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INSTITUTIONAL CLASSES OF
AIM CHARTER FUND
AIM CONSTELLATION FUND
AIM WEINGARTEN FUND
(SERIES PORTFOLIOS OF AIM EQUITY FUNDS, INC.)
Supplement dated October 1, 1999
to the Statement of Additional Information dated March 1, 1999,
as revised May 4, 1999
The following replaces in its entirety the paragraph under the heading
"INVESTMENT STRATEGIES AND RISKS - INVESTMENT IN OTHER INVESTMENT
COMPANIES" on page 13 of the Statement of Additional Information:
"Each of the Funds may invest in other investment companies to the
extent permitted by the 1940 Act, and rules and regulations
thereunder, and if applicable, exemptive orders granted by the SEC.
The Funds have obtained an exemptive order from the SEC allowing them
to invest in money market funds that have AIM or an affiliate of AIM
as an investment adviser (the "Affiliated Money Market Funds"),
provided that investments in Affiliated Money Market Funds do not
exceed 25% of the total assets of such Fund. With respect to a Fund's
purchase of shares of the Affiliated Money Market Funds, the Fund will
indirectly pay the advisory fees and other operating expenses of the
Affiliated Money Market Funds."
The following section is added before the heading "OPTIONS, FUTURES AND
CURRENCY STRATEGIES" on page 13 of the Statement of Additional Information:
"TEMPORARY DEFENSIVE INVESTMENTS
In anticipation of or in response to adverse market conditions,
for cash management purposes, or for defensive purposes, each of the
Funds may temporarily hold all or a portion of its assets in cash,
money market instruments, bonds, or other debt securities. Each of the
Funds may also invest up to 25% of its total assets in Affiliated
Money Market Funds for these purposes. For a description of the
various rating categories of corporate bonds and commercial paper in
which the Funds may invest, see the Appendix to this Statement of
Additional Information."
The following is added to the end of the first paragraph under the heading
"OPTIONS, FUTURES AND CURRENCY STRATEGIES COVER" on page 14 of the
Statement of Additional Information:
"To the extent that a futures contract, forward contract or option
is deemed to be illiquid, the assets used to "cover" the Fund's
obligation will also be treated as illiquid for purposes of
determining the Fund's maximum allowable investment in illiquid
securities.
Even though options purchased by the Funds do not expose the Funds
to an obligation to another party, but rather provide the Funds with a
right to exercise, the Funds intend to "cover" the cost of any such
exercise. To the extent that a purchased option is deemed illiquid,
the Fund will treat the market value of the option (i.e., the amount
at risk to the Fund) as illiquid, but will not treat the assets used
as cover on such transactions as illiquid."
The following sentence replaces in its entirety the first sentence of the
first paragraph under the heading "OPTIONS, FUTURES AND CURRENCY STRATEGIES
- - PURCHASING PUT OPTIONS" on page 15 of the Statement of Additional
Information:
"Each of the Funds may purchase covered put options on securities,
futures contracts, forward contracts, indices and currencies."
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The following replaces in its entirety the information appearing under the
heading "OPTIONS, FUTURES AND CURRENCY STRATEGIES - PURCHASING CALL OPTIONS"
on page 16 of the Statement of Additional Information:
"PURCHASING CALL OPTIONS
Each of the Funds may purchase covered call options on securities,
futures contracts, forward contracts, indices and currencies. As the
holder of a call option, a Fund would have the right to purchase the
underlying security, contract or currency at the exercise price at any
time until (American style) or on (European style) the expiration
date. A Fund may enter into closing sale transactions with respect to
such options, exercise such options or permit such options to expire.
Call options may be purchased by a Fund for the purpose of
acquiring the underlying security, contract or currency for its
portfolio. Utilized in this fashion, the purchase of call options
would enable a Fund to acquire the security, contract or currency at
the exercise price of the call option plus the premium paid. So long
as it holds such a call option, rather than the underlying security or
currency itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security, contract or
currency and, in such event, could allow the call option to expire,
incurring a loss only to the extent of the premium paid for the
option.
Each of the Funds may also purchase call options on underlying
securities, contracts or currencies against which it has written other
call options. For example, where a Fund has written a call option on
an underlying security, rather than entering a closing transaction of
the written option, it may purchase a call option with a different
exercise price and/or expiration date that would eliminate some or all
of the risk associated with the written call. Used in combinations,
these strategies are commonly referred to as "call spreads."
OVER-THE-COUNTER OPTIONS
Options may be either listed on an exchange or traded in
over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and
seller is guaranteed by the exchange or clearing corporation) and have
standardized strike prices and expiration dates. OTC options are
two-party contracts with negotiated strike prices and expiration
dates. A Fund will not purchase an OTC option unless it believes that
daily valuations for such options are readily obtainable. OTC options
differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which
guarantees performance). Consequently, there is a risk of
non-performance by the dealer. Since no exchange is involved, OTC
options are valued on the basis of an average of the last bid prices
obtained from dealers, unless a quotation from only one dealer is
available, in which case only that dealer's price will be used. In the
case of OTC options, there can be no assurance that a liquid secondary
market will exist for any particular option at any specific time.
Although a Fund will enter into OTC options only with dealers that are
expected to be capable of entering into closing transactions with it,
there is no assurance that the Fund will in fact be able to close out
an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the dealer, a Fund might be unable to close
out an OTC option position at any time prior to its expiration.
The staff of the SEC considers purchased OTC options (i.e., the
market value of the option) to be illiquid securities. A Fund may also
sell OTC options and, in connection therewith, segregate assets or
cover its obligations with respect to OTC options written by it. The
assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified
dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in
the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic
value of the option."
The following replaces in its entirety the third paragraph under the
heading "OPTIONS, FUTURES AND CURRENCY STRATEGIES - pINTEREST RATE, CURRENCY
AND STOCK INDEX FUTURES CONTRACTS" on page 17 of the Statement of
Additional Information:
"The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument.
Futures exchanges and trading thereon in the United States are
regulated under the Commodity Exchange Act and by the
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Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges
and trading thereon are not regulated by the CFTC and are not subject to
the same regulatory controls. For a further discussion of the risks
associated with investments in foreign securities, see "Foreign
Securities" in this Statement of Additional Information."
The following paragraph replaces in its entirety the first paragraph after
item (i) on page 21 of the Statement of Additional Information:
"In addition, Weingarten may not (a) invest more than 5% of the
total assets of the Fund (valued at market) in securities of any one
issuer (other than obligations of the U.S. Government and its
instrumentalities), except that the Fund may purchase securities of
Affiliated Money Market Funds to the extent permitted by exemptive
order; (b) purchase more than 10% of the outstanding securities of any
one issuer or more than 10% of any class of securities of an issuer,
except that the Fund may purchase securities of Affiliated Money
Market Funds to the extent permitted by exemptive order; or (c)
purchase additional securities when any borrowings from banks exceeds
5% of the Fund's total assets. These additional restrictions are not
fundamental, and may be changed by the Board of Directors of the
Company without shareholder approval."
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