 2.04
7. Chase Manhattan Corp. (The) 1.97
8. Tyco International Ltd. 1.97
9. America Online, Inc. 1.81
10. Pharmacia & Upjohn, Inc. 1.78
Please keep in mind that the Fund's portfolio composition is subject to change
and there is no assurance the Fund will continue to hold any particular
security.
================================================================================
</TABLE>
================================================================================
Common Stock 76.39%
Convertible bonds 12.98%
Convertible preferred stock 5.93%
U.S. Government Bonds 1.28%
Cash & Cash Equivalents 3.42%
================================================================================
drug Viagra. We also own Pharmacia & Upjohn, Inc., Merck & Co. Inc.,
Warner-Lambert Co., and Eli Lilly & Co.
Q. WHAT HAS HAPPENED WITH FINANCIAL STOCKS?
A. In the first quarter of the fiscal year, America's biggest banks reported
solid earnings, and a number of proposed mergers created a positive ripple
effect throughout the rest of the financial sector. Banks joining forces
included BankAmerica Corp. and NationsBank and Citicorp and Travelers Group.
The Fund held positions in these merged corporations.
The Fund's other financial holdings included banking firm Chase
Manhattan Corp., brokerage firms Merrill Lynch & Co., Inc., and Morgan
Stanley Dean Witter, Discover & Co., insurance provider American
International Group Inc., and credit card company American Express Co. In
the last quarter of the fiscal year, many financial stocks in the Fund's
portfolio were significantly affected by the global economic crisis. But we
continue to hold these stocks because we believe these are solid companies
with strong franchises. In fact, we consider many of these stocks to be
long-term buying opportunities. We believe these companies eventually will
emerge as leaders in the increasingly consolidating global financial
environment.
Q. HOW ARE COMPUTER SOFTWARE AND SERVICES STOCKS PERFORMING?
A. The Fund held Microsoft Corp. as a major technology position because of its
outstanding earnings performance, especially in its most recent quarter. The
software giant reported a fiscal first-quarter profit of $1.68 billion, or
62 cents a share, up from $663 million, or 25 cents a share, a year earlier.
Stocks of computer service firms benefited from an expansion in
outsourcing, where outside firms are hired to perform software management
functions. The so-called Year 2000 bug also provided plenty of work for
information technology companies, such as Compuware Corp.
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND EQUITY MARKETS?
A. We expect the markets to experience continued volatility. We also believe
that the decline near the end of the reporting period was a normal
correction, rather than the beginning of a true bear market. After three
years of extraordinary returns of 20% and 30%, U.S. equity markets may be
returning to more historic growth rates, closer to 10%.
We're optimistic that the United States will avoid a recession in 1999.
The economy is likely to experience annual gross domestic product growth in
the 1.5% to 2% range, so low inflation and low interest rates should
continue. However, with global markets especially in Asia experiencing
weakness and the U.S. economy expanding more slowly, many companies will
find it difficult to produce earnings growth. Because of our conservative
investment approach, which focuses on companies with strong earnings
prospects, we remain confident that the Fund is positioned well as we enter
the coming year.
------------------------------------
We also believe that
the decline near the end of
the reporting period was
a normal correction, rather than the
beginning of a true bear market.
------------------------------------
4
CHARTER
<PAGE> 7
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-76.39%
AIR FREIGHT-0.35%
CNF Transportation Inc. 600,000 $ 18,150,000
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.53%
UBS A.G. (Switzerland)(a) 100,001 27,425,406
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-2.52%
BankAmerica Corp. 500,000 28,718,750
- ---------------------------------------------------------------
Chase Manhattan Corp. (The) 1,800,000 102,262,500
- ---------------------------------------------------------------
130,981,250
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.62%
Comcast Corp.-Class A 650,000 32,093,750
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.02%
Monsanto Co. 1,300,000 52,812,500
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.62%
Lucent Technologies, Inc. 400,000 32,075,000
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-2.31%
Compaq Computer Corp.(b) 798,000 25,236,750
- ---------------------------------------------------------------
Dell Computer Corp.(a) 650,000 42,656,250
- ---------------------------------------------------------------
International Business Machines
Corp. 350,000 51,953,125
- ---------------------------------------------------------------
119,846,125
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.58%
Ascend Communications, Inc.(a) 400,000 19,300,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 1,000,000 63,000,000
- ---------------------------------------------------------------
82,300,000
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-4.30%
BMC Software, Inc.(a) 400,000 19,225,000
- ---------------------------------------------------------------
Computer Sciences Corp.(a) 500,000 26,375,000
- ---------------------------------------------------------------
Compuware Corp.(a) 300,000 16,256,250
- ---------------------------------------------------------------
HBO & Co. 1,000,000 26,250,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 1,000,000 105,875,000
- ---------------------------------------------------------------
Novell, Inc.(a) 2,000,000 29,750,000
- ---------------------------------------------------------------
223,731,250
- ---------------------------------------------------------------
CONSUMER FINANCE-1.74%
Household International, Inc. 500,000 18,281,250
- ---------------------------------------------------------------
MBNA Corp. 800,000 18,250,000
- ---------------------------------------------------------------
Providian Financial Corp.(b) 678,000 53,816,250
- ---------------------------------------------------------------
90,347,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DISTRIBUTORS (FOOD & HEALTH)-0.83%
Bergen Brunswig Corp.-Class A 300,000 $ 14,643,750
- ---------------------------------------------------------------
Cardinal Health, Inc. 300,000 28,368,750
- ---------------------------------------------------------------
43,012,500
- ---------------------------------------------------------------
ELECTRIC COMPANIES-0.72%
Edison International 700,000 18,462,500
- ---------------------------------------------------------------
FPL Group, Inc. 300,000 18,768,750
- ---------------------------------------------------------------
37,231,250
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.49%
General Electric Co. 1,250,000 109,375,000
- ---------------------------------------------------------------
Honeywell, Inc. 250,000 19,968,750
- ---------------------------------------------------------------
129,343,750
- ---------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.32%
Raytheon Co.-Class A 300,000 16,800,000
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.51%
Intel Corp. 300,000 26,756,250
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.37%
Applied Materials, Inc.(a) 550,000 19,078,125
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-7.95%
American Express Co. 850,000 75,118,750
- ---------------------------------------------------------------
Associates First Capital
Corp.-Class A(b) 350,000 24,675,000
- ---------------------------------------------------------------
Citigroup Inc. 1,500,000 70,593,750
- ---------------------------------------------------------------
Fannie Mae 1,000,000 70,812,500
- ---------------------------------------------------------------
Freddie Mac 1,400,000 80,500,000
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 650,000 42,087,500
- ---------------------------------------------------------------
SunAmerica, Inc. 700,000 49,350,000
- ---------------------------------------------------------------
413,137,500
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-4.86%
Abbott Laboratories 500,000 23,468,750
- ---------------------------------------------------------------
American Home Products Corp. 500,000 24,375,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 600,000 66,337,500
- ---------------------------------------------------------------
Johnson & Johnson 400,000 32,600,000
- ---------------------------------------------------------------
</TABLE>
5
CHARTER
<PAGE> 8
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED)-(CONTINUED)
Warner-Lambert Co.(b) 1,350,000 $ 105,806,250
- ---------------------------------------------------------------
252,587,500
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-7.22%
Lilly (Eli) & Co. 800,000 64,750,000
- ---------------------------------------------------------------
Merck & Co., Inc. 500,000 67,625,000
- ---------------------------------------------------------------
Pfizer Inc. 1,400,000 150,237,500
- ---------------------------------------------------------------
Pharmacia & Upjohn, Inc.(b) 1,750,000 92,640,625
- ---------------------------------------------------------------
375,253,125
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.66%
Allegiance Corp. 755,000 28,076,563
- ---------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a)(b) 600,000 18,450,000
- ---------------------------------------------------------------
Baxter International Inc. 300,000 17,981,250
- ---------------------------------------------------------------
Becton, Dickinson & Co. 600,000 25,275,000
- ---------------------------------------------------------------
Guidant Corp. 250,000 19,125,000
- ---------------------------------------------------------------
Medtronic, Inc. 450,000 29,250,000
- ---------------------------------------------------------------
138,157,813
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.53%
Omnicare, Inc. 800,000 27,650,000
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-1.36%
Colgate-Palmolive Co. 500,000 44,187,500
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 300,000 26,662,500
- ---------------------------------------------------------------
70,850,000
- ---------------------------------------------------------------
HOUSEWARES-0.48%
Rubbermaid, Inc. 750,000 24,890,625
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.31%
Ace, Ltd. 500,000 16,937,500
- ---------------------------------------------------------------
American International Group, Inc. 600,000 51,150,000
- ---------------------------------------------------------------
68,087,500
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.50%
Allstate Corp. (The) 600,000 25,837,500
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.80%
Merrill Lynch & Co., Inc. 700,000 41,475,000
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.54%
Franklin Resources, Inc. 744,100 28,136,281
- ---------------------------------------------------------------
LODGING-HOTELS-1.09%
Carnival Corp. 1,750,000 56,656,250
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.39%
Ingersoll-Rand Co. 400,000 20,200,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (DIVERSIFIED)-2.64%
Illinois Tool Works Inc. 250,000 $ 16,031,250
- ---------------------------------------------------------------
Tyco International Ltd. 1,650,000 102,196,875
- ---------------------------------------------------------------
United Technologies Corp. 200,000 19,050,000
- ---------------------------------------------------------------
137,278,125
- ---------------------------------------------------------------
NATURAL GAS-1.43%
El Paso Energy Corp. 550,000 19,490,625
- ---------------------------------------------------------------
Enron Corp. 675,000 35,606,250
- ---------------------------------------------------------------
Williams Companies, Inc. (The) 700,000 19,206,250
- ---------------------------------------------------------------
74,303,125
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-1.59%
Baker Hughes, Inc. 1,250,000 27,578,125
- ---------------------------------------------------------------
Halliburton Co. 800,000 28,750,000
- ---------------------------------------------------------------
Schlumberger Ltd. 500,000 26,250,000
- ---------------------------------------------------------------
82,578,125
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-1.08%
Conoco Inc.-Class A(a) 2,250,000 55,968,750
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-1.61%
Amoco Corp. 300,000 16,837,500
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-New
York Shares (Netherlands) 1,000,000 49,250,000
- ---------------------------------------------------------------
Texaco, Inc. 300,000 17,793,750
- ---------------------------------------------------------------
83,881,250
- ---------------------------------------------------------------
PERSONAL CARE-0.23%
Avon Products, Inc. 298,900 11,862,594
- ---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.75%
Xerox Corp. 400,000 38,750,000
- ---------------------------------------------------------------
PUBLISHING-0.35%
Dow Jones & Co., Inc. 400,000 18,325,000
- ---------------------------------------------------------------
RAILROADS-0.40%
Kansas City Southern Industries,
Inc. 542,700 20,961,787
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-0.19%
Crescent Real Estate Equities, Co. 400,000 10,025,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.32%
Lowe's Companies, Inc. 500,000 16,843,750
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.19%
Ingram Micro, Inc.-Class A(a)(b) 222,200 10,110,100
- ---------------------------------------------------------------
</TABLE>
6
CHARTER
<PAGE> 9
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DEPARTMENT STORES)-1.31%
Federated Department Stores, Inc.(a) 600,000 $ 23,062,500
- ---------------------------------------------------------------
Kohl's Corp.(a) 350,000 16,734,375
- ---------------------------------------------------------------
Saks Inc.(a) 1,233,300 28,057,575
- ---------------------------------------------------------------
67,854,450
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.35%
Family Dollar Stores, Inc. 1,000,000 18,125,000
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.69%
CVS Corp.(b) 150,000 6,853,125
- ---------------------------------------------------------------
Walgreen Co. 600,000 29,212,500
- ---------------------------------------------------------------
36,065,625
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-2.41%
Dayton Hudson Corp. 1,000,000 42,375,000
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 1,200,000 82,800,000
- ---------------------------------------------------------------
125,175,000
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.32%
Washington Mutual, Inc. 450,000 16,846,875
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.24%
Service Corp. International 350,000 12,468,750
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.07%
Ceridian Corp.(a) 325,000 18,646,875
- ---------------------------------------------------------------
Equifax, Inc. 475,000 18,376,563
- ---------------------------------------------------------------
Fiserv, Inc.(a) 400,000 18,600,000
- ---------------------------------------------------------------
55,623,438
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-3.19%
MCI WorldCom, Inc.(a)(b) 3,000,000 165,750,000
- ---------------------------------------------------------------
TELEPHONE-2.56%
Ameritech Corp. 600,000 32,362,500
- ---------------------------------------------------------------
BellSouth Corp. 450,000 35,915,625
- ---------------------------------------------------------------
SBC Communications, Inc.(b) 1,400,000 64,837,500
- ---------------------------------------------------------------
133,115,625
- ---------------------------------------------------------------
TOBACCO-2.95%
Philip Morris Companies, Inc. 3,000,000 153,375,000
- ---------------------------------------------------------------
Total Common Stocks (Cost
$2,927,834,541) 3,970,191,119
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS & NOTES-12.98%
AUTO PARTS & EQUIPMENT-0.22%
Magna International, Inc., Conv.
Sub. Deb., 4.875%, 02/15/05 $ 11,000,000 $ 11,247,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE)-0.30%
Jacor Communications, Inc.,
Conv. Sr. LYON, 5.50%,
06/12/11(c) $ 20,000,000 $ 15,450,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.48%
Comverse Technology, Inc., Conv.
Sub. Deb., 4.50%, 07/01/05(d)
(Acquired 06/25/98-10/15/98;
Cost $17,000,000) 17,500,000 16,253,125
- ---------------------------------------------------------------
Global Telesystems Group, Inc.,
Conv. Sr. Sub. Deb., 5.75%,
07/01/10 42,250,000 37,708,125
- ---------------------------------------------------------------
Global Telesystems Group, Inc.,
Conv. Sr. Sub. Notes, 8.75%,
06/30/00 1,100,000 2,283,875
- ---------------------------------------------------------------
Global Telesystems Group, Inc.,
Conv. Sr. Sub. Notes, 8.75%,
06/30/00(d) (Acquired
02/05/98; Cost $13,002,080) 10,000,000 20,762,500
- ---------------------------------------------------------------
77,007,625
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-0.40%
Candescent Technology Corp.,
Conv. Sr. Sub. Deb., 7.00%,
05/01/03(d) (Acquired
04/17/98; Cost $25,000,000) 25,000,000 21,000,000
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.39%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 25,000,000 72,218,750
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-3.58%
America Online, Inc., Conv. Sub.
Notes, 4.00%, 11/15/02 37,500,000 94,265,625
- ---------------------------------------------------------------
America Online, Inc., Conv. Sub.
Notes, 4.00%, 11/15/02(d)
(Acquired 02/10/98; Cost
$15,619,768) 12,500,000 31,421,875
- ---------------------------------------------------------------
Network Associates, Inc., Conv.
Sub. Deb., 4.00%, 02/13/18(c) 45,000,000 19,575,000
- ---------------------------------------------------------------
Platinum Technology, Inc., Conv.
Sub. Notes, 6.25%, 12/15/02 10,000,000 8,250,000
- ---------------------------------------------------------------
Platinum Technology, Inc., Conv.
Sub. Notes, 6.25%, 12/15/02(d)
(Acquired 12/11/97-01/12/98;
Cost $9,961,125) 10,000,000 8,250,000
- ---------------------------------------------------------------
Veritas Software Corp., Conv.
Sub. Notes, 5.25%, 11/01/04 17,500,000 24,368,750
- ---------------------------------------------------------------
186,131,250
- ---------------------------------------------------------------
</TABLE>
7
CHARTER
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-0.48%
SCI Systems, Inc., Conv. Sub.
Notes, 5.00%, 05/01/06(d)
(Acquired 10/20/98; Cost
$20,135,415) $ 15,000,000 $ 24,806,250
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.29%
Amkor Technology, Inc., Conv.
Sub Notes, 5.75%, 05/01/03 26,000,000 14,885,000
- ---------------------------------------------------------------
FOOD-MISC. (DIVERSIFIED)-0.54%
Nestle Holding, Inc., Conv.
Bond, 3.00%, 06/17/02
(Switzerland) 20,000,000 28,110,540
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.62%
Omnicare, Inc., Conv. Bond,
5.00%, 12/01/07 10,000,000 10,800,000
- ---------------------------------------------------------------
Omnicare, Inc., Conv. Sub. Deb.,
5.00%, 12/01/07(d) (Acquired
12/04/97; Cost $20,000,000) 20,000,000 21,600,000
- ---------------------------------------------------------------
32,400,000
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.40%
Loews Corp., Conv. Sub. Notes,
3.125%, 09/15/07 25,000,000 20,500,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.55%
Home Depot, Inc., Conv. Sub.
Notes, 3.25%, 10/01/01 15,000,000 28,500,000
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.49%
Ingram Micro, Inc., Conv. Deb.,
5.375%, 06/09/18(c) 70,000,000 25,637,500
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.37%
Rite Aid Corp., Conv. Sub.
Notes, 5.25%, 09/15/02 15,000,000 19,012,500
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.54%
Costco Companies, Inc., Conv.
Sub. Notes, 3.50%, 08/19/17(c) 40,000,000 28,250,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.43%
Staples Inc., Conv. Sub. Deb.,
4.50%, 10/01/00(d) (Acquired
10/23/97-12/30/97; Cost
$13,054,000) 10,000,000 22,225,000
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.39%
Affiliated Computer Services,
Conv. Sub. Notes, 4.00%,
03/15/05 9,250,000 9,862,813
- ---------------------------------------------------------------
Affiliated Computer Services,
Conv. Sub. Notes, 4.00%,
03/15/05(d) (Acquired
03/17/98; Cost $10,004,125) 10,000,000 10,662,500
- ---------------------------------------------------------------
20,525,313
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
WASTE MANAGEMENT-0.51%
United Waste Systems, Inc.,
Conv. Sub. Notes, 4.50%,
06/01/01 $ 17,500,000 $ 26,753,125
- ---------------------------------------------------------------
Total Convertible Corporate
Bonds & Notes (Cost
$587,314,953) 674,660,353
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS-5.93%
BROADCASTING (TELEVISION, RADIO & CABLE)-1.65%
Chancellor Media Corp.-$3.00
Conv. Pfd. 275,000 $ 22,275,000
- ---------------------------------------------------------------
MediaOne Group, Inc.-$2.25
Series D Conv. Pfd. 550,000 47,746,875
- ---------------------------------------------------------------
MediaOne Group, Inc.-$3.625
Conv. Pfd. 300,000 16,162,500
- ---------------------------------------------------------------
86,184,375
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.29%
Microsoft Corp.-$2.196 Series A
Conv. Pfd. 154,000 15,053,500
- ---------------------------------------------------------------
ELECTRIC COMPANIES-0.96%
Houston Industries, Inc.-$3.22
Conv. Pfd. 615,000 49,853,437
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.31%
McKesson Financing Trust, $2.50
Conv. Pfd. 150,000 15,975,000
- ---------------------------------------------------------------
HOME DECORATION PRODUCTS-0.36%
Newell Financial Trust,
Inc.-$2.625 Conv. Pfd. 350,000 18,856,250
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.68%
Conseco, Inc.-$4.278 Conv.
PRIDES 300,000 35,700,000
- ---------------------------------------------------------------
LODGING-HOTELS-0.48%
Royal Caribbean Cruises
Ltd.-$3.63 Conv. Pfd. 271,700 24,860,550
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.50%
CVS Corp.-$4.23 Conv. Pfd. 300,000 25,800,000
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.15%
Kmart Financing, Inc.-$3.875
Conv. Pfd. 140,000 7,761,250
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.28%
TJX Companies, Inc.-$7.00 Series
E Conv. Pfd. 35,000 14,348,425
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.27%
AirTouch Communications,
Inc.-$1.74 Series B Conv. Pfd. 300,000 13,800,000
- ---------------------------------------------------------------
Total Convertible Preferred
Stocks (Cost $271,494,583) 308,192,787
- ---------------------------------------------------------------
</TABLE>
8
CHARTER
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-1.28%
9.125%, 05/15/99 $ 20,000,000 $ 20,488,800
- ---------------------------------------------------------------
11.75%, 02/15/01 40,000,000 46,394,000
- ---------------------------------------------------------------
Total U.S. Treasury Notes
(Cost $68,093,945) 66,882,800
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-3.90%(e)
Dresdner Kleinwort, Benson,
North America LLC, 5.55%,
11/02/98(f) (Cost
$202,557,788) 202,557,788 202,557,788
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.48% 5,222,484,847
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(0.48%) (25,198,413)
- ---------------------------------------------------------------
NET ASSETS-100.00% $5,197,286,434
===============================================================
</TABLE>
Abbreviations:
Conv. - Convertible
Deb. - Debentures
LYON - Liquid Yield Option Notes
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Sr. - Senior
Sub. - Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of these securities are subject to call options written. See
note 7.
(c) Zero coupon bonds. Interest rate shown represents the rate of original issue
discount.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 10/31/98 was $176,981,250,
which represented 3.41% of the Fund's net assets.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor for its affiliates.
(f) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$300,138,750. Collateralized by $485,457,284 U.S. Government obligations, 0%
to 8.50% due 01/07/99 to 08/01/37 with an aggregate market value at 10/31/98
of $306,003,830.
See Notes to Financial Statements.
9
CHARTER
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$4,057,295,810) $5,222,484,847
- ------------------------------------------------------------
Receivables for:
Investments sold 13,449,956
- ------------------------------------------------------------
Capital stock sold 5,474,436
- ------------------------------------------------------------
Dividends and interest 15,664,282
- ------------------------------------------------------------
Investment for deferred compensation plan 62,521
- ------------------------------------------------------------
Other assets 133,187
- ------------------------------------------------------------
Total assets 5,257,269,229
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 36,176,235
- ------------------------------------------------------------
Capital stock reacquired 9,083,225
- ------------------------------------------------------------
Deferred compensation 62,521
- ------------------------------------------------------------
Options written (premiums received
$8,091,351) 8,480,263
- ------------------------------------------------------------
Accrued advisory fees 2,504,651
- ------------------------------------------------------------
Accrued administrative services fees 12,550
- ------------------------------------------------------------
Accrued directors' fees 4,000
- ------------------------------------------------------------
Accrued distribution fees 2,409,172
- ------------------------------------------------------------
Accrued transfer agent fees 923,434
- ------------------------------------------------------------
Accrued operating expenses 326,744
- ------------------------------------------------------------
Total liabilities 59,982,795
- ------------------------------------------------------------
Net assets applicable to shares outstanding $5,197,286,434
============================================================
NET ASSETS:
Class A $3,706,938,087
============================================================
Class B $1,408,687,133
============================================================
Class C $ 37,846,445
============================================================
Institutional Class $ 43,814,769
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 278,255,520
============================================================
Class B:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 106,376,708
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 2,851,068
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 3,265,143
============================================================
Class A:
Net asset value and redemption price per
share $ 13.32
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $13.32 divided
by 94.50%) $ 14.10
============================================================
Class B:
Net asset value and offering price per
share $ 13.24
============================================================
Class C:
Net asset value and offering price per
share $ 13.27
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 13.42
============================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $827,299 foreign
withholding tax) $ 61,756,240
- -----------------------------------------------------------
Interest 40,582,343
- -----------------------------------------------------------
Total investment income 102,338,583
- -----------------------------------------------------------
EXPENSES:
Advisory fees 31,820,925
- -----------------------------------------------------------
Administrative services fees 152,008
- -----------------------------------------------------------
Custodian fees 327,507
- -----------------------------------------------------------
Directors' fees 38,648
- -----------------------------------------------------------
Distribution fees-Class A 11,101,044
- -----------------------------------------------------------
Distribution fees-Class B 12,843,741
- -----------------------------------------------------------
Distribution fees-Class C 216,922
- -----------------------------------------------------------
Interest (Note 5) 412,451
- -----------------------------------------------------------
Transfer agent fees-Class A 4,902,143
- -----------------------------------------------------------
Transfer agent fees-Class B 2,508,122
- -----------------------------------------------------------
Transfer agent fees-Class C 49,570
- -----------------------------------------------------------
Transfer agent fees-Institutional Class 3,895
- -----------------------------------------------------------
Other 1,138,589
- -----------------------------------------------------------
Total expenses 65,515,565
- -----------------------------------------------------------
Less: Fees waived by advisor (762,337)
- -----------------------------------------------------------
Expenses paid indirectly (239,868)
- -----------------------------------------------------------
Net expenses 64,513,360
- -----------------------------------------------------------
Net investment income 37,825,223
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 204,168,591
- -----------------------------------------------------------
Foreign currencies 985,214
- -----------------------------------------------------------
Futures contracts (3,768,370)
- -----------------------------------------------------------
Option contracts purchased 2,119,600
- -----------------------------------------------------------
Option contracts written 2,763,898
- -----------------------------------------------------------
206,268,933
- -----------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 256,495,600
- -----------------------------------------------------------
Foreign currencies 39,913
- -----------------------------------------------------------
Futures contracts 2,332,675
- -----------------------------------------------------------
Option contracts written (3,953,364)
- -----------------------------------------------------------
254,914,824
- -----------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and option
contracts 461,183,757
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $499,008,980
===========================================================
</TABLE>
See Notes to Financial Statements.
10
CHARTER
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 37,825,223 $ 25,716,155
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 206,268,933 471,905,541
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 254,914,824 453,826,181
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 499,008,980 951,447,877
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (28,039,987) (29,364,689)
- ----------------------------------------------------------------------------------------------
Class B (3,013,337) (2,392,475)
- ----------------------------------------------------------------------------------------------
Class C (47,378) --
- ----------------------------------------------------------------------------------------------
Institutional Class (445,449) (438,502)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (346,531,949) (162,219,599)
- ----------------------------------------------------------------------------------------------
Class B (108,856,197) (34,439,480)
- ----------------------------------------------------------------------------------------------
Class C (819,962) (2,594)
- ----------------------------------------------------------------------------------------------
Institutional Class (3,989,466) (1,797,486)
- ----------------------------------------------------------------------------------------------
Net equalization credits (See Note 1):
Class A -- 292,768
- ----------------------------------------------------------------------------------------------
Class B -- 189,770
- ----------------------------------------------------------------------------------------------
Institutional Class -- 6,698
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 235,195,827 247,700,247
- ----------------------------------------------------------------------------------------------
Class B 350,425,592 397,291,935
- ----------------------------------------------------------------------------------------------
Class C 32,069,085 5,872,568
- ----------------------------------------------------------------------------------------------
Institutional Class 3,464,509 4,247,713
- ----------------------------------------------------------------------------------------------
Net increase in net assets 628,420,268 1,376,394,751
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 4,568,866,166 3,192,471,415
- ----------------------------------------------------------------------------------------------
End of period $5,197,286,434 $4,568,866,166
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $3,821,903,969 $3,199,855,109
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 9,291,857 2,895,981
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 201,250,572 456,189,864
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 1,164,840,036 909,925,212
- ----------------------------------------------------------------------------------------------
$5,197,286,434 $4,568,866,166
==============================================================================================
</TABLE>
See Notes to Financial Statements.
11
CHARTER
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc.
(the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios: AIM
Charter Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Constellation Fund and AIM Weingarten Fund. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and the Institutional Class. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to provide growth of capital, with
current income as a secondary objective.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on
the NASDAQ National Market System is valued at the last sales price on the
valuation date, or absent a last sales price, at the mean of the closing bid
and asked prices. Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices are
not provided by any of the above methods are valued at the mean between last
bid and asked prices based upon quotes furnished by independent sources.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors of the Company. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the
close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Directors.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $1,010,651 and
undistributed net realized gains decreased by $1,010,651 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statements of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
C. Bond Premiums-It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
D. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements.
E. Expenses-Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
F. Equalization-The Fund previously followed the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
repurchases of Fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
net income when the transaction is recorded so that the undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares. Effective November 1, 1997, the Fund discontinued equalization
accounting and reclassified the cumulative equalization credits of $893,847
from undistributed net investment income to paid-in capital.
12
CHARTER
<PAGE> 15
This change has no effect on the net assets, the results of operations or
the net asset value per share of the Fund.
G. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
H. Foreign Currency Contracts-A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
I. Stock Index Futures Contracts-The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the
Fund's basis in the contract. Risks include the possibility of an illiquid
market and that a change in the value of the contracts may not correlate
with changes in the value of the securities being hedged.
J. Covered Call Options-The fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option
was written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the
sale of the underlying security and the proceeds of the sale are increased
by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at such
earlier time at which the Fund effects a closing purchase transaction by
purchasing (at a price which may be higher than that received when the call
option was written) a call option identical to the one originally written.
K. Put options-The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking a minimum price at which the Fund can sell. If
security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.0% of
the first $30 million of the Fund's average daily net assets, plus 0.75% of the
Fund's average daily net assets in excess of $30 million to and including $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. AIM has agreed to voluntarily waive a portion of its advisory fees paid
by the Fund to AIM to the extent necessary to reduce the fees paid by the Fund
at net asset levels higher than those currently incorporated in the present
advisory fee schedule. Under the voluntary waiver, AIM will receive a fee
calculated at the annual rate of 1.0% of the first $30 million of the Fund's
average daily net assets, plus 0.75% of the Fund's average daily net assets in
excess of $30 million to and including $150 million, plus 0.625% of the Fund's
average daily net assets in excess of $150 million to and including $2 billion,
plus 0.60% of the Fund's average daily net assets in excess of $2 billion. The
waiver is entirely voluntary but approval is required by the Board of Directors
for any decision by AIM to discontinue the waiver. During the year ended October
31, 1998, AIM waived fees of $762,337. Under the terms of a master sub-advisory
agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM
pays AIM Capital 50% of the amount paid by the Fund to AIM.
13
CHARTER
<PAGE> 16
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1998, AIM was
reimbursed $152,008 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. On September 20, 1997, the Board of Directors
approved appointment of AFS as transfer agent of the Institutional Class
effective December 29, 1997. During the year ended October 31, 1998, AFS was
paid $4,080,187 with respect to the Class A, Class B, and Class C shares and for
the period December 29, 1997 through October 31, 1998, AFS was paid $3,312 with
respect to the Institutional Class. Prior to the effective date of the agreement
with AFS, the Fund paid A I M Institutional Fund Services, Inc. $583 pursuant to
a transfer agency and shareholder services agreement with respect to the
Institutional Class for the period November 1, 1997 through December 28, 1997.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.30% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of Class
A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the year ended
October 31, 1998, the Class A, Class B and Class C shares paid AIM Distributors
$11,101,044, $12,843,741, and $216,922, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $1,892,699 from sales of Class A
shares of the Fund during the year ended October 31, 1998. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1998,
AIM Distributors received commissions of $161,792 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, AIM Capital, AIM Distributors,
AFS, and FMC.
During the year ended October 31, 1998, the Fund paid legal fees of $12,926
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$52,292 and $187,576, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $239,868 during the year ended October 31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an
agreed-upon price and date. Proceeds from reverse repurchase agreements are
treated as borrowings. The agreements are collateralized by the underlying
securities and are carried at the amount at which the securities will
subsequently be repurchased as specified in the agreements. The maximum amount
outstanding during the period ended October 31, 1998 was $117,134,000 while
borrowings averaged $7,046,827 per day with a weighted average interest rate of
5.85%.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1998 was
$7,658,867,434 and $7,675,681,041, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $1,195,598,611
- --------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (60,184,443)
- --------------------------------------------------------------
Net unrealized appreciation of investment
securities $1,135,414,168
==============================================================
</TABLE>
Cost of investments for tax purposes is $4,087,070,679.
14
CHARTER
<PAGE> 17
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER
OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of Period 26,305 $ 5,836,484
- ---------------------------------------------------------------
Written 301,649 69,039,606
- ---------------------------------------------------------------
Closed (221,962) (55,174,709)
- ---------------------------------------------------------------
Exercised (31,495) (6,226,655)
- ---------------------------------------------------------------
Expired (43,295) (5,383,375)
- ---------------------------------------------------------------
End of period 31,202 $ 8,091,351
===============================================================
</TABLE>
Open call option contracts written at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
NUMBER 1998 UNREALIZED
CONTRACT STRIKE OF PREMIUMS MARKET APPRECIATION/
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
----- -------- ------ --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Associates First
Capital Corp.-Class A Nov $70 1,000 $ 595,980 $ 331,250 $ 264,730
- ------------------------------------------------------------------------------------------------------
Associates First
Capital Corp.-Class A Nov 75 1,000 520,983 150,000 370,983
- ------------------------------------------------------------------------------------------------------
Arterial Vascular
Engineering, Inc. Nov 35 4,500 586,057 323,437 262,620
- ------------------------------------------------------------------------------------------------------
CVS Corp Nov 43 1,500 623,762 553,125 70,637
- ------------------------------------------------------------------------------------------------------
Compaq Computer Corp. Nov 30 7,980 774,033 1,895,250 (1,121,217)
- ------------------------------------------------------------------------------------------------------
Ingram Micro, Inc. Nov 45 2,222 798,782 569,388 229,394
- ------------------------------------------------------------------------------------------------------
MCI WorldCom, Inc. Nov 55 2,500 539,357 414,063 125,294
- ------------------------------------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. Nov 50 2,500 648,728 859,375 (210,647)
- ------------------------------------------------------------------------------------------------------
Providian Financial
Corp. Nov 75 1,000 870,971 681,250 189,721
- ------------------------------------------------------------------------------------------------------
Providian Financial
Corp. Nov 80 1,500 893,970 571,875 322,095
- ------------------------------------------------------------------------------------------------------
SBC Communications, Inc. Nov 45 4,000 513,502 837,500 (323,998)
- ------------------------------------------------------------------------------------------------------
Warner-Lambert Co. Nov 70 1,500 725,226 1,293,750 (568,524)
- ------------------------------------------------------------------------------------------------------
$8,091,351 $8,480,263 $ (388,912)
======================================================================================================
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold
Class A 65,753,775 $868,543,898 64,563,425 $804,527,781
- --------------------------------------------------------------------------------
Class B 32,991,364 431,938,545 37,105,082 454,511,843
- --------------------------------------------------------------------------------
Class C* 2,736,777 36,139,093 437,883 6,069,012
- --------------------------------------------------------------------------------
Institutional Class 568,334 7,594,968 600,091 7,589,130
- --------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 29,328,588 355,378,824 16,507,011 181,612,880
- --------------------------------------------------------------------------------
Class B 8,807,895 105,930,618 3,210,439 35,080,359
- --------------------------------------------------------------------------------
Class C* 67,166 810,828 159 2,155
- --------------------------------------------------------------------------------
Institutional Class 351,483 4,295,496 193,613 2,149,460
- --------------------------------------------------------------------------------
Reacquired:
Class A (75,327,509) (988,726,895) (59,039,148) (738,440,414)
- --------------------------------------------------------------------------------
Class B (14,417,738) (187,443,571) (7,456,466) (92,300,267)
- --------------------------------------------------------------------------------
Class C* (376,288) (4,880,836) (14,629) (198,599)
- --------------------------------------------------------------------------------
Institutional Class (636,014) (8,425,955) (445,517) (5,490,877)
- --------------------------------------------------------------------------------
49,847,833 $621,155,013 55,661,943 $655,112,463
================================================================================
</TABLE>
* Class C commenced sales on August 4, 1997.
15
CHARTER
<PAGE> 18
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
capital stock outstanding during each of the years in the five-year period ended
October 31, 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.48 $ 11.24 $ 10.66 $ 8.93 $ 9.48
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.18 0.16 0.24 0.23 0.25
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 1.24 2.91 1.44 2.07 (0.44)
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Total from investment operations 1.42 3.07 1.68 2.30 (0.19)
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.14) (0.16) (0.20) (0.24) (0.20)
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Distributions from net realized gains (1.34) (0.67) (0.90) (0.33) (0.16)
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Total distributions (1.48) (0.83) (1.10) (0.57) (0.36)
- ------------------------------------------------------------ ------- ------- ------- ------- -------
Net asset value, end of period $ 13.42 $ 13.48 $ 11.24 $ 10.66 $ 8.93
============================================================ ======= ======= ======= ======= =======
Total return 11.69% 29.05% 17.29% 27.45% (2.02)%
============================================================ ======= ======= ======= ======= =======
Net assets, end of period (000s omitted) $43,815 $40,191 $29,591 $25,538 $21,840
============================================================ ======= ======= ======= ======= =======
Ratio of expenses (exclusive of interest) to average net
assets(a) 0.66%(b) 0.67% 0.69% 0.74% 0.73%
============================================================ ======= ======= ======= ======= =======
Ratio of net investment income to average net assets(c) 1.37%(b) 1.21% 2.24% 1.98% 2.76%
============================================================ ======= ======= ======= ======= =======
Portfolio turnover rate 154% 170% 164% 161% 126%
============================================================ ======= ======= ======= ======= =======
Borrowings for the period:
Amount of debt outstanding at end of period (000s omitted) -- -- -- -- --
============================================================ ======= ======= ======= ======= =======
Average amount of debt outstanding during the period (000s
omitted)(d) $ 60 -- -- -- --
============================================================ ======= ======= ======= ======= =======
Average number of shares outstanding during the period (000s
omitted)(d) 3,239 -- -- -- --
============================================================ ======= ======= ======= ======= =======
Average amount of debt per share during the period $0.0184 -- -- -- --
============================================================ ======= ======= ======= ======= =======
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.67%, 0.68% and 0.70% for 1998-1996.
(b) Ratios are based on average net assets of $42,933,721.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income prior to fee waivers and/or expense reimbursements were 1.36%, 1.20%
and 2.23% for 1998-1996.
(d) Averages computed on a daily basis.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of the AIM
Charter Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of
investments, as of October 31, 1998, the related statement of operations for the
year then ended, the statement of changes in net assets for each of the years in
the two-year period then ended and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Charter Fund as of October 31, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
five-year period then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
16
CHARTER
<PAGE> 19
Directors & Officers
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II SUB-ADVISOR
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Capital Management, Inc.
11 Greenway Plaza
Edward K. Dunn Jr. Jonathan C. Schoolar Suite 100
Chairman, Mercantile Mortgage Corp.; Senior Vice President Houston, TX 77046
Formerly Vice Chairman and President,
Mercantile-Safe Deposit & Trust Co.; and Dana R. Sutton TRANSFER AGENT
President, Mercantile Bankshares Vice President and Assistant Treasurer
A I M Fund Services, Inc.
Jack Fields Melville B. Cox P.O. Box 4739
Chief Executive Officer Vice President Houston, TX 77210-4739
Texana Global, Inc.;
Formerly Member Renee A. Friedli CUSTODIAN
of the U.S. House of Representatives Assistant Secretary
State Street Bank and Trust Company
Carl Frischling P. Michelle Grace 225 Franklin Street
Partner Assistant Secretary Boston, MA 02110
Kramer, Levin, Naftalis & Frankel
Jeffrey H. Kupor COUNSEL TO THE FUND
Robert H. Graham Assistant Secretary
President and Chief Executive Officer Ballard Spahr
A I M Management Group Inc. Nancy L. Martin Andrews & Ingersoll, LLP
Assistant Secretary 1735 Market Street
Prema Mathai-Davis Philadelphia, PA 19103
Chief Executive Officer, YWCA of the U.S.A.; Ofelia M. Mayo
Commissioner, New York City Dept. for the Assistant Secretary COUNSEL TO THE DIRECTORS
Aging; and member of the Board of Directors,
Metropolitan Transportation Authority of Lisa A. Moss Kramer, Levin, Naftalis & Frankel
New York State Assistant Secretary 919 Third Avenue
New York, NY 10022
Lewis F. Pennock Kathleen J. Pflueger
Attorney Assistant Secretary DISTRIBUTOR
Ian W. Robinson Samuel D. Sirko Fund Management Company
Consultant; Formerly Executive Assistant Secretary 11 Greenway Plaza
Vice President and Suite 100
Chief Financial Officer Stephen I. Winer Houston, TX 77002
Bell Atlantic Management Assistant Secretary
Services, Inc. AUDITORS
Mary J. Benson
Louis S. Sklar Assistant Treasurer KPMG Peat Marwick LLP
Executive Vice President 700 Louisiana
Hines Interests Houston, TX 77002
Limited Partnership
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Charter Fund Institutional Class paid ordinary dividends in the amount of
$0.9095 per share during the Fund's tax year ended October 31, 1998. Of this
amount 23.93% is eligible for the dividends received deduction for corporations.
The Fund also distributed long-term capital gains of $0.637 per share during the
Fund's tax year ended October 31, 1998.
REQUIRED STATE INCOME TAX INFORMATION
Of the total income dividends paid, 20.80% was derived from U.S. Treasury
obligations.
17
CHARTER
<PAGE> 20
LONG-TERM PERFORMANCE
AIM CONSTELLATION FUND
For shareholders who seek capital appreciation through investments in common
stocks, with emphasis on medium-size and smaller emerging growth companies.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Constellation Fund Institutional Class performance figures are
historical and reflect reinvestment of all distributions and changes in net
asset value.
o One-year performance includes reinvested distributions of $2.0964 per share.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of
the stock market in general. Results shown assume the reinvestment of
dividends.
o The Standard & Poor's 400 Mid-Cap Index is an unmanaged index comprising
common stocks of approximately 400 mid-capitalization companies.
o The NASDAQ (National Association of Securities Dealers Automated Quotation
system) Composite Index is a group of more than 4,500 unmanaged
over-the-counter securities widely regarded by investors to be
representative of the small- and medium-sized company stock universe.
o The Russell 2000 Stock Index is an unmanaged index generally considered
representative of small-capitalization stocks.
o The Dow Jones Industrial Average (the Dow) is a price-weighted average of 30
actively traded primarily industrial stocks.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
GROWTH OF A $10,000 INVESTMENT
4/8/92-10/31/98
- --------------------------------------------------------------------------------
AIM CONSTELLATION FUND, STANDARD & POOR'S 400 NASDAQ COMPOSITE
INSTITUTIONAL CLASS MIDCAP INDEX INDEX
- --------------------------------------------------------------------------------
In thousands
4/92 $10,000 $10,000 $10,000
10/92 10,797 10,291 10,023
10/93 13,938 12,499 12,907
10/94 15,045 12,798 12,877
10/95 20,173 15,509 17,160
10/96 22,556 18,191 20,231
10/97 26,936 24,130 26,394
10/98 26,438 25,745 29,339
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AIM Constellation Fund Institutional Class
Average Annual Total Returns
For periods ended 10/31/98
1 Year -1.85%
5 Years 13.66
Inception (4/8/92) 15.96
================================================================================
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
18
CONSTELLATION
<PAGE> 21
THE MANAGERS' OVERVIEW
RISK-AVERSE, VOLATILE MARKETS A CHALLENGE FOR FUND
A roundtable discussion with the Fund management team for AIM Constellation Fund
for the period ended October 31, 1998.
- --------------------------------------------------------------------------------
Q. IT WAS A HECTIC YEAR IN THE FINANCIAL MARKETS. HOW DID THE FUND PERFORM
DURING THE FISCAL YEAR?
A. Fund performance fluctuated considerably during a very volatile fiscal year
as markets vacillated between optimism that Asia's woes would be contained
and worry that they would become a major drag on the U.S. and other
economies. The Fund, like the entire mid-cap stock market, was hard hit
during a deep selloff in August. In October, the Fund rallied
strongly--rising more than 23% between October 8, when many markets hit
their low for the fiscal year, and the October 31 close of the fiscal year.
Despite this comeback, the Fund was unable to recoup its losses completely.
Total return for the fiscal year was -1.85%. Net assets stood at $189.0
million as of the close of the fiscal year.
Q. WHAT MADE MARKETS SO VOLATILE?
A. As the fiscal year opened, concern about Asia's financial difficulties was
widespread. The smaller and midsize company stocks in which the Fund invests
were especially out of favor as uneasy investors sought the relative safety
of blue-chip stocks. Markets rallied in the spring as investors seemed to
shrug off Asian worries. For the first half of the fiscal year, the Fund
produced impressive returns.
The latter half of the fiscal year was even more volatile. A much-noted
summer rally took many stock indexes to all-time highs by mid-July, but
mid-cap stocks did not really participate. For example, the S&P 400 Midcap
Stock Index was higher in mid-April than it was on July 17, when large-cap
indexes such as the Standard & Poor's 500 peaked.
In August, another wave of concern washed over markets. Its causes were
multiple: the seemingly intractable Asian downturn, a default on Russian
government debt, the collapse of some highly leveraged hedge funds, and
recognition that domestic corporate profit growth was slipping after several
years of robust growth.
Late in the fiscal year, amid evidence of a worldwide credit crunch, the
Federal Reserve Board (the Fed) shifted its focus from fighting inflation to
providing liquidity and supporting markets. In two steps, it lowered the
short-term target federal funds rate from 5.50% to 5.00%, and equity markets
rallied in response. From the Fed's second interest rate easing on October
15 through the close of the fiscal year, the Fund was up almost 9%. In the
short run at least, the Fed appeared to have assured investors that it would
intervene to forestall a recession.
Q. HOW DID YOU MANAGE THE FUND IN SUCH A CHANGEABLE ENVIRONMENT?
A. We stuck with our disciplined, earnings-driven stock selection process,
looking at the underlying fundamentals of individual companies, not the
overall market.
The portfolio changed considerably during the fiscal year. We
significantly pared our holdings in two areas. Energy sector stocks were
reduced from more than 9.00% of net assets to just 3.56% due to the steep
decline in oil and other commodity prices. Our holdings in semiconductors
are also down, from more than 8.00% of net assets to about 3.00%.
Semiconductor makers and equipment manufacturers had a tough year, as the
Asian financial crisis drove down demand for computers and components in
Southeast Asia.
Q. YOU ARE STILL HEAVILY INVESTED IN THE TECHNOLOGY SECTOR, HOWEVER, AREN'T YOU?
A. Yes, especially the computer software and services industry. The computer
glitch that requires reprogramming older computers and software to recognize
the year 2000 continues to provide opportunity. The worldwide cost of fixing
it could total between $300 billion and $600 billion, according to the
Gartner Group, Inc., a technology research firm. Computer know-how is also
crucial to the gradual conversion of European currencies to the euro
starting in 1999. Among the portfolio's software and services holdings is
Citrix Systems, Inc., which for three years running has been cited by
Deloitte &
---------------------------------
Because U.S. drug manufacturers
and distributors are not
heavily dependent on the
Asian and Latin American markets,
they may be relatively immune to
foreign turmoil and provide a
safe haven in the months ahead.
---------------------------------
19
CONSTELLATION
<PAGE> 22
THE MANAGERS' OVERVIEW
PORTFOLIO COMPOSITION
As of 10/31/98, based on total net assets
Number of Holdings: 266
<TABLE>
<CAPTION>
=============================================================================================
Top 10 Holdings Top 10 Industries
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. America Online, Inc. 1.54% 1. Computers (Software & Services) 10.97%
2. Ascend Communications, Inc. 1.31 2. Health Care
(Medical Products & Supplies) 5.07
3. BMC Software, Inc. 1.30
3. Services (Data Processing) 4.36
4. Dell Computer Corp. 1.22
4. Health Care
5. Staples, Inc. 1.20 (Drugs-Generic & Other) 3.11
6. EMC Corp. 1.19 5. Electronics (Semiconductors) 3.05
7. Nokia Oyj A.B. - Class A - ADR 1.16 6. Computers (Hardware) 2.94
8. Becton, Dickinson & Co. 1.14 7. Services
(Commercial & Consumer) 2.92
9. Kroger Co. 1.13
8. Communications Equipment 2.78
10. Cardinal Health, Inc. 1.06
9. Health Care
(Specialized Services) 2.77
10. Distributors (Food & Health) 2.70
Please keep in mind that the Fund's portfolio composition is subject to change
and there is no assurance the Fund will continue to hold any particular
security.
=============================================================================================
</TABLE>
Touche as one of the fastest-growing technology companies in the country.
Of course, we don't limit ourselves to the software side. Hardware
holdings include PMC-Sierra Inc., which produces high-performance
semiconductor components for the broadband and high-bandwidth communications
network industries; and printer maker Lexmark International, recently ranked
among the top 10 best-performing information technology companies by
Business Week.
Q. RETAILERS ARE WELL REPRESENTED IN THE PORTFOLIO, TOO. WHY?
A. While some voiced concern about retailers as consumer confidence declined
late in the fiscal year, the retailers in the portfolio held up well. For
example, the discount retail category, which includes portfolio holdings
such as Bed Bath & Beyond Inc., reported a 6.1% increase in same-store sales
during October. Specialty apparel retailers such as Abercrombie & Fitch Co.
did even better--same store sales for that category were up 7.3%. As always,
we seek out the best earnings stories we can find. One of our major holdings
in the retail industry is the office-products specialist Staples, Inc. This
company recently announced its 17th consecutive quarter of earnings per
share growth above 30%.
Q. YOU ALSO CONTINUE TO HOLD A LOT OF HEALTH-CARE STOCKS. WHAT MAKES THAT
SECTOR ATTRACTIVE?
A. At the close of the fiscal year, many of our health-care holdings were in
the medical products and pharmaceuticals industries. We trimmed our exposure
to less promising industries such as HMOs and hospital management. Because
U.S. drug manufacturers and distributors are not heavily dependent on the
Asian and Latin American markets, they may be relatively immune to foreign
turmoil and provide a safe haven in the months ahead. Their strong earnings
growth is expected to continue.
Holdings in this area include Becton, Dickinson & Co., whose products
include drug injection and blood collection devices; and Cardinal Health,
Inc., the second largest wholesaler of pharmaceuticals in the U.S. Cardinal
expands its wholesaler role by providing support services such as
computerized order entry and confirmation systems, and consulting services
on design and operation of drug stores.
Q. WHAT IS YOUR NEAR-TERM OUTLOOK ON THE ECONOMY?
A. We are optimistic that the U.S. will avoid a recession in 1999. The economy
will likely experience annual gross domestic product growth in the 1.50% to
2.00% range, so low inflation and low interest rates should continue. The
challenge will be earnings. With global markets in or near recession and the
U.S. economy expanding more slowly, companies will be sorely tested to keep
earnings advancing. There is, clearly, added risk until the Asian and Latin
American situations stabilize.
Q. AND WHAT DO YOU THINK ABOUT THE MID-CAP MARKET SECTOR WHERE THE FUND
INVESTS?
A. We believe there are several reasons for optimism about mid-cap stocks.
First, for the quarter ended September 30, 1998, reported earnings
growth for companies in the portfolio averaged more than 25% over the same
period last year, and such double-digit growth is projected for the next
year. By contrast, average earnings growth for the large-cap stocks in the
S&P 500 was negative for the September 30 quarter end.
Second, valuations of the stocks in the midcap sector are significantly
lower than in the large-cap sector. These midcap stocks also offer some
refuge from Asian woes because they tend to have less international
exposure.
Finally, historically, smaller company stocks do better than
large-company stocks when the Fed eases monetary policy, and we were
encouraged to note that this was true after the Fed began lowering interest
rates. Though one month is much too short a period in which to identify a
market trend, from the Fed's first interest rate cut September 29 through
the October 31 close of the fiscal year, midcaps did outperform large caps,
with the S&P 400 advancing 6.85% while the large-cap S&P 500 rose 4.84%. Of
course, a favorable environment for smaller-company stocks is always good
for AIM Constellation Fund.
20
CONSTELLATION
<PAGE> 23
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-91.01%
AEROSPACE/DEFENSE-0.60%
AAR Corp. 1,000,000 $ 23,125,000
- ---------------------------------------------------------------
BE Aerospace, Inc.(a) 500,000 10,750,000
- ---------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 400,000 17,700,000
- ---------------------------------------------------------------
Sundstrand Corp. 557,400 26,162,963
- ---------------------------------------------------------------
77,737,963
- ---------------------------------------------------------------
AIRLINES-0.15%
Southwest Airlines Co. 900,000 19,068,750
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.39%
Danaher Corp. 1,250,000 49,921,875
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.29%
Northern Trust Corp. 500,000 36,875,000
- ---------------------------------------------------------------
BANKS (REGIONAL)-2.54%
AmSouth Bancorporation 750,000 30,046,875
- ---------------------------------------------------------------
First Tennessee National Corp. 510,200 16,166,963
- ---------------------------------------------------------------
Golden State Bancorp, Inc.(a) 1,350,000 25,903,125
- ---------------------------------------------------------------
Hibernia Corp.-Class A 1,250,000 20,859,375
- ---------------------------------------------------------------
Mercantile Bankshares Corp. 500,000 16,312,500
- ---------------------------------------------------------------
North Fork Bancorporation, Inc. 2,500,000 49,687,500
- ---------------------------------------------------------------
Star Banc Corp. 1,575,000 119,109,375
- ---------------------------------------------------------------
TCF Financial Corp. 1,000,000 23,562,500
- ---------------------------------------------------------------
Zions Bancorp 500,000 26,531,250
- ---------------------------------------------------------------
328,179,463
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.71%
Biogen, Inc.(a) 1,000,000 69,500,000
- ---------------------------------------------------------------
Curative Health Services,
Inc.(a)(b) 795,000 21,663,750
- ---------------------------------------------------------------
91,163,750
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-2.08%
Chancellor Media Corp.(a) 280,002 10,745,077
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 800,000 36,450,000
- ---------------------------------------------------------------
Comcast Corp.-Class A 1,500,000 74,062,500
- ---------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 500,000 27,437,500
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(a) 501,000 20,603,625
- ---------------------------------------------------------------
Liberty Media Group(a) 1,500,000 57,093,750
- ---------------------------------------------------------------
Univision Communications Inc.(a) 1,465,400 43,229,300
- ---------------------------------------------------------------
269,621,752
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-1.49%
Andrew Corp.(a) 563,400 $ 9,225,675
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 850,000 39,100,000
- ---------------------------------------------------------------
General Instrument Corp.(a) 2,000,000 51,375,000
- ---------------------------------------------------------------
Global TeleSystems Group, Inc.(a) 1,176,400 47,129,525
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 586,000 32,596,250
- ---------------------------------------------------------------
Tellabs, Inc.(a) 250,000 13,750,000
- ---------------------------------------------------------------
193,176,450
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-2.94%
Apple Computer, Inc.(a) 750,000 27,843,750
- ---------------------------------------------------------------
Comdisco, Inc. 4,200,000 64,837,500
- ---------------------------------------------------------------
Dell Computer Corp.(a) 2,400,000 157,500,000
- ---------------------------------------------------------------
Gateway 2000, Inc.(a) 1,500,000 83,718,750
- ---------------------------------------------------------------
IDX Systems Corp.(a) 670,800 28,425,150
- ---------------------------------------------------------------
Micron Electronics, Inc.(a) 884,000 18,508,750
- ---------------------------------------------------------------
380,833,900
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-2.54%
Ascend Communications, Inc.(a) 3,500,000 168,875,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 525,000 33,075,000
- ---------------------------------------------------------------
3Com Corp.(a) 3,500,000 126,218,750
- ---------------------------------------------------------------
328,168,750
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-2.11%
Adaptec, Inc.(a) 987,500 15,985,156
- ---------------------------------------------------------------
EMC Corp.(a) 2,400,000 154,500,000
- ---------------------------------------------------------------
Lexmark International Group,
Inc.(a) 1,000,000 69,937,500
- ---------------------------------------------------------------
Seagate Technology , Inc.(a) 1,250,000 32,968,750
- ---------------------------------------------------------------
273,391,406
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-10.97%
America Online, Inc. 1,564,700 198,814,693
- ---------------------------------------------------------------
Aspect Development, Inc.(a) 976,000 30,835,500
- ---------------------------------------------------------------
BMC Software, Inc.(a) 3,500,000 168,218,750
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 1,250,000 26,718,750
- ---------------------------------------------------------------
Citrix Systems, Inc.(a) 1,500,000 106,312,500
- ---------------------------------------------------------------
Computer Sciences Corp.(a) 750,000 39,562,500
- ---------------------------------------------------------------
Compuware Corp.(a) 2,500,000 135,468,750
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 4,780,100 136,232,850
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 500,000 20,562,500
- ---------------------------------------------------------------
HBO & Co. 1,000,000 26,250,000
- ---------------------------------------------------------------
Intuit, Inc.(a) 725,000 36,612,500
- ---------------------------------------------------------------
J.D. Edwards & Co.(a) 1,050,000 $ 34,387,500
- ---------------------------------------------------------------
</TABLE>
21
CONSTELLATION
<PAGE> 24
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Learning Company, Inc. (The)(a) 2,000,000 $ 51,625,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 300,000 31,762,500
- ---------------------------------------------------------------
Network Associates, Inc.(a) 704,700 29,949,750
- ---------------------------------------------------------------
Parametric Technology Co.(a) 2,500,000 41,562,500
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 1,450,000 51,112,500
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 1,250,000 32,734,375
- ---------------------------------------------------------------
Synopsys, Inc.(a) 1,500,000 67,875,000
- ---------------------------------------------------------------
Veritas Software Corp.(a) 859,700 43,092,463
- ---------------------------------------------------------------
Wind River Systems(a) 1,000,000 43,812,500
- ---------------------------------------------------------------
Yahoo! Inc.(a) 500,000 65,421,875
- ---------------------------------------------------------------
1,418,925,256
- ---------------------------------------------------------------
CONSUMER FINANCE-2.28%
Capital One Financial Corp. 800,000 81,400,000
- ---------------------------------------------------------------
Countrywide Credit Industries, Inc. 636,900 27,506,118
- ---------------------------------------------------------------
MBNA Corp. 1,875,000 42,773,438
- ---------------------------------------------------------------
Providian Financial Corp. 1,304,000 103,505,000
- ---------------------------------------------------------------
SLM Holding Corp. 1,000,000 40,062,500
- ---------------------------------------------------------------
295,247,056
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.30%
Action Performance Companies,
Inc.(a) 500,000 14,937,500
- ---------------------------------------------------------------
Blyth Industries, Inc.(a) 806,200 22,271,275
- ---------------------------------------------------------------
37,208,775
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-2.70%
Bergen Brunswig Corp.-Class A 1,000,000 48,812,500
- ---------------------------------------------------------------
Cardinal Health, Inc. 1,445,445 136,684,892
- ---------------------------------------------------------------
JP Foodservice, Inc. 547,900 26,025,250
- ---------------------------------------------------------------
McKesson Corp. 1,422,400 109,524,800
- ---------------------------------------------------------------
Patterson Dental Co.(a) 18,500 763,125
- ---------------------------------------------------------------
SUPERVALU, INC 1,125,900 27,021,600
- ---------------------------------------------------------------
348,832,167
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.55%
American Power Conversion
Corp.(a) 2,000,000 84,875,000
- ---------------------------------------------------------------
Sanmina Corp.(a) 387,400 15,883,400
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 1,000,000 39,500,000
- ---------------------------------------------------------------
Solectron Corp.(a) 1,500,000 85,875,000
- ---------------------------------------------------------------
Symbol Technologies, Inc. 1,750,000 78,312,500
- ---------------------------------------------------------------
Uniphase Corp.(a) 500,000 24,750,000
- ---------------------------------------------------------------
329,195,900
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.17%
Arrow Electronics, Inc.(a) 1,000,000 21,812,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS (INSTRUMENTATION)-0.40%
Perkin-Elmer Corp. 176,300 $ 14,864,293
- ---------------------------------------------------------------
Waters Corp.(a) 500,000 36,750,000
- ---------------------------------------------------------------
51,614,293
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-3.05%
Altera Corp.(a) 1,321,400 55,003,275
- ---------------------------------------------------------------
Linear Technology Corp. 1,000,000 59,625,000
- ---------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 2,000,000 71,375,000
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 2,500,175 67,660,985
- ---------------------------------------------------------------
Micron Technology, Inc.(a) 1,750,000 66,500,000
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 1,000,000 44,875,000
- ---------------------------------------------------------------
Xilinx, Inc.(a) 650,000 29,026,563
- ---------------------------------------------------------------
394,065,823
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.57%
FINOVA Group, Inc. 706,400 34,437,000
- ---------------------------------------------------------------
MGIC Investment Corp. 1,000,000 39,000,000
- ---------------------------------------------------------------
73,437,000
- ---------------------------------------------------------------
FOODS-0.36%
Earthgrains Co. (The) 260,300 7,809,000
- ---------------------------------------------------------------
Quaker Oats Co. (The) 650,000 38,390,625
- ---------------------------------------------------------------
46,199,625
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.30%
Alpharma, Inc. 254,967 7,059,399
- ---------------------------------------------------------------
Forest Laboratories, Inc.(a) 750,000 31,359,375
- ---------------------------------------------------------------
Jones Medical Industries, Inc.(b) 2,350,850 75,961,840
- ---------------------------------------------------------------
Medicis Pharmaceutical-Class
A(a) 826,900 41,448,363
- ---------------------------------------------------------------
Mylan Laboratories, Inc. 2,500,000 86,093,750
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 1,000,000 55,625,000
- ---------------------------------------------------------------
297,547,727
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.31%
Health Management Associates,
Inc.-Class A(a) 4,500,045 80,157,051
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a)(b) 1,750,000 89,796,875
- ---------------------------------------------------------------
169,953,926
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.47%
HCR Manor Care, Inc.(a) 751,700 24,430,250
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 3,000,000 36,375,000
- ---------------------------------------------------------------
60,805,250
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.84%
Express Scripts, Inc.-Class A(a)(b) 700,000 68,381,250
- ---------------------------------------------------------------
PacifiCare Health Systems,
Inc.-Class B(a) 150,000 11,812,500
- ---------------------------------------------------------------
</TABLE>
22
CONSTELLATION
<PAGE> 25
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MANAGED CARE)-(CONTINUED)
Trigon Healthcare, Inc.(a) 750,000 $ 28,125,000
- ---------------------------------------------------------------
108,318,750
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-5.07%
Allegiance Corp. 2,540,400 94,471,125
- ---------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a) 1,000,000 30,750,000
- ---------------------------------------------------------------
Bausch & Lomb Inc. 59,700 2,488,743
- ---------------------------------------------------------------
Becton, Dickinson & Co. 3,500,000 147,437,500
- ---------------------------------------------------------------
Biomet, Inc. 2,500,000 84,843,750
- ---------------------------------------------------------------
Boston Scientific Corp.(a)(c) 750,000 40,828,125
- ---------------------------------------------------------------
Guidant Corp. 1,708,500 130,700,250
- ---------------------------------------------------------------
Henry Schein, Inc.(a) 900,000 34,818,750
- ---------------------------------------------------------------
Safeskin Corp.(a) 362,100 8,011,462
- ---------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 500,000 50,812,500
- ---------------------------------------------------------------
Sybron International Corp.(a) 1,250,000 30,937,500
- ---------------------------------------------------------------
656,099,705
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-2.77%
Alza Corp.(a) 1,200,000 57,450,000
- ---------------------------------------------------------------
Covance, Inc.(a) 1,609,600 44,867,600
- ---------------------------------------------------------------
Lincare Holdings, Inc.(a) 1,000,000 39,937,500
- ---------------------------------------------------------------
Omnicare, Inc. 2,950,100 101,962,832
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 524,200 9,927,037
- ---------------------------------------------------------------
Quintiles Transnational Corp.(a) 1,000,000 45,250,000
- ---------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 2,417,933 59,239,358
- ---------------------------------------------------------------
358,634,327
- ---------------------------------------------------------------
HOMEBUILDING-0.69%
Clayton Homes, Inc. 3,090,000 47,701,875
- ---------------------------------------------------------------
Fleetwood Enterprises, Inc. 750,000 24,187,500
- ---------------------------------------------------------------
Kaufman and Broad Home Corp. 616,900 17,620,206
- ---------------------------------------------------------------
89,509,581
- ---------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES-0.65%
Leggett & Platt, Inc. 2,000,000 46,750,000
- ---------------------------------------------------------------
Maytag Corp. 750,000 37,078,125
- ---------------------------------------------------------------
83,828,125
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.35%
Clorox Co. 300,000 32,775,000
- ---------------------------------------------------------------
Dial Corp. (The) 450,900 12,427,931
- ---------------------------------------------------------------
45,202,931
- ---------------------------------------------------------------
HOUSEWARES-0.17%
Central Garden and Pet Co.(a) 485,500 9,588,625
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEWARES-(CONTINUED)
Helen of Troy Ltd.(a) 846,400 $ 12,590,200
- ---------------------------------------------------------------
22,178,825
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.16%
AFLAC Inc. 925,000 35,265,625
- ---------------------------------------------------------------
Provident Companies, Inc. 1,500,000 43,593,750
- ---------------------------------------------------------------
ReliaStar Financial Corp. 1,502,500 65,828,281
- ---------------------------------------------------------------
Torchmark Corp. 129,200 5,652,500
- ---------------------------------------------------------------
150,340,156
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.11%
Progressive Corp. 96,800 14,253,800
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-1.04%
Edwards (A.G.), Inc. 750,000 25,921,875
- ---------------------------------------------------------------
Lehman Brothers Holdings, Inc. 350,000 13,278,125
- ---------------------------------------------------------------
Schwab (Charles) Corp. 2,000,000 95,875,000
- ---------------------------------------------------------------
135,075,000
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.46%
T. Rowe Price Associates, Inc. 1,658,600 58,983,963
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.77%
Harley-Davidson, Inc. 2,350,000 91,062,500
- ---------------------------------------------------------------
Speedway Motorsports, Inc.(a) 400,000 8,400,000
- ---------------------------------------------------------------
99,462,500
- ---------------------------------------------------------------
LODGING-HOTELS-0.10%
Host Marriott Corp.(a) 896,000 12,992,000
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.02%
Applied Power, Inc.-Class A 95,000 2,618,438
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.76%
Corning Inc. 1,000,000 36,312,500
- ---------------------------------------------------------------
Crane Co. 464,550 13,384,846
- ---------------------------------------------------------------
Hillenbrand Industries, Inc. 500,000 29,593,750
- ---------------------------------------------------------------
Pentair, Inc. 500,000 18,812,500
- ---------------------------------------------------------------
98,103,596
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.15%
Avery Dennison Corp. 471,000 19,517,063
- ---------------------------------------------------------------
NATURAL GAS-0.80%
El Paso Energy Corp. 1,500,000 53,156,250
- ---------------------------------------------------------------
KN Energy, Inc. 1,000,000 49,687,500
- ---------------------------------------------------------------
102,843,750
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.27%
Herman Miller, Inc. 1,100,000 24,268,750
- ---------------------------------------------------------------
</TABLE>
23
CONSTELLATION
<PAGE> 26
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OFFICE EQUIPMENT & SUPPLIES-(CONTINUED)
HON INDUSTRIES, Inc. 529,000 $ 11,208,187
- ---------------------------------------------------------------
35,476,937
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-2.04%
Baker Hughes, Inc. 2,000,000 44,125,000
- ---------------------------------------------------------------
BJ Services Co.(a) 1,500,000 30,656,250
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 1,500,000 52,125,000
- ---------------------------------------------------------------
Diamond Offshore Drilling, Inc. 1,000,000 30,687,500
- ---------------------------------------------------------------
Global Industries Ltd.(a) 2,450,000 23,581,250
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 2,000,000 29,125,000
- ---------------------------------------------------------------
Transocean Offshore Inc. 500,000 18,468,750
- ---------------------------------------------------------------
Varco International, Inc.(a)(b) 3,225,000 34,870,312
- ---------------------------------------------------------------
263,639,062
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.44%
Apache Corp. 1,500,000 42,468,750
- ---------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 1,750,000 14,218,750
- ---------------------------------------------------------------
56,687,500
- ---------------------------------------------------------------
PERSONAL CARE-0.26%
Rexall Sundown, Inc.(a) 1,891,800 33,934,163
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.32%
AES Corp.(a) 1,000,000 40,937,500
- ---------------------------------------------------------------
PUBLISHING-0.38%
McGraw-Hill Companies, Inc.
(The) 550,000 49,465,625
- ---------------------------------------------------------------
RAILROADS-0.37%
Kansas City Southern Industries,
Inc. 1,250,000 48,281,250
- ---------------------------------------------------------------
RESTAURANTS-1.58%
Brinker International, Inc.(a) 2,000,000 48,375,000
- ---------------------------------------------------------------
Outback Steakhouse, Inc.(a) 1,125,000 38,953,125
- ---------------------------------------------------------------
Papa John's International, Inc.(a) 689,300 26,171,859
- ---------------------------------------------------------------
Starbucks Corp.(a) 1,000,000 43,375,000
- ---------------------------------------------------------------
Tricon Global Restaurants, Inc.(a) 1,100,000 47,850,000
- ---------------------------------------------------------------
204,724,984
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.33%
Lowe's Companies, Inc. 1,250,000 42,109,375
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.90%
Best Buy Co., Inc.(a) 500,000 24,000,000
- ---------------------------------------------------------------
CDW Computer Centers, Inc.(a) 1,000,000 74,937,500
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 750,000 34,125,000
- ---------------------------------------------------------------
Tandy Corp. 1,250,000 61,953,125
- ---------------------------------------------------------------
Tech Data Corp.(a) 1,299,300 51,159,938
- ---------------------------------------------------------------
246,175,563
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DEPARTMENT STORES)-0.46%
Kohl's Corp.(a) 1,250,000 $ 59,765,625
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.27%
Consolidated Stores Corp.(a) 1,000,000 16,437,500
- ---------------------------------------------------------------
Dollar General Corp. 1,000,000 23,875,000
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 1,810,600 69,821,262
- ---------------------------------------------------------------
Family Dollar Stores, Inc. 2,100,000 38,062,500
- ---------------------------------------------------------------
Ross Stores, Inc. 500,000 16,250,000
- ---------------------------------------------------------------
164,446,262
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.80%
Rite Aid Corp. 2,600,040 103,189,088
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.62%
Kroger Co.(a) 2,637,400 146,375,700
- ---------------------------------------------------------------
Safeway, Inc.(a) 1,325,000 63,351,563
- ---------------------------------------------------------------
209,727,263
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.86%
Dayton Hudson Corp. 750,000 31,781,250
- ---------------------------------------------------------------
Fred Meyer, Inc.(a) 1,500,000 79,968,750
- ---------------------------------------------------------------
111,750,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-2.60%
Bed Bath & Beyond, Inc.(a) 2,750,100 75,799,631
- ---------------------------------------------------------------
Linens 'N Things, Inc.(a) 285,300 8,826,468
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 1,000,000 20,000,000
- ---------------------------------------------------------------
Office Depot, Inc.(a) 2,000,000 50,000,000
- ---------------------------------------------------------------
Staples, Inc.(a) 4,750,000 154,968,750
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 1,000,000 27,250,000
- ---------------------------------------------------------------
336,844,849
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.53%
Abercrombie & Fitch Co.-Class A(a) 795,000 31,551,563
- ---------------------------------------------------------------
Gap, Inc. (The) 1,000,000 60,125,000
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a)(b) 2,250,075 54,564,318
- ---------------------------------------------------------------
TJX Companies, Inc. 2,700,000 51,131,250
- ---------------------------------------------------------------
197,372,131
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.72%
Dime Bancorp, Inc. 2,541,500 60,519,469
- ---------------------------------------------------------------
GreenPoint Financial Corp. 1,000,000 32,812,500
- ---------------------------------------------------------------
93,331,969
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.89%
Interpublic Group of Companies,
Inc. 500,000 29,250,000
- ---------------------------------------------------------------
Lamar Advertising Co.(a) 450,000 14,048,439
- ---------------------------------------------------------------
Omnicom Group, Inc. 2,500,000 123,593,750
- ---------------------------------------------------------------
</TABLE>
24
CONSTELLATION
<PAGE> 27
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING)-(CONTINUED)
Outdoor Systems, Inc.(a) 1,500,000 $ 33,093,750
- ---------------------------------------------------------------
Snyder Communications, Inc.(a) 1,250,000 44,609,375
- ---------------------------------------------------------------
244,595,314
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-2.92%
Apollo Group, Inc.(a) 1,000,000 32,125,000
- ---------------------------------------------------------------
ChoicePoint, Inc.(a) 467,300 22,079,926
- ---------------------------------------------------------------
Cintas Corp. 1,315,900 70,400,650
- ---------------------------------------------------------------
G & K Services, Inc.-Class A 350,000 16,012,500
- ---------------------------------------------------------------
IMS Health Inc. 677,000 45,020,500
- ---------------------------------------------------------------
Service Corp. International 2,626,500 93,569,062
- ---------------------------------------------------------------
Stewart Enterprises, Inc.- Class A 2,600,000 59,962,500
- ---------------------------------------------------------------
Viad Corp. 1,382,400 37,929,600
- ---------------------------------------------------------------
377,099,738
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.23%
Ciber, Inc.(a) 500,000 9,812,500
- ---------------------------------------------------------------
Gartner Group, Inc.-Class A(a) 1,300,000 25,837,500
- ---------------------------------------------------------------
Keane, Inc.(a) 1,050,000 34,912,500
- ---------------------------------------------------------------
Policy Management Systems Corp.(a) 474,400 21,555,550
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 2,000,000 67,500,000
- ---------------------------------------------------------------
159,618,050
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-4.36%
Affiliated Computer Services,
Inc.(a) 1,000,000 37,000,000
- ---------------------------------------------------------------
Billing Concepts Corp.(a) 1,596,800 22,554,800
- ---------------------------------------------------------------
Ceridian Corp.(a) 1,300,000 74,587,500
- ---------------------------------------------------------------
CSG Systems International, Inc.(a) 903,100 49,218,950
- ---------------------------------------------------------------
DST Systems, Inc.(a) 750,000 37,500,000
- ---------------------------------------------------------------
Equifax, Inc. 1,750,000 67,703,125
- ---------------------------------------------------------------
Fiserv, Inc.(a) 2,500,000 116,250,000
- ---------------------------------------------------------------
National Data Corp. 1,000,200 33,881,775
- ---------------------------------------------------------------
NOVA Corp.(a) 893,750 25,807,032
- ---------------------------------------------------------------
Paychex, Inc. 2,000,000 99,500,000
- ---------------------------------------------------------------
564,003,182
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.23%
Robert Half International, Inc.(a) 750,000 30,093,750
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.23%
Valassis Communications, Inc.(a) 750,000 29,906,250
- ---------------------------------------------------------------
TELEPHONE-0.86%
Century Telephone Enterprises,
Inc. 1,499,950 85,215,909
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 1,000,000 25,937,500
- ---------------------------------------------------------------
111,153,409
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-0.61%
Jones Apparel Group, Inc.(a) 1,250,000 $ 21,562,500
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 1,000,000 20,687,500
- ---------------------------------------------------------------
Russell Corp. 912,900 22,423,107
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 300,000 13,931,250
- ---------------------------------------------------------------
78,604,357
- ---------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.22%
Shaw Industries, Inc. 1,650,000 28,668,750
- ---------------------------------------------------------------
WASTE MANAGEMENT-1.53%
Allied Waste Industries, Inc.(a) 2,693,230 58,241,099
- ---------------------------------------------------------------
Republic Services, Inc.(a) 1,225,000 26,796,876
- ---------------------------------------------------------------
Waste Management, Inc. 2,500,000 112,812,501
- ---------------------------------------------------------------
197,850,476
- ---------------------------------------------------------------
Total Domestic Common Stocks
(Cost $8,593,150,443) 11,770,399,289
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-2.90%
CANADA-0.41%
CanWest Global Communications Corp.
(Broadcasting-Television,
Radio & Cable) 1,500,000 17,531,250
- ---------------------------------------------------------------
Newcourt Credit Group, Inc.
(Financial-Diversified) 1,087,500 35,751,562
- ---------------------------------------------------------------
53,282,812
- ---------------------------------------------------------------
FINLAND-1.16%
Nokia Oyj A.B.-Class A-ADR
(Communications Equipment) 1,610,300 149,858,544
- ---------------------------------------------------------------
FRANCE-0.09%
Coflexip S.A.-ADR
(Manufacturing-Specialized) 239,500 11,525,938
- ---------------------------------------------------------------
IRELAND-0.81%
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 1,500,000 105,093,750
- ---------------------------------------------------------------
ISRAEL-0.13%
ECI Telecommunications Ltd.
(Communications Equipment) 500,000 16,562,500
- ---------------------------------------------------------------
NETHERLANDS-0.14%
Core Laboratories N.V. (Oil &
Gas-Drilling & Equipment)(a) 800,000 18,050,000
- ---------------------------------------------------------------
UNITED KINGDOM-0.16%
Stolt Comex Seaway, S.A. (Oil &
Gas-Exploration
& Production)(a)(b) 1,150,000 14,662,500
- ---------------------------------------------------------------
</TABLE>
25
CONSTELLATION
<PAGE> 28
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Stolt Comex Seaway, S.A. - ADR
(Oil & Gas-Exploration &
Production)(a) 575,000 $ 5,929,687
- ---------------------------------------------------------------
20,592,187
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$240,390,852) 374,965,731
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS-0.39%
COMPUTERS (PERIPHERALS)-0.39%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 (Cost
$23,700,075) $ 17,500,000 50,553,125
- ---------------------------------------------------------------
SHARES
WARRANTS-0.04%
BANKS (REGIONAL)-0.04%
Golden State Bancorp,
Litigation Wts., expiring
01/01/01 (Cost $5,682,639) 1,000,000 4,875,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
MASTER NOTE AGREEMENT-1.00%
Merrill Lynch Co. Inc.,
5.9675%(d)(Cost $129,000,000) $129,000,000 $ 129,000,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-3.28%(e)
Dresdner Kleinwort, Benson,
North America LLC, 5.55%,
11/02/98(f) $ 9,350,759 $ 9,350,759
- ---------------------------------------------------------------
Goldman, Sachs & Co., 5.55%,
11/02/98(g) 115,090,451 115,090,451
- ---------------------------------------------------------------
Salomon Smith Barney, Inc.,
5.55%(h) 300,000,000 300,000,000
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $424,441,210) 424,441,210
- ---------------------------------------------------------------
TIME DEPOSITS-2.09%
Societe Generale Bank, 5.25%,
11/02/98 108,141,977 108,141,977
- ---------------------------------------------------------------
State Street Cayman, 5.00%,
11/02/98 161,909,549 161,909,549
- ---------------------------------------------------------------
Total Time Deposits (Cost
$270,051,526) 270,051,526
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.71% 13,024,285,881
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.71%) (91,205,266)
- ---------------------------------------------------------------
NET ASSETS-100.00% $12,933,080,615
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. The aggregate market value of these securities as of 10/31/98
was $359,900,845 which represented 2.78% of the Fund's net assets.
(c) A portion of this security is subject to call options written. See Note 8.
(d) Master Note Purchase Agreement may be terminated by either party upon two
business days' prior written notice, at which time all amounts outstanding
under notes purchased under the Master Note Agreement will become payable.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on 10/31/98.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$300,138,750. Collateralized by $485,457,284 U.S. Government obligations, 0%
to 8.50% due 01/07/99 to 08/01/37 with an aggregate market value at 10/31/98
of $306,003,830.
(g) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$277,128,113. Collateralized by $273,207,000 U.S. Government obligations
5.00% to 9.40% due 11/10/98 to 12/15/43 with an aggregate market value at
10/31/98 of $282,540,300.
(h) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates are redetermined daily. Collateralized by
$1,159,504,000 U.S. Government obligations 0% to 10.70% due 11/01/98 to
07/15/45 with an aggregate market value at 10/31/98 of $1,020,000,062.
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Sub. - Subordinated
Wts. - Warrants
See Notes to Financial Statements.
26
CONSTELLATION
<PAGE> 29
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$9,686,416,745) $13,024,285,881
- ------------------------------------------------------------
Receivables for:
Investments sold 81,487,021
- ------------------------------------------------------------
Capital stock sold 25,412,005
- ------------------------------------------------------------
Dividends and interest 2,838,985
- ------------------------------------------------------------
Investment for deferred compensation plan 142,702
- ------------------------------------------------------------
Other assets 20,271
- ------------------------------------------------------------
Total assets 13,134,186,865
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 131,879,165
- ------------------------------------------------------------
Capital stock reacquired 53,735,073
- ------------------------------------------------------------
Deferred compensation 142,702
- ------------------------------------------------------------
Options written (premiums received
$357,644) 210,938
- ------------------------------------------------------------
Accrued advisory fees 6,134,883
- ------------------------------------------------------------
Accrued administrative services fees 26,319
- ------------------------------------------------------------
Accrued directors' fees 6,500
- ------------------------------------------------------------
Accrued distribution fees 4,590,417
- ------------------------------------------------------------
Accrued transfer agent fees 3,529,174
- ------------------------------------------------------------
Accrued operating expenses 851,079
- ------------------------------------------------------------
Total liabilities 201,106,250
- ------------------------------------------------------------
Net assets applicable to shares outstanding $12,933,080,615
============================================================
NET ASSETS:
Class A $12,391,844,029
============================================================
Class B $ 275,675,564
============================================================
Class C $ 76,521,669
============================================================
Institutional Class $ 189,039,353
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 470,007,075
============================================================
Class B:
Authorized 1,000,000,000
- ------------------------------------------------------------
Outstanding 10,558,108
============================================================
Class C:
Authorized 750,000,000
- ------------------------------------------------------------
Outstanding 2,931,610
============================================================
Institutional Class:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 6,936,768
============================================================
Class A:
Net asset value and redemption price per
share $ 26.37
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $26.37
divided by 94.50%) $ 27.90
============================================================
Class B:
Net asset value and offering price per
share $ 26.11
============================================================
Class C:
Net asset value and offering price per
share $ 26.10
============================================================
Institutional Class:
Net asset value, offering and redemption
price per share $ 27.25
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $564,597 foreign
withholding tax) $ 40,677,717
- ------------------------------------------------------------
Interest 48,508,823
- ------------------------------------------------------------
Total investment income 89,186,540
- ------------------------------------------------------------
EXPENSES:
Advisory fees 89,630,173
- ------------------------------------------------------------
Administrative services fees 295,926
- ------------------------------------------------------------
Custodian fees 637,815
- ------------------------------------------------------------
Directors' fees 96,730
- ------------------------------------------------------------
Distribution fees-Class A 41,684,536
- ------------------------------------------------------------
Distribution fees-Class B 1,576,409
- ------------------------------------------------------------
Distribution fees-Class C 506,546
- ------------------------------------------------------------
Transfer agent fees-Class A 24,340,018
- ------------------------------------------------------------
Transfer agent fees-Class B 601,845
- ------------------------------------------------------------
Transfer agent fees-Class C 169,272
- ------------------------------------------------------------
Transfer agent fees-Institutional Class 17,618
- ------------------------------------------------------------
Other 1,734,916
- ------------------------------------------------------------
Total expenses 161,291,804
- ------------------------------------------------------------
Less: Fees waived by advisor (3,074,705)
- ------------------------------------------------------------
Expenses paid indirectly (332,613)
- ------------------------------------------------------------
Net expenses 157,884,486
- ------------------------------------------------------------
Net investment income (loss) (68,697,946)
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 482,260,826
- ------------------------------------------------------------
Foreign currencies 1,025,913
- ------------------------------------------------------------
Futures contracts (24,781,162)
- ------------------------------------------------------------
Option contracts written 819,195
- ------------------------------------------------------------
459,324,772
- ------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities (664,462,047)
- ------------------------------------------------------------
Foreign currencies (1,413)
- ------------------------------------------------------------
Futures contracts 16,400,635
- ------------------------------------------------------------
Option contracts written 146,706
- ------------------------------------------------------------
(647,916,119)
- ------------------------------------------------------------
Net gain (loss) from investment
securities, foreign currencies,
futures and option contracts (188,591,347)
- ------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (257,289,293)
============================================================
</TABLE>
See Notes to Financial Statements.
27
CONSTELLATION
<PAGE> 30
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (68,697,946) $ (51,626,612)
- -------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 459,324,772 1,046,160,029
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies, futures and option
contracts (647,916,119) 1,234,273,644
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (257,289,293) 2,228,807,061
- -------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (1,023,550,465) (401,536,883)
- -------------------------------------------------------------------------------------------------
Class B (2,750,431) --
- -------------------------------------------------------------------------------------------------
Class C (2,040,204) --
- -------------------------------------------------------------------------------------------------
Institutional Class (13,510,099) (10,336,039)
- -------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (667,156,467) 1,280,740,251
- -------------------------------------------------------------------------------------------------
Class B 292,437,630 --
- -------------------------------------------------------------------------------------------------
Class C 60,444,760 22,611,449
- -------------------------------------------------------------------------------------------------
Institutional Class 17,436,212 (139,767,829)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,595,978,357) 2,980,518,010
- -------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 14,529,058,972 11,548,540,962
- -------------------------------------------------------------------------------------------------
End of period $12,933,080,615 $14,529,058,972
=================================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 9,156,848,152 $ 9,520,633,579
- -------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (994,714) (270,243)
- -------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 439,210,537 1,022,762,877
- -------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 3,338,016,640 3,985,932,759
- -------------------------------------------------------------------------------------------------
$12,933,080,615 $14,529,058,972
=================================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds,
Inc. (the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios: AIM
Constellation Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund and AIM Weingarten Fund. The Fund currently
offers four different classes of shares: Class A shares, Class B shares, Class C
shares and the Institutional Class. Class B shares commenced sales on November
3, 1997. Class A shares are sold with a front-end sales charge. Class B shares
and Class C shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's investment objective
is to seek capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
28
CONSTELLATION
<PAGE> 31
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which
would not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair market value as
determined in good faith by or under the supervision of the Board of
Directors.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
paid in capital was decreased by $66,947,562, undistributed net investment
income was increased by $67,973,475 and undistributed net realized gains
decreased by $1,025,913 in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position
93-2. Net assets of the fund were unaffected by the reclassifications
discussed above.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Expenses--Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
E. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
F. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could
be exposed to risk if counterparties to the contracts are unable to meet
the terms of their contracts.
G. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized
gain or loss equal to the difference between the proceeds from, or cost of,
the closing transaction and the Fund's basis in the contract. Risks include
the possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
H. Covered Call Options -- The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to
29
CONSTELLATION
<PAGE> 32
such option is extinguished. If a written option is exercised, the Fund
realizes a gain or a loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at
the stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment agreement with A I M Advisors,
Inc. ("AIM"). Under the terms of the master investment advisory agreement, the
Fund pays an advisory fee to AIM at the annual rate of 1.0% of the first $30
million of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $30 million to and including $150 million, plus
0.625% of the Fund's average daily net assets in excess of $150 million. AIM has
agreed to voluntarily waive a portion of its advisory fees paid by the Fund to
AIM to the extent necessary to reduce the fees paid by the Fund at net asset
levels higher than those currently incorporated in the present advisory fee
schedule. Under the voluntary waiver, AIM will receive a fee calculated at the
annual rate of 1.0% of the first $30 million of the Fund's average daily net
assets, plus 0.75% of the Fund's average daily net assets in excess of $30
million to and including $150 million, plus 0.625% of the Fund's average daily
net assets in excess of $150 million to and including $2 billion, plus 0.60% of
the Fund's average daily net assets in excess of $2 billion. During the year
ended October 31, 1998, AIM waived fees of $3,074,705. The waiver is entirely
voluntary but approval is required by the Board of Directors for any decision by
AIM to discontinue the waiver. Under the terms of a master sub-advisory
agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM
pays AIM Capital 50% of the amount paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1998, AIM was
reimbursed $295,926 for such services.
The Fund, pursuant to a transfer agent and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency and shareholder services to the Fund. On September 20, 1997, the Board of
Directors approved appointment of AFS as transfer agent of the Institutional
Class effective December 29, 1997. During the year ended October 31, 1998, AFS
was paid $11,110,534 with respect to the Class A, Class B and Class C shares and
for the period December 29, 1997 through October 31, 1998, AFS was paid $14,933
with respect to the Institutional Class. Prior to the effective date of the
agreement with AFS, the Fund paid A I M Institutional Fund Services, Inc. $2,685
pursuant to a transfer agency and shareholder services agreement with respect to
the Institutional Class for the period November 1, 1997 through December 28,
1997.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.30% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the year ended
October 31, 1998, the Class A shares, Class B shares and Class C shares paid AIM
Distributors $41,684,536, $1,576,409, and $506,546, respectively as compensation
under the Plans.
AIM Distributors received commissions of $5,261,392 from sales of the Class A
shares of the Fund during the year ended October 31, 1998. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1998,
AIM Distributors received commissions of $510,316 in contingent deferred sales
charges imposed on the redemptions of Fund shares. Certain officers and
directors of the Company are officers and directors of AIM, AIM Capital, AIM
Distributors, AFS, and FMC.
During the year ended October 31, 1998, the Fund paid legal fees of $31,902
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$147,814 and $184,799, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $332,613 during the year ended October 31, 1998.
30
CONSTELLATION
<PAGE> 33
NOTE 4-DIRECTOR'S FEES
Director's fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1998 was
$10,221,437,067 and $11,626,322,625, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $3,684,499,221
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (373,354,606)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $3,311,144,615
==========================================================
</TABLE>
Cost of investments for tax purposes is $9,713,141,266.
NOTE 7-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 271,511,337 $ 7,555,171,888 211,624,665 $ 5,717,830,615
- --------------------------------------------------------------------------------------
Class B* 12,877,388 356,713,527 -- --
- --------------------------------------------------------------------------------------
Class C** 2,960,570 81,123,332 745,655 22,872,597
- --------------------------------------------------------------------------------------
Institutional Class 2,149,830 60,442,629 5,274,034 141,917,489
- --------------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 38,633,795 977,878,833 15,529,296 381,406,093
- --------------------------------------------------------------------------------------
Class B* 104,498 2,643,686 -- --
- --------------------------------------------------------------------------------------
Class C** 76,723 1,938,518 -- --
- --------------------------------------------------------------------------------------
Institutional Class 494,582 12,886,955 387,258 9,720,186
- --------------------------------------------------------------------------------------
Reacquired:
Class A (330,045,727) (9,200,207,188) (178,999,514) (4,818,496,457)
- --------------------------------------------------------------------------------------
Class B* (2,423,778) (66,919,583) -- --
- --------------------------------------------------------------------------------------
Class C** (842,846) (22,617,090) (8,492) (261,148)
- --------------------------------------------------------------------------------------
Institutional Class (1,977,243) (55,893,372) (10,657,023) (291,405,504)
- --------------------------------------------------------------------------------------
(6,480,871) $ (296,837,865) 43,895,879 $ 1,163,583,871
======================================================================================
</TABLE>
*Class B Shares commenced sales on November 3, 1997.
**Class C Shares commenced sales on August 4, 1997.
NOTE 8-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of period -- --
- ----------------------------------- ------- -----------
Written 29,238 $ 7,032,081
- ----------------------------------- ------- -----------
Closed (17,332) (3,926,728)
- ----------------------------------- ------- -----------
Expired (6,031) (484,785)
- ----------------------------------- ------- -----------
Exercised (4,000) (2,262,924)
- ----------------------------------- ------- -----------
End of Period 1,875 $ 357,644
=================================== ======= ===========
</TABLE>
Open call option contracts written at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT STRIKE NUMBER OF PREMIUM OCTOBER 31, 1998 UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
- ----- -------- ------ --------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Boston Scientific Corp. Dec. 98 $65 1,875 $357,644 $210,938 $146,706
======================== ======== === ===== ======== ======== ========
</TABLE>
31
CONSTELLATION
<PAGE> 34
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
capital stock outstanding during each of the years in the five-year period ended
October 31, 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 30.00 $ 26.01 $ 24.05 $ 18.49 $ 17.13
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income -- 0.02 0.04 0.02 0.03
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.65) 4.86 2.67 6.06 1.33
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations (0.65) 4.88 2.71 6.08 1.36
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Distributions from net realized gains (2.10) (0.89) (0.75) (0.52) --
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 27.25 $ 30.00 $ 26.01 $ 24.05 $ 18.49
============================================================ ======== ======== ======== ======== ========
Total return (1.85)% 19.42% 11.81% 34.09% 7.94%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $189,039 $188,109 $293,035 $138,918 $ 39,847
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets(a) 0.63%(b) 0.65% 0.66% 0.66% 0.69%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income (loss) to average net
assets(c) (0.01)%(b) 0.06% 0.21% 0.18% 0.36%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 76% 67% 58% 45% 79%
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.65%, 0.67%, 0.67%, 0.68% and 0.70% for 1998-1994.
(b) Ratios are based on average net assets of $195,687,140.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) prior to fee waivers and/or expense reimbursements were
(0.03)%, 0.04%, 0.20%, 0.16% and 0.35% for 1998-1994.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of the AIM
Constellation Fund (a portfolio of AIM Equity Funds, Inc.), including the
schedule of investments, as of October 31, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Constellation Fund as of October 31, 1998, and the results of its operations for
the year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the year
in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
32
CONSTELLATION
<PAGE> 35
Directors & Officers
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II SUB-ADVISOR
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Capital Management, Inc.
11 Greenway Plaza
Edward K. Dunn Jr. Jonathan C. Schoolar Suite 100
Chairman, Mercantile Mortgage Corp.; Senior Vice President Houston, TX 77046
Formerly Vice Chairman and President,
Mercantile-Safe Deposit & Trust Co.; and Dana R. Sutton TRANSFER AGENT
President, Mercantile Bankshares Vice President and Assistant Treasurer
A I M Fund Services, Inc.
Jack Fields Melville B. Cox P.O. Box 4739
Chief Executive Officer Vice President Houston, TX 77210-4739
Texana Global, Inc.;
Formerly Member Renee A. Friedli CUSTODIAN
of the U.S. House of Representatives Assistant Secretary
State Street Bank and Trust Company
Carl Frischling P. Michelle Grace 225 Franklin Street
Partner Assistant Secretary Boston, MA 02110
Kramer, Levin, Naftalis & Frankel
Jeffrey H. Kupor COUNSEL TO THE FUND
Robert H. Graham Assistant Secretary
President and Chief Executive Officer Ballard Spahr
A I M Management Group Inc. Nancy L. Martin Andrews & Ingersoll, LLP
Assistant Secretary 1735 Market Street
Prema Mathai-Davis Philadelphia, PA 19103
Chief Executive Officer, YWCA of the U.S.A.; Ofelia M. Mayo
Commissioner, New York City Dept. for the Assistant Secretary COUNSEL TO THE DIRECTORS
Aging; and member of the Board of Directors,
Metropolitan Transportation Authority of Lisa A. Moss Kramer, Levin, Naftalis & Frankel
New York State Assistant Secretary 919 Third Avenue
New York, NY 10022
Lewis F. Pennock Kathleen J. Pflueger
Attorney Assistant Secretary DISTRIBUTOR
Ian W. Robinson Samuel D. Sirko Fund Management Company
Consultant; Formerly Executive Assistant Secretary 11 Greenway Plaza
Vice President and Suite 100
Chief Financial Officer Stephen I. Winer Houston, TX 77002
Bell Atlantic Management Assistant Secretary
Services, Inc. AUDITORS
Mary J. Benson
Louis S. Sklar Assistant Treasurer KPMG Peat Marwick LLP
Executive Vice President 700 Louisiana
Hines Interests Houston, TX 77002
Limited Partnership
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Constellation Fund Institutional Class distributed long-term capital gains
of $2.3147 per share during the Fund's tax year ended October 31, 1998.
33
CONSTELLATION
<PAGE> 36
LONG-TERM PERFORMANCE
AIM WEINGARTEN FUND
For shareholders who seek long-term growth of capital through investments
primarily in common stocks of leading U.S. companies considered by management to
have strong earnings momentum.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Weingarten Fund performance figures are historical and reflect
reinvestment of all distributions and changes in net asset value. Unless
otherwise indicated, the Fund's performance is computed at net asset value
without a sales charge.
o One-year performance includes reinvested distributions of $3.40 per share.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
About indexes and other performance benchmarks cited in this report:
o The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded primarily industrial stocks.
o The unmanaged Lipper Growth Fund Index represents an average of the
performance of the 30 largest growth funds charted by Lipper Analytical
Services, Inc., an independent mutual fund performance monitor. Results
shown reflect reinvestment of dividends.
o The Russell 2000 Stock Index is an unmanaged index generally considered
representative of small-capitalization stocks.
o The Standard & Poor's Composite Index of 500 stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of
the stock market in general. The Standard & Poor's 400 Mid-Cap Index is an
unmanaged index comprising common stocks of approximately 400
mid-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.
Growth of a $10,000 Investment
10/8/91-10/31/98
- --------------------------------------------------------------------------------
AIM WEINGARTEN FUND STANDARD & POOR'S LIPPER GROWTH
FUND, INSTITUTIONAL CLASS 500 FUND INDEX
- --------------------------------------------------------------------------------
IN THOUSANDS
10/8/91 $10,000 $10,000 $10,000
10/91 10,368 10,145 10,165
10/92 11,110 11,153 10,959
10/93 11,836 12,816 13,039
10/94 12,354 13,309 13,305
10/95 15,898 16,821 16,495
10/96 18,337 20,868 19,298
10/97 23,356 27,564 24,774
10/98 26,343 33,629 28,212
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AIM Weingarten Fund Institutional Class
Average Annual Total Returns
For periods ended 10/31/98
1 Year 12.79%
5 Years 17.35
Inception (10/8/91) 14.70
================================================================================
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
34
WEINGARTEN
<PAGE> 37
THE MANAGERS' OVERVIEW
LARGE CAPS CONTINUE TO BUFFER MARKET TURMOIL
A roundtable discussion with the management team for AIM Weingarten Fund for the
fiscal year ended October 31, 1998.
- --------------------------------------------------------------------------------
Q. THE MARKET EXPERIENCED ALL-TIME HIGHS AND ONE OF ITS MOST VICIOUS
CORRECTIONS DURING 1998. HOW DID THE FUND PERFORM IN THIS UNSETTLING
ENVIRONMENT?
A. The Fund continued to deliver solid performance, despite extreme market
volatility. For the fiscal year ended October 31, 1998, total return was
12.79%.
Net assets under management grew from $62.1 million to $72.9 million
during the fiscal year.
Q. WHAT WERE THE MAJOR TRENDS IN THE STOCK MARKET SINCE YOUR APRIL REPORT TO
SHAREHOLDERS?
A. Stock performance was greatly affected by the second wave of "Asian
contagion" in July when currency troubles in Asia made their way to the U.S.
market. A month later, Russia's bond default and the downturn that ensued
involved even the very large, very liquid stocks that were chiefly
responsible for the U.S. market's earlier rise. Domestically, the market was
hit by the collapse of several hedge funds. The ensuing "flight to quality
and liquidity" gave bond markets their 15 minutes in the spotlight as
investors rushed out of the equity market.
The Federal Reserve Board cut interest rates in September, hoping to
shelter the U.S. from a potential global recession. Boosted by the Fed
easing, the U.S. market halted its downturn and rebounded. Many stocks that
had experienced losses earlier in the year were able to recover and post
slight gains due to the upswing. At the close of the fiscal year, the U.S.
market continued to rebound as investors welcomed reassuring news about the
outlook of the global economy. The change of heart came after the Group of
Seven, composed of the world's seven richest industrialized nations, agreed
on measures to rescue flailing economies with a three-year, $84 billion
financial aid package.
Q. HOW DID DOMESTIC LARGE-CAP STOCKS FARE IN THIS UNCERTAIN MARKET?
A. Large-cap stocks did well in this changing environment, as they have for the
past couple of years. Mid-sized and small-company stocks bore the brunt of
the market's summer correction as investors shifted their focus to large,
well-established companies better able to weather the volatile market.
Q. GIVEN CURRENT MARKET CONDITIONS, DID YOU ALTER THE PORTFOLIO?
A. The Fund holds both core and earnings-momentum stocks. When we say "core"
holdings, we are referring to companies with long-term records of robust and
reliable earnings growth. Earnings-momentum stocks refer to those seeing a
recent burst of earnings growth. When the economy accelerates and most
companies exhibit strong earnings growth, we tend to increase our holdings
of earnings-momentum stocks. However, in the current market environment,
when the economy is expected to slow, we have reduced the number of
earnings-momentum holdings and invested in the more stable and more
predictable core holdings. These include such well-known names as Microsoft
Corp. and the pharmaceutical giant Pfizer, Inc. Core holdings now represent
50% of the Fund, compared to less than 25% a year ago.
At the close of the fiscal year, the Fund's top sector holdings
included: heath care, 24.4%; technology, 22.6%; and financial, 13.5%. We
believe these three sectors continue to have excellent long-term growth
potential. During the reporting period, we reduced our financial holdings
significantly while increasing our holdings in the technology sector.
Q. FINANCIAL STOCKS DID VERY WELL DURING THE LAST REPORTING PERIOD. WHY DID YOU
REDUCE THE FUND'S HOLDINGS IN THE FINANCIAL SECTOR?
A. Financial stocks, which represented the largest sector weighting six months
ago at approximately 20%, were reduced to 13.5% largely because of
volatility in the global financial market. Financial services stocks have
been among the hardest hit during the market downturn and their earnings
have been hurt by recent global economic developments. Big money-center
banks, such as Chase Manhattan, also sustained huge losses due to their
involvement with the much-publicized collapse of several hedge funds.
We follow earnings growth for individual companies, so our model picks
up sectors that are showing relative earnings momentum. These
market-sensitive financial stocks no longer qualified as good holdings on an
earnings-momentum basis. The financial holdings that are left in the Fund
are largely credit-sensitive compa-
================================================================================
Net Assets Under Management
- --------------------------------------------------------------------------------
10/31/97 $62.1 million
10/31/98 $72.9 million
================================================================================
35
WEINGARTEN
<PAGE> 38
The Managers' Overview
PORTFOLIO COMPOSITION
As of 10/31/98, based on total net assets
<TABLE>
<CAPTION>
===========================================================================================================
Top 10 Equity Holdings Top 10 Industries
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. MCI WorldCom, Inc. 4.34% 1. Computers (Software & Services) 9.77%
2. Microsoft Corp. 3.33 2. Health Care (Drugs-Major Pharmaceuticals) 7.92
3. Bristol-Myers Squibb Co. 2.94 3. Financial (Diversified) 7.83
4. America Online, Inc. 2.49 4. Health Care (Diversified) 6.39
5. Freddie Mac 2.27 5. Broadcasting (Television, Radio & Cable) 5.48
6. International Business Machines Corp. 2.23 6. Health Care (Medical Products & Supplies) 4.84
7. Pfizer, Inc. 2.05 7. Computers (Hardware) 4.45
8. Pharmacia & Upjohn, Inc. 2.01 8. Telecommunications (Long Distance) 4.34
9. Becton, Dickinson and Co. 1.93 9. Health Care (Drugs-Generic & Other) 3.15
10. Home Depot, Inc. (The) 1.77 10. Retail (Building Supplies) 2.84
Please keep in mind that the Fund's portfolio composition is subject to change
and there is no assurance the Fund will continue to hold any particular
security.
===========================================================================================================
</TABLE>
nies, such as Fannie Mae and Freddie Mac, with less exposure to
international woes.
Q. WHAT MAKES TECHNOLOGY STOCKS ATTRACTIVE?
A. Earnings momentum has begun to improve for this sector. We increased the
sector's weighting from 19% six months ago to 22.6% at the close of the
fiscal year. Additionally, strong sales of personal computers in the U.S.
and Western Europe have helped to offset the economic weakness in other
regions. Sales of personal computers were up 15% for the third quarter. Two
of the Fund's top holdings--Microsoft Corp. and International Business
Machines Corp.--reported better-than-expected third-quarter earnings,
despite their international exposure.
As the end of the millennium nears, we also expect the computer software
and services industry to profit from the so-called Y2K problem--the need to
reprogram older computers to recognize the year 2000. Despite the potential
effects of decreased demand overseas, we still think the technology sector's
long-term growth prospects are excellent.
Q. WHAT IS YOUR OUTLOOK FOR THE FUTURE?
A. By and large, we are optimistic that the U.S. market has performed a
turnaround, coming back from the steep declines in the summer. Market
analysts are optimistic that the U.S. will avoid a recession in 1999.
Economic growth seems to be decelerating, so low inflation and low interest
rates should continue. Although large-cap stocks should still perform well,
many analysts believe that growth may be returning to the small- and mid-cap
markets. The narrowness of the market in the past is beginning to give way
to better performance from smaller companies. Given AIM Weingarten Fund's
sizable stake in the mid-cap portion of the market, we believe the Fund is
well positioned to take advantage of this trend.
--------------------------------
By and large,
we are optimistic that the
U.S. market has performed a
turnaround, coming back from the
steep declines in the summer.
--------------------------------
36
WEINGARTEN
<PAGE> 39
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-87.33%
BANKS (REGIONAL)-0.46%
North Fork Bancorporation, Inc. 1,600,000 $ 31,800,000
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.34%
PepsiCo, Inc. 702,100 23,695,875
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.74%
Amgen, Inc.(a) 650,000 51,065,625
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-5.48%
Chancellor Media Corp.(a) 1,200,000 46,050,000
- ---------------------------------------------------------------
Clear Channel Communications,
Inc.(a) 1,030,460 46,950,334
- ---------------------------------------------------------------
Comcast Corp.-Class A 1,500,000 74,062,500
- ---------------------------------------------------------------
Cox Communications, Inc.-Class
A(a) 281,400 15,441,825
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 925,000 50,875,000
- ---------------------------------------------------------------
Liberty Media Group(a) 299,800 11,411,137
- ---------------------------------------------------------------
MediaOne Group, Inc.(a) 950,500 40,218,031
- ---------------------------------------------------------------
Tele-Communications, Inc.-Class
A(a) 2,200,000 92,675,000
- ---------------------------------------------------------------
377,683,827
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.59%
Monsanto Co. 1,000,000 40,625,000
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.61%
Lucent Technologies, Inc.(b) 525,000 42,098,438
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-4.45%
Dell Computer Corp.(a)(b) 1,700,000 111,562,500
- ---------------------------------------------------------------
International Business Machines
Corp. 1,034,800 153,603,125
- ---------------------------------------------------------------
Sun Microsystems, Inc.(a) 713,400 41,555,550
- ---------------------------------------------------------------
306,721,175
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.91%
Ascend Communications, Inc.(a) 1,444,000 69,673,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 850,000 53,550,000
- ---------------------------------------------------------------
3Com Corp.(a) 236,900 8,543,206
- ---------------------------------------------------------------
131,766,206
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.90%
EMC Corp.(a) 959,000 61,735,625
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-9.75%
America Online, Inc.(a)(b) 1,350,000 171,534,375
- ---------------------------------------------------------------
BMC Software, Inc.(a) 1,500,000 72,093,750
- ---------------------------------------------------------------
Cadence Design Systems,
Inc.(a)(b) 600,000 12,825,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Computer Sciences Corp.(a)(b) 685,500 $ 36,160,125
- ---------------------------------------------------------------
Compuware Corp.(a) 1,100,000 59,606,250
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 1,013,300 28,879,050
- ---------------------------------------------------------------
HBO & Co. 1,200,000 31,500,000
- ---------------------------------------------------------------
Microsoft Corp.(a) 2,166,500 229,378,188
- ---------------------------------------------------------------
Unisys Corp.(a) 1,150,000 30,618,750
- ---------------------------------------------------------------
672,595,488
- ---------------------------------------------------------------
CONSUMER FINANCE-0.50%
Providian Financial Corp. 434,500 34,488,437
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-2.32%
AmeriSource Health Corp.-Class
A(a) 600,000 31,462,500
- ---------------------------------------------------------------
Cardinal Health, Inc. 1,000,000 94,562,500
- ---------------------------------------------------------------
McKesson Corp. 149,600 11,519,200
- ---------------------------------------------------------------
Sysco Corp. 835,700 22,511,668
- ---------------------------------------------------------------
160,055,868
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.68%
AMP Inc.(b) 1,000,000 41,062,500
- ---------------------------------------------------------------
General Electric Co. 912,100 79,808,750
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 612,800 24,205,600
- ---------------------------------------------------------------
Symbol Technologies, Inc. 885,450 39,623,887
- ---------------------------------------------------------------
184,700,737
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-1.49%
Altera Corp.(a) 266,100 11,076,413
- ---------------------------------------------------------------
Intel Corp. 898,000 80,090,375
- ---------------------------------------------------------------
Xilinx, Inc.(a) 255,700 11,418,603
- ---------------------------------------------------------------
102,585,391
- ---------------------------------------------------------------
ENTERTAINMENT-0.83%
Time Warner, Inc. 408,800 37,941,750
- ---------------------------------------------------------------
Viacom, Inc.-Class B(a) 326,500 19,549,187
- ---------------------------------------------------------------
57,490,937
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-7.83%
American Express Co. 400,000 35,350,000
- ---------------------------------------------------------------
Citigroup, Inc. 405,050 19,062,666
- ---------------------------------------------------------------
Federal National Mortgage
Association 1,340,700 94,938,319
- ---------------------------------------------------------------
Freddie Mac 2,725,000 156,687,500
- ---------------------------------------------------------------
Heller Financial, Inc. 965,400 23,169,600
- ---------------------------------------------------------------
</TABLE>
37
WEINGARTEN
<PAGE> 40
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
MBIA, Inc. 1,375,000 $ 84,046,875
- ---------------------------------------------------------------
MGIC Investment Corp. 1,127,940 43,989,660
- ---------------------------------------------------------------
SunAmerica, Inc. 1,175,000 82,837,500
- ---------------------------------------------------------------
540,082,120
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-6.39%
Abbott Laboratories 1,287,400 60,427,338
- ---------------------------------------------------------------
American Home Products Corp. 390,200 19,022,250
- ---------------------------------------------------------------
Bristol-Myers Squibb Co.(b) 1,836,100 203,003,806
- ---------------------------------------------------------------
Johnson & Johnson 500,000 40,750,000
- ---------------------------------------------------------------
Warner-Lambert Co. 1,495,000 117,170,625
- ---------------------------------------------------------------
440,374,019
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.03%
ICN Pharmaceuticals, Inc. 1,310,200 30,625,925
- ---------------------------------------------------------------
Mylan Laboratories, Inc. 1,350,000 46,490,625
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 1,130,600 62,889,625
- ---------------------------------------------------------------
140,006,175
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-7.92%
Lilly (Eli) & Co. 1,498,900 121,317,219
- ---------------------------------------------------------------
Merck & Co., Inc. 525,000 71,006,250
- ---------------------------------------------------------------
Pfizer, Inc. 1,316,800 141,309,100
- ---------------------------------------------------------------
Pharmacia & Upjohn, Inc. 2,615,000 138,431,563
- ---------------------------------------------------------------
Schering-Plough Corp.(b) 717,200 73,781,950
- ---------------------------------------------------------------
545,846,082
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.09%
Universal Health Services,
Inc.-Class B(a) 114,000 5,849,625
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.17%
HEALTHSOUTH Corp.(a) 985,300 11,946,763
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-4.84%
Baxter International, Inc. 1,000,000 59,937,500
- ---------------------------------------------------------------
Becton, Dickinson & Co. 3,160,400 133,131,850
- ---------------------------------------------------------------
Biomet, Inc. 1,098,500 37,280,343
- ---------------------------------------------------------------
Guidant Corp. 850,000 65,025,000
- ---------------------------------------------------------------
Stryker Corp. 684,900 28,722,993
- ---------------------------------------------------------------
Sybron International Corp.(a) 393,200 9,731,700
- ---------------------------------------------------------------
333,829,386
- ---------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES-0.06%
Furniture Brands International,
Inc.(a)(b) 191,800 4,123,700
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.66%
Dial Corp. (The) 574,700 15,840,169
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD PRODUCTS (NON-DURABLES)-(CONTINUED)
Procter & Gamble Co. (The) 330,000 $ 29,328,750
- ---------------------------------------------------------------
45,168,919
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.71%
Equitable Companies, Inc. 670,000 32,830,000
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 389,500 16,164,250
- ---------------------------------------------------------------
48,994,250
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.41%
American International Group,
Inc. 330,000 28,132,500
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.42%
Paine Webber Group, Inc. 875,000 29,257,813
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.94%
Franklin Resources, Inc. 900,000 34,031,250
- ---------------------------------------------------------------
T. Rowe Price Associates, Inc. 867,100 30,836,244
- ---------------------------------------------------------------
64,867,494
- ---------------------------------------------------------------
LODGING-HOTELS-1.76%
Carnival Corp. 3,750,000 121,406,250
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.72%
Tyco International Ltd. 800,000 49,550,000
- ---------------------------------------------------------------
NATURAL GAS-0.47%
Enron Corp. 620,000 32,705,000
- ---------------------------------------------------------------
PERSONAL CARE-0.42%
Avon Products, Inc. 729,600 28,956,000
- ---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-2.84%
Home Depot, Inc. (The) 2,800,000 121,800,000
- ---------------------------------------------------------------
Lowe's Companies, Inc. 2,200,000 74,112,500
- ---------------------------------------------------------------
195,912,500
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.97%
Best Buy Co., Inc.(a) 775,000 37,200,000
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 648,200 29,493,100
- ---------------------------------------------------------------
66,693,100
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.28%
Saks, Inc.(a) 855,700 19,467,175
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.14%
Ross Stores, Inc. 300,000 9,750,000
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.95%
CVS Corp. 700,000 31,981,250
- ---------------------------------------------------------------
</TABLE>
38
WEINGARTEN
<PAGE> 41
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DRUG STORES)-(CONTINUED)
Rite Aid Corp. 848,500 $ 33,674,844
- ---------------------------------------------------------------
65,656,094
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.17%
Albertson's, Inc. 154,000 8,556,625
- ---------------------------------------------------------------
Kroger Co.(a) 1,000,000 55,500,000
- ---------------------------------------------------------------
Safeway, Inc.(a) 340,600 16,284,937
- ---------------------------------------------------------------
80,341,562
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-2.08%
Costco Companies, Inc.(a)(b) 725,000 41,143,750
- ---------------------------------------------------------------
Dayton Hudson Corp. 670,000 28,391,250
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 1,075,000 74,175,000
- ---------------------------------------------------------------
143,710,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-2.10%
Office Depot, Inc.(a) 2,850,000 71,250,000
- ---------------------------------------------------------------
Staples, Inc.(a) 2,250,000 73,406,250
- ---------------------------------------------------------------
144,656,250
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.54%
Gap, Inc. (The) 625,000 37,578,125
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.00%
Outdoor Systems, Inc.(a) 3,131,625 69,091,477
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.34%
Service Corp. International 650,000 23,156,250
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.48%
Keane, Inc.(a) 1,000,000 33,250,000
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.21%
Equifax, Inc. 1,332,300 51,543,356
- ---------------------------------------------------------------
Fiserv, Inc.(a) 690,600 32,112,900
- ---------------------------------------------------------------
83,656,256
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-4.34%
MCI WorldCom, Inc.(a) 5,410,965 298,955,816
- ---------------------------------------------------------------
Total Domestic Common Stocks
(Cost $4,374,224,596) 6,022,079,330
- ---------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE BONDS & NOTES-0.26%
RETAIL (DEPARTMENT STORES)-0.26%
Saks Holdings, Inc., Conv. Sub.
Notes, 5.50%, 09/15/06 (Cost
$18,304,125) $ 18,350,000 $ 18,235,313
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED FOREIGN BONDS & NOTES-0.61%
SWITZERLAND-0.61%
Nestle Holding Inc. (Foods),
Conv. Bond, 3.00%, 06/17/02
(Cost $40,041,900) 30,000,000 42,165,810
- ---------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS-4.30%
FRANCE-0.37%
Renault S.A. (Automobiles) 600,000 25,658,570
- ---------------------------------------------------------------
IRELAND-1.12%
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 1,100,000 77,068,750
- ---------------------------------------------------------------
ITALY-0.86%
Telecom Italia Mobile S.p.A.
(Telephone) 6,000,000 34,868,132
- ---------------------------------------------------------------
Telecom Italia S.p.A.
(Telephone) 3,333,333 24,106,632
- ---------------------------------------------------------------
58,974,764
- ---------------------------------------------------------------
SWITZERLAND-1.95%
UBS A.G. (Banks-Major
Regional)(a) 242,500 66,505,795
- ---------------------------------------------------------------
Nestle S.A. (Foods) 32,000 68,034,844
- ---------------------------------------------------------------
134,540,639
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$237,913,241) 296,242,723
- ---------------------------------------------------------------
OPTIONS PURCHASED-0.10%
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE EXPIRATION MARKET
CONTRACTS PRICE DATE VALUE
<S> <C> <C> <C> <C>
PUTS-0.10%
Cadence Design Systems,
Inc. (Computers-Software
& Services) 6,000 22.50 Nov-98 $1,387,500
- -------------------------------------------------------------------------
Lucent Technologies, Inc.
(Communications
Equipment) 3,625 95.00 Jan-99 5,709,375
- -------------------------------------------------------------------------
Total Options
Purchased (Cost
$3,914,290) 7,096,875
- -------------------------------------------------------------------------
</TABLE>
39
WEINGARTEN
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C> <C>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY BILLS-1.94%(c)
3.998%, 12/24/98 (Cost
$133,693,439) $134,435,000(d) $133,693,439
- --------------------------------------------------------
REPURCHASE AGREEMENTS-6.79%(e)
Bear, Stearns & Co.,
5.52%(f) 180,000,000 180,000,000
- --------------------------------------------------------
Dresdner Kleinwort,
Benson, North America
LLC, 5.55%, 11/2/98(g) 88,091,453 88,091,453
- --------------------------------------------------------
SBC Warburg Dillon Read
Inc., 5.55%, 11/2/98(h) 200,000,000 200,000,000
- --------------------------------------------------------
Total Repurchase
Agreements (Cost
$468,091,453) 468,091,453
- --------------------------------------------------------
TOTAL INVESTMENTS-101.33% $6,987,604,943
- --------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(1.33)% (91,686,170)
- --------------------------------------------------------
TOTAL NET ASSETS-100.00% $6,895,918,773
========================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Sub - Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 8.
(c) U.S. Treasury Bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being at least 102% of the sales price
of the repurchase agreement. The investments in some repurchase agreements
are through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates are redetermined daily. Collateralized by
$353,825,000 U.S. Government obligations, 0% to 6.745% due 01/15/99 to
08/03/18 with an aggregate market value at 10/31/98 of $357,771,886.
(g) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$300,138,750. Collateralized by $485,457,284 U.S. Government obligations, 0%
to 8.50% due 01/07/99 to 08/01/37 with an aggregate market value at 10/31/98
of $306,003,830.
(h) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$200,092,500. Collateralized by $339,879,000 U.S. Government obligations, 0%
to 8.50% due 07/15/01 to 01/15/30 with an aggregate market value at 10/31/98
of $204,017,333.
See Notes to Financial Statements.
40
WEINGARTEN
<PAGE> 43
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (cost
$5,276,183,044) $6,987,604,943
- --------------------------------------------------------
Foreign currencies, at value (cost
$2,570,450) 2,565,915
- --------------------------------------------------------
Cash 3,996,858
- --------------------------------------------------------
Receivables for:
Investments sold 31,213,312
- --------------------------------------------------------
Capital stock sold 8,295,922
- --------------------------------------------------------
Dividends and interest 4,152,383
- --------------------------------------------------------
Variation margin 1,111,425
- --------------------------------------------------------
Investment for deferred compensation
plan 105,518
- --------------------------------------------------------
Other assets 163,186
- --------------------------------------------------------
Total assets 7,039,209,462
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 91,742,610
- --------------------------------------------------------
Capital stock reacquired 6,659,959
- --------------------------------------------------------
Deferred compensation 105,518
- --------------------------------------------------------
Options written (premiums received
$44,508,416) 37,381,847
- --------------------------------------------------------
Accrued advisory fees 3,226,589
- --------------------------------------------------------
Accrued administrative services fees 16,296
- --------------------------------------------------------
Accrued directors' fees 3,500
- --------------------------------------------------------
Accrued distribution fees 2,769,404
- --------------------------------------------------------
Accrued transfer agent fees 948,313
- --------------------------------------------------------
Accrued operating expenses 436,653
- --------------------------------------------------------
Total liabilities 143,290,689
- --------------------------------------------------------
Net assets applicable to shares
outstanding $6,895,918,773
========================================================
NET ASSETS:
Class A $6,094,177,561
========================================================
Class B $ 705,750,126
========================================================
Class C $ 23,107,031
========================================================
Institutional Class $ 72,884,055
========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 280,643,682
========================================================
Class B:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 33,416,157
========================================================
Class C:
Authorized 750,000,000
- --------------------------------------------------------
Outstanding 1,093,306
========================================================
Institutional Class:
Authorized 200,000,000
- --------------------------------------------------------
Outstanding 3,285,920
========================================================
Class A:
Net asset value and redemption price
per share $ 21.72
- --------------------------------------------------------
Offering price per share:
(Net asset value of
$21.72 divided by 94.50%) $ 22.98
========================================================
Class B:
Net asset value and offering price per
share $ 21.12
========================================================
Class C:
Net asset value and offering price per
share $ 21.14
========================================================
Institutional Class:
Net asset value, offering and
redemption price per share $ 22.18
========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $1,357,955 foreign
withholding tax) $ 49,728,636
- ---------------------------------------------------------
Interest 26,746,186
- ---------------------------------------------------------
Total investment income 76,474,822
- ---------------------------------------------------------
EXPENSES:
Advisory fees 43,574,677
- ---------------------------------------------------------
Administrative services fees 179,633
- ---------------------------------------------------------
Custodian fees 667,786
- ---------------------------------------------------------
Directors' fees 45,123
- ---------------------------------------------------------
Distribution fees-Class A 18,567,575
- ---------------------------------------------------------
Distribution fees-Class B 6,185,890
- ---------------------------------------------------------
Distribution fees-Class C 125,198
- ---------------------------------------------------------
Transfer agent fees-Class A 7,790,643
- ---------------------------------------------------------
Transfer agent fees-Class B 1,316,441
- ---------------------------------------------------------
Transfer agent fees-Class C 35,743
- ---------------------------------------------------------
Transfer agent fees-Institutional Class 6,988
- ---------------------------------------------------------
Other 984,467
- ---------------------------------------------------------
Total expenses 79,480,164
- ---------------------------------------------------------
Less: Fees waived by advisor (2,917,461)
- ---------------------------------------------------------
Expenses paid indirectly (177,097)
- ---------------------------------------------------------
Net expenses 76,385,606
- ---------------------------------------------------------
Net investment income 89,216
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 510,689,133
- ---------------------------------------------------------
Foreign currencies 4,256,163
- ---------------------------------------------------------
Futures contracts 9,427,467
- ---------------------------------------------------------
Option contracts purchased 735,202
- ---------------------------------------------------------
Option contracts written (10,831,861)
- ---------------------------------------------------------
514,276,104
- ---------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 239,037,008
- ---------------------------------------------------------
Foreign currencies (41,394)
- ---------------------------------------------------------
Futures contracts 7,020,866
- ---------------------------------------------------------
Option contracts purchased 3,182,585
- ---------------------------------------------------------
Option contracts written 6,509,630
- ---------------------------------------------------------
255,708,695
- ---------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and option
contracts 769,984,799
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $770,074,015
=========================================================
</TABLE>
41
WEINGARTEN
<PAGE> 44
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 89,216 $ 1,100,893
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 514,276,104 933,882,009
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 255,708,695 438,536,902
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 770,074,015 1,373,519,804
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A -- (14,688,010)
- ----------------------------------------------------------------------------------------------
Institutional Class -- (444,894)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (864,947,763) (552,547,910)
- ----------------------------------------------------------------------------------------------
Class B (76,736,323) (32,151,485)
- ----------------------------------------------------------------------------------------------
Class C (626,936) --
- ----------------------------------------------------------------------------------------------
Institutional Class (9,231,714) (6,655,833)
- ----------------------------------------------------------------------------------------------
Net equalization credits (charges) (See Note 1):
Class A -- 436,828
- ----------------------------------------------------------------------------------------------
Class B -- 62,469
- ----------------------------------------------------------------------------------------------
Class C -- --
- ----------------------------------------------------------------------------------------------
Institutional Class -- (91,147)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 442,079,076 126,373,106
- ----------------------------------------------------------------------------------------------
Class B 240,674,117 166,861,272
- ----------------------------------------------------------------------------------------------
Class C 21,194,188 2,401,569
- ----------------------------------------------------------------------------------------------
Institutional Class 12,302,794 (7,373,537)
- ----------------------------------------------------------------------------------------------
Net increase in net assets 534,781,454 1,055,702,232
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 6,361,137,319 5,305,435,087
- ----------------------------------------------------------------------------------------------
End of period $6,895,918,773 $6,361,137,319
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,682,377,491 $3,937,446,869
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 4,034,739 28,516,289
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 484,238,255 925,614,568
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 1,725,268,288 1,469,559,593
- ----------------------------------------------------------------------------------------------
$6,895,918,773 $6,361,137,319
==============================================================================================
</TABLE>
See Notes to Financial Statements.
42
WEINGARTEN
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc.
(the "Company"). The Company is a Maryland corporation registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios: AIM
Weingarten Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund and AIM Constellation Fund. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and the Institutional Class. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to seek growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on
the NASDAQ National Market System is valued at the last sales price on the
valuation date or absent a last sales price, at the mean of the closing bid
and asked prices. Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market quotations
are not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors of
the Company. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair market value as determined in good faith by or
under the supervision of the Board of Directors.
B. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may enter into a foreign currency contract for
the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts.
D. Stock Index Futures Contracts--The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in the
value of the contracts are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contracts at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contracts are closed, the Fund recognizes a realized gain
or loss equal to the difference between the proceeds from, or cost of, the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Covered Call Options--The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-
43
WEINGARTEN
<PAGE> 46
market" to reflect the current market value of the option written. The
current market value of a written option is the mean between the last bid
and asked prices on that day. If a written call option expires on the
stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or a loss if the closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a written
option is exercised, the Fund realizes a gain or a loss from the sale of the
underlying security and the proceeds of the sale are increased by the
premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at such
earlier time at which the Fund effects a closing purchase transaction by
purchasing (at a price which may be higher than that received when the call
option was written) a call option identical to the one originally written.
F. Put Options--The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or
a portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the securities hedged.
G. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the specific identification of securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $4,109,681 and
undistributed net realized gains decreased by $4,109,681 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
H. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
I. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
J. Equalization--The Fund previously followed the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
repurchases of Fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
net income when the transaction is recorded so that the undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares. Effective November 1, 1997, the Fund discontinued equalization
accounting and reclassified the cumulative equalization credits of
$28,680,447 from undistributed net investment income to paid-in capital.
This change has no effect on the net assets, the results of operations or
the net asset value per share of the Fund.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). The terms of the master investment advisory agreement
provide that the Fund shall pay an advisory fee to AIM at an annual rate of 1.0%
of the first $30 million of the Fund's average daily net assets, plus 0.75% of
the Fund's average daily net assets in excess of $30 million to and including
$350 million, plus 0.625% of the Fund's average daily net assets in excess of
$350 million. AIM is currently voluntarily waiving a portion of its advisory
fees payable by the Fund to AIM to the extent necessary to reduce the fees paid
by the Fund at net asset levels higher than those currently incorporated in the
present advisory fee schedule. AIM will receive a fee calculated at the annual
rate of 1.0% of the first $30 million of the Fund's average daily net assets,
plus 0.75% of the Fund's average daily net assets in excess of $30 million to
and including $350 million, plus 0.625% of the Fund's average daily net assets
in excess of $350 million to and including $2 billion, plus 0.60% of the Fund's
average daily net assets in excess of $2 billion to and including $3 billion,
plus 0.575% of the Fund's average daily net assets in excess of $3 billion to
and including $4 billion, plus 0.55% of the Fund's average daily net assets in
excess of $4 billion. The waiver of fees is entirely voluntary but approval is
required by the Board of Directors of the Company for any decision by AIM to
discontinue the waiver. During the year ended October 31, 1998, AIM waived fees
of $2,917,461. Under the terms of a master sub-advisory agreement between AIM
and A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of
the amount paid by the Fund to AIM.
44
WEINGARTEN
<PAGE> 47
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to reimburse AIM for certain administrative costs incurred in
providing accounting services to the Fund. During the year ended October 31,
1998, AIM was reimbursed $179,633 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. On September 20, 1997, the Board of Directors
approved appointment of AFS as transfer agent of the Institutional Class
effective December 29, 1997. During the year ended October 31, 1998, AFS was
paid $4,650,330 with respect to the Class A, Class B, and Class C shares and for
the period December 29, 1997 through October 31, 1998, AFS was paid $5,316 with
respect to the Institutional Class. Prior to the effective date of the agreement
with AFS, the Fund paid A I M Institutional Fund Services, Inc. $952 pursuant to
a transfer agency and shareholder services agreement with respect to the
Institutional Class for the period November 1, 1997 through December 28, 1997.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan")(collectively, the "Plans"). The Fund,
pursuant to the Class A and C Plan, pays AIM Distributors compensation at an
annual rate of 0.30% of the average daily net assets of the Class A shares and
1.00% of the average daily net assets of Class C shares. The Fund, pursuant to
the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00%
of the average daily net assets of the Class B shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the year ended
October 31, 1998, the Class A, Class B and Class C shares paid AIM Distributors
$18,567,575, $6,185,890, and $125,198, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $1,654,675 from sales of the Class A
shares of the Fund during the year ended October 31, 1998. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1998,
AIM Distributors received commissions of $55,685 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, AIM Capital, AIM Distributors,
AFS and FMC.
During the year ended October 31, 1998, the Fund paid legal fees of $16,595
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$71,260 and $105,837, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $177,097 during the year ended October 31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended October 31, 1998 was $7,912,654,088 and
$8,399,566,587, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of October 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $1,717,839,274
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (45,966,154)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $1,671,873,120
==========================================================
</TABLE>
Cost of investments for tax purposes is $5,315,731,823.
NOTE 7-FUTURES CONTRACTS
On October 31, 1998, $7,665,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
NO. OF UNREALIZED
CONTRACTS CONTRACTS MONTH/COMMITMENT APPRECIATION
- --------------------- --------- ---------------- --------------
<S> <C> <C> <C>
S&P 500 Index 511 Dec. 98/Buy $6,756,866
====================================================================
</TABLE>
45
WEINGARTEN
<PAGE> 48
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of period 3,000 $ 1,216,939
- ---------------------------------------------------------------------------------------
Written 298,491 124,583,917
- ---------------------------------------------------------------------------------------
Closed (159,249) (64,917,081)
- ---------------------------------------------------------------------------------------
Exercised (36,794) (8,353,416)
- ---------------------------------------------------------------------------------------
Expired (29,215) (8,021,943)
- ---------------------------------------------------------------------------------------
End of period 76,233 $ 44,508,416
=======================================================================================
</TABLE>
Open call option contracts written at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 1998 APPRECIATION
MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
ISSUE -------- ------ --------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online, Inc. Jan-99 120 3,375 $ 4,922,273 $ 5,906,250 $ (983,977)
- ----------------------------------------------------------------------------------------------------------------------------
Amp, Inc. Feb-99 35 10,000 6,560,980 8,312,500 (1,751,520)
- ----------------------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. Dec-98 110 13,038 6,498,312 7,170,900 (672,588)
- ----------------------------------------------------------------------------------------------------------------------------
Cadence Design Systems, Inc. Nov-98 25 6,000 1,143,861 262,500 881,361
- ----------------------------------------------------------------------------------------------------------------------------
Computer Sciences Corp. Dec-98 70 6,855 4,770,920 407,015 4,363,905
- ----------------------------------------------------------------------------------------------------------------------------
Costco Companies, Inc. Jan-99 55 7,250 4,411,478 4,168,750 242,728
- ----------------------------------------------------------------------------------------------------------------------------
Dell Computer Corp. Jan-99 70 17,000 9,706,674 10,306,250 (599,576)
- ----------------------------------------------------------------------------------------------------------------------------
Furniture Brands International, Inc. Jan-99 20 959 200,904 272,716 (71,812)
- ----------------------------------------------------------------------------------------------------------------------------
Furniture Brands International, Inc. Jan-99 25 959 284,813 80,916 203,897
- ----------------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc. Jan-99 110 3,625 3,111,958 90,625 3,021,333
- ----------------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. Nov-98 110 7,172 2,896,243 403,425 2,492,818
- ----------------------------------------------------------------------------------------------------------------------------
76,233 $44,508,416 $37,381,847 $ 7,126,569
==========================================================================================================================
</TABLE>
NOTE 9-CAPITAL STOCK
Changes in the capital stock outstanding during the years ended October 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 62,788,326 $ 1,368,867,407 36,066,523 $ 748,100,033
- -----------------------------------------------------------------------------------------------------------------------------
Class B 12,056,594 257,385,548 9,401,446 192,004,936
- -----------------------------------------------------------------------------------------------------------------------------
Class C* 1,204,025 25,772,311 117,736 2,708,502
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 593,328 13,533,791 377,655 7,900,669
- -----------------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 41,795,514 813,441,370 29,415,559 528,061,835
- -----------------------------------------------------------------------------------------------------------------------------
Class B 3,831,332 73,061,374 1,715,350 30,687,644
- -----------------------------------------------------------------------------------------------------------------------------
Class C* 31,251 600,022 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 456,144 9,035,386 313,585 5,650,803
- -----------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (79,734,776) (1,740,229,701) (56,267,501) (1,149,788,762)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (4,228,997) (89,772,805) (2,748,694) (55,831,308)
- -----------------------------------------------------------------------------------------------------------------------------
Class C* (246,074) (5,178,145) (13,632) (306,933)
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class (458,838) (10,266,383) (951,830) (20,925,009)
- -----------------------------------------------------------------------------------------------------------------------------
38,087,829 $ 716,250,175 17,426,197 $ 288,262,410
=============================================================================================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
46
WEINGARTEN
<PAGE> 49
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
capital stock outstanding during each of the years in the five-year period ended
October 31, 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 23.05 $ 20.46 $ 20.48 $ 17.94 $ 17.69
- -------------------------------- ------- ------- -------- -------- --------
Income from investment
operations:
Net investment income 0.10 0.08 0.17 0.10 0.17
- -------------------------------- ------- ------- -------- -------- --------
Net gains on securities (both
realized and unrealized) 2.43 4.90 2.52 4.35 0.58
- -------------------------------- ------- ------- -------- -------- --------
Total from investment
operations 2.53 4.98 2.69 4.45 0.75
- -------------------------------- ------- ------- -------- -------- --------
Less distributions:
Dividends from net investment
income -- (0.15) -- (0.13) (0.17)
- -------------------------------- ------- ------- -------- -------- --------
Distributions from net
realized gains (3.40) (2.24) (2.71) (1.78) (0.33)
- -------------------------------- ------- ------- -------- -------- --------
Total distributions (3.40) (2.39) (2.71) (1.91) (0.50)
- -------------------------------- ------- ------- -------- -------- --------
Net asset value, end of period $ 22.18 $ 23.05 $ 20.46 $ 20.48 $ 17.94
================================ ======= ======= ======== ======== ========
Total return 12.79% 27.37% 15.34% 28.69% 4.37%
================================ ======= ======= ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $72,884 $62,124 $ 60,483 $ 54,332 $ 40,486
================================ ======= ======= ======== ======== ========
Ratio of expenses to average net
assets(a) 0.62%(b) 0.64% 0.65% 0.70% 0.65%
================================ ======= ======= ======== ======== ========
Ratio of net investment income
to average net assets(e) 0.49%(b) 0.50% 0.80% 0.45% 1.00%
================================ ======= ======= ======== ======== ========
Portfolio turnover rate 125% 128% 159% 139% 136%
================================ ======= ======= ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) -- -- -- -- --
================================ ======= ======= ======== ======== ========
Average amount of debt
outstanding during the period
(000s omitted)(d) -- -- -- $ 6 --
================================ ======= ======= ======== ======== ========
Average number of shares
outstanding during the period
(000s omitted)(d) 3,126 3,146 2,908 2,526 2,256
================================ ======= ======= ======== ======== ========
Average amount of debt per share
during the period -- -- -- $ 0.0024 --
================================ ======= ======= ======== ======== ========
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.67%, 0.68%, 0.68%, 0.72% and 0.68% for 1998-1994.
(b) Ratios are based on average net assets of $69,647,808.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 0.44%, 0.46%, 0.77%, 0.43% and 0.98% for 1998-1994.
(d) Averages computed on a daily basis.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Equity Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of AIM
Weingarten Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule
of investments, as of October 31, 1998, the related statement of operations for
the year then ended, the statement of changes in net assets for each of the
years in the two-year period then ended, and financial highlights for each of
the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Weingarten Fund as of October 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the years in
the five-year period then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
47
WEINGARTEN
<PAGE> 50
Directors & Officers
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II SUB-ADVISOR
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Capital Management, Inc.
11 Greenway Plaza
Edward K. Dunn Jr. Jonathan C. Schoolar Suite 100
Chairman, Mercantile Mortgage Corp.; Senior Vice President Houston, TX 77046
Formerly Vice Chairman and President,
Mercantile-Safe Deposit & Trust Co.; and Dana R. Sutton TRANSFER AGENT
President, Mercantile Bankshares Vice President and Assistant Treasurer
A I M Fund Services, Inc.
Jack Fields Melville B. Cox P.O. Box 4739
Chief Executive Officer Vice President Houston, TX 77210-4739
Texana Global, Inc.;
Formerly Member Renee A. Friedli CUSTODIAN
of the U.S. House of Representatives Assistant Secretary
State Street Bank and Trust Company
Carl Frischling P. Michelle Grace 225 Franklin Street
Partner Assistant Secretary Boston, MA 02110
Kramer, Levin, Naftalis & Frankel
Jeffrey H. Kupor COUNSEL TO THE FUND
Robert H. Graham Assistant Secretary
President and Chief Executive Officer Ballard Spahr
A I M Management Group Inc. Nancy L. Martin Andrews & Ingersoll, LLP
Assistant Secretary 1735 Market Street
Prema Mathai-Davis Philadelphia, PA 19103
Chief Executive Officer, YWCA of the U.S.A.; Ofelia M. Mayo
Commissioner, New York City Dept. for the Assistant Secretary COUNSEL TO THE DIRECTORS
Aging; and member of the Board of Directors,
Metropolitan Transportation Authority of Lisa A. Moss Kramer, Levin, Naftalis & Frankel
New York State Assistant Secretary 919 Third Avenue
New York, NY 10022
Lewis F. Pennock Kathleen J. Pflueger
Attorney Assistant Secretary DISTRIBUTOR
Ian W. Robinson Samuel D. Sirko Fund Management Company
Consultant; Formerly Executive Assistant Secretary 11 Greenway Plaza
Vice President and Suite 100
Chief Financial Officer Stephen I. Winer Houston, TX 77002
Bell Atlantic Management Assistant Secretary
Services, Inc. AUDITORS
Mary J. Benson
Louis S. Sklar Assistant Treasurer KPMG Peat Marwick LLP
Executive Vice President 700 Louisiana
Hines Interests Houston, TX 77002
Limited Partnership
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Weingarten Fund Institutional Class paid ordinary dividends in the amount of
$1.3100 per share during the Fund's tax year ended October 31, 1998. Of this
amount 12.47% is eligible for the dividends received deduction for corporations.
The Fund also distributed long-term capital gains of $2.2983 per share during
the Fund's tax year ended October 31, 1998.
48
