-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O0v5l1wl/VvzhAiw6hoFxK3bKc8l/bAORABkAiJ8Lz6x6pFen9lEqjb/zLXbwN4Q 4dd5EUU2k2/V+eXXv+5pWA== 0000950129-97-000176.txt : 19970120 0000950129-97-000176.hdr.sgml : 19970120 ACCESSION NUMBER: 0000950129-97-000176 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970117 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIM EQUITY FUNDS INC CENTRAL INDEX KEY: 0000105377 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132576643 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-25469 FILM NUMBER: 97507543 BUSINESS ADDRESS: STREET 1: ELEVEN GREENWAY PLZ STREET 2: STE 1919 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7136261919 MAIL ADDRESS: STREET 1: AIM EQUITY FUNDS INC STREET 2: 11 GREENWAY PLZ STE 1919 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: WEINGARTEN EQUITY FUND INC DATE OF NAME CHANGE: 19880929 FORMER COMPANY: FORMER CONFORMED NAME: COMPUFUND INC DATE OF NAME CHANGE: 19880616 497 1 AEF - AIM AGGRESSIVE GROWTH FUND - 497(C) 1 [APPLICATION INSIDE] [AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark-- RETAIL CLASS OF AIM EQUITY FUNDS, INC. AIM AGGRESSIVE GROWTH FUND (Growth) PROSPECTUS JANUARY 15, 1997 This Prospectus contains information about the AIM AGGRESSIVE GROWTH FUND ("AGGRESSIVE GROWTH" or the "Fund"), one of six separate investment portfolios comprising series of AIM Equity Funds, Inc. (the "Company"), an open-end, series, management investment company. The Fund is a diversified portfolio which seeks to achieve long-term growth of capital by investing primarily in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the Fund's investment advisor are expected to achieve earnings growth over time at a rate in excess of 15% per year. The Fund has discontinued public sales of its shares to new investors. See "Summary" and "Closure of the Fund to New Investors" in this Prospectus for more complete information. This Prospectus sets forth concisely the information about the Fund that prospective investors should know before investing. It should be read and retained for future reference. A Statement of Additional Information dated January 15, 1997 has been filed with the United States Securities and Exchange Commission (the "SEC") and is incorporated herein by reference. The Statement of Additional Information is available without charge upon written request to the Company at 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173 or by calling (800) 347-4246. The SEC maintains a Web site at http://www.sec.gov that contains the Statement of Additional Information, material incorporated by reference, and other information regarding the Fund. THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUND'S SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 2 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE PAGE ---- ---- SUMMARY.................................. 2 Introduction to The AIM Family of THE FUND................................. 4 Funds............................... A-1 Table of Fees and Expenses............. 4 How to Purchase Shares................. A-1 Financial Highlights................... 5 Terms and Conditions of Purchase of the Performance............................ 6 AIM Investment Program..................... 6 Funds............................... A-2 Management............................. 9 Special Plans.......................... A-8 Organization of the Company............ 11 Exchange Privilege..................... A-10 Closure of the Fund to New Investors... 12 How to Redeem Shares................... A-12 Legal Matters.......................... 12 Determination of Net Asset Value....... A-15 INVESTOR'S GUIDE TO THE AIM FAMILY OF Dividends, Distributions and Tax FUNDS--Registered Trademark--.......... A-1 Matters............................. A-16 General Information.................... A-18 APPLICATION INSTRUCTIONS................. B-1
SUMMARY - -------------------------------------------------------------------------------- THE FUND AIM Equity Funds, Inc. (the "Company") is a Maryland corporation organized as an open-end, diversified, series, management investment company. Currently, the Company offers six series comprising six separate investment portfolios, each of which pursues unique investment objectives. This Prospectus relates only to AGGRESSIVE GROWTH. The Fund's investment objective is to achieve long-term growth of capital by investing primarily in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which, in the opinion of the Fund's investment advisor, are expected to achieve earnings growth over time at a rate in excess of 15% per year. There is no assurance that the investment objective of the Fund will be achieved. For more complete information on the Fund's investment policies, see "Investment Program." The Company also offers other classes of shares in five other investment portfolios, AIM BLUE CHIP FUND ("BLUE CHIP"), AIM CAPITAL DEVELOPMENT FUND ("CAPITAL DEVELOPMENT"), AIM CHARTER FUND ("CHARTER"), AIM CONSTELLATION FUND ("CONSTELLATION") and AIM WEINGARTEN FUND ("WEINGARTEN") each of which pursues unique investment objectives. The other classes of shares of the other Funds of the Company have different sales charges and expenses, which may affect performance. To obtain information about the other shares of BLUE CHIP, CAPITAL DEVELOPMENT, CHARTER, CONSTELLATION, or WEINGARTEN call (800) 347-4246. See "General Information." AGGRESSIVE GROWTH has discontinued public sales of its shares to new investors. Shareholders who maintain an open account will be able to continue to make investments in the Fund and reinvest any dividends and capital gains distributions, as well as open additional accounts in the Fund under certain conditions. If an account is closed, however, additional investments in the Fund may not be possible. The Fund may resume sales of its shares to new investors at some future date. See "Closure of the Fund to New Investors" in this Prospectus for additional information. The assets of each Fund are invested in a separate portfolio. The classes of each Fund share a common investment objective and portfolio of investments. The income from the investment portfolio of a Fund is allocated to each class of the Fund based on the net assets of such class as of the close of business on the previous business day, as adjusted for the current day's shareholder activity. Each class bears proportionately those expenses, such as the advisory fee, that are allocated to the Fund as a whole and bears separately certain expenses, such as those associated with the distribution of the shares of such class. Consequently, the amounts available for payment of dividends and the net asset value per share of each class will vary. See "General Information." THE ADVISOR. A I M Advisors, Inc. ("AIM") serves as the Fund's investment advisor pursuant to a Master Investment Advisory Agreement. AIM acts as manager or advisor to 42 investment company portfolios. As of December 31, 1996, the total assets of the investment company portfolios advised or managed by AIM or its affiliates were approximately $62.3 billion. Under the Master Advisory Agreement dated as of October 18, 1993 (the "Master Advisory Agreement"), AIM receives a fee for its services based on the Fund's average daily net assets. Under the Master Administrative Services Agreement between the Company and AIM dated as of October 18, 1993 (the "Master Administrative Services Agreement"), AIM may receive reimbursement of its costs to perform certain accounting and other administrative services to the Fund. Under a Transfer Agency and Service Agreement, A I M Fund Services, Inc. ("AFS"), AIM's wholly-owned subsidiary and a registered transfer agent, receives a fee for its provision of transfer agency, dividend distribution and disbursement, and shareholder services to the Retail Class of the Fund. The total advisory fees paid by the Fund is higher than those paid by many other investment companies of all sizes and investment objectives. However, the effective fee paid by the Fund at its current size is lower than the fees paid by many other funds with similar investment objectives. See "Management." 2 3 PURCHASING SHARES. Class A shares of the Fund are offered by this Prospectus at net asset value plus a sales charge of 5.50% of the public offering price (5.82% of the net amount invested). The sales charge is reduced on purchases of $25,000 or more. Initial investments must be at least $500 and additional investments must be at least $50. The minimum initial investment is modified for investments through tax-qualified retirement plans and accounts initially established with an Automatic Investment Plan. The distributor of the Fund's shares is A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston, TX 77210-4739. See "How to Purchase Shares" and "Special Plans." EXCHANGE PRIVILEGE. The Fund is among those mutual funds distributed by AIM Distributors (collectively, "The AIM Family of Funds"). Shares of the Fund may be exchanged for shares of other funds in The AIM Family of Funds in the manner and subject to the policies and charges set forth herein. See "Exchange Privilege." REDEEMING SHARES. Shareholders may redeem all or a portion of their shares at their net asset value on any business day, generally without charge. A contingent deferred sales charge of 1.00% may apply to certain redemptions where a purchase of more than $1 million is made at net asset value. See "How to Redeem Shares." DISTRIBUTIONS. The Fund currently declares and pays dividends from net investment income, if any, on an annual basis. The Fund makes distributions of realized capital gains, if any, on an annual basis. Dividends and distributions of the Fund may be reinvested at net asset value without payment of a sales charge in the Fund's shares or may be invested in shares of the other funds in The AIM Family of Funds. See "Dividends, Distributions and Tax Matters" and "Special Plans." MATERIAL EVENTS On November 4, 1996, A I M Management Group Inc. ("AIM Management") announced that it had entered into an Agreement and Plan of Merger among INVESCO plc ("INVESCO"), INVESCO Group Services Inc. and AIM Management, pursuant to which AIM Management will be merged with INVESCO Group Services Inc. Subject to a number of conditions being met, it is currently anticipated that the transaction will occur in the early part of 1997. The Fund's investment advisor, AIM, is a wholly owned subsidiary of AIM Management. APPROVAL OF NEW ADVISORY, ADMINISTRATIVE SERVICES AND DISTRIBUTION AGREEMENTS. On December 11, 1996, the Board of Directors (the "Board") of the Company approved a new investment advisory agreement, subject to shareholder approval, between AIM and the Company with respect to the Fund. Shareholders will be asked to approve the proposed advisory agreement at an annual meeting of shareholders to be held on February 7, 1997 (the "Annual Meeting"). The Board has also approved a new administrative services agreement with AIM and a new distribution agreement with AIM Distributors. There have been no material changes to the terms of the new agreements, including the fees payable by the Fund. No change is anticipated in the investment advisory or other personnel responsible for the Fund as a result of these new agreements. The Board has approved these new agreements because the Fund's corresponding existing agreements will terminate upon the consummation of the proposed merger of AIM Management, the parent of AIM, into a subsidiary of INVESCO. INVESCO and its subsidiaries are an independent investment management group engaged in institutional investment management and retail mutual fund businesses in the United States, Europe and the Pacific region. It is contemplated that the merger will occur on February 28, 1997. Provided that the Fund's shareholders approve the new advisory agreement at the Annual Meeting and the merger is consummated, the new advisory agreement with respect to the Fund, as well as the new administrative services and distribution agreements, will automatically become effective as of the closing of the merger. PROPOSED CHANGES TO FUNDAMENTAL INVESTMENT POLICIES. The board has unanimously approved the elimination of and changes to certain fundamental investment policies of the Fund, subject to shareholder approval. Shareholders will be asked to approve these changes at the Annual Meeting. If approved, they will become effective on March 1, 1997. Investment in Other Investment Companies The Fund is currently generally prohibited from investing in other investment companies. The Board has approved the elimination of this prohibition, and the amendment to another fundamental investment policy that corresponds to the proposed elimination. The elimination of the fundamental investment policy that prohibits the Fund from investing in other investment companies and the proposed amendment to the corresponding fundamental investment policy would permit investment in other investment companies to the extent permitted by the Investment Company Act of 1940, and rules and regulations thereunder, and, if applicable, exemptive orders granted by the Securities and Exchange Commission. For additional information regarding the proposed changes described above, see the Funds' Statement of Additional Information dated January 15, 1997. THE AIM FAMILY OF FUNDS, THE AIM FAMILY OF FUNDS AND DESIGN (I.E., THE AIM LOGO), AIM AND DESIGN, AIM, AIM LINK AND AIM INSTITUTIONAL FUNDS ARE REGISTERED SERVICE MARKS AND LA FAMILIA AIM DE FONDOS AND LA FAMILIA AIM DE FONDOS AND DESIGN ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC. 3 4 THE FUND - -------------------------------------------------------------------------------- TABLE OF FEES AND EXPENSES The following table is designed to help an investor in the Fund understand the various costs that an investor will bear, both directly and indirectly. The fees and expenses set forth in the table are based on the actual average net assets for its 1996 fiscal year. The rules of the SEC require that the maximum sales charge be reflected in the table, even though certain investors may qualify for reduced sales charges. See "How to Purchase Shares." Shareholder Transaction Expenses (Retail Class) Maximum sales load imposed on purchase of shares (as a percentage of offering price)......................................................... 5.50% Maximum sales load imposed on reinvested dividends and distributions....... None Deferred sales load(1)..................................................... None Redemption fees............................................................ None Exchange fee............................................................... None Annual Fund Operating Expenses (Retail Class) (as a percentage of average net assets) Management fee............................................................. .64% 12b-1 fees(2).............................................................. .25% Other expenses: Transfer agent fees and costs........................................... .16% Other................................................................... .06% ----- Total other expenses.................................................... .22% ---- Total fund operating expenses.............................................. 1.11% =====
- --------------- (1) Purchases of $1 million or more are not subject to an initial sales charge. However, a contingent deferred sales charge of 1% applies to certain redemptions made within 18 months from the date such shares were purchased. See the Investor's Guide, under the caption "How to Redeem Shares -- Contingent Deferred Sales Charge Program for Large Purchases." (2) As a result of 12b-1 fees, a long-term shareholder may pay more than the economic equivalent of the maximum front-end sales charges permitted by the rules of the National Association of Securities Dealers, Inc. Given the Rule 12b-1 fee of the Fund, however, it is estimated that it would take a substantial number of years for a shareholder to exceed such maximum front-end sales charges. EXAMPLES. An investor would pay the following expenses on a $1,000 investment, assuming (a) a 5% annual return and (b) redemption at the end of each time period: 1 year................................................................ $66 3 years............................................................... $88 5 years............................................................... $113 10 years............................................................... $183
The above examples assume payment of a sales charge at the time of purchase; actual expenses may vary for purchases of $1 million or more, which are made at net asset value and subject to a contingent deferred sales charge for 18 months following the date such shares were purchased. THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF ACTUAL OR FUTURE EXPENSES, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN. IN ADDITION, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN THAT IS GREATER OR LESS THAN 5%. THE EXAMPLE ASSUMES REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND THAT THE PERCENTAGE AMOUNTS FOR TOTAL FUND OPERATING EXPENSES REMAIN THE SAME FOR EACH YEAR. 4 5 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Shown below for the periods indicated are per share data, ratios and supplemental data of the Fund. The data for the fiscal years ended October 31, 1996, 1995, 1994 and the ten months ended October 31, 1993 has been audited by KPMG Peat Marwick LLP, independent auditors, whose unqualified report thereon appears in the Statement of Additional Information and is available upon request from AIM Distributors, and the data for the six years ended December 31, 1992 has been derived from financial statements audited by Price Waterhouse LLP.
(PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) - -------------------------------------------------------------------------------------------------------------------- FISCAL YEAR TEN MONTHS ENDED OCTOBER 31, ENDED --------------------------------------- OCTOBER 31, 1996 1995 1994 1993 ---------- ---------- -------- ----------- Net asset value, beginning of period........................ $ 40.13 $ 28.37 $ 23.85 $ 18.52 Income from investment operations: Net investment income (loss).............................. (0.32) (0.04) (0.05) (0.02) Net gains (losses) on securities (both realized and unrealized).......................................... 6.09 11.80 4.57 5.35 ---------- ---------- -------- ----------- Total from investment operations........................... 5.77 11.76 4.52 5.33 ---------- ---------- -------- ----------- Less distributions: Dividends from net investment income....................... -- -- -- -- Distributions from capital gains........................... (0.97) -- -- -- ---------- ---------- -------- ----------- Total distributions........................................ (0.97) -- -- -- ---------- ---------- -------- ----------- Net asset value, end of period.............................. $ 44.93 $ 40.13 $ 28.37 $ 23.85 ========== ========== ======== =========== Total return(b)............................................. 14.77% 41.45% 18.96% 28.78% ========== ========== ======== =========== Ratios/supplemental data: Net assets, end of period (000s omitted)................... $2,750,564 $2,245,554 $687,238 $ 217,256 ========== ========== ======== =========== Ratio of expenses to average net assets(c)... 1.11%(e)(f) 1.08% 1.07% 1.00%(g) ========== ========== ======== =========== Ratio of net investment income (loss) to average net assets(d)............................................ (0.76)%(e) (0.19)% (0.26)% (0.24)%(g) ========== ========== ======== =========== Portfolio turnover rate.................................... 79% 52% 75% 61% ========== ========== ======== =========== Average broker commission rate(h).......................... $ 0.0545 N/A N/A N/A ========== ========== ======== ===========
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1992(a) 1991 1990 1989 1988 1987 ------- ------- ------ ------- ------- ------- Net asset value, beginning of period........................ $ 16.06 $ 11.85 $13.30 $ 11.07 $ 9.86 $ 12.10 Income from investment operations: Net investment income (loss)............................... (0.03) (0.04) 0.08 0.03 0.05 -- Net gains (losses) on securities (both realized and unrealized).......................................... 3.41 7.29 (0.95) 2.28 1.21 (1.38) ------- ------- ------ ------- ------- ------- Total from investment operations........................... 3.38 7.25 (0.87) 2.31 1.26 (1.38) ------- ------- ------ ------- ------- ------- Less distributions: Dividends from net investment income....................... -- -- (0.09) (0.03) (0.05) -- Distributions from capital gains........................... (0.92) (3.04) (0.49) (0.05) -- (0.86) ------- ------- ------ ------- ------- ------- Total distributions........................................ (0.92) (3.04) (0.58) (0.08) (0.05) (0.86) ------- ------- ------ ------- ------- ------- Net asset value, end of period.............................. $ 18.52 $ 16.06 $11.85 $ 13.30 $ 11.07 $ 9.86 ======= ======= ====== ======= ======= ======= Total return(b)............................................. 21.34% 63.90% (6.50)% 20.89% 12.77% (11.52)% ======= ======= ====== ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted)................... $38,238 $16,218 $9,234 $11,712 $12,793 $13,991 ======= ======= ====== ======= ======= ======= Ratio of expenses to average net assets(c)................. 1.25% 1.25% 1.25% 1.25% 1.22% 1.20% ======= ======= ====== ======= ======= ======= Ratio of net investment income (loss) to average net assets(d)............................................ (0.59)% (0.31)% 0.62% 0.24% 0.38% 0.01% ======= ======= ====== ======= ======= ======= Portfolio turnover rate.................................... 164% 165% 137% 69% 56% 118% ======= ======= ====== ======= ======= ======= Average broker commission rate(h).......................... N/A N/A N/A N/A N/A N/A ======= ======= ====== ======= ======= =======
- --------------- (a) The Fund changed investment advisors on June 30, 1992. (b) Does not deduct sales charges and, for periods less than one year, total returns are not annualized. (c) Ratios of expenses to average net assets prior to reduction of advisory fees and expense reimbursements were 1.15%, 1.09%, 1.17% (annualized), 1.65%, 1.83%, 1.99%, 1.80%, 1.56%, and 1.29%, for 1995-87, respectively. (d) Ratios of net investment income (loss) to average net assets prior to reduction of advisory fees and expense reimbursements were (0.26)%, (0.28)%, (0.41)% (annualized), (0.99)%, (0.89)%, (0.11)%, (0.31)%, 0.04%, and (0.08)% for 1995-87, respectively. (e) Ratios are based on average net assets of $2,596,810,191. (f) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have been 1.10%. (g) Annualized. (h) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. 5 6 - -------------------------------------------------------------------------------- PERFORMANCE The Fund's performance may be quoted in advertising in terms of yield or total return. All advertisements of the Fund will disclose the maximum sales charge imposed on purchases of the Fund's shares. If any advertised performance data does not reflect the maximum sales charge, if any, such advertisement will disclose that the sales charge has not been deducted in computing the performance data, and that, if reflected, the maximum sales charge would reduce the performance quoted. See the Statement of Additional Information for further details concerning performance comparisons used in advertisements by the Fund. Further information regarding the Fund's performance is contained in the annual report to shareholders which is available upon request and without charge. Total return shows the overall change in value, including changes in share price and assuming all the dividends and capital gain distributions are reinvested and that all charges and expenses are deducted. A cumulative total return reflects the Fund's performance over a stated period of time. An average annual total return reflects the hypothetical annually compounded return that would have produced the same cumulative total return if the Fund's performance had been constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of overall performance, the Fund may separate its cumulative and average annual returns into income results and capital gain or loss. Yield is computed in accordance with a standardized formula described in the Statement of Additional Information and can be expected to fluctuate from time to time and is not necessarily indicative of future results. Accordingly, yield information may not provide a basis for comparison with investments which pay a fixed rate of interest for a stated period of time. Yield is a function of the type and quality of investments, the maturity and the operating expense ratio of the Fund. From time to time and in its discretion, AIM may waive all or a portion of its advisory fees and/or assume certain expenses of the Fund. Such a practice will have the effect of increasing the Fund's total return. The performance will vary from time to time and past results are not necessarily indicative of future results. Performance is a function of its portfolio management in selecting the type and quality of portfolio securities and is affected by operating expenses of the Fund and market conditions. A shareholder's investment is not insured or guaranteed. These factors should be carefully considered by the investor before making an investment. - -------------------------------------------------------------------------------- INVESTMENT PROGRAM The Company has six series, each of which is a separate investment portfolio -- BLUE CHIP, CAPITAL DEVELOPMENT, CHARTER, WEINGARTEN, AGGRESSIVE GROWTH and CONSTELLATION. BLUE CHIP, CAPITAL DEVELOPMENT, CHARTER, WEINGARTEN and CONSTELLATION are offered to investors pursuant to separate prospectuses. The Fund may invest, for temporary or defensive purposes, all or a substantial portion of its assets in investment grade (high quality) corporate bonds, commercial paper, U.S. Government obligations, or taxable municipal securities. In addition, a portion of the Fund's assets may be held, from time to time, in cash, time deposits, master notes, repurchase agreements or other debt securities, when such positions are deemed advisable in light of economic or market conditions. The investment objective of the Fund is to achieve long-term growth of capital by investing primarily in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the Fund's investment advisor are expected to achieve earnings growth over time at a rate in excess of 15% per year. Many of these companies are in the small to medium-sized category. Management of the Fund will be particularly interested in companies that are likely to benefit from new or innovative products, services or processes that should enhance such companies' prospects for future growth in earnings. As a result of this policy, the market prices of many of the securities purchased and held by the Fund may fluctuate widely. Any income received from securities held by the Fund will be incidental, and an investor should not consider a purchase of shares of the Fund as equivalent to a complete investment program. The Fund's portfolio is primarily comprised of securities of two basic categories of companies: (a) "core" companies, which Fund management considers to have experienced above-average and consistent long-term growth in earnings and to have excellent prospects for outstanding future growth, and (b) "earnings acceleration" companies which Fund management believes are currently enjoying a dramatic increase in profits. See "Certain Investment Strategies and Policies" below and "Investment Objectives and Policies" in the Statement of Additional Information. The Fund's strategy does not preclude investment in large, seasoned companies which in the judgment of AIM possess superior potential returns similar to companies with formative growth profiles. The Fund will also invest in established smaller companies (under $500 million in market capitalization) which offer exceptional value based upon substantially above average earnings growth potential relative to market value. Investors should realize that equity securities of small to medium-sized companies may involve greater risk than is associated with investing in more established companies. Small to medium-sized companies often have limited product and market diversification, fewer financial resources or may be dependent on a few key managers. Any one of the foregoing may change suddenly and have an immediate impact on the value of the company's securities. Furthermore, whenever the securities markets are experiencing rapid price changes due to national economic trends, secondary growth securities have historically been subject to exaggerated price changes. The Fund may invest in non-equity securities, such as corporate bonds or U.S. Government obligations during periods when, in the opinion of AIM, prevailing market, financial, or economic conditions warrant, as well as when such holdings are advisable in light of a change in circumstances of a particular company or within a particular industry. 6 7 There can, of course, be no assurance that the Fund will in fact achieve its objectives since all investments are inherently subject to market risks. The Board of Directors of the Company reserves the right to change any of the investment policies, strategies or practices of the Fund, as described in this Prospectus and in the Statement of Additional Information, without shareholder approval, except in those instances where shareholder approval is expressly required. CERTAIN INVESTMENT STRATEGIES AND POLICIES. In pursuit of its objectives and policies, the Fund may employ one or more of the following strategies in order to enhance investment results: REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. A repurchase agreement is an instrument under which the Fund acquires ownership of a debt security and the seller agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the Fund's holding period. With regard to repurchase transactions, in the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (a) a possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase and sell stock index futures contracts and may also purchase options on stock index futures as a hedge against changes in market conditions. A stock index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to a specified dollar or other currency amount times the difference between the stock index value at the close of the last trading day of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying stocks in the index is made. The Fund may purchase and sell futures contracts and may purchase related options in order to hedge the value of its portfolio against changes in market conditions. Generally, the Fund may elect to close a position in a futures contract by taking an opposite position which will operate to terminate the Fund's position in the futures contract. See the Statement of Additional Information for a description of the Fund's investments in futures contracts and options on futures contracts, including certain related risks. The Fund may purchase or sell futures contracts or purchase related options if, immediately thereafter, the sum of the amount of margin deposits and premiums on open positions with respect to futures contracts and related options would not exceed 5% of the market value of the Fund's total assets. There are risks associated with investments in stock index futures contracts and options on such contracts. During certain market conditions, purchases and sales of futures contracts may not completely offset a decline or rise in the value of a Fund's portfolio. In the futures markets, it may not always be possible to execute a buy or sell order at the desired price, or to close out an open position due to market conditions, limits on open positions and/or daily price fluctuations. Changes in the market value of a Fund's portfolio may differ substantially from the changes anticipated by the Fund when hedged positions were established, and unanticipated price movements in a futures contract may result in a loss substantially greater than a Fund's initial investment in such contract. Successful use of futures contracts and related options is dependent upon AIM's ability to predict correctly movements in the direction of the applicable markets. No assurance can be given that AIM's judgment in this respect will be correct. WRITING COVERED CALL OPTION CONTRACTS. The Fund may write (sell) covered call options. The purpose of such transactions is to hedge against changes in the market value of the Fund's portfolio securities caused by fluctuating interest rates, fluctuating currency exchange rates and changing market conditions, and to close out or offset existing positions in such options or futures contracts as described below. The Fund will not engage in such transactions for speculative purposes. The Fund may write (sell) call options, but only if such options are covered and remain covered as long as the Fund is obligated as a writer of the option (seller). A call option is "covered" if the Fund owns the underlying security covered by the call. If a "covered" call option expires unexercised, the writer realizes a gain in the amount of the premium received. If the covered call option is exercised, the writer realizes either a gain or loss from the sale or purchase of the underlying security with the proceeds to the writer being increased by the amount of the premium. Prior to its expiration, a call option may be closed out by means of a purchase of an identical option. Any gain or loss from such transaction will depend on whether the amount paid is more or less than the premium received for the option plus related transaction costs. Options are subject to certain risks, including the risk of imperfect correlation between the option and the Fund's other investments and the risk that there might not be a liquid secondary market for the option when the Fund seeks to hedge against adverse market movements. In general, options whose strike prices are close to their underlying securities' current values will have the highest trading value, while options whose strike prices are further away may be less liquid. The liquidity of options may also be affected if options exchanges impose trading halts, particularly when markets are volatile. The investment policies of the Fund permit the writing of call options on securities comprising no more than 25% of the value of the Fund's net assets. The Fund's policies with respect to the writing of call options may be changed by the Company's Board of Directors, without shareholder approval. ILLIQUID SECURITIES. The Fund will not invest more than 15% of its net assets in illiquid securities, including repurchase agreements with maturities in excess of seven days. 7 8 SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. The Fund may purchase securities on a "when-issued" basis, that is, delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The Fund also may purchase or sell securities on a delayed delivery basis. The payment obligation and the interest rate that will be received on the delayed delivery securities are fixed at the time the buyer enters into the commitment. The Fund will only make commitments to purchase when-issued or delayed delivery securities with the intention of actually acquiring such securities, but the Fund may sell these securities before the settlement date if it is deemed advisable. For further information regarding securities issued on a when-issued or delayed delivery basis see the caption "Investment Objectives and Policies" in the Statement of Additional Information. RULE 144A SECURITIES. The Fund may invest in securities that are subject to restrictions on resale because they have not been registered under the Securities Act of 1933 (the "1933 Act"). These securities are sometimes referred to as private placements. Although securities which may be resold only to "qualified institutional buyers" in accordance with the provisions of Rule 144A under the 1933 Act are unregistered securities, the Fund may purchase Rule 144A securities without regard to the limitation on investments in illiquid securities described above under "Illiquid Securities," provided that a determination is made that such securities have a readily available trading market. AIM will determine the liquidity of Rule 144A securities under the supervision of the Company's Board of Directors. The liquidity of Rule 144A securities will be monitored by AIM and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not exceed its applicable percentage limitation for investments in illiquid securities. FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in foreign securities which may be payable in U.S. or foreign currencies and publicly traded in the United States or abroad. For purposes of computing such limitation, American Depository Receipts, European Depository Receipts and other securities representing underlying securities of foreign issuers are treated as foreign securities. To the extent the Fund invests in securities denominated in foreign currencies, the Fund bears the risk of changes in the exchange rates between U.S. currency and the foreign currency, as well as the availability and status of foreign securities markets. These securities will be marketable equity securities (including common and preferred stock, depositary receipts for stock and fixed income or equity securities exchangeable for or convertible into stock) of foreign companies which, with their predecessors, have been in continuous operation for three years or more and which generally are listed on a recognized foreign securities exchange or traded in a foreign over-the-counter market. The Fund may also invest in foreign securities listed on recognized U.S. securities exchanges or traded in the U.S. over-the-counter market. Such foreign securities may be issued by foreign companies located in developing countries in various regions of the world. A "developing country" is a country in the initial stages of its industrial cycle. As compared to investment in the securities markets of developed countries, investment in the securities markets of developing countries involves exposure to markets that may have substantially less trading volume and greater price volatility, economic structures that are less diverse and mature, and political systems that may be less stable. For a discussion of the risks pertaining to investments in foreign obligations, see "Risk Factors Regarding Foreign Securities" below. FOREIGN EXCHANGE TRANSACTIONS. The Fund has authority to deal in foreign exchange between currencies of the different countries in which it will invest as a hedge against possible variations in the foreign exchange rate between those currencies. This may be accomplished through direct purchases or sales of foreign currency, purchases of options on futures contracts with respect to foreign currency, and contractual agreements to purchase or sell a specified currency at a specified future date (up to one year) at a price set at the time of the contract. Such contractual commitments may be forward contracts entered into directly with another party or exchange-traded futures contracts. The Fund may purchase and sell options on futures contracts or forward contracts which are denominated in a particular foreign currency to hedge the risk of fluctuations in the value of another currency. The Fund's dealings in foreign exchange will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of foreign currency with respect to specific receivables or payables of the Fund accruing in connection with the purchase or sale of its portfolio securities, the sale and redemption of shares of the Fund, or the payment of dividends and distributions by the Fund. Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency. The Fund will not speculate in foreign exchange, nor commit more than 10% of its total assets to foreign exchange hedges. RISK FACTORS REGARDING FOREIGN SECURITIES. Investments by the Fund in foreign securities, whether denominated in U.S. currencies or foreign currencies, may entail all of the risks set forth below. Investments in ADRs, EDRs or similar securities also may entail some or all of the risks as set forth below. Currency Risk. The value of the Fund's foreign investments will be affected by changes in currency exchange rates. The U.S. dollar value of a foreign security decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and increases when the value of the U.S. dollar falls against such currency. Political and Economic Risk. The economies of many of the countries in which the Fund may invest are not as developed as the United States economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could also adversely affect the value of the Fund's investments. Regulatory Risk. Foreign companies are not registered with the SEC and are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies are not subject to uniform accounting, auditing and financial reporting 8 9 standards, practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Fund may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Fund's shareholders. Market Risk. The securities markets in many of the countries in which the Fund invests will have substantially less trading volume than the major United States markets. As a result, the securities of some foreign companies may be less liquid and experience more price volatility than comparable domestic securities. Increased custodian costs as well as administrative costs (such as the need to use foreign custodians) may be associated with the maintenance of assets in foreign jurisdictions. There is generally less government regulation and supervision of foreign stock exchanges, brokers and issuers which may make it difficult to enforce contractual obligations. In addition, transaction costs in foreign securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States. PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds reinvested, whenever such action is deemed prudent from the viewpoint of the Fund's investment objectives, regardless of the holding period of that security. The historical portfolio turnover rates are included in the Financial Highlights table herein. A higher rate of portfolio turnover may result in higher transaction costs, including brokerage commissions. Also, to the extent that higher portfolio turnover results in a higher rate of net realized capital gains to the Fund, the portion of the Fund's distributions constituting taxable capital gains may increase. The investment objectives and policies stated above are not fundamental policies of the Fund and may be changed by the Board of Directors of the Company without shareholder approval. Shareholders will be notified before any material change in the investment policies stated above become effective. See "Summary -- Material Events." INVESTMENT RESTRICTIONS. The Fund has adopted a number of investment restrictions, including the following: BORROWING. The Fund may borrow money to a limited extent from banks (including the Fund's custodian bank) for temporary or emergency purposes. The Fund may borrow amounts from banks provided that no borrowing may exceed one-third of the value of its total assets, including the proceeds of such borrowing, and may secure such borrowings by pledging up to one-third of the value of its total assets. LENDING OF FUND SECURITIES. The Fund may also lend its portfolio securities in amounts up to one-third of the total assets of the Fund. Such loans could involve risks of delay in receiving additional collateral in the event the value of the collateral decreased below the value of the securities loaned or of delay in recovering the securities loaned or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers deemed by AIM to be of good standing and only when, in AIM's judgment, the income to be earned from the loans justifies the attendant risks. The foregoing investment restrictions are matters of fundamental policy and may not be changed without shareholder approval. For additional investment restrictions applicable to the Fund, see the Statement of Additional Information. - -------------------------------------------------------------------------------- MANAGEMENT The overall management of the business and affairs of the Fund is vested with the Company's Board of Directors. The Board of Directors approves all significant agreements between the Company and persons or companies furnishing services to the Fund, including the Master Advisory Agreement with AIM, the Master Administrative Services Agreement with AIM, the Master Distribution Agreement with AIM Distributors as the distributor of the shares of the Fund, the Custodian Agreement with State Street Bank and Trust Company as custodian and the Transfer Agency and Service Agreement with AFS as transfer agent. The day-to-day operations of the Fund are delegated to its officers and to AIM, subject always to the objectives and policies of the Fund and to the general supervision of the Company's Board of Directors. Certain directors and officers of the Company are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the parent of AIM. AIM Management is a holding company engaged in the financial services business. Information concerning the Board of Directors may be found in the Statement of Additional Information. INVESTMENT ADVISOR. AIM, 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173, serves as the investment advisor to the Fund pursuant to the Master Advisory Agreement. AIM, together with its affiliates, advises or manages 42 investment company portfolios (including the Fund). As of December 31, 1996, the total assets of the investment company portfolios advised or managed by AIM and its affiliates were approximately $62.3 billion. AIM is a wholly-owned subsidiary of AIM Management. See "Summary -- Material Events." Under the terms of the Master Advisory Agreement, AIM supervises all aspects of the Fund's operations and provides investment advisory services to the Fund. AIM obtains and evaluates economic, statistical and financial information to formulate and implement investment programs for the Fund. AIM will not be liable to the Fund or its shareholders except in the case of AIM's willful misfeasance, bad faith, gross negligence or reckless disregard of duty; provided, however, that AIM may be liable for certain breaches of duty under the 1940 Act. 9 10 For a discussion of AIM's brokerage allocation policies and practices, see "Portfolio Transactions and Brokerage" in the Statement of Additional Information. In accordance with policies established by the directors, AIM may take into account sales of shares of the Fund and other funds advised by AIM in selecting broker-dealers to effect portfolio transactions on behalf of the Fund. ADMINISTRATOR. The Company has entered into a Master Administrative Services Agreement effective as of October 18, 1993 with AIM, pursuant to which AIM has agreed to provide or arrange for the provision of certain accounting and other administrative services to the Fund, including the services of a principal financial officer and related staff. As compensation to AIM for its services under the Master Administrative Services Agreements, the Fund reimburses AIM for expenses incurred by AIM or its affiliates in connection with such services. See "Summary -- Material Events." FEE WAIVERS. AIM may in its discretion, from time to time, agree to voluntarily waive all or any portion of its advisory fee and/or assume certain expenses of the Fund but will retain its ability to be reimbursed prior to the end of the fiscal year. ADVISORY FEES. As compensation for its services AIM is paid an investment advisory fee. For the fiscal year ended October 31, 1996, AIM received total advisory fees (net of fee waivers) of $16,492,564 which represented 0.64% of the Fund's average daily net assets. AIM received reimbursement of administrative services costs for the fiscal year ended October 31, 1996, which represented 0.004% of the Fund's average net assets. In addition, the Company and AFS, P.O. Box 4739, Houston, TX 77210-4739, a wholly-owned subsidiary of AIM and registered transfer agent, have entered into the Transfer Agency and Service Agreement, pursuant to which AFS provides transfer agency, dividend distribution and disbursement, and shareholder services to the Retail Class of the Fund. DISTRIBUTOR. The Company has entered into a Master Distribution Agreement, dated as of October 18, 1993, on behalf of Class A shares of the Retail Class of the Fund (the "Distribution Agreement") with AIM Distributors, a registered broker-dealer and a wholly-owned subsidiary of AIM, to act as the distributor of the shares of the Fund. The address of AIM Distributors is 11 Greenway Plaza, Suite 1919, Houston, TX 77046-1173. The Distribution Agreement provides that AIM Distributors has the exclusive right to distribute shares of the Retail Class of the Fund through affiliated broker-dealers and through other broker-dealers with whom AIM Distributors has entered into selected dealer agreements. Certain directors and officers of the Company are affiliated with AIM Distributors. See "Summary -- Material Events." DISTRIBUTION PLAN. The Company has adopted a Master Distribution Plan applicable to Class A shares of the Fund (the "Class A Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Class A Plan, the Company may compensate AIM Distributors an aggregate amount of 0.25% of the average daily net assets of the Fund on an annualized basis for the purpose of financing any activity that is intended to result in the sale of shares of the Fund. The Class A Plan is designed to compensate AIM Distributors, on a quarterly basis, for certain promotional and other sales-related costs, and to implement a dealer incentive program which provides for periodic payments to selected dealers who furnish continuing personal shareholder services to their customers who purchase and own shares of the Fund. In addition, certain banks who have entered into a Bank Shareholder Service Agreement and who sell shares of a Fund on an agency basis, may receive payments pursuant to the Class A Plan. Administrators of retirement plans may also be paid fees to offset costs of services. The Company will obtain a representation from financial institutions that they will be licensed as dealers as required under applicable state law, or that they will not engage in activities which would constitute acting as a "dealer" as defined under applicable state law. Activities appropriate for financing under the Class A Plan include, but are not limited to, the following: preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars; overhead of AIM Distributors; printing of prospectuses and statements of additional information (and supplements thereto) and reports for other than existing shareholders; supplemental payments to dealers under a dealer incentive program; and costs of administering the Class A Plan. The fees payable to selected dealers, banks and retirement plan administrators who participate in the program are calculated at the annual rate of 0.25% of the average daily net asset value of the Fund's shares that are held in such institution's customers' accounts which were purchased on or after a prescribed date set forth in the Class A Plan. The Class A Plan became effective on September 5, 1991, and was most recently amended on September 10, 1994. The Class A Plan conforms to the amended rules of the National Association of Securities Dealers, Inc., by providing that, of the aggregate amount payable under the Class A Plan, payments to dealers and other financial institutions that provide continuing personal shareholder services to their customers who purchase and own shares of the Fund, in amounts of up to 0.25% of the average net assets of the Fund attributable to the customers of such dealers or financial institutions may be characterized as a service fee, and that payments to dealers and other financial institutions in excess of such amount and payments to AIM Distributors would be characterized as an asset-based sales charge pursuant to the Class A Plan. The Class A Plan also imposes a cap on the total amount of sales charges, including asset-based sales charges, that may be paid by the Company with respect to the Fund. The Class A Plan does not obligate the Fund to reimburse AIM Distributors for the actual expenses AIM Distributors may incur in fulfilling its obligations under the Class A Plan on behalf of the Fund. Thus, under the Class A Plan, even if AIM Distributors' actual expenses exceed the fee payable to AIM Distributors thereunder at any given time, the Fund will not be obligated to pay more than that fee. If AIM Distributors' expenses are less than the fee it receives, AIM Distributors will retain the full amount of the fee. Payments pursuant to the Plans are subject to any applicable limitations imposed by rules of the National Association of Securities Dealers, Inc. 10 11 Under the Class A Plan, AIM Distributors may in its discretion from time to time agree to waive voluntarily all or any portion of its fee, while retaining its ability to be reimbursed for such fee prior to the end of each fiscal year. The Plan may be terminated at any time by a vote of the majority of those directors who are not interested "interested persons" of the Company or by a vote of the majority of the outstanding shares. PORTFOLIO MANAGERS AIM uses a team approach and a disciplined investment process in providing investment advisory services to all of its accounts, including the Funds. AIM's investment staff consists of 118 individuals. While individual members of AIM's investment staff are assigned primary responsibility for the day-to-day management of each of AIM's accounts, all accounts are reviewed on a regular basis by AIM's Investment Policy Committee to ensure that they are being invested in accordance with the account's and AIM's investment policies. The individuals who are primarily responsible for the day-to-day management of the Funds and their titles, if any, with AIM or its affiliates and the Fund, the length of time they have been responsible for the management, and their years of investment experience and prior experience (if they have been with AIM for less than five years) are shown below. Robert M. Kippes, Kenneth A. Zschappel and Charles D. Scavone are primarily responsible for the day-to-day management of AGGRESSIVE GROWTH. Mr. Kippes is Vice President of A I M Capital Management, Inc. ("AIM Capital"), a wholly-owned subsidiary of AIM. He currently serves as co-manager of AGGRESSIVE GROWTH and has been responsible for the Fund since 1992. Mr. Kippes has been associated with AIM and/or its affiliates since 1989 and has seven years of experience as an investment professional. Mr. Zschappel is Assistant Vice President of AIM Capital and has been responsible for the Fund since 1996. Mr. Zschappel has been associated with AIM and/or its affiliates since 1990 and has six years of experience as an investment professional. Mr. Scavone is Vice President of AIM Capital and has been responsible for the Fund and has been associated with AIM and/or its affiliates since 1996. Mr. Scavone has five years experience as an investment professional. Prior to joining AIM, Mr. Scavone was Associate Portfolio Manager for Van Kampen American Capital Asset Management, Inc. from 1994-1996. From 1991 to 1994, he worked in the investments department at Texas Commerce Investment Management Company, with his last position being Equity Research Analyst/Assistant Portfolio Manager. - -------------------------------------------------------------------------------- ORGANIZATION OF THE COMPANY The Company was organized in 1988 as a Maryland corporation, and is registered with the SEC as a diversified, open-end, series, management investment company. The Company currently consists of six separate portfolios: CHARTER and WEINGARTEN, each of which has retail classes of shares consisting of Class A and Class B shares and an Institutional Class; CONSTELLATION, which has retail classes of Class A shares and an Institutional Class; AGGRESSIVE GROWTH, which has a retail class of shares consisting of Class A shares; and BLUE CHIP and CAPITAL DEVELOPMENT, which have retail classes of shares consisting of Class A and Class B shares. The Company's common stock is classified into thirteen different classes. Each class represents an interest in one of six portfolios. Prior to October 15, 1993, the Fund was a portfolio of AIM Funds Group, a Massachusetts business trust. Pursuant to an Agreement and Plan of Reorganization between the Company and AIM Funds Group, the Fund was redomesticated as a portfolio of the Company effective as of October 15, 1993. Each class of shares of the same Fund represent interests in that Fund's assets and have identical voting, dividend, liquidation and other rights on the same terms and conditions, except that each class of shares bears differing class-specific expenses, such as those associated with the shareholder servicing of their shares, is subject to differing sales loads, conversion features and exchange privileges, and has exclusive voting rights on matters pertaining to that class' distribution plan. Except as specifically noted above, shareholders of each Fund are entitled to one vote per share (with proportionate voting for fractional shares), irrespective of the relative net asset value of the different classes of shares, where applicable, of a Fund. However, on matters affecting one portfolio of the Company or one class of shares, a separate vote of shareholders of that portfolio or class is required. Shareholders of a portfolio or class are not entitled to vote on any matter which does not affect that portfolio or class but which requires a separate vote of another portfolio or class. An example of a matter which would be voted on separately by shareholders of a portfolio is the approval of an advisory agreement, and an example of a matter which would be voted on separately by shareholders of a class of shares is approval of a distribution plan. When issued, shares of each Fund are fully paid and nonassessable, have no preemptive or subscription rights, and are fully transferable. Other than the automatic conversion of Class B shares to Class A shares, there are no conversion rights. Shares do not have cumulative voting rights, which means that in situations in which shareholders elect directors, holders of more than 50% of the shares voting for the election of directors can elect all of the directors of the Company, and the holders of less than 50% of the shares voting for the election of directors will not be able to elect any directors. The holder of shares of the Fund is entitled to such dividends payable out of the net assets allocable to the Fund as may be declared by the Board of Directors of the Company. In the event of liquidation or dissolution of the Company, the holders of shares of the Fund will be entitled to receive pro rata, subject to the rights of creditors, the net assets of the Company allocable to the Fund. Fractional shares of the Fund have the same rights as full shares to the extent of their proportionate interest. 11 12 Under Maryland law and the Company's By-Laws, the Company need not hold an annual meeting of shareholders unless a meeting is required under the 1940 Act to elect directors. Shareholders may remove directors from office, and a meeting of shareholders may be called at the request of the holders of 10% or more of the Company's outstanding shares. - -------------------------------------------------------------------------------- CLOSURE OF THE FUND TO NEW INVESTORS The Fund reached a size in assets under management where, due to the limited size of the market of common stocks of small capitalized companies, it became increasingly difficult to satisfy the investment objective and guidelines. For this reason, the Board of Directors of the Fund determined that it would be advisable under the then current market conditions to close AGGRESSIVE GROWTH to new investors effective as of the close of business July 18, 1995. Shareholders who maintain open accounts in the Fund will be able to continue to make additional investments in the Fund. Please note applicable minimum account balance requirements in the Investor's Guide. Notwithstanding the right to reinstatement described in the Investor's Guide, no shareholder of AGGRESSIVE GROWTH who redeems their account in full will have the right of reinstatement. The Fund may resume sales of shares to new investors at some future date if the Board of Directors determines that it would be in the best interests of shareholders. LEGAL MATTERS The validity of the issuance of the shares of common stock offered hereby is being passed upon by Ballard Spahr Andrews & Ingersoll, 1735 Market Street, Philadelphia, Pennsylvania. On October 25, 1996 a shareholder of the Fund filed a lawsuit in United States District Court, Southern District of Texas, against the Company, AIM, AIM Distributors and Aggressive Growth as a nominal defendant. The action was instituted under Section 36(b) of the Investment Company Act of 1940 and seeks to recover damages allegedly suffered by the Fund in connection with fees paid for marketing and shareholder services after the Fund was closed to new investors. 12 13 THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND SHAREHOLDER ASSISTANCE IS (800) 959-4246 (7:30 A.M. TO 5:30 P.M. CENTRAL TIME). INVESTOR'S GUIDE TO THE AIM FAMILY OF FUNDS -- Registered Trademark -- - -------------------------------------------------------------------------------- INTRODUCTION TO THE AIM FAMILY OF FUNDS THE AIM FAMILY OF FUNDS consists of the following mutual funds: AIM AGGRESSIVE GROWTH FUND AIM HIGH YIELD FUND AIM BALANCED FUND AIM INCOME FUND AIM BLUE CHIP FUND AIM INTERMEDIATE GOVERNMENT FUND AIM CAPITAL DEVELOPMENT FUND AIM INTERNATIONAL EQUITY FUND AIM CHARTER FUND AIM LIMITED MATURITY TREASURY SHARES AIM CONSTELLATION FUND AIM MONEY MARKET FUND* AIM GLOBAL AGGRESSIVE GROWTH FUND AIM MUNICIPAL BOND FUND AIM GLOBAL GROWTH FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT AIM GLOBAL INCOME FUND AIM TAX-EXEMPT CASH FUND* AIM GLOBAL UTILITIES FUND AIM TAX-FREE INTERMEDIATE SHARES AIM GROWTH FUND AIM VALUE FUND AIM WEINGARTEN FUND
* Shares of AIM TAX-EXEMPT CASH FUND, and Class C shares of AIM MONEY MARKET FUND, are offered to investors at net asset value, without payment of a sales charge, as described below. Other funds, including the Class A and Class B shares of AIM MONEY MARKET FUND, are sold with an initial sales charge or subject to a contingent deferred sales charge upon redemption, as described below. IT IS IMPORTANT FOR SHAREHOLDERS CONSIDERING AN EXCHANGE TO CAREFULLY REVIEW THE PROSPECTUS OF THE FUND WHOSE SHARES WILL BE ACQUIRED IN AN EXCHANGE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SHARES OF ANY FUND OTHER THAN THE FUND(S) NAMED ON THE COVER PAGE OF THIS PROSPECTUS. - -------------------------------------------------------------------------------- HOW TO PURCHASE SHARES HOW TO OPEN AN ACCOUNT. In order to purchase shares of any of The AIM Family of Funds ("AIM Funds"), an investor must submit a fully completed new Account Application form directly to A I M Fund Services, Inc. ("AFS" or the "Transfer Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM Distributors") to sell shares of the AIM Funds. Accounts submitted without a correct, certified taxpayer identification number or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form W-9 (certifying exempt status) accompanying the registration information will be subject to backup withholding. See the Account Application for applicable Internal Revenue Service penalties. The minimum initial investment is $500, except for accounts initially established through an Automatic Investment Plan, which requires a special authorization form (see "Special Plans") and for certain retirement accounts. The minimum initial investment for accounts established with an Automatic Investment Plan is $50. The minimum initial investment for an Individual Retirement arrangement ("IRA") is $250. There are no minimum initial investment requirements applicable to money-purchase/profit-sharing plans, 401(k) plans, IRA/Simplified Employee Pension ("SEP") accounts, 403(b) plans or 457 (state deferred compensation) plans (except that the minimum initial investment for salary deferrals for such plans is $25), or for investment of dividends and distributions of any of the AIM Funds into any existing AIM Funds account. A Salary Reduction SEP ("SARSEP") may not be established after December 31, 1996; however existing SARSEP accounts can remain in effect. AFS' mailing address is: A I M Fund Services, Inc. P.O. Box 4739 Houston, TX 77210-4739 For additional information or assistance, investors should call the Client Services Department of AFS at: (800) 959-4246 Shares of any AIM Funds not named on the cover of this Prospectus are offered pursuant to separate prospectuses. Copies of other prospectuses may be obtained by calling (800) 347-4246. MCF 01/97* A-1 14 HOW TO PURCHASE ADDITIONAL SHARES. The minimum investment for subsequent purchases is $50. The minimum employee salary deferral investment for participants in money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or 457 plans is $25. There are no such minimum investment requirements for investment of dividends and distributions of any of the AIM Funds into any other existing AIM Funds account. Additional shares may be purchased directly through AIM Distributors or through any dealer who has entered into an agreement with AIM Distributors. Direct investments may be made by mail or by wiring payment to AFS as follows: SUBSEQUENT PURCHASES BY MAIL: Investors must indicate their account number and the name of the Fund being purchased. The remittance slip from a confirmation statement should be used for this purpose, and sent to AFS. PURCHASES BY WIRE: To insure prompt credit to his account, an investor or his dealer should call AFS' Client Services Department at (800) 959-4246 prior to sending a wire to receive a reference number for the wire. The following wire instructions should be used: Beneficiary Bank ABA/Routing #: 113000609 Beneficiary Account Number: 00100366807 Beneficiary Account Name: A I M Fund Services, Inc. RFB: Fund name, Reference Number (16 character limit) OBI: Shareholder Name, Shareholder Account Number (70 character limit)
- -------------------------------------------------------------------------------- TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS Shares of the AIM Funds, including Class A shares (the "Class A shares") of AIM AGGRESSIVE GROWTH FUND, AIM BALANCED FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM VALUE FUND and AIM WEINGARTEN FUND (other than AIM AGGRESSIVE GROWTH FUND and AIM CONSTELLATION FUND, collectively, the "Multiple Class Funds") may be purchased at their respective net asset value plus a sales charge as indicated below, except that shares of AIM TAX-EXEMPT CASH FUND and Class C shares (the "Class C shares") of AIM MONEY MARKET FUND are sold without a sales charge and Class B shares (the "Class B shares") of the Multiple Class Funds are sold at net asset value subject to a contingent deferred sales charge payable upon certain redemptions. These contingent deferred sales charges are described under the caption "How to Redeem Shares -- Multiple Distribution System." Securities dealers and other persons entitled to receive compensation for selling or servicing shares of a Multiple Class Fund may receive different compensation for selling or servicing one particular class of shares over another class in the same Multiple Class Fund. Factors an investor should consider prior to purchasing Class A or Class B shares (or, if applicable, Class C shares) of a Multiple Class Fund are described below under "Special Information Relating to Multiple Class Funds." For information on purchasing any of the AIM Funds and to receive a prospectus, please call (800) 347-4246. As described below, the sales charge otherwise applicable to a purchase of shares of a fund may be reduced if certain conditions are met. In order to take advantage of a reduced sales charge, the prospective investor or his dealer must advise AIM Distributors that the conditions for obtaining a reduced sales charge have been met. Net asset value is determined in the manner described under the caption "Determination of Net Asset Value." The following tables show the sales charge and dealer concession at various investment levels for the AIM Funds. MCF 01/97* A-2 15 SALES CHARGES AND DEALER CONCESSIONS GROUP I. Certain AIM Funds are currently sold with a sales charge ranging from 5.50% to 2.00% of the offering price on purchases of less than $1,000,000. These AIM Funds include Class A shares of each of AIM AGGRESSIVE GROWTH FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM VALUE FUND and AIM WEINGARTEN FUND.
DEALER CONCESSION INVESTOR'S SALES CHARGE ---------- --------------------------- AS A AS A AS A PERCENTAGE PERCENTAGE PERCENTAGE OF THE OF THE PUBLIC OF THE NET PUBLIC AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING SINGLE TRANSACTION PRICE INVESTED PRICE - ---------------------------- ------------- ---------- ---------- Less than $ 25,000 5.50% 5.82% 4.75% $ 25,000 but less than $ 50,000 5.25 5.54 4.50 $ 50,000 but less than $ 100,000 4.75 4.99 4.00 $100,000 but less than $ 250,000 3.75 3.90 3.00 $250,000 but less than $ 500,000 3.00 3.09 2.50 $500,000 but less than $1,000,000 2.00 2.04 1.60
There is no sales charge on purchases of $1,000,000 or more; however, AIM Distributors may pay a dealer concession and/or advance a service fee on such transactions. See "All Groups of AIM Funds." Purchases of $1,000,000 or more are at net asset value, subject to a contingent deferred sales charge of 1% if shares are redeemed prior to 18 months from the date such shares were purchased, as described under the caption "How to Redeem Shares -- Contingent Deferred Sales Charge Program for Large Purchases." GROUP II. Certain AIM Funds are currently sold with a sales charge ranging from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000. These AIM Funds are: AIM TAX-EXEMPT BOND FUND OF CONNECTICUT; and the Class A shares of each of AIM BALANCED FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND and AIM MUNICIPAL BOND FUND.
DEALER CONCESSION INVESTOR'S SALES CHARGE ---------- --------------------------- AS A AS A AS A PERCENTAGE PERCENTAGE PERCENTAGE OF THE OF THE PUBLIC OF THE NET PUBLIC AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING SINGLE TRANSACTION PRICE INVESTED PRICE - ---------------------------- ------------- ---------- ---------- Less than $ 50,000 4.75% 4.99% 4.00% $ 50,000 but less than $ 100,000 4.00 4.17 3.25 $100,000 but less than $ 250,000 3.75 3.90 3.00 $250,000 but less than $ 500,000 2.50 2.56 2.00 $500,000 but less than $1,000,000 2.00 2.04 1.60
There is no sales charge on purchases of $1,000,000 or more; however, AIM Distributors may pay a dealer concession and/ or advance a service fee on such transactions. See "All Groups of AIM Funds." Purchases of $1,000,000 or more are at net asset value, subject to a contingent deferred sales charge of 1% if shares are redeemed prior to 18 months from the date such shares were purchased, as described under the caption "How to Redeem Shares -- Contingent Deferred Sales Charge Program for Large Purchases." GROUP III. Certain AIM Funds are currently sold with a sales charge ranging from 1.00% to 0.50% of the offering price on purchases of less than $1,000,000. These AIM Funds are AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE INTERMEDIATE SHARES.
DEALER CONCESSION INVESTOR'S SALES CHARGE ---------- --------------------------- AS A AS A AS A PERCENTAGE PERCENTAGE PERCENTAGE OF THE OF THE PUBLIC OF THE NET PUBLIC AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING SINGLE TRANSACTION PRICE INVESTED PRICE - ---------------------------- ------------- ---------- ---------- Less than $ 100,000 1.00% 1.01% 0.75% $100,000 but less than $ 250,000 0.75 0.76 0.50 $250,000 but less than $1,000,000 0.50 0.50 0.40
There is no sales charge on purchases of $1,000,000 or more; however, AIM Distributors may pay a dealer concession and/or advance a service fee on such transactions. MCF 01/97* A-3 16 ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire initial sales charge to dealers for all sales with respect to which orders are placed with AIM Distributors during a particular period. Dealers to whom substantially the entire sales charge is re-allowed may be deemed to be "underwriters" as that term is defined under the Securities Act of 1933. In addition to amounts paid to dealers as a dealer concession out of the initial sales charge paid by investors, AIM Distributors may, from time to time, at its expense or as an expense for which it may be compensated under a distribution plan, if applicable, pay a bonus or other consideration or incentive to dealers who sell a minimum dollar amount of the shares of the AIM Funds during a specified period of time. In some instances, these incentives may be offered only to certain dealers who have sold or may sell significant amounts of shares. At the option of the dealer, such incentives may take the form of payment for travel expenses, including lodging, incurred in connection with trips taken by qualifying registered representatives and their families to places within or outside the United States. The total amount of such additional bonus payments or other consideration shall not exceed 0.25% of the public offering price of the shares sold. Any such bonus or incentive programs will not change the price paid by investors for the purchase of the applicable AIM Fund's shares or the amount that any particular AIM Fund will receive as proceeds from such sales. Dealers may not use sales of the AIM Funds' shares to qualify for any incentives to the extent that such incentives may be prohibited by the laws of any state. AIM Distributors may make payments to dealers and institutions who are dealers of record for purchases of $1 million or more of Class A shares (or shares which normally involve payment of initial sales charges), which are sold at net asset value and are subject to a contingent deferred sales charge, for all AIM Funds other than AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE INTERMEDIATE SHARES as follows: 1% of the first $2 million of such purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of the next $17 million of such purchases, plus 0.25% of amounts in excess of $20 million of such purchases. See "Contingent Deferred Sales Charge Program for Large Purchases." AIM Distributors may make payments to dealers and institutions who are dealers of record for purchases of $1 million or more of shares which normally involve payment of initial sales charges, and which are sold at net asset value and are not subject to a contingent deferred sales charge, in an amount up to 0.10% of such purchases of shares of AIM LIMITED MATURITY TREASURY SHARES, and in an amount up to 0.25% of such purchases of shares of AIM TAX-FREE INTERMEDIATE SHARES. AIM Distributors may pay sales commissions to dealers and institutions who sell Class B shares of the AIM Funds at the time of such sales. Payments with respect to Class B shares will equal 4.0% of the purchase price of the Class B shares sold by the dealer or institution, and will consist of a sales commission equal to 3.75% of the purchase price of the Class B shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. The portion of the payments to AIM Distributors under the Class B Plan which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of such sales commissions plus financing costs. TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund (other than AIM MONEY MARKET FUND, as described below) received prior to the close of the New York Stock Exchange ("NYSE"), which is generally 4:00 p.m. Eastern Time (and which is hereinafter referred to as "NYSE Close") on any business day of an AIM Fund will be confirmed at the price next determined. Orders received after NYSE Close will be confirmed at the price determined on the next business day of the AIM Fund. It is the responsibility of the dealer to ensure that all orders are transmitted on a timely basis to the Transfer Agent. Any loss resulting from the dealer's failure to submit an order within the prescribed time frame will be borne by that dealer. Please see "How to Purchase Shares -- Purchases by Wire" for information on obtaining a reference number for wire orders, which will facilitate the handling of such orders and ensure prompt credit to an investor's account. A "business day" of an AIM Fund is any day on which the NYSE is open for business. It is expected that the NYSE will be closed during the next twelve months on Saturdays and Sundays and on the days on which New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day are observed by the NYSE. An investor who uses a check to purchase shares will be credited with the full number of shares purchased at the time of receipt of the purchase order, as previously described. However, in the event of a redemption or exchange of such shares, the investor may be required to wait up to ten business days before the redemption proceeds are sent. This delay is necessary in order to ensure that the check has cleared. If the check does not clear, or if any investment order must be cancelled due to nonpayment, the investor will be responsible for any resulting loss to an AIM Fund or to AIM Distributors. SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class Funds, other than AIM MONEY MARKET FUND, currently offer two classes of shares, and AIM MONEY MARKET FUND currently offers three classes of shares, through separate distribution systems (the "Multiple Distribution System"). Although the Class A and Class B shares (and with respect to AIM MONEY MARKET FUND, Class C shares) of a particular Multiple Class Fund represent an interest in the same portfolio of investments, each class is subject to a different distribution structure and, as a result, differing expenses. This Multiple Distribution System allows investors to select the class that is best suited to the investor's needs and objectives. In considering the options afforded by the Multiple Distribution System, investors should consider both the applicable initial sales charge or contingent deferred sales charge, as well as the ongoing expenses borne by Class A or Class B shares and, if applicable, Class C shares, and other relevant factors, such as whether his or her investment goals are long-term or short-term. MCF 01/97* A-4 17 CLASS A SHARES are sold subject to the initial sales charges described above and are subject to the other fees and expenses described herein. Class A shares of AIM MONEY MARKET FUND are designed to meet the needs of an investor who wishes to establish a dollar cost averaging program, pursuant to which Class A shares an investor owns may be exchanged at net asset value for Class A shares of another Multiple Class Fund or shares of another AIM Fund which is not a Multiple Class Fund, subject to the terms and conditions described under the caption "Exchange Privilege -- Terms and Conditions of Exchanges." CLASS B SHARES are sold without an initial sales charge. Thus, the entire purchase price of Class B shares is immediately invested in Class B shares. Class B shares are subject, however, to Class B Plan payments of 1.00% per annum on the average daily net assets of a Multiple Class Fund attributable to Class B shares. See the discussion under the caption "Management -- Distribution Plans." In addition, Class B shares redeemed within six years from the date such shares were purchased are subject to a contingent deferred sales charge ranging from 5% for redemptions made within the first year to 1% for redemptions made within the sixth year. No contingent deferred sales charge will be imposed if Class B shares are redeemed after six years from the date such shares were purchased. Redemptions of Class B shares and associated charges are further described under the caption "How to Redeem Shares -- Multiple Distribution System." Class B shares will automatically convert into Class A shares of the same Multiple Class Fund (together with a pro rata portion of all Class B shares acquired through the reinvestment of dividends and distributions) eight years from the end of the calendar month in which the purchase of Class B shares was made. Following such conversion of their Class B shares, investors will be relieved of the higher Class B Plan payments associated with Class B shares. See "Management -- Distribution Plans." CLASS C SHARES of AIM MONEY MARKET FUND are sold without an initial sales charge and are not subject to a contingent deferred sales charge. Such shares are, however, subject to the other fees and expenses described in the prospectus for AIM MONEY MARKET FUND. TIMING OF PURCHASE, EXCHANGE AND REDEMPTION ORDERS (AIM MONEY MARKET FUND ONLY). Orders for purchases, exchanges and redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or NYSE Close on any business day of the Fund will be confirmed at the price next determined. Net asset value is normally determined at 12:00 noon and NYSE Close on each business day of AIM MONEY MARKET FUND. SPECIAL INFORMATION RELATING TO AIM MONEY MARKET FUND AND AIM TAX-EXEMPT CASH FUND (THE "MONEY MARKET FUNDS"). Because each Money Market Fund uses the amortized cost method of valuing the securities it holds and rounds its per share net asset value to the nearest whole cent, it is anticipated that the net asset value of the shares of such funds will remain constant at $1.00 per share. However, there is no assurance that either Money Market Fund can maintain a $1.00 net asset value per share. In order to earn dividends with respect to AIM MONEY MARKET FUND on the same day that a purchase is made, purchase payments in the form of federal funds must be received by the Transfer Agent before 12:00 noon Eastern Time on that day. Purchases made by payments in any other form, or payments in the form of federal funds received after such time but prior to NYSE Close, will begin to earn dividends on the next business day following the date of purchase. The Money Market Funds generally will not issue share certificates but will record investor holdings in noncertificate form and regularly advise the shareholder of his ownership position. Class B shares of AIM MONEY MARKET FUND are designed for temporary investment as part of an investment program in the Class B shares and, unlike shares of most money market funds, are subject to a contingent deferred sales charge as well as Rule 12b-1 distribution fees and service fees. SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon written request by a shareholder to AIM Distributors or the Transfer Agent. Otherwise, such shares will be held on the shareholder's behalf by the applicable AIM Fund(s) and be recorded on the books of such fund(s). See "Exchange Privilege -- Exchanges by Telephone" and "How to Redeem Shares -- Redemptions by Telephone" for restrictions applicable to shares issued in certificate form. Please note that certificates will not be issued for shares held in prototype retirement plans. MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect for at least one year and the shareholder has not made an additional purchase in that account within the preceding six calendar months and (2) the value of such account drops below $500 for three consecutive months as a result of redemptions or exchanges, the fund has the right to redeem the account, after giving the shareholder 60 days' prior written notice, unless the shareholder makes additional investments within the notice period to bring the account value up to $500. REDUCTIONS IN INITIAL SALES CHARGES Reductions in the initial sales charges shown in the sales charge tables (quantity discounts) apply to purchases of shares of the AIM Funds that are otherwise subject to an initial sales charge, provided that such purchases are made by a "purchaser" as hereinafter defined. Purchases of shares of AIM TAX-EXEMPT CASH FUND, Class C shares of AIM MONEY MARKET FUND and Class B shares of the Multiple Class Funds will not be taken into account in determining whether a purchase qualifies for a reduction in initial sales charges. MCF 01/97* A-5 18 The term "purchaser" means: o an individual and his or her spouse and minor children, including any trust established exclusively for the benefit of any such person; or a pension, profit-sharing, or other benefit plan established exclusively for the benefit of any such person, such as an IRA, a single-participant money-purchase/profit-sharing plan or an individual participant in a 403(b) Plan (unless such 403(b) plan qualifies as the purchaser as defined below); o a 403(b) plan, the employer/sponsor of which is an organization described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), provided that: a. the employer/sponsor must submit contributions for all participating employees in a single contribution transmittal (i.e., the funds will not accept contributions submitted with respect to individual participants); b. each transmittal must be accompanied by a single check or wire transfer; and c. all new participants must be added to the 403(b) plan by submitting an application on behalf of each new participant with the contribution transmittal; o a trustee or fiduciary purchasing for a single trust, estate or single fiduciary account (including a pension, profit-sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code) and 457 plans, although more than one beneficiary or participant is involved; o a Simplified Employee Pension ("SEP"), Salary Reduction and other Elective Simplified Employee Pension account ("SARSEP") where the employer has notified AIM Distributors in writing that all of its related employee SEP or SARSEP accounts should be linked; o any other organized group of persons, whether incorporated or not, provided the organization has been in existence for at least six months and has some purpose other than the purchase at a discount of redeemable securities of a registered investment company; or o the discretionary advised accounts of A I M Advisors, Inc. ("AIM") or A I M Capital Management, Inc. ("AIM Capital"). Investors or dealers seeking to qualify orders for a reduced initial sales charge must identify such orders and, if necessary, support their qualification for the reduced charge. AIM Distributors reserves the right to determine whether any purchaser is entitled, by virtue of the foregoing definition, to the reduced sales charge. No person or entity may distribute shares of the AIM Funds without payment of the applicable sales charge other than to persons or entities who qualify for a reduction in the sales charge as provided herein. (1) LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced initial sales charges by completing the appropriate section of the account application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is also available to holders of the Connecticut General Guaranteed Account, established for tax qualified group annuities, for contracts purchased on or before June 30, 1992. The LOI confirms such purchaser's intention as to the total investment to be made in shares of the AIM Funds (except for (i) AIM TAX-EXEMPT CASH FUND and Class C shares of AIM MONEY MARKET FUND and (ii) Class B shares of the Multiple Class Funds) within the following 13 consecutive months. By marking the LOI section on the account application and by signing the account application, the purchaser indicates that he understands and agrees to the terms of the LOI and is bound by the provisions described below. Each purchase of fund shares normally subject to an initial sales charge made during the 13-month period will be made at the public offering price applicable to a single transaction of the total dollar amount indicated by the LOI, as described under "Sales Charges and Dealer Concessions." It is the purchaser's responsibility at the time of purchase to specify the account numbers that should be considered in determining the appropriate sales charge. The offering price may be further reduced as described under "Rights of Accumulation" if the Transfer Agent is advised of all other accounts at the time of the investment. Shares acquired through reinvestment of dividends and capital gains distributions will not be applied to the LOI. At any time during the 13-month period after meeting the original obligation, a purchaser may revise his intended investment amount upward by submitting a written and signed request. Such a revision will not change the original expiration date. By signing an LOI, a purchaser is not making a binding commitment to purchase additional shares, but if purchases made within the 13-month period do not total the amount specified, the investor will pay the increased amount of sales charge as described below. Purchases made within 90 days before signing an LOI will be applied toward completion of the LOI. The LOI effective date will be the date of the first purchase within the 90-day period. The Transfer Agent will process necessary adjustments upon the expiration or completion date of the LOI. Purchases made more than 90 days before signing an LOI will be applied toward completion of the LOI based on the value of the shares purchased calculated at the public offering price on the effective date of the LOI. To assure compliance with the provisions of the 1940 Act, out of the initial purchase (or subsequent purchases if necessary) the Transfer Agent will escrow in the form of shares an appropriate dollar amount (computed to the nearest full share). All dividends and any capital gain distributions on the escrowed shares will be credited to the purchaser. All shares purchased, including those escrowed, will be registered in the purchaser's name. If the total investment specified under this LOI is completed within the 13-month period, the escrowed shares will be promptly released. If the intended investment is not completed, the purchaser will pay the Trans- MCF 01/97* A-6 19 fer Agent the difference between the sales charge on the specified amount and the amount actually purchased. If the purchaser does not pay such difference within 20 days of the expiration date, he irrevocably constitutes and appoints the Transfer Agent as his attorney to surrender for redemption any or all shares, to make up such difference within 60 days of the expiration date. If at any time before completing the LOI Program, the purchaser wishes to cancel the agreement, he must give written notice to AIM Distributors. If at any time before completing the LOI Program the purchaser requests the Transfer Agent to liquidate or transfer beneficial ownership of his total shares, a cancellation of the LOI will automatically be effected. If the total amount purchased is less than the amount specified in the LOI, the Transfer Agent will redeem an appropriate number of escrowed shares equal to the difference between the sales charge actually paid and the sales charge that would have been paid if the total purchases had been made at a single time. (2) RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also qualify for reduced initial sales charges based upon such purchaser's existing investment in shares of any of the AIM Funds (except for (i) AIM TAX-EXEMPT CASH FUND and Class C shares of AIM MONEY MARKET FUND and (ii) Class B shares of the Multiple Class Funds) at the time of the proposed purchase. Rights of Accumulation are also available to holders of the Connecticut General Guaranteed Account, established for tax-qualified group annuities, for contracts purchased on or before June 30, 1992. To determine whether or not a reduced initial sales charge applies to a proposed purchase, AIM Distributors takes into account not only the money which is invested upon such proposed purchase, but also the value of all shares of the AIM Funds (except for (i) AIM TAX-EXEMPT CASH FUND and Class C shares of AIM MONEY MARKET FUND and (ii) Class B shares of the Multiple Class Funds) owned by such purchaser, calculated at their then current public offering price. If a purchaser so qualifies for a reduced sales charge, the reduced sales charge applies to the total amount of money then being invested by such purchaser and not just to the portion that exceeds the breakpoint above which a reduced sales charge applies. For example, if a purchaser already owns qualifying shares of any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000 in a fund with a maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will apply to the full $20,000 purchase and not just to the $15,000 in excess of the $25,000 breakpoint. To qualify for obtaining the discount applicable to a particular purchase, the purchaser or his dealer must furnish AFS with a list of the account numbers and the names in which such accounts of the purchaser are registered at the time the purchase is made. PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at net asset value (without payment of an initial sales charge) may be made in connection with: (a) the reinvestment of dividends and distributions from a fund (see "Dividends, Distributions and Tax Matters"); (b) exchanges of shares of certain other funds (see "Exchange Privilege"); (c) use of the reinstatement privilege (see "How to Redeem Shares"); or (d) a merger, consolidation or acquisition of assets of a fund. Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A shares of the particular AIM Fund(s) whose shares they owned on such date, at net asset value (without payment of a sales charge) for as long as they continuously own Class A shares of such AIM Fund(s) having a market value of at least $500. In addition, discretionary advised clients of any investment advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM CHARTER FUND on November 17, 1986, and have held such Class A shares at all times subsequent to such date, may purchase Class A shares of the applicable AIM Fund(s) at the net asset value of such shares. The following persons may purchase shares of the AIM Funds through AIM Distributors without payment of an initial sales charge: (a) A I M Management Group Inc. ("AIM Management") and its affiliated companies; (b) any current or retired officer, director, trustee or employee, or any member of the immediate family (including spouse, children, parents and parents of spouse) of any such person, of AIM Management or its affiliates or of certain mutual funds which are advised or managed by AIM, or any trust established exclusively for the benefit of such persons; (c) any employee benefit plan established for employees of AIM Management or its affiliates; (d) any current or retired officer, director, trustee or employee, or any member of the immediate family (including spouse, children, parents and parents of spouse) of any such person, or of CIGNA Corporation or of any of its affiliated companies, or of First Data Investor Services Group (formerly The Shareholders Services Group, Inc.); (e) any investment company sponsored by CIGNA Investments, Inc. or any of its affiliated companies for the benefit of its directors' deferred compensation plans; (f) discretionary advised clients of AIM or AIM Capital; (g) registered representatives and employees of dealers who have entered into agreements with AIM Distributors (or financial institutions that have arrangements with such dealers with respect to the sale of shares of the AIM Funds) and any member of the immediate family (including spouse, children, parents and parents of spouse) of any such person, provided that purchases at net asset value are permitted by the policies of such person's employer; and (h) certain broker-dealers, investment advisers or bank trust departments that provide asset allocation, similar specialized investment services or investment company transaction services for their customers, that charge a minimum annual fee for such services, and that have entered into an agreement with AIM Distributors with respect to their use of the AIM Funds in connection with such services. In addition, shares of any AIM Fund may be purchased at net asset value, without payment of a sales charge, by pension, profit-sharing or other employee benefit plans created pursuant to a plan qualified under Section 401 of the Code or plans under Section 457 of the Code, or employee benefit plans created pursuant to Section 403(b) of the Code and sponsored by nonprofit organizations defined under Section 501(c)(3) of the Code. Such plans will qualify for purchases at net asset value provided that (1) the initial amount invested in the fund(s) is at least $1,000,000, (2) the sponsor signs a $1,000,000 LOI, (3) such shares are purchased by an MCF 01/97* A-7 20 employer-sponsored plan with at least 100 eligible employees, or (4) all of the plan's transactions are executed through a single omnibus account per fund and the financial institution or service organization has entered into an agreement with AIM Distributors with respect to their use of the AIM Funds in connection with such accounts. Section 403(b) plans sponsored by public educational institutions will not be eligible for net asset value purchases based on the aggregate investment made by the plan or the number of eligible employees. Participants in such plans will be eligible for reduced sales charges based solely on the aggregate value of their individual investments in the applicable AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR SUCH PLANS. AIM Distributors may pay investment dealers or other financial service firms up to 1.00% of the net asset value of any shares of the Load Funds (as defined on page A-10 herein) up to 0.10% of the net asset value of any shares of AIM LIMITED MATURITY TREASURY SHARES, and up to 0.25% of the net asset value of any shares of all other AIM Funds sold at net asset value to an employee benefit plan in accordance with this paragraph. Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be deposited at net asset value, without payment of a sales charge, in G/SET series unit investment trusts, whose portfolios consist exclusively of Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States Treasury issued notes or bonds bearing no current interest ("Treasury Obligations"). Class A shares of such funds may also be purchased at net asset value by other unit investment trusts approved by the Board of Directors of AIM Equity Funds, Inc. Unit holders of such trusts may elect to invest cash distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net asset value, including: (a) distributions of any dividend income or other income received by such trusts; (b) distributions of any net capital gains received in respect of Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and proceeds of the sale of Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such trusts; and (c) proceeds from the maturity of the Treasury Obligations at the termination dates of such trusts. Prior to the termination dates of such trusts, a unit holder may invest the proceeds from the redemption or repurchase of his units in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net asset value, provided: (a) that the investment in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is effected within 30 days of such redemption or repurchase; and (b) that the unit holder or his dealer provides AIM Distributors with a letter which: (i) identifies the name, address and telephone number of the dealer who sold to the unit holder the units to be redeemed or repurchased; and (ii) states that the investment in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is being funded exclusively by the proceeds from the redemption or repurchase of units of such trusts. FOR ANY FUND NAMED ON THE COVER PAGE OF THIS PROSPECTUS, AIM DISTRIBUTORS AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME (1) TO WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS; (2) TO REJECT ANY PURCHASE OR EXCHANGE ORDER OR TO CANCEL ANY PURCHASE DUE TO NONPAYMENT OF THE PURCHASE PRICE; (3) TO INCREASE, WAIVE OR LOWER THE MINIMUM INVESTMENT REQUIREMENTS; OR (4) TO MODIFY ANY OF THE TERMS OR CONDITIONS OF PURCHASE OF SHARES OF SUCH FUND. For any fund named on the cover page, AIM Distributors and its agents will use their best efforts to provide notice of any such actions through correspondence with broker-dealers and existing shareholders, supplements to the AIM Funds' prospectuses, or other appropriate means, and will provide sixty (60) days' notice in the case of termination or material modification to the exchange privilege discussed under the caption "Exchange Privilege." - -------------------------------------------------------------------------------- SPECIAL PLANS Except as noted below, each AIM Fund provides the special plans described below for the convenience of its shareholders. Once established, there is no obligation to continue to invest through a plan, and a shareholder may terminate a plan at any time. Special plan applications and further information, including details of any fees which are charged to a shareholder investing through a plan, may be obtained by written request, directed to AFS at the address provided under "How to Purchase Shares," or by calling the Client Services Department of AFS at (800) 959-4246. IT IS RECOMMENDED THAT A SHAREHOLDER CONSIDERING ANY OF THE PLANS DESCRIBED HEREIN CONSULT A TAX ADVISOR BEFORE COMMENCING PARTICIPATION IN SUCH A PLAN. SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, a shareholder who owns Class A shares of a Multiple Class Fund, Class C shares of AIM Money Market Fund, or shares of another AIM Fund can arrange for monthly, quarterly or annual checks in any amount (but not less than $50) to be drawn against the balance of his account in the designated AIM Fund. Shareholders who own Class B shares of a Multiple Class Fund can only arrange for monthly or quarterly withdrawals under a Systematic Withdrawal Plan. Payment of this amount can be made on any day of the month the shareholder specifies, except the thirtieth or thirty-first day of each month in which a payment is to be made. A minimum account balance of $5,000 is required to establish a Systematic Withdrawal Plan, but there is no requirement thereafter to maintain any minimum investment. No contingent deferred sales charge with respect to Class B shares of a Multiple Class Fund will be imposed on withdrawals made under a Systematic Withdrawal Plan, provided that the amounts withdrawn under such a plan do not exceed on an annual basis 12% of the account value at the time the shareholder elects to participate in the Systematic Withdrawal Plan. Systematic Withdrawal Plans with respect to Class B shares that exceed on an annual basis 12% of such account will be subject to a contingent deferred sales charge on the amounts exceeding 12% of the initial account value. MCF 01/97* A-8 21 Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer Agent and all dividends and distributions are reinvested in shares of the applicable AIM Fund by the Transfer Agent. To provide funds for payments made under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full and fractional shares at their net asset value in effect at the time of each such redemption. Payments under a Systematic Withdrawal Plan constitute taxable events. Since such payments are funded by the redemption of shares, they may result in a return of capital and in capital gains or losses, rather than in ordinary income. Because sales charges are imposed on additional purchases of shares (other than Class B Shares and Class C Shares of the Multiple Class Funds), it is disadvantageous to effect such purchases while a Systematic Withdrawal Plan is in effect. The Systematic Withdrawal Plan may be terminated at any time upon 10 days' prior notice to AFS. Each AIM Fund bears its share of the cost of operating the Systematic Withdrawal Plan. Each AIM Fund reserves the right to initiate a fee for each withdrawal (not to exceed its cost), but there is no present intent to do so. AUTOMATIC INVESTMENT PLAN. Shareholders who wish to make monthly or quarterly investments may establish an Automatic Investment Plan. Under this plan, on or about the tenth and/or twenty-fifth day of the applicable month, a draft is drawn on the shareholder's bank account in the amount specified by the shareholder (minimum $50 per investment, per account). The proceeds of the draft are invested in shares of the designated AIM Fund at the applicable offering price determined on the date of the draft. An Automatic Investment Plan may be discontinued upon 10 days' prior notice to the Transfer Agent or AIM Distributors. AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all dividends and distributions declared by an AIM Fund paid in cash or invested at net asset value, without payment of an initial sales charge, either in shares of the same AIM Fund or invested in shares of another AIM Fund. For each of the Multiple Class Funds, dividends and distributions attributable to Class A shares may be reinvested in Class A shares of the same fund, in Class A shares of another Multiple Class Fund or in shares of another AIM Fund which is not a Multiple Class Fund; dividends and distributions attributable to Class B shares may be reinvested in Class B shares of the same fund or in Class B shares of another Multiple Class Fund; and dividends and distributions attributable to Class C shares of AIM MONEY MARKET FUND may be reinvested in additional shares of such fund, in Class A shares of another Multiple Class Fund or in shares of another AIM Fund which is not a Multiple Class Fund. See "Dividends, Distributions and Tax Matters -- Dividends and Distributions" for a description of payment dates for these options. In order to qualify to have dividends and distributions of one AIM Fund invested in shares of another AIM Fund, the following conditions must be satisfied: (a) the shareholder must have an account balance in the dividend paying fund of at least $5,000; (b) the account must be held in the name of the shareholder (i.e., the account may not be held in nominee name); and (c) the shareholder must have requested and completed an authorization relating to the reinvestment of dividends into another AIM Fund. An authorization may be given on the account application or on an authorization form available from AIM Distributors. An AIM Fund will waive the $5,000 minimum account value requirement if the shareholder has an account in the fund selected to receive the dividends and distributions with a value of at least $500. DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount automatically exchanged, either monthly or quarterly (on or about the 10th or 25th day of the applicable month), from one of their accounts into one or more AIM Funds, subject to the terms and conditions described under the caption "Exchange Privilege -- Terms and Conditions of Exchanges." The account from which exchanges are to be made must have a value of at least $5,000 when a shareholder elects to begin this program, and the exchange minimum is $50 per transaction. All of the accounts that are part of this program must have identical registrations. The net asset value of shares purchased under this program may vary, and may be more or less advantageous than if shares were not exchanged automatically. There is no charge for entering the Dollar Cost Averaging program. Sales charges may apply, as described under the caption "Exchange Privilege." PROTOTYPE RETIREMENT PLANS. The AIM Funds (except for AIM TAX-FREE INTERMEDIATE SHARES, AIM TAX-EXEMPT CASH FUND, AIM MUNICIPAL BOND FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT) have made the following prototype retirement plans available to corporations, individuals and employees of non-profit organizations and public schools: combination money- purchase/profit-sharing plans; 403(b) plans; IRA plans; and SEP plans (collectively, "retirement accounts"). Information concerning these plans, including the custodian's fees and the forms necessary to adopt such plans, can be obtained by calling or writing the AIM Funds or AIM Distributors. Shares of the AIM Funds are also available for investment through existing 401(k) plans (for both individuals and employers) adopted under the Code. The plan custodian currently imposes an annual $10 maintenance fee with respect to each retirement account for which it serves as the custodian. This fee is generally charged in December. Each AIM Fund and/or the custodian reserve the right to change this maintenance fee and to initiate an establishment fee (not to exceed its cost). MCF 01/97* A-9 22 - -------------------------------------------------------------------------------- EXCHANGE PRIVILEGE TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may participate in an exchange privilege as described below. The exchange privilege is also available to holders of the Connecticut General Guaranteed Account, established for tax-qualified group annuities, for contracts purchased on or before June 30, 1992. AIM Distributors acts as distributor for the AIM Funds, which represent a range of different investment objectives and policies. As set forth under the caption "Terms and Conditions of Purchase of the AIM Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM Funds, including the Class A shares of the Multiple Class Funds, referred to herein as the "Load Funds," are sold at a public offering price that includes a maximum sales charge of 5.50% or 4.75% of the public offering price of such shares; shares of certain of the AIM Funds, referred to herein as the "Lower Load Funds," are sold at a public offering price that includes a maximum sales charge of 1.00% of the public offering price of such shares; and shares of certain other funds, including the Class C shares of AIM MONEY MARKET FUND, referred to herein as the "No Load Funds," are sold at net asset value, without payment of a sales charge. LOAD FUNDS: LOWER LOAD FUNDS: ----------- ----------------- AIM AGGRESSIVE GROWTH AIM HIGH YIELD FUND -- CLASS A AIM LIMITED MATURITY TREASURY SHARES FUND -- CLASS A AIM INCOME FUND -- CLASS A AIM TAX-FREE INTERMEDIATE SHARES AIM BALANCED FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT AIM BLUE CHIP FUND -- CLASS A FUND -- CLASS A NO LOAD FUNDS: AIM CAPITAL DEVELOPMENT AIM INTERNATIONAL EQUITY -------------- FUND -- CLASS A FUND -- CLASS A AIM MONEY MARKET FUND AIM CHARTER FUND -- CLASS A AIM MONEY MARKET -- CLASS C AIM CONSTELLATION FUND -- CLASS A AIM TAX-EXEMPT CASH FUND FUND -- CLASS A AIM MUNICIPAL BOND AIM GLOBAL AGGRESSIVE GROWTH FUND -- CLASS A FUND -- CLASS A AIM TAX-EXEMPT BOND FUND AIM GLOBAL GROWTH OF CONNECTICUT FUND -- CLASS A AIM VALUE FUND -- CLASS A AIM GLOBAL INCOME AIM WEINGARTEN FUND -- CLASS A FUND -- CLASS A AIM GLOBAL UTILITIES FUND -- CLASS A AIM GROWTH FUND -- CLASS A
Shares of any AIM Fund may be exchanged for shares of any other AIM Fund, except that (i) Load Fund share purchases of $1,000,000 or more which are subject to a contingent deferred sales charge may not be exchanged for Lower Load Funds or for AIM TAX-EXEMPT CASH FUND; (ii) Lower Load Fund share purchases of $1,000,000 or more and No Load Fund purchases may be exchanged for Load Fund shares in amounts of $1,000,000 or more which will then be subject to a contingent deferred sales charge; however, for purposes of calculating the contingent deferred sales charge on the Load Fund shares acquired, the 18-month period shall be computed from the date of such exchange; (iii) Class A shares and shares of all other AIM Funds may not be exchanged for Class B shares; (iv) Class B shares may be exchanged only for Class B shares; and (v) Class C shares of AIM MONEY MARKET FUND may not be exchanged for Class A shares of AIM MONEY MARKET FUND or for Class B shares. DEPENDING UPON THE FUND FROM WHICH AND INTO WHICH AN EXCHANGE IS BEING MADE, SHARES BEING ACQUIRED IN AN EXCHANGE MAY BE ACQUIRED AT THEIR OFFERING PRICE OR AT THEIR NET ASSET VALUE (WITHOUT PAYMENT OF A SALES CHARGE) AS SET FORTH IN THE TABLE BELOW FOR SHARES INITIALLY PURCHASED PRIOR TO MAY 1, 1994:
MULTIPLE CLASS LOWER LOAD NO LOAD FUNDS: FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B - ----- ----------------- --------------------- ---------------- ------------- Load Funds...... Net Asset Value Net Asset Value Net Asset Value Not Applicable Lower Load Funds Net Asset Value Net Asset Value Net Asset Value Not Applicable No Load Funds... Offering Price if No Load shares were Net Asset Value if Net Asset Value Not Applicable directly purchased. Net Asset Value No Load shares were if No Load shares were acquired upon acquired upon exchange of shares of any Load Fund exchange of shares of or any Lower Load Fund. any Load Fund or any Lower Load Fund; otherwise, Offering Price.
(Table continued on following page) MCF 01/97* A-10 23
MULTIPLE CLASS LOWER LOAD NO LOAD FUNDS: FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B - ----- ----------------- --------------------- ---------------- ------------- Multiple Class Funds: Class B....... Not Applicable Not Applicable Not Applicable Net Asset Value FOR SHARES INITIALLY PURCHASED ON OR AFTER MAY 1, 1994, THE FOREGOING TABLE IS REVISED AS FOLLOWS: Load Funds...... Net Asset Value Net Asset Value Net Asset Value Not Applicable Lower Load Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable Funds......... acquired upon exchange of any Load Fund. Otherwise, difference in sales charge will apply. No Load Funds... Offering Price if No Load shares were Net Asset Value if Net Asset Value Not Applicable directly purchased. Net Asset Value No Load shares were if No Load shares were acquired upon acquired upon exchange of shares of any Load Fund. exchange of shares of Difference in sales charge will apply any Load Fund or any if No Load shares were acquired upon Lower Load Fund; exchange of Lower Load Fund shares. otherwise, Offering Price. Multiple Class Funds: Class B....... Not Applicable Not Applicable Not Applicable Net Asset Value
An exchange is permitted only in the following circumstances: (a) if the funds offer more than one class of shares, the exchange must be between the same class of shares (e.g., Class A and Class B shares of a Multiple Class Fund cannot be exchanged for each other), except that Class C shares of AIM MONEY MARKET FUND may be exchanged for Class A shares of another Multiple Class Fund; (b) the dollar amount of the exchange must be at least equal to the minimum investment applicable to the shares of the fund acquired through such exchange; (c) the shares of the fund acquired through exchange must be qualified for sale in the state in which the shareholder resides; (d) the exchange must be made between accounts having identical registrations and addresses; (e) the full amount of the purchase price for the shares being exchanged must have already been received by the fund; (f) the account from which shares have been exchanged must be coded as having a certified taxpayer identification number on file or, in the alternative, an appropriate Internal Revenue Service ("IRS") Form W-8 (certificate of foreign status) or Form W-9 (certifying exempt status) must have been received by the fund; (g) newly acquired shares (through either an initial or subsequent investment) are held in an account for at least ten business days, and all other shares are held in an account for at least one day, prior to the exchange; and (h) certificates representing shares must be returned before shares can be exchanged. There is no fee for exchanges among the AIM Funds. THE CURRENT PROSPECTUS OF EACH OF THE AIM FUNDS AND CURRENT INFORMATION CONCERNING THE OPERATION OF THE EXCHANGE PRIVILEGE ARE AVAILABLE THROUGH AIM DISTRIBUTORS OR THROUGH ANY DEALER WHO HAS EXECUTED AN APPLICABLE AGREEMENT WITH AIM DISTRIBUTORS. BEFORE EXCHANGING SHARES, INVESTORS SHOULD REVIEW THE PROSPECTUSES OF THE FUNDS WHOSE SHARES WILL BE ACQUIRED THROUGH EXCHANGE. EXCHANGES OF SHARES ARE CONSIDERED TO BE SALES FOR FEDERAL AND STATE INCOME TAX PURPOSES AND MAY RESULT IN A TAXABLE GAIN OR LOSS TO A SHAREHOLDER. THE EXCHANGE PRIVILEGE IS NOT AN OPTION OR RIGHT TO PURCHASE SHARES BUT IS PERMITTED UNDER THE RESPECTIVE POLICIES OF THE PARTICIPATING FUNDS, AND MAY BE MODIFIED OR DISCONTINUED BY ANY OF SUCH FUNDS OR BY AIM DISTRIBUTORS AT ANY TIME, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WITHOUT NOTICE. Shares of any AIM Fund (other than AIM MONEY MARKET FUND) to be exchanged are redeemed at their net asset value as determined at NYSE Close on the day that an exchange request in proper form (described below) is received. Exchange requests received after NYSE Close will result in the redemption of shares at their net asset value at NYSE Close on the next business day. See "Terms and Conditions of Purchase of the AIM Funds -- Timing of Purchase, Exchange and Redemption Orders (AIM MONEY MARKET FUND only)" for information regarding the timing of exchange orders for AIM MONEY MARKET FUND. Normally, shares of an AIM Fund to be acquired by exchange are purchased at their net asset value or applicable offering price, as the case may be, determined on the date that such request is received, but under unusual market conditions such purchases may be delayed for up to five business days if it is determined that a fund would be materially disadvantaged by an immediate transfer of the proceeds of the exchange. If a shareholder is exchanging into a fund paying daily dividends (See "Dividends, Distributions and Tax Matters -- Dividends and Distributions," below), and the release of the exchange proceeds is delayed for the foregoing five-day period, such shareholder will not begin to accrue dividends until the sixth business day after the exchange. Shares purchased by check may not be exchanged until it is determined that the check has cleared, which may take up to ten business days from the date that the check is received. See "Terms and Conditions of Purchase of the AIM Funds -- Timing of Purchase Orders." In the event of unusual market conditions, AIM Distributors reserves the right to reject any exchange request, if, in the judgment of AIM Distributors, the number of requests or the total value of the shares that are the subject of the exchange places a material burden on a fund. For example, the number of exchanges by investment managers making market timing exchanges may be limited. EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a written request to AFS. The request should contain the account registration and account number, the dollar amount or number of shares to be exchanged, and the names of the funds MCF 01/97* A-11 24 from which and into which the exchange is to be made. The request should comply with all of the requirements for redemption by mail, except those required for redemption of IRAs. See "How to Redeem Shares." EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange by telephone. If a shareholder does not wish to allow telephone exchanges by any person in his account, he should decline that option on the account application. AIM Distributors has made arrangements with certain dealers and investment advisory firms to accept telephone instructions to exchange shares between any of the AIM Funds. AIM Distributors reserves the right to impose conditions on dealers or investment advisors who make telephone exchanges of shares of the funds, including the condition that any such dealer or investment advisor enter into an agreement (which contains additional conditions with respect to exchanges of shares) with AIM Distributors. To exchange shares by telephone, a shareholder, dealer or investment advisor who has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a shareholder is unable to reach AFS by telephone, he may also request exchanges by telegraph or use overnight courier services to expedite exchanges by mail, which will be effective on the business day received by the Transfer Agent as long as such request is received prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable for any loss, expense or cost arising out of any telephone exchange request that they reasonably believe to be genuine, but may in certain cases be liable for losses due to unauthorized or fraudulent transactions if they do not follow reasonable procedures for verification of telephone transactions. Such reasonable procedures may include recordings of telephone transactions (maintained for six months), requests for confirmation of the shareholder's Social Security Number and current address, and mailings of confirmations promptly after the transaction. EXCHANGES OF CLASS B SHARES. A contingent deferred sales charge will not be imposed in connection with exchanges among Class B shares of Multiple Class Funds. For purposes of determining a shareholder's holding period of Class B shares in the calculation of the applicable contingent deferred sales charge, the period of time during which Class B shares were held prior to an exchange will be added to the holding period of Class B shares acquired in an exchange. - -------------------------------------------------------------------------------- HOW TO REDEEM SHARES Shares of the AIM Funds may be redeemed directly through AIM Distributors or through any dealer who has entered into an agreement with AIM Distributors. In addition to the obligation of the fund(s) named on the cover page to redeem shares, AIM Distributors also repurchases shares. Although a contingent deferred sales charge may be applicable to certain redemptions, as described below, there is no redemption fee imposed when shares are redeemed or repurchased; however, dealers may charge service fees for handling repurchase transactions. MULTIPLE DISTRIBUTION SYSTEM. Class B shares purchased under the Multiple Distribution System may be redeemed on any business day of a Multiple Class Fund at the net asset value per share next determined following receipt of the redemption order, as described under the caption "Timing and Pricing of Redemption Orders," less the applicable contingent deferred sales charge shown in the table below. No deferred sales charge will be imposed (i) on redemptions of Class B shares following six years from the date such shares were purchased, (ii) on Class B shares acquired through reinvestments of dividends and distributions attributable to Class B shares or (iii) on amounts that represent capital appreciation in the shareholder's account above the purchase price of the Class B shares.
YEAR CONTINGENT DEFERRED SINCE SALES CHARGE AS PURCHASE % OF DOLLAR AMOUNT MADE SUBJECT TO CHARGE -------- ------------------- First................................................ 5% Second............................................... 4% Third................................................ 3% Fourth............................................... 3% Fifth................................................ 2% Sixth................................................ 1% Seventh and Following................................ None
In determining whether a contingent deferred sales charge is applicable, it will be assumed that a redemption is made first, of any shares held in the shareholder's account that are not subject to such charge; second, of shares derived from reinvestment of dividends and distributions; third, of shares held for more than six years from the date such shares were purchased; and fourth, of shares held less than six years from the date such shares were purchased. The applicable sales charge will be applied against the lesser of the current market value of shares redeemed or their original cost. Contingent deferred sales charges on Class B shares will be waived on redemptions (1) following the registered shareholder's (or in the case of joint accounts, all registered joint owners') death or disability, as defined in Section 72(m)(7) of the Code (provided AIM Distributors is notified of such death or disability at the time of the redemption request and is provided with satisfactory evidence of such death or disability), (2) in connection with certain distributions from individual retirement accounts, custodial accounts maintained pursuant to Code Section 403(b), deferred compensation plans qualified under Code Section 457 and plans qualified under Code Section 401 (collectively, "Retirement Plans"), (3) pursuant to a Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do not exceed on an annual basis 12% of the value of the shareholder's investment in Class B shares at the MCF 01/97* A-12 25 time the shareholder elects to participate in the Systematic Withdrawal Plan, (4) effected pursuant to the right of a Multiple Class Fund to liquidate a shareholder's account if the aggregate net asset value of shares held in the account is less than the designated minimum account size described in the prospectus of such Multiple Class Fund and (5) effected by AIM of its investment in Class B shares. Waiver category (1) above applies only to redemptions: (i) made within one year following death or initial determination of disability; and (ii) of Class B shares held at the time of death or initial determination of disability. Waiver category (2) above applies only to redemptions resulting from: (i) required minimum distributions to plan participants or beneficiaries who are age 70- 1/2 or older, and only with respect to that portion of such distributions which does not exceed 12% annually of the participant's or beneficiary's account value; (ii) in kind transfers of assets where the participant or beneficiary notifies AIM Distributors of such transfer no later than the time such transfer occurs; (iii) tax-free rollovers or transfers of assets to another Retirement Plan invested in Class B shares of one or more Multiple Class Funds; (iv) tax-free returns of excess contributions or returns of excess deferral amounts; and (v) distributions upon the death or disability (as defined in the Code) of the participant or beneficiary. CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for purchases of Class B shares of a Multiple Class Fund and purchases of shares of the No Load Funds and Lower Load Funds, a contingent deferred sales charge of 1% applies to purchases of $1,000,000 or more that are redeemed within 18 months of the date of purchase. For a description of the AIM Funds participating in this program, see "Terms and Conditions of Purchase of the AIM Funds -- Sales Charges and Dealer Concessions." This charge will be 1% of the lesser of the value of the shares redeemed (excluding reinvested dividends and capital gain distributions) or the total original cost of such shares. In determining whether a contingent deferred sales charge is payable, and the amount of any such charge, shares not subject to the contingent deferred sales charge are redeemed first (including shares purchased by reinvested dividends and capital gains distributions and amounts representing increases from capital appreciation), and then other shares are redeemed in the order of purchase. No such charge will be imposed upon exchanges unless the shares acquired by exchange are redeemed within 18 months of the date the shares were originally purchased. For purposes of computing this 18-month period (i) shares of any Load Fund or Class C shares of AIM MONEY MARKET FUND which were acquired through an exchange of shares which previously were subject to the 1% contingent deferred sales charge will be credited with the period of time such exchanged shares were held, and (ii) shares of any Load Fund which are subject to the 1% contingent deferred sales charge and which were acquired through an exchange of shares of a Lower Load Fund or a No Load Fund which previously were not subject to the 1% contingent deferred sales charge will not be credited with the period of time such exchanged shares were held. The charge will be waived in the following circumstances: (1) redemptions of shares by employee benefit plans ("Plans") qualified under Sections 401 or 457 of the Code, or Plans created under Section 403(b) of the Code and sponsored by nonprofit organizations as defined under Section 501(c)(3) of the Code, where shares (not the entire Plan) are being redeemed, and (a) the initial amount invested by a Plan in one or more of the AIM Funds is at least $1,000,000, (b) the sponsor of a Plan signs a letter of intent to invest at least $1,000,000 in one or more of the AIM Funds, or (c) the shares being redeemed were purchased by an employer-sponsored Plan with at least 100 eligible employees; provided, however, that Plans created under Section 403(b) of the Code which are sponsored by public educational institutions shall qualify under (a), (b) or (c) above on the basis of the value of each Plan participant's aggregate investment in the AIM Funds, and not on the aggregate investment made by the Plan or on the number of eligible employees; (2) redemptions of shares following the registered shareholder's (or in the case of joint accounts, all registered joint owners') death or disability, as defined in Section 72(m)(7) of the Code; (3) redemptions of shares purchased at net asset value by private foundations or endowment funds where the initial amount invested was at least $1,000,000; and (4) redemptions of shares purchased by an investor in amounts of $1,000,000 or more where such investor's dealer of record, due to the nature of the investor's account, notifies AIM Distributors prior to the time of investment that the dealer waives the payments otherwise payable to the dealer as described in the third paragraph under the caption "Terms and Conditions of Purchase of the AIM Funds -- All Groups of AIM Funds." REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the Transfer Agent. Upon receipt of a redemption request in proper form, payment will be made as soon as practicable, but in any event will normally be made within seven days after receipt. However, in the event of a redemption of shares purchased by check, the investor may be required to wait up to ten business days before the redemption proceeds are sent. See "Terms and Conditions of Purchase of the AIM Funds -- Timing of Purchase Orders." Requests for redemption must include: (a) original signatures of each registered owner exactly as the shares are registered; (b) the Fund and the account number of shares to be redeemed; (c) share certificates, either properly endorsed or accompanied by a duly executed stock power, for the shares to be redeemed if such certificates have been issued and the shares are not in the custody of the Transfer Agent; (d) signature guarantees, as described below; and (e) any additional documents that may be required for redemption by corporations, partnerships, trusts or other entities. The burden is on the shareholder to inquire as to whether any additional documentation is required. Any request not in proper form may be rejected and in such case must be renewed in writing. MCF 01/97* A-13 26 In addition to these requirements, shareholders who have invested in a fund to establish an IRA, should include the following information along with a written request for either partial or full liquidation of fund shares: (a) a statement as to whether or not the shareholder has attained age 59- 1/2; and (b) a statement as to whether or not the shareholder elects to have federal income tax withheld from the proceeds of the liquidation. REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone. If a shareholder does not wish to allow telephone redemptions by any person in his account, he should decline that option on the account application. The telephone redemption feature can be used only if: (a) the redemption proceeds are to be mailed to the address of record or wired to the pre-authorized bank account as indicated on the account application; (b) there has been no change of address of record on the account within the preceding 30 days; (c) the shares to be redeemed are not in certificate form; (d) the person requesting the redemption can provide proper identification information; and (e) the proceeds of the redemption do not exceed $50,000. Accounts in AIM Distributors' prototype retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for the telephone redemption option. AIM Distributors has made arrangements with certain dealers and investment advisors to accept telephone instructions for the redemption of shares. AIM Distributors reserves the right to impose conditions on these dealers and investment advisors, including the condition that they enter into agreements (which contain additional conditions with respect to the redemption of shares) with AIM Distributors. The Transfer Agent and AIM Distributors will not be liable for any loss, expense or cost arising out of any telephone redemption request effected in accordance with the authorization set forth at that item of the account application if they reasonably believe such request to be genuine, but may in certain cases be liable for losses due to unauthorized or fraudulent transactions if they do not follow reasonable procedures for verification of telephone transactions. Such reasonable procedures may include recordings of telephone transactions (maintained for six months), requests for confirmation of the shareholder's Social Security Number and current address, and mailings of confirmations promptly after the transaction. EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is received prior to 11:30 a.m. Eastern Time, the redemption will be effective on that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that same business day. If the redemption order is received after 11:30 a.m. and prior to NYSE Close, the redemption will be made at the next determined net asset value and payment will generally be transmitted on the next business day. REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND and Class C Shares of AIM MONEY MARKET FUND). After completing the appropriate authorization form, shareholders may use checks to effect redemptions from AIM TAX-EXEMPT CASH FUND and the Class C Shares of AIM MONEY MARKET FUND. This privilege does not apply to retirement accounts or qualified plans. Checks may be drawn in any amount of $250 or more. Checks drawn against insufficient shares in the account, against shares held less than ten business days, or in amounts of less than the applicable minimum will be returned to the payee. The payee of the check may cash or deposit it in the same way as an ordinary bank check. When a check is presented to the Transfer Agent for payment, the Transfer Agent will cause a sufficient number of shares of such fund to be redeemed to cover the amount of the check. Shareholders are entitled to dividends on the shares redeemed through the day on which the check is presented to the Transfer Agent for payment. TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds (other than AIM MONEY MARKET FUND) are redeemed at their net asset value next computed after a request for redemption in proper form (including signature guarantees and other required documentation for written redemptions) is received by the Transfer Agent, except that Class B shares of the Multiple Class Funds, and Class A shares of the Multiple Class Funds and shares of the other AIM Funds that are subject to the contingent deferred sales charge program for large purchases described above, may be subject to the imposition of deferred sales charges that will be deducted from the redemption proceeds. See "Multiple Distribution System" and "Contingent Deferred Sales Charge Program for Large Purchases." Orders for the redemption of shares received in proper form prior to NYSE Close on any business day of an AIM Fund will be confirmed at the price determined as of the close of that day. Orders received after NYSE Close will be confirmed at the price determined on the next business day of an AIM Fund. Redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or NYSE Close on any business day of the Fund will be confirmed at the price next determined. It is the responsibility of the dealer to ensure that all orders are transmitted on a timely basis. Any resulting loss from the dealer's failure to submit a request for redemption within the prescribed time frame will be borne by that dealer. Telephone redemption requests must be made by NYSE Close on any business day of an AIM Fund and will be confirmed at the price determined as of the close of that day. No AIM Fund will accept requests which specify a particular date for redemption or which specify any special conditions. Payment of the proceeds of redeemed shares is normally mailed within seven days following the redemption date. However, in the event of a redemption of shares purchased by check, the investor may be required to wait up to ten business days before the redemption proceeds are sent. See "Terms and Conditions of Purchase of the AIM Funds -- Timing of Purchase Orders." A charge for special handling (such as wiring of funds or expedited delivery services) may be made by the Transfer Agent. The right of redemption may not be suspended or the date of payment upon redemption postponed except under unusual circumstances such as when trading on the NYSE is restricted or suspended. Payment of the proceeds of redemptions relating to shares for which checks sent in payment have not yet cleared will be delayed until it is determined that the check has cleared, which may take up to ten business days from the date that the check is received. SIGNATURE GUARANTEES. A signature guarantee is designed to protect the investor, the AIM Funds, AIM Distributors, and their agents by verifying the signature of each investor seeking to redeem, transfer, or exchange shares of an AIM Fund. Examples of when MCF 01/97* A-14 27 signature guarantees are required are: (1) redemptions by mail in excess of $50,000; (2) redemptions by mail if the proceeds are to be paid to someone other than the name(s) in which the account is registered; (3) written redemptions requesting proceeds to be sent by wire to other than the bank of record for the account; (4) redemptions requesting proceeds to be sent to a new address or an address that has been changed within the past 30 days; (5) requests to transfer the registration of shares to another owner; (6) telephone exchange and telephone redemption authorization forms; (7) changes in previously designated wiring instructions; and (8) written redemptions or exchanges of shares previously reported as lost, whether or not the redemption amount is under $50,000 or the proceeds are to be sent to the address of record. These requirements may be waived or modified upon notice to shareholders. Acceptable guarantors include banks, broker-dealers, credit unions, national securities exchanges, savings associations and any other organization, provided that such institution or organization qualifies as an "eligible guarantor institution" as that term is defined in rules adopted by the Securities and Exchange Commission ("SEC"), and further provided that such guarantor institution is listed in one of the reference guides contained in the Transfer Agent's current Signature Guarantee Standards and Procedures, such as certain domestic banks, credit unions, securities dealers, or securities exchanges. The Transfer Agent will also accept signatures with either: (1) a signature guaranteed with a medallion stamp of the STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE Medallion Signature Program, provided that in either event, the amount of the transaction involved does not exceed the surety coverage amount indicated on the medallion. For information regarding whether a particular institution or organization qualifies as an "eligible guarantor institution," an investor should contact the Client Services Department of AFS. REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). Within 90 days of a redemption, a shareholder may invest all or part of the redemption proceeds in shares of any AIM Fund at the net asset value next computed after receipt by the Transfer Agent of the funds to be reinvested; provided, however, if the redemption was made from AIM LIMITED MATURITY TREASURY SHARES or AIM TAX-FREE INTERMEDIATE SHARES, however, the reinvested proceeds will be subject to the difference in sales charge between the shares redeemed and the shares the proceeds are reinvested in. The shareholder must ask the Transfer Agent for such privilege at the time of reinvestment. A realized gain on the redemption is taxable, and reinvestment may alter any capital gains payable. If there has been a loss on the redemption and shares of the same fund are repurchased, all of the loss may not be tax deductible, depending on the timing and amount reinvested. Under the Code, if the redemption proceeds of fund shares on which a sales charge was paid are reinvested in (or exchanged for) shares of another AIM Fund at a reduced sales charge within 90 days of the payment of the sales charge, the shareholder's basis in the fund shares redeemed may not include the amount of the sales charge paid, thereby reducing the loss or increasing the gain recognized from the redemption; however, the shareholder's basis in the fund shares purchased will include the sales charge. Each AIM Fund may amend, suspend or cease offering this privilege at any time as to shares redeemed after the date of such amendment, suspension or cessation. This privilege may only be exercised once each year by a shareholder with respect to each AIM Fund. Shareholders who are assessed a contingent deferred sales charge in connection with the redemption of Class A shares of the Multiple Class Funds or shares of any other AIM Fund, and who subsequently reinvest a portion or all of the value of the redeemed shares in shares of any AIM Fund within 90 days after such redemption may do so at net asset value if such privilege is claimed at the time of reinvestment. Such reinvested proceeds will not be subject to either a front-end sales charge at the time of reinvestment or an additional contingent deferred sales charge upon subsequent redemption. In order to exercise this reinvestment privilege, the shareholder must notify the Transfer Agent of his or her intent to do so at the time of reinvestment. This reinvestment privilege does not apply to Class B shares. - -------------------------------------------------------------------------------- DETERMINATION OF NET ASSET VALUE The net asset value per share (or share price) of each AIM Fund is determined as of 4:00 p.m. Eastern Time (12:00 noon and NYSE Close with respect to AIM MONEY MARKET FUND), on each "business day" of a fund as previously defined. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a particular day, the net asset value of an AIM Fund's share will be determined as of the close of the NYSE on such day. For purposes of determining net asset value per share, futures and options contract closing prices which are available 15 minutes after the close of trading of the NYSE will generally be used. The net asset value per share is calculated by subtracting a class' liabilities from its assets and dividing the result by the total number of class shares outstanding. The determination of net asset value per share is made in accordance with generally accepted accounting principles. Among other items, liabilities include accrued expenses and dividends payable, and total assets include portfolio securities valued at their market value, as well as income accrued but not yet received. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the supervision of the fund's officers and in accordance with methods which are specifically authorized by its governing Board of Directors or Trustees. Short-term obligations with maturities of 60 days or less, and the securities held by the Money Market Funds, are valued at amortized cost as reflecting fair value. AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT and AIM TAX-FREE INTERMEDIATE SHARES value variable rate securities that have an unconditional demand or put feature exercisable within seven days or less at par, which reflects the market value of such securities. Generally, trading in foreign securities, corporate bonds, U.S. Government securities and money market instruments is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of an AIM Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior MCF 01/97* A-15 28 to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which the values of the securities are determined and the close of the NYSE which will not be reflected in the computation of an AIM 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 or Trustees of the applicable AIM Fund. - -------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS DIVIDENDS AND DISTRIBUTIONS Each AIM Fund's policy regarding the payment of dividends and distributions is set forth below.
DISTRIBUTIONS DISTRIBUTIONS OF NET OF NET DIVIDENDS FROM REALIZED REALIZED NET INVESTMENT SHORT-TERM LONG-TERM FUND INCOME CAPITAL GAINS CAPITAL GAINS - ---- ----------------------- --------------- --------------- AIM AGGRESSIVE GROWTH FUND................... declared and paid annually annually annually AIM BALANCED FUND............................ declared and paid quarterly annually annually AIM BLUE CHIP FUND........................... declared and paid annually annually annually AIM CAPITAL DEVELOPMENT FUND................. declared and paid annually annually annually AIM CHARTER FUND............................. declared and paid quarterly annually annually AIM CONSTELLATION FUND....................... declared and paid annually annually annually AIM GLOBAL AGGRESSIVE GROWTH FUND............ declared and paid annually annually annually AIM GLOBAL GROWTH FUND....................... declared and paid annually annually annually AIM GLOBAL INCOME FUND....................... declared daily; paid monthly annually annually AIM GLOBAL UTILITIES FUND.................... declared daily; paid monthly annually annually AIM GROWTH FUND.............................. declared and paid annually annually annually AIM HIGH YIELD FUND.......................... declared daily; paid monthly annually annually AIM INCOME FUND.............................. declared daily; paid monthly annually annually AIM INTERMEDIATE GOVERNMENT FUND............. declared daily; paid monthly annually annually AIM INTERNATIONAL EQUITY FUND................ declared and paid annually annually annually AIM LIMITED MATURITY TREASURY SHARES......... declared daily; paid monthly annually annually AIM MONEY MARKET FUND........................ declared daily; paid monthly at least annually annually AIM MUNICIPAL BOND FUND...................... declared daily; paid monthly annually annually AIM TAX-EXEMPT BOND FUND OF CONNECTICUT...... declared daily; paid monthly annually annually AIM TAX-EXEMPT CASH FUND..................... declared daily; paid monthly at least annually annually AIM TAX-FREE INTERMEDIATE SHARES............. declared daily; paid monthly annually annually AIM VALUE FUND............................... declared and paid annually annually annually AIM WEINGARTEN FUND.......................... declared and paid annually annually annually
In determining the amount of capital gains, if any, available for distribution, net capital gains are offset against available net capital losses, if any, carried forward from previous fiscal periods. All dividends and distributions of an AIM Fund are automatically reinvested on the payment date in full and fractional shares of such fund, unless the shareholder has made an alternate election as to the method of payment. Dividends and distributions attributable to Class A, Class B or Class C shares are reinvested in additional shares of such Class, absent an election by a shareholder to receive cash or to have such dividends and distributions reinvested in Class A or Class B shares of another Multiple Class Fund, to the extent permitted. For funds that do not declare a dividend daily, such dividends and distributions will be reinvested at the net asset value per share determined on the ex-dividend date. For funds that declare a dividend daily, such dividends and distributions will be reinvested at the net asset value per share determined on the payable date. Shareholders may elect, by written notice to the Transfer Agent, to receive such distributions, or the dividend portion thereof, in cash, or to invest such dividends and distributions in shares of another fund in the AIM Funds; provided that (i) dividends and distributions attributable to Class B shares may only be reinvested in Class B shares, (ii) dividends and distributions attributable to Class A shares may not be reinvested in Class B shares, and (iii) dividends and distributions attributable to the Class C shares of AIM MONEY MARKET FUND may not be reinvested in the Class A shares of that Fund or in any Class B shares. Investors who have not previously selected such a reinvestment option on the account application form may contact the Transfer Agent at any time to obtain a form to authorize such reinvestments in another AIM Fund. Such reinvestments into the AIM Funds are not subject to sales charges, and shares so purchased are automatically credited to the account of the shareholder. Dividends on Class B shares are expected to be lower than those for Class A or Class C shares because of higher distribution fees paid by Class B shares. Dividends on Class A, Class B and Class C shares may also be affected by other class-specific expenses. MCF 01/97* A-16 29 Changes in the form of dividend and distribution payments may be made by the shareholder at any time by notice to the Transfer Agent and are effective as to any subsequent payment if such notice is received by the Transfer Agent prior to the record date of such payment. Any dividend and distribution election remains in effect until the Transfer Agent receives a revised written election by the shareholder. Any dividend or distribution paid by a fund which does not declare dividends daily has the effect of reducing the net asset value per share on the ex-dividend date by the amount of the dividend or distribution. Therefore, a dividend or distribution declared shortly after a purchase of shares by an investor would represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to income taxes, as discussed below. TAX MATTERS Each AIM Fund has qualified and intends to qualify for treatment as a regulated investment company under Subchapter M of the Code. As long as a fund qualifies for this tax treatment, it is not subject to federal income taxes on net investment income and capital gains that are distributed to shareholders. Each fund, for purposes of determining taxable income, distribution requirements and other requirements of Subchapter M, is treated as a separate corporation. Therefore, no fund may offset its gains against another fund's losses and each fund must individually comply with all of the provisions of the Code which are applicable to its operations. TAX TREATMENT OF DISTRIBUTIONS -- GENERAL. Because each AIM Fund intends to distribute substantially all of its net investment income and net realized capital gains to its shareholders, it is not expected that any such fund will be required to pay any federal income tax. Each AIM Fund also intends to meet the distribution requirements of the Code to avoid the imposition of a non-deductible 4% excise tax calculated as a percentage of certain undistributed amounts of taxable ordinary income and capital gain net income. Nevertheless, shareholders normally are subject to federal income taxes, and any applicable state and local income taxes, on the dividends and distributions received by them from a fund whether in the form of cash or additional shares of a fund, except for tax-exempt dividends paid by AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND, and AIM TAX-FREE INTERMEDIATE SHARES (the "Tax-Exempt Funds") which are exempt from federal tax. Dividends paid by a fund (other than capital gain distributions) may qualify for the federal 70% dividends received deduction for corporate shareholders to the extent of the qualifying dividends received by the fund on domestic common or preferred stock. It is not likely that dividends received from AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM LIMITED MATURITY TREASURY SHARES, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND or AIM TAX-FREE INTERMEDIATE SHARES will qualify for this dividends received deduction. Shortly after the end of each year, shareholders will receive information regarding the amount and federal income tax treatment of all distributions paid during the year. No gain or loss will be recognized by shareholders upon the automatic conversion of Class B shares of a Multiple Class Fund into Class A shares of such Fund. For each redemption of a fund's shares by a non-exempt shareholder, the fund or the securities dealer effecting the transaction is required to file an information return with the IRS. TO AVOID BEING SUBJECT TO FEDERAL INCOME TAX WITHHOLDING AT THE RATE OF 31% ON DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, SHAREHOLDERS OF A FUND MUST FURNISH THE FUND WITH THEIR TAXPAYER IDENTIFICATION NUMBER AND CERTIFY UNDER PENALTIES OF PERJURY THAT THE NUMBER PROVIDED IS CORRECT AND THAT THEY ARE NOT SUBJECT TO BACKUP WITHHOLDING FOR ANY REASON. Under existing provisions of the Code, nonresident alien individuals, foreign partnerships and foreign corporations may be subject to federal income tax withholding at a 30% rate on income dividends and distributions (other than exempt-interest dividends and capital gain dividends) and return of capital distributions. Under applicable treaty law, residents of treaty countries may qualify for a reduced rate of withholding or a withholding exemption. DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE OR LOCAL TAX LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN. ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE STATEMENT OF ADDITIONAL INFORMATION. TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required to include the "exempt-interest" portion of dividends paid by the Tax-Exempt Funds in their gross income for federal income tax purposes. However, shareholders will be required to report the receipt of exempt-interest dividends and other tax-exempt interest on their federal income tax returns. Moreover, exempt-interest dividends from the Tax-Exempt Funds may be subject to state income taxes, may give rise to a federal alternative minimum tax liability, may affect the amount of social security benefits subject to federal income tax, may affect the deductibility of interest on certain indebtedness of the shareholder, and may have other collateral federal income tax consequences. The Tax-Exempt Funds may invest in Municipal Securities the interest on which will constitute an item of tax preference and which therefore could give rise to a federal alternative minimum tax liability for shareholders, and may invest up to 20% of their net assets in such securities and other taxable securities. For additional information concerning the alternative minimum tax and certain collateral tax consequences of the receipt of exempt-interest dividends, see the Statements of Additional Information applicable to the Tax-Exempt Funds. MCF 01/97* A-17 30 The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but will endeavor to avoid investments which would result in taxable dividends. The percentage of dividends which constitute exempt-interest dividends, and the percentage thereof (if any) which constitute an item of tax preference, will be determined annually. This percentage may differ from the actual percentages for any particular day. To the extent that dividends are derived from taxable investments or net realized short-term capital gains, they will constitute ordinary income for federal income tax purposes, whether received in cash or additional shares. Distributions of net long-term capital gains will be taxable as long-term capital gains, whether received in cash or additional shares, and regardless of the length of time a particular shareholder may have held his shares. From time to time, proposals have been introduced before Congress that would have the effect of reducing or eliminating the federal tax exemption on Municipal Securities. If such a proposal were enacted, the ability of the Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected. AIM INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY SHARES -- SPECIAL TAX INFORMATION. Certain states exempt from state income taxes dividends paid by mutual funds out of interest on U.S. Treasury and certain other U.S. Government obligations, and investors should consult with their own tax advisors concerning the availability of such exemption. AIM INTERNATIONAL EQUITY FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND AND AIM GLOBAL UTILITIES FUND -- SPECIAL TAX INFORMATION. For taxable years in which it is eligible to do so, each of these funds may elect to pass through to shareholders credits for foreign taxes paid. If the fund makes such an election, a shareholder who receives a distribution (1) will be required to include in gross income his proportionate share of foreign taxes allocable to the distribution and (2) may claim a credit or deduction for such share for his taxable year in which the distribution is received, subject to the general limitations imposed on the allowance of foreign tax credits and deductions. Shareholders should also note that certain gains or losses attributable to fluctuations in exchange rates or foreign currency forward contracts may increase or decrease the amount of income of the fund available for distribution to shareholders, and should note that if such losses exceed other income during a taxable year, the fund would not be able to pay ordinary income dividends. - -------------------------------------------------------------------------------- GENERAL INFORMATION CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, serves as custodian for the portfolio securities and cash of the AIM Funds other than AIM MUNICIPAL BOND FUND and AIM LIMITED MATURITY TREASURY SHARES, for which The Bank of New York, 90 Washington Street, 11th Floor, New York, New York 10286, serves as custodian. Texas Commerce Bank National Association, P.O. Box 2558, Houston, Texas 77252-8084, serves as Sub-Custodian for retail purchases of the AIM Funds. A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, a wholly-owned subsidiary of AIM, serves as each AIM Fund's transfer agent and dividend payment agent. LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and has passed upon the legality of the shares offered pursuant to this Prospectus. SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should be directed to an A I M Fund Services, Inc. Client Services Representative by calling (800) 959-4246. The Transfer Agent may impose certain copying charges for requests for copies of shareholder account statements and other historical account information older than the current year and the immediately preceding year. OTHER INFORMATION. This Prospectus sets forth basic information that investors should know about the fund(s) named on the cover page prior to investing. Recipients of this Prospectus will be provided with a copy of the annual report of the fund(s) to which this Prospectus relates, upon request and without charge. If several members of a household own shares of the same fund, only one annual or semi-annual report will be mailed to that address. To receive additional copies, please call (800) 347-4246, or write to A I M Distributors, Inc., P.O. Box 4739, Houston, Texas 77210-4739. A Statement of Additional Information has been filed with the SEC and is available upon request and without charge, by writing or calling AIM Distributors. The SEC maintains a web site at http://www.sec.gov that contains the Statement of Additional Information, material incorporated by reference, and other information regarding the Fund. This Prospectus omits certain information contained in the registration statement filed with the SEC. Copies of the registration statement, including items omitted from this Prospectus, may be obtained from the SEC by paying the charges prescribed under its rules and regulations. MCF 01/97* A-18 31 [AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark-- Investment Advisor A I M Advisors, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046-1173 Principal Underwriter A I M Distributors, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046-1173 Transfer Agent A I M Fund Services, Inc. P.O. Box 4739 Houston, TX 77210-4739 Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Independent Accountants KPMG Peat Marwick LLP 700 Louisiana NationsBank Building Houston, TX 77002 For more complete information about any other Fund in The AIM Family of Funds, including charges and expenses, please call (800) 347-4246 or write to A I M Distributors, Inc. and request a free prospectus. Please read the prospectus carefully before you invest or send money. 32 STATEMENT OF ADDITIONAL INFORMATION RETAIL CLASSES OF AIM BLUE CHIP FUND AIM CHARTER FUND AIM WEINGARTEN FUND AIM CONSTELLATION FUND AIM AGGRESSIVE GROWTH FUND AIM CAPITAL DEVELOPMENT FUND (SERIES PORTFOLIOS OF AIM EQUITY FUNDS, INC.) 11 GREENWAY PLAZA SUITE 1919 HOUSTON, TX 77046-1173 (713) 626-1919 THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF THE ABOVE-NAMED FUNDS, A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING A I M DISTRIBUTORS, INC., P.O. BOX 4739, HOUSTON, TX 77210-4739 OR BY CALLING (713) 626-1919, EXTENSION 5001 (IN HOUSTON) OR (800) 347-4246 (ELSEWHERE). STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 15, 1997 RELATING TO THE AIM AGGRESSIVE GROWTH FUND PROSPECTUS DATED JANUARY 15, 1997, THE AIM CHARTER FUND, AIM WEINGARTEN FUND AND AIM CONSTELLATION FUND PROSPECTUSES DATED JANUARY 15, 1997, THE AIM BLUE CHIP FUND PROSPECTUS DATED JANUARY 15,1997 AND THE AIM CAPITAL DEVELOPMENT FUND PROSPECTUS DATED JANUARY 15,1997 33 TABLE OF CONTENTS
PAGE INTRODUCTION ........................................................................ 1 GENERAL INFORMATION ABOUT THE FUNDS ................................................. 1 The Company and Its Shares ................................................. 1 PERFORMANCE ......................................................................... 2 Total Return Calculations .................................................. 2 Yield Quotations ........................................................... 3 Historical Portfolio Results ............................................... 3 PORTFOLIO TRANSACTIONS AND BROKERAGE ................................................ 5 General Brokerage Policy ................................................... 5 Section 28(e) Standards .................................................... 7 Brokerage Commissions Paid ................................................. 8 Portfolio Turnover ......................................................... 9 INVESTMENT OBJECTIVES AND POLICIES .................................................. 9 Foreign Securities ......................................................... 10 Foreign Exchange Transactions .............................................. 11 Rule 144A Securities ....................................................... 11 Lending of Portfolio Securities ............................................ 11 Repurchase Agreements ...................................................... 12 Special Situations ......................................................... 12 Short Sales ................................................................ 12 Warrants ................................................................... 13 Options .................................................................... 13 Futures Contracts .......................................................... 14 Stock Index Futures Contracts ..................................... 14 Foreign Currency Futures Contracts ................................ 14 Options on Futures Contracts ............................................... 15 Risks as to Futures Contracts and Related Options .......................... 15 INVESTMENT RESTRICTIONS ............................................................. 16 Material Changes to Investment Restrictions ................................ 16 Blue Chip .................................................................. 18 Charter .................................................................... 20 Weingarten ................................................................. 21 Constellation .............................................................. 22 Aggressive Growth .......................................................... 23 Capital Development ........................................................ 24 Additional Restrictions .................................................... 25 MANAGEMENT .......................................................................... 25 Directors and Officers ..................................................... 25 Remuneration of Directors ......................................... 29 AIM Funds Retirement Plan for Eligible Directors/Trustees ......... 30 Deferred Compensation Agreements .................................. 30 Investment Advisory, Administrative Services and Sub-Advisory Agreements ... 31
i 34 DISTRIBUTION PLANS ................................................................. 35 The Class A Plan ........................................................... 35 The Class B Plan ........................................................... 35 Both Plans ................................................................. 36 THE DISTRIBUTOR ..................................................................... 40 HOW TO PURCHASE AND REDEEM SHARES ................................................... 42 NET ASSET VALUE DETERMINATION ....................................................... 42 DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS ............................................ 43 Reinvestment of Dividends and Distributions ................................ 43 Tax Matters ................................................................ 43 Qualification as a Regulated Investment Company ............................ 44 Excise Tax on Regulated Investment Companies ............................... 45 Fund Distributions ......................................................... 46 Sale or Redemption of Shares ............................................... 47 Foreign Shareholders ....................................................... 48 Effect of Future Legislation; Local Tax Considerations ..................... 48 MISCELLANEOUS INFORMATION ........................................................... 49 Shareholder Inquiries ...................................................... 49 Audit Reports .............................................................. 49 Legal Matters .............................................................. 49 Custodian and Transfer Agent ............................................... 49 Principal Holders of Securities ............................................ 50 Other Information .......................................................... 55 APPENDIX ............................................................................ 56 Description of Commercial Paper Ratings .................................... 56 Description of Corporate Bond Ratings ...................................... 56 FINANCIAL STATEMENTS ................................................................ FS
ii 35 INTRODUCTION AIM Equity Funds, Inc. (the "Company") is a series mutual fund. The rules and regulations of the United States Securities and Exchange Commission (the "SEC") require all mutual funds to furnish prospective investors certain information concerning the activities of the fund being considered for investment. This information for AIM Charter Fund ("Charter"), AIM Weingarten Fund ("Weingarten") and AIM Constellation Fund ("Constellation") is included in a Prospectus dated January 15, 1997 (the "Prospectus"), which relates to the Retail Classes of the Funds (defined below). The information for the Retail Class of AIM Aggressive Growth Fund ("Aggressive Growth") is contained in a separate prospectus also dated January 15, 1997. The information for the Retail Class of AIM Blue Chip Fund ("Blue Chip") is contained in a separate prospectus dated January 15, 1997. The information for the Retail Class of AIM Capital Development Fund ("Capital Development") is contained in a separate prospectus dated January 15, 1997. Additional copies of the Prospectuses and this Statement of Additional Information may be obtained without charge by writing the principal distributor of the Funds' shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston, TX 77210-4739 or by calling (800) 347-4246. Investors must receive a Prospectus before they invest. This Statement of Additional Information is intended to furnish prospective investors with additional information concerning the Funds. Some of the information required to be in this Statement of Additional Information is also included in the Prospectus; and, in order to avoid repetition, reference will be made to sections of the Prospectus. Additionally, the Prospectus and this Statement of Additional Information omit certain information contained in the Registration Statement filed with the SEC. Copies of the Registration Statement, including items omitted from the Prospectus and this Statement of Additional Information, may be obtained from the SEC by paying the charges described under its rules and regulations. GENERAL INFORMATION ABOUT THE FUNDS THE COMPANY AND ITS SHARES The Company was organized in 1988 as a Maryland corporation, and is registered with the SEC as a diversified open-end series management investment company. The Company currently consists of six separate portfolios: Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, and Weingarten (each a "Fund" and collectively, the "Funds"). Charter and Weingarten each have three separate classes: Class A and Class B and an Institutional Class. Constellation has two classes of shares: Class A and an Institutional Class. Aggressive Growth has Class A shares only. Blue Chip and Capital Development each have two classes of shares: Class A and Class B. Class A shares (sold with a front-end sales charge) and Class B shares (sold with a contingent deferred sales charge) of the Funds are also referred to as the Retail Classes. Prior to October 15, 1993, Aggressive Growth was a portfolio of AIM Funds Group ("AFG"), a Massachusetts business trust. Pursuant to an Agreement and Plan of Reorganization between AFG and the Company, Aggressive Growth was redomesticated as a portfolio of the Company. All historical financial and other information contained in this Statement of Additional Information for periods prior to October 15, 1993, relating to Aggressive Growth is that of AFG's Aggressive Growth. Blue Chip acquired the investment portfolio of Baird Blue Chip Fund, Inc. (the "BBC Fund"), a registered management investment company, on June 3, 1996, in a corporate reorganization. All historical financial information contained in this Statement of Additional Information for periods prior to June 3, 1996, relating to Blue Chip is that of the BBC Fund. Capital Development acquired substantially all of the assets of Baird Capital Development Fund, Inc., a registered management investment company, on August 12, 1996 in a corporate reorganization. This Statement of Additional Information relates solely to the Retail Classes of the Funds. The term "majority of the outstanding shares" of the Company, of a particular Fund or of a particular class of a Fund means, respectively, the vote of the lesser of (a) 67% or more of the shares of the Company, such Fund or such class present at a meeting of the Company's shareholders, if the holders of more than 50% 1 36 of the outstanding shares of the Company, such Fund or such class are present or represented by proxy, or (b) more than 50% of the outstanding shares of the Company, such Fund or such class. Shares of the Retail Class and the Institutional Class of each Fund have equal rights and privileges. Each share of a particular class is entitled to one vote, to participate equally in dividends and distributions declared by the Company's Board of Directors with respect to the class of such Fund and, upon liquidation of the Fund, to participate proportionately in the net assets of the Fund allocable to such class remaining after satisfaction of outstanding liabilities of the Fund allocable to such class. Fund shares are fully paid, non-assessable and fully transferable when issued and have no preemptive rights and have such conversion and exchange rights as set forth in the Prospectus and this Statement of Additional Information. Fractional shares have proportionately the same rights, including voting rights, as are provided for a full share. Shareholders of the Funds do not have cumulative voting rights, and therefore the holders of more than 50% of the outstanding shares of all Funds voting together for election of directors may elect all of the members of the Board of Directors of the Company. In such event, the remaining holders cannot elect any directors of the Company. PERFORMANCE TOTAL RETURN CALCULATIONS Total returns quoted in advertising reflect all aspects of the applicable Fund's return, including the effect of reinvesting dividends and capital gain distributions, and any change in such Fund's net asset value per share over the period. Average annual returns are calculated by determining the growth or decline in value of a hypothetical investment in a particular Fund over a stated period, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. While average annual returns are a convenient means of comparing investment alternatives, investors should realize that a Fund's performance is not constant over time, but changes from year to year, and that average annual returns do not represent the actual year-to-year performance of such Fund. In addition to average annual returns, the Retail Class of each Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Average annual and cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be broken down into their components of income and capital (including capital gains and changes in share price) in order to illustrate the relationship of these factors and their contributions to total return. Total returns, yields, and other performance information may be quoted numerically or in a table, graph or similar illustration. Total returns may be quoted with or without taking the applicable Fund's maximum applicable Class A front-end sales charge or Class B contingent deferred sales charge into account. Excluding sales charges from a total return calculation produces a higher total return figure. 2 37 YIELD QUOTATIONS The standard formula for calculating yield, as described in the Prospectus, is as follows: 6 YIELD = 2[((a-b) divided by (c x d) + 1) power of -1] Where a = dividends and interest earned during a stated 30-day period. For purposes of this calculation, dividends are accrued rather than recorded on the ex-dividend date. Interest earned under this formula must generally be calculated based on the yield to maturity of each obligation (or, if more appropriate, based on yield to call date). b = expense accrued during period (net of reimbursement). c = the average daily number of shares outstanding during the period. d = the maximum offering price per share on the last day of the period. HISTORICAL PORTFOLIO RESULTS Blue Chip, Charter, Weingarten, Aggressive Growth and Constellation's total returns for Class A shares for the following periods ended October 31, 1996 (which include the maximum sales charge of 5.50% and reinvestment of all dividends and distributions), and Capital Development's total returns for Class A shares for the period June 17, 1996 (inception date for Class A shares) through October 31, 1996 (which includes the maximum sales charge of 5.50% and reinvestment of all dividends and distributions) were as follows:
CLASS A AVERAGE ANNUAL RETURNS ------------------------------ ONE FIVE TEN FIFTEEN TWENTY YEAR YEARS YEARS YEARS YEARS ---- ----- ----- ----- ----- BLUE CHIP 18.95% 12.95% N/A N/A N/A CAPITAL DEVELOPMENT N/A N/A N/A N/A N/A CHARTER 10.28% 10.70% 13.64% 13.87% 16.76% WEINGARTEN 8.49% 10.36% 13.88% 16.31% 19.86% CONSTELLATION 5.14% 17.35% 18.40% 16.80% 19.38% AGGRESSIVE GROWTH 8.46% 24.73% 17.84% N/A N/A
CLASS A CUMULATIVE RETURNS -------------------------- SINCE ONE FIVE TEN FIFTEEN TWENTY INCEPTION YEAR YEARS YEARS YEARS YEARS --------- ---- ----- ----- ----- ----- BLUE CHIP N/A 18.95% 83.86% N/A N/A N/A CAPITAL DEVELOPMENT 4.80% N/A N/A N/A N/A N/A CHARTER N/A 10.28% 66.27% 259.11% 601.35% 2,116.69% WEINGARTEN N/A 8.49% 63.73% 266.84% 864.21% 3,643.60% CONSTELLATION N/A 5.14% 122.59% 441.18% 926.94% 3,356.76% AGGRESSIVE GROWTH N/A 8.46% 201.86% 416.32% N/A N/A
Blue Chip acquired the investment portfolio of the BBC Fund on June 3, 1996. The performance data set forth above for Blue Chip includes performance data of the BBC Fund for periods prior to June 3, 1996. The performance data is not necessarily indicative of the future performance of Blue Chip. 3 38 During the 10-year period ended October 31, 1996, a hypothetical $1,000 investment at the beginning of such period in Class A shares of Charter, Weingarten, Constellation and Aggressive Growth would have been worth $3,591, $3,668, $5,411 and $5,163, respectively, assuming all distributions were reinvested. During the 15-year period ended October 31, 1996, a hypothetical $1,000 investment at the beginning of such period in Class A shares of Charter, Weingarten and Constellation would have been worth $7,013, $9,642 and $10,269, respectively, assuming all dividends were reinvested. During the 20-year period ended October 31, 1996 a hypothetical $1,000 investment at the beginning of such period in Class A shares of Charter, Constellation and Weingarten would have been worth $37,436, $34,568 and $22,167, respectively, assuming all distributions were reinvested. This was a period of widely fluctuating stock and bond prices and interest rates, and should not necessarily be considered a representation of the income or capital gain or loss that may be realized from an investment in any of the Funds today. Charter and Weingarten's total returns for Class B shares for the period June 26, 1995 (inception date for Class B shares of Charter and Weingarten) through October 31, 1996 (which include the maximum contingent deferred sales charge of 5% and reinvestment of all dividends and distributions), and Blue Chip and Capital Development's total returns for Class B shares for the period October 1, 1996 (inception date for Class B shares) through October 31, 1996 (which include the maximum contingent deferred sales charge of 5% and reinvestment of all dividends and distributions) were as follows: CLASS B AVERAGE ANNUAL RETURNS ------------------------------
Since Inception One Year --------- -------- BLUE CHIP N/A N/A CAPITAL DEVELOPMENT N/A N/A CHARTER 15.68% 10.90% WEINGARTEN 14.82% 8.95%
CLASS B CUMULATIVE RETURNS -------------------------- Since Inception One Year --------- -------- BLUE CHIP .29% N/A CAPITAL DEVELOPMENT 1.98% N/A CHARTER 21.72% 10.90% WEINGARTEN 20.51% 8.95%
Average annual total return is not available for Class B shares of Blue Chip and Capital Development as the effective date of the Class B shares was October 1, 1996. Each Fund's performance may be compared in advertising to the performance of other mutual funds in general, or of particular types of mutual funds, especially those with similar objectives. Such performance data may be prepared by Lipper Analytical Services, Inc. and other independent services which monitor the performance of mutual funds. The Funds may also advertise mutual fund performance rankings which have been assigned to each respective Fund by such monitoring services. 4 39 Each Fund's performance may also be compared in advertising and other materials to the performance of comparative benchmarks such as the Consumer Price Index ("CPI"), the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such as bank certificates of deposit and/or savings accounts. The CPI, published by the U.S. Bureau of Labor Statistics, is a statistical measure of changes, over time, in the prices of goods and services. S & P's 500 Stock Index is a group of unmanaged securities widely regarded by investors as representative of the stock market in general. Comparisons assume the reinvestment of dividends. Fixed Price Investments, such as bank certificates of deposits and savings accounts, are generally backed by federal agencies for up to $100,000. Class A shares of Charter, Weingarten and Constellation are not insured and their value will vary with market conditions. In addition, each Fund's long-term performance may be described in advertising in relation to historical, political and/or economic events. For instance, Charter's Class A shares performance since its inception has been accomplished through various years in which there have been recessions, a presidential assassination attempt, a 20% prime rate, an 13% annual inflation rate, and significant stock market declines. The performance of Class A shares of Weingarten, Aggressive Growth and Constellation has been achieved through years in which similar events occurred. Each Fund's advertising may from time to time include discussions of general economic conditions and interest rates. Each Fund's advertising may also include references to the use of the Fund as part of an individual's overall retirement investment program. From time to time, Fund sales literature and/or advertisements may disclose (i) top holdings included in the Fund's portfolio, (ii) certain selling group members, and/or (iii) certain institutional shareholders. From time to time, the Funds' sales literature and/or advertisements may discuss generic topics pertaining to the mutual fund industry. These topics include, but are not limited to, literature addressing general information about mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets, certificates of deposit, retirement, retirement plans, asset allocation, tax-free investing, college planning and inflation. PORTFOLIO TRANSACTIONS AND BROKERAGE GENERAL BROKERAGE POLICY Subject to policies established by the Board of Directors of the Company, A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and sell securities for each Fund, for the selection of broker-dealers, for the execution of each Fund's investment portfolio transactions, and for the allocation of brokerage fees in connection with such transactions. AIM's primary consideration in effecting a security transaction is to obtain the best net price and the most favorable execution of the order. While AIM generally seeks reasonably competitive commission rates, each Fund does not necessarily pay the lowest commission or spread available. A portion of the securities in which each Fund invests are traded in over-the-counter markets, and in such transactions, a Fund deals directly with the dealers who make markets in the securities involved, except in those circumstances where better prices and executions are available elsewhere. Portfolio transactions placed through dealers serving as primary market makers are effected at net prices, generally without commissions as such, but which include compensation in the form of mark up or mark down. 5 40 AIM may from time to time determine target levels of commission business for AIM to transact with various brokers on behalf of its clients (including the Funds) over a certain time period. The target levels will be determined based upon the following factors, among others: (a) the execution services by the broker; (b) the research services provided by the broker; and (c) the broker's attitude toward and interest in mutual funds in general and in the Funds and other mutual funds advised by AIM or A I M Capital Management, Inc. ("AIM Capital") in particular. No specific formula will be used in connection with any of the foregoing considerations in determining the target levels. However, if a broker has indicated a certain level of desired commissions in return for certain research services provided by the broker, this factor will be taken into consideration by AIM. Subject to the overall objective of obtaining best price and execution for the Funds, AIM may also consider sales of shares of the Funds and of the other mutual funds managed or advised by AIM and AIM Capital as a factor in the selection of broker-dealers to execute portfolio transactions for the Funds. In such cases, Fund trades may be executed directly by selling dealers or by other broker-dealers with which selling dealers have clearing arrangements. AIM will seek, whenever possible, to recapture for the benefit of each Fund any commission, fee, brokerage or similar payment paid by such Fund on portfolio transactions. Normally, the only fees which may be recaptured are the soliciting dealer fees on the tender of an account's portfolio securities in a tender or exchange offer. None of the Funds is under any obligation to deal with any broker or group of brokers in the execution of transactions in portfolio securities. Brokers who provide supplemental investment research to AIM and AIM Capital may receive orders for transactions by the Funds. Information so received will be in addition to and not in lieu of the services required to be performed by AIM and AIM Capital under their agreements with the Funds and the expenses of AIM and AIM Capital will not necessarily be reduced as a result of the receipt of such supplemental information. Certain research services furnished by broker-dealers may be useful to AIM and AIM Capital in connection with their services to other advisory clients, including the investment companies which they advise. Also, each Fund may pay a higher price for securities or higher commissions in recognition of research services furnished by broker-dealers. Provisions of the Investment Company Act of 1940, as amended ("1940 Act") and rules and regulations thereunder have been construed to prohibit the Company from purchasing securities or instruments from, or selling securities or instruments to, any holder of 5% or more of the voting securities of any investment company managed or advised by AIM. The Company has obtained an order of exemption from the SEC which permits the Company to engage in certain transactions with such 5% holder, if the Company complies with conditions and procedures designed to ensure that such transactions are executed at fair market value and present no conflicts of interest. AIM, AIM Capital and their affiliates manage several other investment accounts, some of which may have investment objectives similar to those of one or more of the Funds. It is possible that, at times, identical securities will be appropriate for investment by one or more of the Funds and by one or more of such investment accounts. The position of each account, however, in the securities of the same issue may vary and the length of time that each account may choose to hold its investment in the securities of the same issue may likewise vary. The timing and amount of purchase by each account will be determined by its cash position. If the purchase or sale of securities consistent with the investment policies of a Fund and one or more of these accounts is considered at or about the same time, transactions in such securities will be allocated among the Fund(s) and such accounts in a manner deemed equitable by AIM. AIM may combine such transactions, in accordance with applicable laws and regulations, in order to obtain the best net price and most favorable execution. Simultaneous transactions could, however, adversely affect the ability of a Fund to obtain or dispose of the full amount of a security which it seeks to purchase or sell. Under the 1940 Act, persons affiliated with the Company are prohibited from dealing with the Funds as principal in any purchase or sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. The Board of Directors has adopted procedures pursuant to Rule 17a-7 under the 1940 Act relating to portfolio transactions among the Funds and other accounts advised by AIM or AIM Capital and each of the Funds may from time to time enter into transactions in accordance with such Rule and procedures. 6 41 From time to time, a Fund may sell a security to, or purchase a security from, an AIM Fund or another investment account advised by AIM or AIM Capital when such transactions comply with applicable rules and regulations and are deemed consistent with the investment objective(s) and policies of the investment accounts involved. Procedures pursuant to Rule 17a-7 under the 1940 Act regarding transactions between investment accounts advised by AIM or AIM Capital have been adopted by the Board of Directors/Trustees of the various AIM Funds including the Company. Although such transactions may result in custodian, tax or other related expenses, no brokerage commissions or other direct transaction costs are generated by transactions among the investment accounts advised by AIM or AIM Capital. In some cases the procedure for allocating portfolio transactions among the various investment accounts advised by AIM and AIM Capital could have an adverse effect on the price or amount of securities available to a Fund. In making such allocations, the main factors considered by AIM are the respective investment objectives and policies of its advisory clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held and the judgments of the persons responsible for recommending the investment. SECTION 28(e) STANDARDS Under Section 28(e) of the Securities Exchange Act of 1934, AIM shall not be "deemed to have acted unlawfully or to have breached its fiduciary duty" solely because under certain circumstances it has caused the account to pay a higher commission than the lowest available. To obtain the benefit of Section 28(e), AIM must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided . . . viewed in terms of either that particular transaction or [its] overall responsibilities with respect to the accounts as to which [it] exercises investment discretion," and that the services provided by a broker provide AIM and AIM Capital with lawful and appropriate assistance in the performance of their investment decision-making responsibilities. Accordingly, the price to a Fund in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Broker-dealers utilized by AIM may furnish statistical, research and other information or services which are deemed by AIM and AIM Capital to be beneficial to the Funds' investment programs. Research services received from brokers supplement AIM's and AIM Capital's own research (and the research of sub-advisors to other clients of AIM and AIM Capital), and may include the following types of information: statistical and background information on industry groups and individual companies; forecasts and interpretations with respect to U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on political developments; portfolio management strategies; performance information on securities and information concerning prices of securities; and information supplied by specialized services to AIM and AIM Capital and to the Company's directors with respect to the performance, investment activities and fees and expenses of other mutual funds. Such information may be communicated electronically, orally or in written form. Research services may also include the providing of equipment used to communicate research information, the arranging of meetings with management of companies and the providing of access to consultants who supply research information. The outside research assistance is useful to AIM and AIM Capital since the brokers utilized by AIM as a group tend to follow a broader universe of securities and other matters than AIM's and AIM Capital's staff can follow. In addition, this research provides AIM and AIM Capital with a diverse perspective on financial markets. Research services which are provided to AIM and AIM Capital by brokers are available for the benefit of all accounts managed or advised by AIM and AIM Capital or by sub-advisors to other accounts managed or advised by AIM and AIM Capital. In some cases, the research services are available only from the broker providing such services. In other cases, the research services may be obtainable from alternative sources in return for cash payments. AIM is of the opinion that because the broker research supplements, rather than replaces, its research, the receipt of such research does not tend to decrease its expenses, but tends to improve the quality of its investment advice. However, to the extent that AIM or AIM Capital would have 7 42 purchased any such research services had such services not been provided by brokers, the expenses of such services to AIM or AIM Capital could be considered to have been reduced accordingly. Certain research services furnished by broker-dealers may be useful to AIM or AIM Capital with clients other than the Funds. Similarly, any research services received by AIM or AIM Capital through the placement of portfolio transactions of other clients may be of value to AIM or AIM Capital in fulfilling their obligations to the Funds. AIM is of the opinion that this material is beneficial in supplementing AIM's and AIM Capital's research and analysis; and, therefore, it may benefit the Funds by improving the quality of the investment advice. The advisory fees paid by the Funds are not reduced because AIM and AIM Capital receive such services. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by AIM's and AIM Capital's clients, including the Funds. BROKERAGE COMMISSIONS PAID For the fiscal years ended October 31, 1996, 1995 and 1994, Charter paid brokerage commissions of $9,213,125, $14,960,600, and $4,188,695, respectively. For the fiscal year ended October 31, 1996, AIM allocated certain of Charter's brokerage transactions to certain broker-dealers that provided AIM with certain research, statistical and other information. Such transactions amounted to $435,792,811 and the related brokerage commissions were $475,824. For the fiscal years ended October 31, 1996, 1995 and 1994, Weingarten paid brokerage commissions of $21,795,437, $21,766,760, and $17,841,982, respectively. For the fiscal year ended October 31, 1996, AIM allocated certain of Weingarten's brokerage transactions to certain broker-dealers that provided AIM with certain research, statistical and other information. Such transactions amounted to $1,102,413,275 and the related brokerage commissions were $1,330,688. For the fiscal years ended October 31, 1996, 1995 and 1994, Constellation paid brokerage commissions of $13,032,299, $15,359,510, and $6,921,543 respectively. For the fiscal year ended October 31, 1996 AIM allocated certain of Constellation's brokerage transactions to certain broker-dealers that provided AIM with certain research, statistical and other information. Such transactions amounted to $923,417,535 and the related brokerage commissions were $1,267,557. For the fiscal years ended October 31, 1996, 1995, and 1994 Aggressive Growth paid brokerage commissions of $3,244,570, $9,917,185, and $1,180,323, respectively. For the fiscal year ended October 31, 1996, AIM allocated certain of Aggressive Growth's brokerage transactions to certain broker-dealers that provided AIM with certain research, statistical and other information. Such transactions amounted to $280,907,229 and the related brokerage commissions were $549,006. For the fiscal years ended September 30, 1996 and October 31, 1996, Blue Chip paid brokerage commissions of $121,246 and $39,153, respectively. For the fiscal year ended October 31, 1996, AIM allocated certain of Blue Chip's brokerage transactions to certain broker-dealers that provide AIM with certain research, statistical and other information. Such transactions amounted to $8,234,550 and the related brokerage commissions were $9,592. Brokerage commissions paid by the BBC Fund during the fiscal year ended September 30, 1995, to brokers, other than its investment adviser Robert W. Baird & Co. Incorporated ("Baird"), totaled $45,867. All of such brokers provided research services to Baird. During such year, the BBC Fund did not pay brokerage commissions to Baird. Brokerage commissions paid by the BBC Fund during the fiscal year ended September 30, 1994 to brokers, other than Baird, totaled $37,864. All of such brokers provided research services to Baird. During such year, the BBC Fund did not pay Baird any brokerage commissions. For the fiscal year ended October 31, 1996, Capital Development paid brokerage commissions of $219,931. For the fiscal year ended October 31, 1996, AIM allocated certain of Capital Development's 8 43 brokerage transactions to certain broker-dealers that provide AIM with certain research, statistical and other information. Such transactions amounted to $3,951,579 and the related brokerage commissions were $8,944. PORTFOLIO TURNOVER The portfolio turnover rate of Aggressive Growth, Capital Development, Charter, Constellation, Weingarten and Blue Chip is shown under "Financial Highlights" in the applicable Prospectus. Higher portfolio turnover increases transaction costs to the Fund. INVESTMENT OBJECTIVES AND POLICIES The following discussion of investment policies supplements the discussion of the investment objectives and policies set forth in the Prospectus under the heading "Investment Program(s)." Each of the Funds may invest, for temporary or defensive purposes, all or substantially all of their assets in investment grade (high quality) corporate bonds, commercial paper, or U.S. Government obligations. In addition, a portion of each Fund's assets may be held, from time to time, in cash, repurchase agreements or other short-term debt securities when such positions are deemed advisable in light of economic or market conditions. For a description of the various rating categories of corporate bonds and commercial paper in which the Funds may invest, see the Appendix to this Statement of Additional Information. COMMON STOCKS -- The Funds will invest in common stocks. Common stocks represent the residual ownership interest in the issuer and are entitled to the income and increase in the value of the assets and business of the entity after all of its obligations and preferred stocks are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. PREFERRED STOCKS -- The Funds may invest in preferred stocks. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer's board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions. CONVERTIBLE SECURITIES -- The Funds may invest in convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable stream of income with generally higher yields than those of common stocks of the same or similar issuers. Convertible securities rank senior to common stock in a corporation's capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption at the option of the issuer at a price established in the convertible security's governing instrument. Although each Fund will only purchase convertible securities that 9 44 AIM considers to have adequate protection parameters, including an adequate capacity to pay interest and repay principal in a timely manner, it invests without regard to corporate bond ratings. Capital Development does not intend to invest more than 5% of its net assets in convertible securities. CORPORATE DEBT SECURITIES -- The Funds may invest in corporate debt securities. Corporations issue debt securities of various types, including bonds and debentures (which are long-term), notes (which may be short- or long-term), bankers acceptances (indirectly secured borrowings to facilitate commercial transactions) and commercial paper (short-term unsecured notes). These securities typically provide for periodic payments of interest, at a rate which may be fixed or adjustable, with payment of principal upon maturity and are generally not secured by assets of the issuer or otherwise guaranteed. The values of fixed rate income securities tend to vary inversely with changes in interest rates, with longer-term securities generally being more volatile than shorter-term securities. Corporate securities frequently are subject to call provisions that entitle the issuer to repurchase such securities at a predetermined price prior to their stated maturity. In the event that a security is called during a period of declining interest rates, the Fund may be required to reinvest the proceeds in securities having a lower yield. In addition, in the event that a security was purchased at a premium over the call price, a Fund will experience a capital loss if the security is called. Adjustable rate corporate debt securities may have interest rate caps and floors. Blue Chip will not invest in non-convertible corporate debt securities rated below investment grade by S&P and Moody's Investors Service ("Moody's") or in unrated non-convertible corporate debt securities believed by the Fund's investment adviser to be below investment grade quality. Securities rated in the four highest long-term rating categories by S&P and Moody's are considered to be "investment grade." S&P's fourth highest long-term rating category is "BBB", with BBB being the lowest investment grade rating. Moody's fourth highest long-term rating category is "Baa", with Baa3 being the lowest investment grade rating. Publications of S&P indicate that it assigns securities to the "BBB" rating category when such securities are "regarded as having an adequate capacity to pay interest and repay principal. Such securities normally exhibit adequate protection parameters, but adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay," whereas securities rated AAA by S&P are regarded as having "capacity to pay interest and repay principal [that] is extremely strong." Publications of Moody's indicate that it assigns securities to the "Baa rating category when such securities are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well," whereas securities rated Aaa by Moody's "are judged to be of the best quality" and "carry the smallest degree of investment risk." U.S. GOVERNMENT SECURITIES -- The Funds may invest in securities issued or guaranteed by the United States government or its agencies or instrumentalities. These include Treasury securities (bills, notes, bonds and other debt securities) which differ only in their interest rates, maturities and times of issuance. U.S. Government agency and instrumentality securities include securities which are supported by the full faith and credit of the U.S., securities that are supported by the right of the agency to borrow from the U.S. Treasury, securities that are supported by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality and securities that are supported only by the credit of such agencies. While the U.S. Government may provide financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so. The U.S. government, its' agencies and instrumentalities do not guarantee the market value of their securities and consequently the values of such securities fluctuate. FOREIGN SECURITIES Each of Aggressive Growth, Blue Chip and Capital Development may invest up to 25% of its total assets in foreign securities. Each of Charter, Weingarten and Constellation may invest up to 20% of its total assets in foreign securities. For purposes of computing such limitation American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and other securities representing underlying securities of foreign 10 45 issuers are treated as foreign securities. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in the United States securities markets, and EDRs, in bearer form, are designed for use in European securities markets. ADRs and EDRs may be listed on stock exchanges, or traded in OTC markets in the United States or Europe, as the case may be. ADRs, like other securities traded in the United States, will be subject to negotiated commission rates. Investments by the Fund in securities of foreign corporations may involve considerations and risks that are different in certain respects from an investment in securities of U.S. companies. Such risks include possible imposition of withholding taxes on interest or dividends, possible adoption of foreign governmental restrictions on repatriation of income or capital invested, or other adverse political or economic developments. Additionally, it may be more difficult to enforce the rights of a security holder against a foreign corporation, and information about the operations of foreign corporations may be more difficult to obtain and evaluate. FOREIGN EXCHANGE TRANSACTIONS Purchases and sales of foreign securities are usually made with foreign currencies, and consequently the Funds may from time to time hold cash balances in the form of foreign currencies and multinational currency units. Such foreign currencies and multinational currency units will usually be acquired on a spot (i.e. cash) basis at the spot rate prevailing in foreign exchange markets and will result in currency conversion costs to the Funds. The Funds attempt to purchase and sell foreign currencies on as favorable a basis as practicable; however, some price spread on foreign exchange transactions (to cover service charges) may be incurred, particularly when the Funds change investments from one country to another, or when U.S. dollars are used to purchase foreign securities. Certain countries could adopt policies which would prevent the Funds from transferring cash out of such countries, and the Funds may be affected either favorably or unfavorably by fluctuations in relative exchange rates while the Funds hold foreign currencies. RULE 144A SECURITIES The Funds may each purchase securities which, while privately placed, are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"). This Rule permits certain qualified institutional buyers, such as a Fund, to trade in privately placed securities even though such securities are not registered under the 1933 Act. AIM, under the supervision of the Company's Board of Directors, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% of its assets in illiquid securities. Determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination AIM will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, AIM could consider the (i) frequency of trades and quotes, (ii) number of dealers and potential purchasers, (iii) dealer undertakings to make a market, and (iv) nature of the security and of market place trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities will also be monitored by AIM and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not invest more than 15% of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's investments in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. LENDING OF PORTFOLIO SECURITIES For the purpose of realizing additional income, the Funds may each make secured loans of portfolio securities amounting to not more than 33-1/3% of its total assets. None of the Funds currently intend to engage in this investment practice. Securities loans are made to banks, brokers and other financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times 11 46 to the value of the securities lent marked to market on a daily basis. The collateral received will consist of cash, U.S. Government securities, letters of credit or such other collateral as may be permitted under the Fund's investment program. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. The Fund has a right to call each loan and obtain the securities on five business days' notice or, in connection with securities trading on foreign markets, within such longer period of time which coincides with the normal settlement period for purchases and sales of such securities in such foreign markets. The Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral in the event the value of the collateral decreased below the value of the securities loaned or of delay in recovering the securities loaned or even loss of rights in the collateral should the borrower of the securities fail financially. Loans will only be made to persons deemed by AIM to be of good standing and will not be made unless, in the judgment of AIM, the consideration to be earned from such loans would justify the risk. REPURCHASE AGREEMENTS The Funds may each enter into repurchase agreements. A repurchase agreement is an instrument under which a Fund acquires ownership of a debt security and the seller (usually a broker or bank) agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the Fund's holding period. In the event of bankruptcy or other default of a seller of a repurchase agreement, the Fund may experience both delays in liquidating the underlying securities and losses, including: (a) a possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (b) a possible subnormal level of income and lack of access to income during this period; and (c) expenses of enforcing its rights. A repurchase agreement is collateralized by the security acquired by the Fund and its value is marked to market daily in order to minimize the Fund's risk. Repurchase agreements usually are for short periods, such as one or two days, but may be entered into for longer periods of time. Charter may enter into repurchase agreements (at any time, up to 50% of its net assets), using only U.S. Government securities, for the sole purpose of increasing its yield on idle cash. Charter will not invest in a repurchase agreement of more than seven days' duration if, as a result of that investment, the amount of repurchase agreements of more than seven days' duration would exceed 15% of the assets of Charter. SPECIAL SITUATIONS Although Constellation does not currently intend to do so, it may invest in "special situations." A special situation arises when, in the opinion of the Fund's management, the securities of a particular company will, within a reasonably estimable period of time, be accorded market recognition at an appreciated value solely by reason of a development applicable to that company, and regardless of general business conditions or movements of the market as a whole. Developments creating special situations might include, among others: liquidations, reorganizations, recapitalizations, mergers, material litigation, technical breakthroughs, and new management or management policies. Although large and well-known companies may be involved, special situations more often involve comparatively small or unseasoned companies. Investments in unseasoned companies and special situations often involve much greater risk than is inherent in ordinary investment securities. Constellation will not, however, purchase securities of any company with a record of less than three years' continuous operation (including that of predecessors) if such purchase would cause the Fund's investment in all such companies, taken at cost, to exceed 5% of the value of the Fund's total assets. SHORT SALES Although Blue Chip, Weingarten, Constellation and Aggressive Growth do not currently intend to do so, they and Capital Development may each enter into short sales transactions. None of Blue Chip, 12 47 Weingarten, Constellation, Aggressive Growth or Capital Development will make short sales of securities nor maintain a short position unless at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short. This is a technique known as selling short "against the box." Such short sales will be used by each of Blue Chip, Weingarten, Constellation, Aggressive Growth and Capital Development for the purpose of deferring recognition of gain or loss for federal income tax purposes. In no event may more than 10% of the value of the respective Fund's net assets (10% of the value of total assets of Aggressive Growth) be deposited or pledged as collateral for such sales at any time. WARRANTS The Funds may, from time to time, invest in warrants. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Of course, since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant varies with the exercise price of a warrant, the current market value of the underlying security, the life of the warrant and various other investment factors. The investment in warrants by the Funds, valued at the lower of cost or market, may not exceed 5% of the value of their net assets and not more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges. OPTIONS Each of the Funds (except Charter) is authorized to write (sell) covered call options on the securities in which it may invest and to enter into closing purchase transactions with respect to such options. Writing a call option obligates a Fund to sell or deliver the option's underlying security, in return for the strike price, upon exercise of the option. By writing a call option, the Fund receives an option premium from the purchaser of the call option. Writing covered call options is generally a profitable strategy if prices remain the same or fall. Through receipt of the option premium, the Fund would seek to mitigate the effects of a price decline. By writing covered call options, however, the Fund gives up the opportunity, while the option is in effect, to profit from any price increase in the underlying security above the option exercise price. In addition, the Fund's ability to sell the underlying security will be limited while the option is in effect unless the Fund effects a closing purchase transaction. SEE "INVESTMENT RESTRICTIONS - MATERIAL CHANGES TO INVESTMENT RESTRICTIONS." Capital Development and Blue Chip may purchase put options and write covered call options, and may engage in strategies employing combinations of covered put and call options. A put purchased by the Fund constitutes a hedge against a decline in the price of a security owned by the Fund. It may be sold at a profit or loss depending upon changes in the price of the underlying security. It may be exercised at a profit provided that the amount of the decline in the price of the underlying security below the exercise price during the option period exceeds the option premium, or it may expire without value. A call constitutes a hedge against an increase in the price of a security which the Fund has sold short, it may be sold at a profit or loss depending upon changes in the price of the underlying security, it may be exercised at a profit provided that the amount of the increase in the price of the underlying security over the exercise price during the option period exceeds the option premium, or it may expire without value. The maximum loss exposure involved in the purchase of an option is the cost of the option contract. 13 48 FUTURES CONTRACTS Each of the Funds may purchase and sell futures contracts in order to hedge the value of its portfolio against changes in market conditions. In cases of purchases of futures contracts, an amount of cash and cash equivalents, equal to the cost of the futures contracts (less any related margin deposits), will be segregated with the Funds' custodian to collateralize the position and ensure that the use of such futures contracts is unleveraged. Unlike when a Fund purchases or sells a security, no price is paid or received by a Fund upon the purchase or sale of a futures contract. Initially, a Fund will be required to deposit with its custodian for the account of the broker a stated amount, as called for by the particular contract, of cash or U.S. Treasury bills. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in securities transactions in that futures contract margin does not involve the borrowing of funds by the customer to finance the transactions. Rather, the initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to the Fund upon termination of the futures contract assuming all contractual obligations have been satisfied. Subsequent payments, called "variation margin," to and from the broker will be made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures contract more or less valuable, a process known as "marking-to-market." For example, when a Fund has purchased a stock index futures contract and the price of the underlying stock index has risen, that position will have increased in value and the Fund will receive from the broker a variation margin payment with respect to that increase in value. Conversely, where a Fund has purchased a stock index futures contract and the price of the underlying stock index has declined, that position would be less valuable and the Fund would be required to make a variation margin payment to the broker. Variation margin payments would be made in a similar fashion when a Fund has purchased an interest rate futures contract. At any time prior to expiration of the futures contract, a Fund may elect to close the position by taking an opposite position which will operate to terminate the Fund's position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid by or released to the Fund and the Fund realizes a loss or gain. A description of the various types of futures contracts that may be utilized by the Funds is as follows: Stock Index Futures Contracts A stock index assigns relative values to the common stocks included in the index and the index fluctuates with changes in the market values of the common stocks so included. A stock index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to a specified dollar (or, in the case of Aggressive Growth or Capital Development, other currency) amount times the difference between the stock index value at the close of the last trading day of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying stocks in the index is made. Currently, stock index futures contracts can be purchased or sold primarily with respect to broad based stock indices such as the S&P's 500 Stock Index, the New York Stock Exchange Composite Index, the American Stock Exchange Major Market Index, the NASDAQ -- 100 Stock Index and the Value Line Stock Index. The stock indices listed above consist of a spectrum of stocks not limited to any one industry such as utility stocks. Utility stocks, at most, would be expected to comprise a minority of the stocks comprising the portfolio of the index. The Funds will only enter into stock index futures contracts in order to hedge the value of its portfolio against changes in market conditions. When a Fund anticipates a significant market or market sector advance, the purchase of a stock index futures contract affords a hedge against not participating in such advance. Conversely, in anticipation of or in a general market or market sector decline that adversely affects the market values of a Fund's portfolio of securities, the Fund may sell stock index futures contracts. Foreign Currency Futures Contracts With respect to Aggressive Growth and Capital Development only, futures contracts may also be used to hedge the risk of changes in the exchange rate of foreign currencies. 14 49 OPTIONS ON FUTURES CONTRACTS Blue Chip, Aggressive Growth and Capital Development may purchase options on futures contracts. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the option exercise period. The writer of the option is required upon exercise to assume an offsetting futures position (a short position if the option is a call and a long position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the assumption of offsetting futures positions by the writer and holder of the option will be accompanied by delivery of the accumulated cash balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. If an option on a futures contract is exercised on the last trading date prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing price of the futures contract on the expiration date. Blue Chip, Aggressive Growth and Capital Development will purchase put options on futures contracts to hedge against the risk of falling prices for their respective portfolio securities. Blue Chip, Aggressive Growth and Capital Development will purchase call options on futures contracts as a hedge against a rise in the price of securities which it intends to purchase. Options on futures contracts may also be used to hedge the risks of changes in the exchange rate of foreign currencies. The purchase of a put option on a futures contract is similar to the purchase of protective put options on a portfolio security or a foreign currency. The purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual security or a foreign currency. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or the price of the underlying securities or currency, it may or may not be less risky than ownership of the futures contract or underlying securities or currency. RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS There are several risks in connection with the use of futures contracts and related options as hedging devices. One risk arises because of the imperfect correlation between movements in the price of hedging instruments and movements in the price of the stock, debt security or foreign currency which are the subject of the hedge. If the price of a hedging instrument moves less than the price of the stock, debt security or foreign currency which is the subject of the hedge, the hedge will not be fully effective. If the price of a hedging instrument moves more than the price of the stock, debt security or foreign currency, a Fund will experience either a loss or gain on the hedging instrument which will not be completely offset by movements in the price of the stock, debt security or foreign currency which is the subject of the hedge. The use of options on futures contracts involves the additional risk that changes in the value of the underlying futures contract will not be fully reflected in the value of the option. Successful use of hedging instruments by the Funds is also subject to AIM's ability to predict correctly movements in the direction of the stock market, of interest rates or of foreign exchange rates. Because of possible price distortions in the futures and options markets and because of the imperfect correlation between movements in the prices of hedging instruments and the investments being hedged, even a correct forecast by AIM of general market trends may not result in a completely successful hedging transaction. It is also possible that where a Fund has sold futures contracts to hedge its portfolio against a decline in the market, the market may advance and the value of stocks or debt securities held in its portfolio may decline. If this occurred, a Fund would lose money on the futures contracts and also experience a decline in the value of its portfolio securities. Similar risks exist with respect to foreign currency hedges. Positions in futures contracts or options may be closed out only on an exchange on which such contracts are traded. Although the Funds intend to purchase or sell futures contracts or, in the case of 15 50 Blue Chip, Aggressive Growth and Capital Development, purchase options only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a liquid market on an exchange or a board of trade will exist for any particular contract at any particular time. If there is not a liquid market, it may not be possible to close a futures position or purchase an option at such time. In the event of adverse price movements under those circumstances, the Fund would continue to be required to make daily cash payments of maintenance margin on its futures positions. The extent to which a Fund may engage in futures contracts or, in the case of Blue Chip, Aggressive Growth and Capital Development, related options, will be limited by Internal Revenue Code requirements for qualification as a regulated investment company and a Fund's intent to continue to qualify as such. The result of a hedging program cannot be foreseen and may cause a Fund to suffer losses which it would not otherwise sustain. Securities Issued on a When-Issued or Delayed Delivery Basis - Investment in securities on a when-issued or delayed delivery basis may increase a Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must engage in portfolio transactions in order to honor a when-issued or delayed delivery commitment. In a delayed delivery transaction, the Fund relies on the other party to complete the transaction. If the transaction is not completed, the Fund may miss a price or yield considered to be advantageous. A Fund will employ techniques designed to reduce such risks. If a Fund purchases a when-issued security, the Fund's custodian bank will segregate cash or other high grade securities (including temporary investments and Municipal Securities) in an amount equal to the when-issued commitment. If the market value of such securities declines, additional cash or securities will be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the Fund's when-issued commitments. To the extent cash and securities are segregated, they will not be available for new investments or to meet redemptions. Securities purchased on a delayed delivery basis may require a similar segregation of cash or other high grade securities. INVESTMENT RESTRICTIONS MATERIAL CHANGES TO INVESTMENT RESTRICTIONS On December 11, 1996, the Board of Directors of the Company approved, subject to shareholder approval, the elimination of or changes to certain fundamental investment policies of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation and Weingarten. Shareholders of each Fund will be asked to approve these changes at an annual meeting of shareholders to be held on February 7, 1997 (the "Annual Meeting"). If approved, these changes will become effective as of March 1, 1997. Investment In Other Investment Companies Reference is made to Investment Restrictions (a), (b) and (i) of Charter, set forth on page 20. The Board of Directors has unanimously approved the elimination of Investment Restriction (b) and a change to Investment Restrictions (a) and (i) of Charter. In the event shareholders approve the proposed changes, Investment Restriction (b) will no longer apply and Investment Restrictions (a) and (i) will read in full as follows: (a) purchase the securities of any one issuer (except securities issued or guaranteed by the U.S. Government) if, immediately after and as a result of such purchase, (i) the value of the holdings of the Fund in the securities of such issuer exceeds 5% of the value of the Fund's total assets, or (ii) the Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer, except that the Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order; (i) invest in companies for the purpose of exercising control or management, except that the Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order; 16 51 Reference is made to Investment Restrictions (f) and (h) of Weingarten on page 21 of the SAI. The Board of Directors has approved the elimination of Investment Restriction (h) and a change to Investment Restriction (f) of Weingarten. In the event shareholders approve the proposed changes, Investment Restriction (h) will no longer apply and Investment Restriction (f) will read in full as follows: (f) purchase shares in order to control management of a company, except that the Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order; Reference is made to Investment Restrictions (a) and (f) of Constellation on page 22. The Board of Directors has approved the elimination of Investment Restriction (f) and a change to Investment Restriction (a) of Constellation. In the event shareholders approve the proposed changes, Investment Restriction (f) will no longer apply and Investment Restriction (a) will read in full as follows: (a) invest for the purpose of exercising control over or management of a company, except that the Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order; Reference is made to Investment Restrictions (a) and (g) of Aggressive Growth on page 23. The Board of Directors has approved the elimination of Investment Restriction (g) and a change to Investment Restriction (a) of Aggressive Growth. In the event shareholders approve the proposed changes, Investment Restriction (g) will no longer apply and Investment Restriction (a) will read in full as follows: (a) with respect to 75% of the total assets of the Fund, purchase the securities of any issuer if such purchase would cause more than 5% of the value of its assets to be invested in the securities of such issuer (except U.S. Government securities including securities issued by its agencies and instrumentalities and except that the Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order); Reference is made to Investment Restriction (a) of Capital Development set forth on page 24. The Board of Directors has approved a change to Investment Restriction (a) of Capital Development . In the event shareholders approve the proposed changes, Investment Restriction (a) will read in full as follows: (a) with respect to 75% of the total assets of the Fund, purchase the securities of any one issuer (except securities issued or guaranteed by U.S. Government) if, immediately after and as a result of such purchase, (i) the value of the holdings of the Fund in the securities of such issuer exceeds 5% of the value of the Fund's total assets, or (ii) the Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer, except that the Fund may purchase securities of other investment companies to the extent permitted by applicable law or exemptive order; Investment in Puts and Covered Calls Reference is made to Investment Restriction (e) of Charter, set forth on page 20, and Investment Restriction (g) of Weingarten, set forth on page 21, which prohibits Charter from investing in puts, calls, straddles and spreads and prohibits Weingarten from investing in certain puts and calls. The Board of Directors has approved changes to these Investment Restrictions. In the event shareholders approve the proposed changes to these Investment Restrictions, Charter and Weingarten will each implement a new nonfundamental policy (i.e., it may be changed by the Board of Directors without shareholder approval) that will (a) limit the ability of each Fund to write covered call options to no more than 25% of the value of such Fund's net assets, and (b) prohibit each Fund from engaging in the writing and sale of put options and the writing, sale or purchase of uncovered call options, straddles, spreads or combinations thereof. Neither 17 52 Charter nor Weingarten intends to engage in such transactions for speculative purposes and will engage in such transactions only for hedging purposes. By writing a call option, the Fund receives an option premium from the purchaser of the call option. Writing covered call options is generally a profitable strategy if prices remain the same or fall. Through receipt of the option premium, the Fund would seek to mitigate the effects of a price decline. By writing covered call options, however, the Fund gives up the opportunity, while the option is in effect, to profit from any price increase in the underlying security above the option exercise price. In addition, the Fund's ability to sell the underlying security will be limited while the option is in effect unless the Fund effects a closing purchase transaction. A call option is "covered" if the Fund owns or has the right to acquire the underlying security subject to the call. A put purchased by a Fund constitutes a hedge against a decline in the price of a security owned by the Fund. It may be sold at a profit or loss depending upon changes in the price of the underlying security. It may be exercised at a profit provided that the amount of the decline in the price of the underlying security below the exercise price during the option period exceeds the option premium, or it may expire without value. A call constitutes a hedge against an increase in the price of a security which the Fund has sold short, it may be sold at a profit or loss depending upon changes in the price of the underlying security, it may be exercised at a profit provided that the amount of the increase in the price of the underlying security over the exercise price during the option period exceeds the options premium, or it may expire without value. The maximum loss exposure involved in the purchase of an option is the cost of the option contract. For a discussion of the risks related to these types of transactions, please see pages 15 and 16 of the SAI. In the event shareholders approve the proposed changes, Investment Restriction (e) of Charter will read in full as follows: (e) buy or sell physical commodities or physical commodity contracts, including physical commodities futures contracts, or deal in oil, gas, or other mineral exploration or development programs. In the event shareholders approve the proposed changes, Investment Restriction (g) of Weingarten will read in full as follows: (g) buy or sell physical commodities or physical commodity contracts, including physical commodities futures contracts. Investment in Unseasoned Issuers Reference is made to Investment Restriction (m) of Charter set forth on page 20. The Board has approved the elimination of the restriction prohibiting investments in securities of issuers that, together with their predecessors, have less than five years of continuous operations. In the event shareholders approve the proposed change, Investment Restriction (m) will no longer apply. The following fundamental policies and investment restrictions have been adopted by each Fund as indicated and, except as noted, such policies cannot be changed without the approval of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. BLUE CHIP Blue Chip may not: 18 53 (a) issue bonds, debentures or senior equity securities; (b) concentrate its investments; that is, invest 25% or more of the value of its assets in issuers which conduct their business operations in the same industry; (c) invest in real estate, except that this restriction does not preclude investments in real estate investment trusts; (d) write, purchase, or sell puts, calls, straddles, spreads or combinations thereof (other than covered put and call options), or sell securities short (except against the box collateralized by not more than 10% of its net assets) or deal in commodities; (e) make loans, except that the purchase of a portion of an issue of publicly distributed bonds, debentures or other debt securities, or purchasing short-term obligations, is not considered to be a loan for purposes of this restriction, provided that the Fund may lend its portfolio securities provided the value of such loaned securities does not exceed 33-1/3% of its total assets; (f) purchase securities on margin, except that the Fund may obtain such short term credits as may be necessary for the clearance of purchases or sales of securities; (g) borrow money or pledge its assets except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, the Fund may borrow from banks (including the Fund's custodian bank) amounts of up to 10% of the value of its total assets, and may pledge amounts of up to 20% of its total assets to secure such borrowings; or (h) act as an underwriter of securities of other issuers. In addition, Blue Chip may not (a) purchase warrants, valued at the lower of cost or market, in excess of 5% of the value of the Fund's net assets, and no more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges; (b) purchase or retain the securities of any issuer, if the officers and directors of the Company, its advisors or distributor who own individually more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; (c) with respect to 75% of the Fund's total assets, invest more than 5% of the total assets of the Fund (valued at market) in securities of any one issuer (other than obligations of the U.S. Government and its instrumentalities) or purchase more than 10% of the outstanding securities of any one issuer or more than 10% of any class of securities of an issuer; (d) deal in forward contracts; (e) invest in interests in oil, gas or other mineral exploration or development programs; or (f) invest in securities of companies which have a record of less than three years of continuous operation if such purchase at the time thereof would cause more than 5% of the total assets of the Fund to be invested in the securities of such companies (with such period of three years to include the operation of any predecessor company or companies, partnership or individual enterprise if the company whose securities are proposed for investment by the Fund has come into existence as the result of a merger, consolidation, reorganization or purchase of substantially all of the assets of such predecessor company or companies, partnership or individual enterprise). These additional restrictions are not fundamental, and may be changed by the Board of Directors of the Company without shareholder approval. SEE "MATERIAL CHANGES TO INVESTMENT RESTRICTIONS." To permit the sale of shares of Blue Chip in Texas, investments by Blue Chip in warrants, valued at the lower of cost or market, may not exceed 5% of the value of Blue Chip's net assets. Included within that amount, but not to exceed 2% of Blue Chip's net assets, may be warrants which are not listed on the New York or American Stock Exchanges. This restriction is not a fundamental policy. If a percentage restriction is adhered to at the time of investment, a later change in percentage resulting from changes in values or assets will not be considered a violation of the restriction. 19 54 CHARTER Charter may not: (a) purchase the securities of any one issuer (except securities issued or guaranteed by the U.S. Government) if, immediately after and as a result of such purchase, (i) the value of the holdings of the Fund in the securities of such issuer exceeds 5% of the value of the Fund's total assets, or (ii) the Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer; (b) purchase securities of other investment companies; (c) concentrate its investments; that is, invest 25% or more of the value of its assets in any particular industry; (d) purchase or sell real estate or other interests in real estate (except that this restriction does not preclude investments in marketable securities of companies engaged in real estate activities); (e) write, purchase, or sell puts, calls, straddles, spreads or combinations thereof, or deal in commodities or oil, gas, or other mineral exploration or development programs; (f) make loans (except that the purchase of a portion of an issue of publicly distributed bonds, debentures or other debt securities, or entering into a repurchase agreement, is not considered to be a loan for purposes of this restriction), provided that the Fund may lend its portfolio securities provided the value of such loaned securities does not exceed 33-1/3% of its total assets; (g) purchase securities on margin or sell short; (h) borrow money or pledge its assets except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, the Fund may borrow from banks (including the Fund's custodian bank) amounts of up to 10% of the value of its total assets, and may pledge amounts of up to 20% of its total assets to secure such borrowings; (i) invest in companies for the purpose of exercising control or management; (j) act as an underwriter of securities of other issuers; (k) purchase from or sell to any officer, director or employee of the Fund, or its advisors or distributor, or to any of their officers or directors, any securities other than shares of the capital stock of Charter; (l) purchase or retain the securities of any issuer if those officers and directors of the Company, its advisors or distributor owning individually more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; or (m) invest any of its assets in securities of companies having a record of less than five years' continuous operation, including the operations of their predecessors. To permit the sale of shares of Charter in Texas, investments by Charter in warrants, valued at the lower of cost or market, may not exceed 5% of the value of Charter's net assets. Included within that amount, but not to exceed 2% of Charter's net assets, may be warrants which are not listed on the New York or American Stock Exchanges. This restriction is not a fundamental policy. SEE "MATERIAL CHANGES TO INVESTMENT RESTRICTIONS." 20 55 If a percentage restriction is adhered to at the time of investment, a later change in percentage resulting from changes in values or assets will not be considered a violation of the restriction. WEINGARTEN Weingarten may not: (a) issue bonds, debentures or senior equity securities; (b) underwrite securities of other companies or purchase restricted securities ("letter stock"); (c) invest in real estate, except that the Fund may purchase securities of real estate investment trusts; (d) lend money, except in connection with the acquisition of a portion of an issue of publicly distributed bonds, debentures or other corporate or governmental obligations, provided that the Fund may lend its portfolio securities provided the value of such loaned securities does not exceed 33-1/3% of its total assets; (e) purchase securities on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities; (f) purchase shares in order to control management of a company; (g) invest in commodities or commodity contracts or in puts or calls except as set forth above under "Investment Objectives and Policies - Options"; (h) invest in securities of other investment companies; (i) invest 25% or more of the value of its total assets in securities of issuers all of which conduct their principal business activities in the same industry; or (j) borrow money or pledge its assets, except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, the Fund may borrow from banks (including the Fund's custodian bank) amounts of up to 10% of the value of its total assets, and may pledge amounts of up to 20% of its total assets to secure such borrowings. In addition, Weingarten may not (a) purchase warrants, valued at the lower of cost or market, in excess of 5% of the value of the Fund's net assets, and no more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges; (b) purchase or retain the securities of any issuer, if the officers and directors of the Company, its advisors or distributor who own individually more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; (c) 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); (d) purchase more than 10% of the outstanding securities of any one issuer or more than 10% of any class of securities of an issuer; (e) deal in forward contracts; (f) invest in interests in oil, gas or other mineral exploration or development programs; or (g) invest in securities of companies which have a record of less than three years of continuous operation if such purchase at the time thereof would cause more than 5% of the total assets of the Fund to be invested in the securities of such companies (with such period of three years to include the operation of any predecessor company or companies, partnership or individual enterprise if the company whose securities are proposed for investment by the Fund has come into existence as the result of a merger, consolidation, reorganization or purchase of substantially all of the assets of such predecessor company or companies, partnership or individual enterprise). These additional restrictions are not fundamental, and may be changed by the Board of Directors of the Company without shareholder approval. SEE "MATERIAL CHANGES TO INVESTMENT RESTRICTIONS." 21 56 If a percentage restriction is adhered to at the time of investment, a later change in percentage resulting from changes in values or assets will not be considered a violation of the restriction. CONSTELLATION Constellation may not: (a) invest for the purpose of exercising control over or management of any company; (b) engage in the underwriting of securities of other issuers; (c) purchase and sell real estate or commodities or commodity contracts; (d) make loans, except by the purchase of a portion of an issue of publicly distributed bonds, debentures or other obligations, provided that the Fund may lend its portfolio securities provided the value of such loaned securities does not exceed 33-1/3% of its total assets; (e) invest in interests in oil, gas or other mineral exploration or development programs; (f) invest in securities of other investment companies; or (g) invest 25% or more of the value of its total assets in securities of issuers all of which conduct their principal business activities in the same industry. In addition, Constellation treats as fundamental its policy concerning borrowing described under the caption "Investment Programs - Investment Restrictions - Borrowing" in the Prospectus. In accordance with this policy, the Fund may borrow funds from a bank (including its custodian bank) to purchase or carry securities only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. For the purpose of determining this 300% asset coverage requirement, the Fund's liabilities will not include the amount borrowed but will include the market value, at the time of computation, of all securities borrowed by the Fund in connection with short sales. The amount of borrowing will also be limited by the applicable margin limitations imposed by the Federal Reserve Board. If at any time the value of the Fund's assets should fail to meet the 300% asset coverage requirement, the Fund will, within three days, reduce its borrowings to the extent necessary. The Fund may be required to eliminate partially or totally its outstanding borrowings at times when it may not be desirable for it to do so. SEE "MATERIAL CHANGES TO INVESTMENT RESTRICTIONS." The Board of Directors of the Company has also adopted the following limitations which are not matters of fundamental policy of Constellation and which may be changed without shareholder approval: (a) the Fund may not purchase or retain the securities of any issuer, if those officers and directors of the Company, its advisors or distributor owning individually more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; or (b) the Fund may not purchase warrants, valued at the lower of cost or market, in excess of 5% of the value of the Fund's net assets, and no more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges. Except for the borrowing policy, if a percentage restriction is adhered to at the time of investment, a later change in the percentage of such investment held by a Fund resulting solely from changes in values or assets, will not be considered to be a violation of the restriction. 22 57 AGGRESSIVE GROWTH Aggressive Growth may not: (a) with respect to 75% of the total assets of the Fund, purchase the securities of any issuer if such purchase would cause more than 5% of the value of its assets to be invested in the securities of such issuer (except U.S. Government securities including securities issued by its agencies and instrumentalities); (b) concentrate 25% or more of its investments in a particular industry; (c) make short sales of securities (unless at all times when a short position is open it either owns an amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's total assets (taken at current value) is held for such sales at any one time) or purchase securities on margin, but it may obtain such short-term credit as is necessary for the clearance of purchases and sales of securities and may make margin payments in connection with transactions in stock index futures contracts and options thereon; (d) act as a securities underwriter under the 1933 Act; (e) make loans, except (i) through the purchase of a portion of an issue of bonds or other obligations of types commonly offered publicly and purchased by financial institutions, and (ii) through the purchase of short-term obligations (maturing within a year), including repurchase agreements, provided that the Fund may lend its portfolio securities provided the value of such loaned securities does not exceed 33-1/3% of its total assets; (f) borrow, except that the Fund may enter into stock index futures contracts and that the right is reserved to borrow from banks, provided that no borrowing may exceed one-third of the value of its total assets (including the proceeds of such borrowing) and may secure such borrowings by pledging up to one-third of the value of its total assets. (For the purposes of this restriction, neither collateral arrangements with respect to margin for a stock index futures contracts nor the segregation of securities in connection with short sales are deemed to be a pledge of assets); (g) purchase the securities of any other investment company, except that it may make such a purchase as part of a merger, consolidation or acquisition of assets and except for the investment in such securities of funds representing compensation otherwise payable to the directors of the Company pursuant to any deferred compensation plan existing at any time between the Company and one or more of its directors; or (h) buy or sell commodities, commodity contracts or real estate. Aggressive Growth does not intend (a) to invest for the purposes of influencing management or exercising control; (b) to purchase interests in oil, gas or other mineral exploration or development programs; (c) to purchase securities which are subject to restrictions on disposition under the 1933 Act; (d) to buy or sell mortgages; (e) to purchase securities of any company with a record of less than three years' continuous operations (including that of predecessors) if such purchase would cause the Fund's aggregate investments in all such companies taken at cost to exceed 5% of the Fund's total assets taken at market value; and (f) to purchase or retain the securities of any issuer if the officers or directors of the Company and its investment advisor who own beneficially more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer. Aggressive Growth may purchase securities directly from an issuer for its own portfolio and may dispose of such securities. The investment policies stated in this paragraph are not fundamental policies of the Funds and may be changed by the Board of Directors of the Company without shareholder approval. Shareholders will be notified before any material change in the investment policies stated above become effective. SEE "MATERIAL CHANGES TO INVESTMENT RESTRICTIONS." 23 58 To permit the sale of shares of Aggressive Growth in Texas, Aggressive Growth may not: (a) purchase warrants, valued at the lower of cost or market, in excess of 5% of the value of the Fund's net assets, and no more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges; (b) invest more than 15% of its average net assets at the time of purchase of investments which are not readily marketable. These restrictions are not fundamental policies and may be changed by the directors without shareholder approval. Except for the borrowing policy, if a percentage restriction is adhered to at the time of investment, a later change in the percentage of such investment held by a Fund resulting solely from changes in values or assets will not be considered to be a violation of the restriction. CAPITAL DEVELOPMENT Capital Development may not: (a) with respect to 75% of the total assets of the Fund, purchase the securities of any one issuer (except securities issued or guaranteed by the U.S. Government) if, immediately after and as a result of such purchase, (i) the value of the holdings of the Fund in the securities of such issuer exceeds 5% of the value of the Fund's total assets, or (ii) the Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer; (b) concentrate its investments; that is, invest 25% or more of the value of its total assets in issuers who conduct their business operations in the same industry; (c) buy or sell commodities or commodity contracts or purchase or sell real estate or other interests in real estate including real estate limited partnership interests, except that this restriction does not preclude investments in marketable securities of companies engaged in real estate activities or in master limited partnership interests that are traded on a national securities exchange; (d) make loans, except that the purchase of a portion of an issue of publicly distributed bonds, debentures or other debt securities, or purchasing short-term obligations, is not considered to be a loan for purposes of this restriction, provided that the Fund may lend its portfolio securities provided the value of such loaned securities does not exceed 33-1/3% of its total assets; (e) purchase securities on margin, except that the Fund may obtain such short term credits as may be necessary for the clearance of purchases or sales of securities, or sell securities short (except against the box and collateralized by not more than 10% of its net assets); (f) borrow money or pledge its assets except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, the Fund may borrow from banks (including the Fund's custodian bank) provided that no borrowing may exceed one-third of the value of its total assets, including the proceeds of such borrowings, and may secure such borrowings by pledging up to one-third of the value of its total assets; (g) act as an underwriter of securities of other issuers; (h) issue bonds, debentures, or senior equity securities. In addition, Capital Development may not (a) purchase warrants, valued at the lower of cost or market, in excess of 5% of the value of the Fund's net assets, and no more than 2% of such value may be warrants which are not listed on the New York or American Stock Exchanges; (b) purchase or retain the securities of any issuer, if the officers and directors of the Company, its advisors or distributor who own individually more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; (c) 24 59 deal in forward contracts (other than foreign exchange transactions for hedging purposes); (d) invest in interests in oil, gas or other mineral exploration or development programs; or (e) invest in securities of companies which have a record of less than three years of continuous operation if such purchase at the time thereof would cause more than 5% of the total assets of the Fund to be invested in the securities of such companies (with such period of three years to include the operation of any predecessor company or companies, partnership or individual enterprise if the company whose securities are proposed for investment by the Fund has come into existence as the result of a merger, consolidation, reorganization or purchase of substantially all of the assets of such predecessor company or companies, partnership or individual enterprise). These additional restrictions are not fundamental, and may be changed by the Board of Directors of the Company without shareholder approval. SEE "MATERIAL CHANGES TO INVESTMENT RESTRICTIONS." To permit the sale of shares of Capital Development in Texas, investments by the Fund in warrants, valued at the lower of cost or market, may not exceed 5% of the value of the Fund's net assets. Included within that amount, but not to exceed 2% of the Fund's net assets, may be warrants which are not listed on the New York or American Stock Exchanges. This restriction is not a fundamental policy. If a percentage restriction is adhered to at the time of investment, a later change in percentage resulting from changes in values or assets will not be considered a violation of the restriction. ADDITIONAL RESTRICTIONS In order to permit the sale of the Funds' shares in certain states, each Fund may from time to time make commitments more restrictive than the restrictions described herein. These restrictions are not matters of fundamental policy, and should a Fund determine that any such commitment is no longer in the best interests of the Fund and its shareholders, it will revoke the commitment by terminating sales of its shares in the states involved. In order to comply with an undertaking to the State of Texas, each Fund has agreed that any restriction on investments in "oil, gas and other mineral exploration or development programs" shall include mineral leases and any restriction on investments in "real estate or other interests in real estate" shall include real estate limited partnerships. In order to comply with an undertaking to the State of Arkansas, Blue Chip and Capital Development have agreed to limit investments in securities which the Company is restricted from selling to the public without registration under the 1933 Act to 10% of their respective total assets. For purposes of the investment restrictions described above, the Funds do not consider investments in financial futures to be investments in commodities. MANAGEMENT DIRECTORS AND OFFICERS The directors and officers of the Company and their principal occupations during the last five years are set forth below. Unless otherwise indicated, the address of each director and officer is 11 Greenway Plaza, Suite 1919, Houston, TX 77046-1173. All of the Company's executive officers hold similar offices with some or all of the other AIM Funds. 25 60 *CHARLES T. BAUER, Director and Chairman (77) Director, Chairman and Chief Executive Officer, A I M Management Group Inc.; Chairman of the Board of Directors, A I M Advisors, Inc., A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional Fund Services, Inc. and Fund Management Company. BRUCE L. CROCKETT, Director (52) 906 Frome Lane McLean, VA 22102 Formerly, Director, President and Chief Executive Officer, COMSAT Corporation (Includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video Enterprises, COMSAT RSI and COMSAT International Ventures). Previously, President and Chief Operating Officer, COMSAT Corporation; President, World Systems Division, COMSAT Corporation; and Chairman, Board of Governors of INTELSAT; (each of the COMSAT companies listed above is an international communication, information and entertainment-distribution services company). OWEN DALY II, Director (72) Six Blythewood Road Baltimore, MD 21210 Director, Cortland Trust Inc. (investment company). Formerly, Director, CF& I Steel Corp., Monumental Life Insurance Company and Monumental General Insurance Company; and Chairman of the Board of Equitable Bancorporation. **CARL FRISCHLING, Director (59) 919 Third Avenue New York, NY 10022 Partner, Kramer, Levin, Naftalis & Frankel (law firm). Formerly, Partner, Reid & Priest (law firm); and prior thereto, Partner, Spengler Carlson Gubar Brodsky & Frischling (law firm). *ROBERT H. GRAHAM, Director and President (50) Director, President and Chief Operating Officer, A I M Management Group Inc.; Director and President, A I M Advisors, Inc.; Director and Senior Vice President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional Fund Services, Inc. and Fund Management Company. - -------- * A director who is an "interested person" of A I M Advisors, Inc. and the Company as defined in the 1940 Act. ** A director who is an "interested person" of the Company as defined in the 1940 Act. 26 61 JOHN F. KROEGER, Director (72) 37 Pippins Way Morristown, NJ 07960 Director, Flag Investors International Fund, Inc. Flag Investors Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc., Flag Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc., Alex. Brown Cash Reserve Fund, Inc. and North American Government Bond Fund, Inc. (investment companies). Formerly, Consultant, Wendell & Stockel Associates, Inc. (consulting firm). LEWIS F. PENNOCK, Director (54) 8955 Katy Freeway, Suite 204 Houston, TX 77024 Attorney in private practice in Houston, Texas. IAN W. ROBINSON, Director (73) 183 River Drive Tequesta, FL 33469 Formerly, Executive Vice President and Chief Financial Officer, Bell Atlantic Management Services, Inc. (provider of centralized management services to telephone companies); Executive Vice President, Bell Atlantic Corporation (parent of seven telephone companies); and Vice President and Chief Financial Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone Company. LOUIS S. SKLAR, Director (57) Transco Tower, 50th Floor 2800 Post Oak Blvd. Houston, TX 77056 Executive Vice President, Development and Operations, Hines Interests Limited Partnership (real estate development). ***JOHN J. ARTHUR, Senior Vice President and Treasurer (52) Senior Vice President and Treasurer, A I M Advisors, Inc.; Vice President and Treasurer, A I M Management Group Inc., A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional Fund Services, Inc. and Fund Management Company. GARY T. CRUM, Senior Vice President (49) Director and President, A I M Capital Management, Inc.; Director and Senior Vice President, A I M Management Group Inc. and A I M Advisors, Inc.; and Director, A I M Distributors, Inc. SCOTT G. LUCAS, Senior Vice President (37) Director and Senior Vice President, A I M Capital Management, Inc.; and Vice President, A I M Management Group Inc. and A I M Advisors, Inc. - -------- *** Mr. Arthur and Ms. Relihan are married to each other. 27 62 JONATHAN C. SCHOOLAR, Senior Vice President (35) Director and Senior Vice President, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. ***CAROL F. RELIHAN, Senior Vice President and Secretary (42) Senior Vice President, General Counsel and Secretary, A I M Advisors Inc.; Vice President, General Counsel and Secretary, A I M Management Group Inc.; Vice President and General Counsel, Fund Management Company; and Vice President, A I M Capital Management, Inc., A I M Distributors, Inc. A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc. DANA R. SUTTON, Vice President and Assistant Treasurer (37) Vice President and Fund Controller, A I M Advisors, Inc.; and Assistant Vice President and Assistant Treasurer, Fund Management Company. MELVILLE B. COX, Vice President (53) Vice President and Chief Compliance Officer, A I M Advisors, Inc., A I M Capital Management, Inc., A I M Distributors, Inc., Fund Management Company, A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.; Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary, Charles Schwab Family of Funds and Schwab Investments; Chief Compliance Officer, Charles Schwab Investment Management, Inc.; and Vice President, Integrated Resources Life Insurance Co. and Capitol Life Insurance Co. The standing committees of the Board of Directors are the Audit Committee, the Investments Committee and the Nominating and Compensation Committee. The members of the Audit Committee are Messrs. Daly, Kroeger (Chairman), Pennock and Robinson. The Audit Committee is responsible for meeting with the Company's auditors to review audit procedures and results and to consider any matters arising from an audit to be brought to the attention of the directors as a whole with respect to the Company's fund accounting or its internal accounting controls, and considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors and such committee. The members of the Investments Committee are Messrs. Bauer, Crockett, Daly (Chairman), Kroeger and Pennock. The Investment Committee is responsible for reviewing portfolio compliance, brokerage allocation, portfolio investment pricing issues, interim dividend and distribution issues, and considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors and such committee. The members of the Nominating and Compensation Committee are Messrs. Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and Compensation Committee is responsible for considering and nominating individuals to stand for election as directors who are not interested persons as long as the Company maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act, reviewing from time to time the compensation payable to the disinterested directors, and considering such matters as may from time to time be set forth in a charter adopted by the Board of Directors and such committee. - -------- *** Mr. Arthur and Ms. Relihan are married to each other. 28 63 Remuneration of Directors Each director is reimbursed for expenses incurred in connection with each meeting of the Board of Directors or any Committee attended. Each director who is not also an officer of the Company is compensated for his or her services according to a fee schedule which recognizes the fact that such director also serves as a director or trustee of other AIM Funds. Each such director receives a fee, allocated among the AIM Funds for which he or she serves as a director or trustee, which consists of an annual retainer component and a meeting fee component. Set forth below is information regarding compensation paid or accrued for each director of the Company:
=============================================================================================================== RETIREMENT AGGREGATE BENEFITS COMPENSATION ACCRUED TOTAL FROM THE BY ALL AIM COMPENSATION DIRECTOR COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3) - --------------------------------------------------------------------------------------------------------------- Charles T. Bauer $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------- Bruce L. Crockett 13,461 3,655 57,750 - --------------------------------------------------------------------------------------------------------------- Owen Daly II 14,385 18,662 58,125 - --------------------------------------------------------------------------------------------------------------- Carl Frischling 13,938 11,323 57,250(4) - --------------------------------------------------------------------------------------------------------------- Robert H. Graham 0 0 0 - --------------------------------------------------------------------------------------------------------------- John F. Kroeger 14,807 22,313 58,125 - --------------------------------------------------------------------------------------------------------------- Lewis F. Pennock 13,476 5,067 58,125 - --------------------------------------------------------------------------------------------------------------- Ian Robinson 13,373 15,381 56,750 - --------------------------------------------------------------------------------------------------------------- Louis S. Sklar 14,003 6,632 57,250 ===============================================================================================================
(1) The total amount of compensation deferred by all Directors of the Company during the fiscal year ended October 31, 1996, including interest earned thereon, was $69,742. (2) During the fiscal year ended October 31, 1996, the total amount of expenses allocated to the Company in respect of such retirement benefits was $141,139. Data reflects compensation for the calendar year ended December 31, 1996. (3) Messrs. Bauer, Crockett, Daly, Frischling, Graham, Kroeger, Pennock, Robinson and Sklar each serves as Director or Trustee of a total of 10 AIM Funds. Data reflects compensation for the calendar year ended December 31, 1996. (4) See also page 31 regarding fees earned by Mr. Frischling's law firm. 29 64 AIM Funds Retirement Plan for Eligible Directors/Trustees Under the terms of the AIM Funds Retirement Plan for Eligible Directors/Trustees (the "Plan"), each director (who is not an employee of any of the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be entitled to certain benefits upon retirement from the Board of Directors. Pursuant to the Plan, the normal retirement date is the date on which the eligible director has attained age 65 and has completed at least five years of continuous service with one or more of the regulated investment companies managed, administered or distributed by AIM or its affiliates (the "Applicable AIM Funds"). Each eligible director is entitled to receive an annual benefit from the Applicable AIM Funds commencing on the first day of the calendar quarter coincident with or following his date of retirement equal to 75% of the retainer paid or accrued by the Applicable AIM Funds for such director during the twelve-month period immediately preceding the director's retirement (including amounts deferred under a separate agreement between the AIM Funds and the director) for the number of such director's years of service (not in excess of 10 years of service) completed with respect to any of the AIM Funds. Such benefit is payable to each eligible director in quarterly installments. If an eligible director dies after attaining the normal retirement date but before receipt of any benefits under the Plan commences, the director's surviving spouse (if any) shall receive a quarterly survivor's benefit equal to 50% of the amount payable to the deceased director for no more than ten years beginning the first day of the calendar quarter following the date of the director's death. Payments under the Plan are not secured or funded by any AIM Fund. Set forth below is a table that shows the estimated annual benefits payable to an eligible director upon retirement assuming various compensation and years of service classifications. The estimated credited years of service for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and Sklar are 9, 10, 19, 19, 15, 9 and 7 years, respectively.
============================================================================== Number of Annual Compensation Years of Paid By All AIM Funds Service With the AIM Fund $60,000 $65,000 $70,000 - ------------------------------------------------------------------------------ 10 $45,000 $48,750 $52,500 - ------------------------------------------------------------------------------ 9 $40,500 $43,875 $47,250 - ------------------------------------------------------------------------------ 8 $36,000 $39,000 $42,000 - ------------------------------------------------------------------------------ 7 $31,500 $34,125 $36,750 - ------------------------------------------------------------------------------ 6 $27,000 $29,250 $31,500 - ------------------------------------------------------------------------------ 5 $22,500 $24,375 $26,250 ==============================================================================
Deferred Compensation Agreements Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this paragraph only, the "deferring directors") have each executed a Deferred Compensation Agreement (collectively, the "Agreements"). Pursuant to the Agreements, the deferring directors may elect to defer receipt of up to 100% of their compensation payable by the Company, and such amounts are placed into a deferral account. Currently, the deferring directors may select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested. Distributions from the deferring directors' deferral accounts will be paid in cash, 30 65 in generally equal quarterly installments over a period of five (5) or ten (10) years (depending on the Agreement) beginning on the date the deferring director's retirement benefits commence under the Plan. The Company's Board of Directors, in its sole discretion, may accelerate or extend the distribution of such deferral accounts after the deferring director's termination of service as a director of the Company. If a deferring director dies prior to the distribution of amounts in his deferral account, the balance of the deferral account will be distributed to his designated beneficiary in a single lump sum payment as soon as practicable after such deferring director's death. The Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the deferring directors have the status of unsecured creditors of the Company and of each other AIM Fund from which they are deferring compensation. SEE "SUMMARY - MATERIAL EVENTS" IN THE PROSPECTUS. The Company paid the law firm of Kramer, Levin, Naftalis & Frankel $8,908, $14,974, $12,003 and $21,521 in legal fees for services provided to Charter, Weingarten, Aggressive Growth and Constellation, respectively, during the fiscal year ended October 31, 1996, and $428 in legal fees for services provided to Blue Chip during the period June 3, 1996 through October 31, 1996, and $415 in legal fees for services provided to Capital Development during the period June 17, 1996 through October 31, 1996. Mr. Carl Frischling, a director of the Company, is a partner in such firm. INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES AND SUB-ADVISORY AGREEMENTS AIM is a wholly-owned subsidiary of A I M Management Group Inc. ("AIM Management"), 11 Greenway Plaza, Suite 1919, Houston, Texas 77046. AIM Management is a holding company that has been engaged in the financial services business since 1976. Certain of the directors and officers of AIM are also executive officers of the Company and their affiliations are shown under "Directors and Officers". AIM Capital, a wholly owned subsidiary of AIM, is engaged in the business of providing investment advisory services to investment companies, corporations, institutions and other accounts. SEE "SUMMARY - MATERIAL EVENTS" IN THE PROSPECTUS. AIM was organized in 1976, and, together with its affiliates, advises or manages 42 investment company portfolios. As of December 31, 1996, the total assets of the investment company portfolios advised or managed by AIM and its affiliates were approximately $62.3 billion. AIM and the Company have adopted a Code of Ethics which requires investment personnel and certain other employees (a) to pre-clear personal securities transactions subject to the Code of Ethics, (b) to file reports or duplicate confirmations regarding such transactions, (c) to refrain from personally engaging in (i) short-term trading of a security, (ii) transactions involving a security within seven days of an AIM Fund transaction involving the same security, and (iii) transactions involving securities being considered for investment by an AIM Fund, and (d) abide by certain other provisions under the Code of Ethics. The Code of Ethics also prohibits investment personnel and all other AIM employees from purchasing securities in an initial public offering. Personal trading reports are reviewed periodically by AIM, and the Board of Directors reviews quarterly and annual reports (including information on any substantial violations of the Code of Ethics). Sanctions for violations of the Code of Ethics may include censure, monetary penalties, suspension or termination of employment. The Funds have entered into a Master Investment Advisory Agreement dated as of October 18, 1993, as amended (the "Master Advisory Agreement") and a Master Administrative Services Agreement dated as of October 18, 1993, as amended (the "Master Administrative Services Agreement") with AIM. In addition, AIM has entered into a Master Sub-Advisory Agreement dated as of October 18, 1993 (the "Master Sub-Advisory Agreement") with AIM Capital with respect to Charter, Weingarten and Constellation. Prior to June 30, 1992, Aggressive Growth's investment advisor was CIGNA Investments, Inc. ("CII") (such agreement hereinafter referred to as the "CII Agreement"). Both the Master Advisory Agreement and the Master Sub-Advisory Agreement provide that the Fund will pay or cause to be paid all expenses of the Fund not assumed by AIM or AIM Capital, including, without 31 66 limitation: brokerage commissions, taxes, legal, auditing or governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption, and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to directors and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Company on behalf of the Fund in connection with membership in investment company organizations, the cost of printing copies of prospectuses and statements of additional information distributed to the Funds' shareholders and all other charges and costs of the Funds' operations unless otherwise explicitly provided. The Master Advisory Agreement and the Master Sub-Advisory Agreement each provide that if, for any fiscal year, the total of all ordinary business expenses of any Fund, including all investment advisory fees, but excluding brokerage commissions and fees, taxes, interest and extraordinary expenses, such as litigation, exceed the applicable expense limitations imposed by state securities regulations in any state in which such Fund's shares are qualified for sale, as such limitations may be raised or lowered from time to time, the aggregate of all such investment advisory fees with respect to such Fund shall be reduced by the amount of such excess. The amount of any such reduction to be borne by AIM shall be deducted from the monthly investment advisory fees otherwise payable to AIM with respect to such Fund during such fiscal year. If required pursuant to such state securities regulations, AIM will reimburse each Fund, no later than the last day of the first month of the next succeeding fiscal year, for any such annual operating expenses (after reduction of all investment advisory fees in excess of such limitation). The Master Advisory Agreement and the Master Sub-Advisory Agreement became effective on October 18, 1993 and will continue in effect from year to year thereafter only if such continuance is specifically approved at least annually by (i) the Company's Board of Directors or the vote of a "majority of the outstanding voting securities" of the Funds (as defined in the 1940 Act), and (ii) the affirmative vote of a majority of the directors who are not parties to the agreements or "interested persons" of any such party (the "Non-Interested Directors") by votes cast in person at a meeting called for such purpose. Each agreement provides that the Funds, AIM (in the case of the Master Advisory Agreement) or AIM Capital (in the case of the Master Sub-Advisory Agreement) may terminate such agreement on 60 days' written notice without penalty. Each agreement terminates automatically in the event of its assignment. AIM may from time to time waive or reduce its fee. Fee waivers or reductions, other than those set forth in the Master Advisory Agreement, may be rescinded, however, at any time without further notice to investors, provided however, that the discontinuance of each fee waiver described below will be approved by the Board of Directors of AIM. AIM has agreed to waive fees for two years to the extent necessary to keep the expense ratio for Class A shares of Blue Chip at 1.31%. AIM has agreed to waive fees for one year to the extent necessary to keep the expense ratio for Class A shares of Capital Development at 1.34%. AIM has initiated a voluntary reduction of advisory fees for Charter, Constellation and Weingarten at net asset levels higher than those currently incorporated in the advisory fee schedule. Accordingly, with respect to each of Charter and Constellation, AIM receives a fee calculated at an annual rate of 1.0% of the first $30 million of such Fund's average daily net assets, plus 0.75% of such Fund's average daily net assets in excess of $30 million to and including $150 million, plus 0.625% of such Fund's average daily net assets in excess of $150 million. With respect to Weingarten, AIM's fee is calculated at an annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $350 million, plus 0.625% of the Fund's average daily net assets in excess of $350 million. With respect to Aggressive Growth, AIM's fee is calculated at an annual rate of 0.80% of the first $150 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $150 million. With respect to Blue Chip and Capital Development, AIM is entitled to receive a fee calculated at an annual rate of 0.75% of the first $350 million of such Fund's average daily net assets, plus 0.625% of such Fund's average daily net assets in excess of $350 million. As compensation for its services, AIM pays 50% of the advisory fees it receives pursuant to the Master Advisory Agreement with respect to Charter, Weingarten and Constellation to AIM Capital. 32 67 Each Fund paid to AIM the following advisory fees net of any expense limitations (fee waivers) for the years ended October 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Blue Chip.............................. $ 256,773* N/A N/A Capital Development.................... 280,248** N/A N/A Charter................................ 16,529,891 $ 10,890,335 $ 10,447,924 Weingarten............................. 29,960,379 25,448,131 6,472,250 Constellation.......................... 57,614,412 31,042,229 19,926,116 Aggressive Growth...................... 16,492,564 6,974,263 1,903,277
- ------------- * For the period from June 3, 1996 (date of acquisition) through September 30, 1996 it was $188,544, and for the period October 1, 1996 through October 31, 1996 it was $68,229. ** For the period from June 17, 1996 (date operations commenced) through October 31, 1996. For the fiscal year ended October 31, 1996, 1995 and 1994, AIM waived advisory fees for each Fund as follows:
1996 1995 1994 ---- ---- ---- Blue Chip ..................... $ 26,433* N/A N/A Capital Development ........... 144,946** N/A N/A Charter ....................... 156,975 $ 0 $ 0 Weingarten .................... 1,458,804 843,494 981,836 Constellation ................. 1,869,383 761,655 298,484 Aggressive Growth ............. 0 788,943 0***
- ------------- * For the period from June 3, 1996 (date of acquisition) through September 30, 1996 it was $19,409, and for the period October 1, 1996 through October 31, 1996 it was $7,024. ** For the period from June 17, 1996 (date operations commenced) through October 31, 1996. *** AIM reimbursed expenses of $133,000 during the year ended October 31, 1994. Prior to June 3, 1996, the investment adviser to Blue Chip was Baird. Baird was also the Fund's distributor. Baird is an indirect partially-owned subsidiary of, and controlled by, The Northwestern Mutual Life Insurance Company. The BBC Fund and Baird entered into an investment advisory agreement pursuant to which Baird furnished continuous investment advisory services to the BBC Fund. That investment advisory agreement was terminated in connection with the reorganization of the BBC Fund. For the period October 1, 1995 through June 3, 1996 and during the fiscal years ended September 30, 1995 and September 30, 1994, the BBC Fund paid Baird fees of $370,615, $469,802, and $454,724, respectively. 33 68 AIM, in turn, paid the following sub-advisory fees to AIM Capital, as sub-advisor for each Fund (other than Blue Chip, Capital Development and Aggressive Growth), for the years ended October 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Charter................................ $ 8,264,946 $ 5,445,168 $ 5,223,962 Weingarten............................. 14,980,190 12,724,066 13,236,125 Constellation.......................... 28,807,206 15,521,115 9,963,058
The Master Administrative Services Agreement provides that AIM may perform or arrange for the performance of certain accounting and, shareholder services and other administrative services to each Fund which are not required to be performed by AIM under the Master Advisory Agreement. For such services, AIM would be entitled to receive from each Fund reimbursement of its costs or such reasonable compensation as may be approved by the Company's Board of Directors. The Master Administrative Services Agreement became effective on October 18, 1993 and will continue in effect until June 30, 1997 and from year to year thereafter only if such continuance is specifically approved at least annually by (i) the Company's Board of Directors or the vote of a "majority of the outstanding voting securities" of the Funds (as defined in the 1940 Act), and (ii) the affirmative vote of a majority of the Non-Interested Directors by votes cast in person at a meeting called for such purpose. In addition, the Transfer Agency and Service agreement for the Fund provides that A I M Fund Services, Inc. ("AFS"), a registered transfer agent and wholly-owned subsidiary of AIM, will perform certain shareholder services for the Fund for a fee per account serviced. The Transfer Agency and Service Agreement provides that AFS will receive a per account fee plus out-of-pocket expenses to process orders for purchases, redemptions and exchanges of shares, prepare and transmit payments for dividends and distributions declared by the fund, maintain shareholder accounts and provide shareholders with information regarding the Fund and their accounts. The Transfer Agency and Service Agreement became effective on November 1, 1994. The Funds paid AIM the following amounts as reimbursement of administrative services costs for the years ended October 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Blue Chip........................... $ 20,545* N/A N/A Capital Development................. 19,841** N/A N/A Charter............................. 114,489 $ 109,054 $ 980,837 Weingarten.......................... 132,643 182,595 3,161,130 Constellation....................... 212,800 173,257 2,196,752 Aggressive Growth................... 97,857 71,528 472,140
- ------------- * For the period from June 3, 1996 (date of acquisition) through September 30, 1996 it was $16,236 and for the period October 1, 1996 through October 31, 1996 it was $4,309. ** For the period from June 17, 1996 (date operations commenced) through October 31, 1996. For the period from November 1, 1993 through October 31, 1994, AFS received shareholder services fees from AIM with respect to Class A shares of Charter, Weingarten, Aggressive Growth and Constellation in the amount of $890,434, $3,015,921, $424,814 and $2,080,638, respectively, under the AFS Administrative Services Agreement between AIM and AFS. The agreement was terminated November 1, 1994. 34 69 AFS received transfer agency and shareholder services fees with respect to Class A and Class B shares for the fiscal years ended October 31, 1996 and 1995:
1996 1995* ---- ---- Blue Chip .......................... $ 20,982* N/A Capital Development................... 75,666** N/A Charter............................... 2,264,602 $ 1,568,721 Weingarten............................ 4,391,918 4,016,831 Constellation......................... 8,671,663 4,943,213 Aggressive Growth..................... 2,047,282 1,198,145
- ------------- * For the period June 3, 1996 through October 31, 1996. ** For the period from June 17, 1996 through October 31, 1996. Prior to June 3, 1996, FMI served as the administrator to the BBC Fund. Pursuant to the administration agreement between FMI and the BBC Fund, FMI prepared and maintained the books, accounts and other documents required by the 1940 Act, determined the fund's net asset value, responded to shareholder inquiries, prepared the fund's financial statements and excise tax returns, prepared reports and filings with the Securities and Exchange Commission, furnished statistical and research data, clerical, accounting and bookkeeping services and stationery and office supplies, and maintained the fund's financial accounts and records and generally assisted in all aspects of the fund's operations other than portfolio management. This administration agreement terminated in connection with the corporate reorganization of the BBC Fund. During the fiscal years ended September 30, 1995 and September 30, 1994, the BBC Fund paid FMI fees of $46,743 and $45,724, respectively. THE DISTRIBUTION PLANS THE CLASS A PLAN. The Company has adopted a Master Distribution Plan pursuant to Rule 12b-1 under the 1940 Act relating to the Class A shares of the Funds (the "Class A Plan"). The Class A Plan provides that the Class A shares pay 0.35% per annum of their daily average net assets in the case of Blue Chip and Capital Development, 0.30% per annum of their average daily net assets in the case of Charter, Weingarten and Constellation and 0.25% per annum of the average net assets of Aggressive Growth as compensation to AIM Distributors for the purpose of financing any activity which is primarily intended to result in the sale of Class A shares. Activities appropriate for financing under the Class A Plan include, but are not limited to, the following: printing of prospectuses and statements of additional information and reports for other than existing shareholders; overhead; preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars; supplemental payments to dealers and other institutions such as asset-based sales charges or as payments of service fees under shareholder service arrangements; and costs of administering the Class A Plan. THE CLASS B PLAN. The Company has also adopted a Master Distribution Plan pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of Blue Chip, Capital Development, Charter and Weingarten (the "Class B Plan", and collectively with the Class A Plan, the "Plans"). Under the Class B Plan, Blue Chip, Capital Development, Charter and Weingarten pay compensation to AIM Distributors at an annual rate of 1.00% of the average daily net assets attributable to Class B shares. Of such amount, Charter and Weingarten pay a service fee of 0.25% of the average daily net assets attributable to Class B shares to selected dealers and other institutions which furnish continuing personal shareholder services to their customers who purchase and own Class B shares. Amounts paid in accordance with the Class B Plan may be used to finance any activity primarily intended to result in the sale of Class B shares, including, but not limited to, printing of prospectuses and statements of additional information and reports for other than existing shareholders; overhead; 35 70 preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars; supplemental payments to dealers and other institutions such as asset-based sales charges or as payments of service fees under shareholder service arrangements; and costs of administering the Class B Plan. AIM Distributors may transfer and sell its right under the Class B Plan in order to finance distribution expenditures in respect of Class B shares. BOTH PLANS. Pursuant to an incentive program, AIM Distributors may enter into agreements ("Shareholder Service Agreements") with investment dealers selected from time to time by AIM Distributors for the provision of distribution assistance in connection with the sale of the Funds' shares to such dealers' customers, and for the provision of continuing personal shareholder services to customers who may from time to time directly or beneficially own shares of the Funds. The distribution assistance and continuing personal shareholder services to be rendered by dealers under the Shareholder Service Agreements may include, but shall not be limited to, the following: distributing sales literature; answering routine customer inquiries concerning the Funds; assisting customers in changing dividend options, account designations and addresses, and in enrolling in any of several special investment plans offered in connection with the purchase of the Fund's shares; assisting in the establishment and maintenance of customer accounts and records and in the processing of purchase and redemption transactions; investing dividends and any capital gains distributions automatically in the Fund's shares; and providing such other information and services as the Funds or the customer may reasonably request. Under the Plans, in addition to the Shareholder Service Agreements authorizing payments to selected dealers, banks may enter into Shareholder Service Agreements authorizing payments under the Plans to be made to banks which provide services to their customers who have purchased shares. Services provided pursuant to Shareholder Service Agreements with banks may include some or all of the following: answering shareholder inquiries regarding the Funds and the Company; performing sub-accounting; establishing and maintaining shareholder accounts and records; processing customer purchase and redemption transactions; providing periodic statements showing a shareholder's account balance and the integration of such statements with those of other transactions and balances in the shareholder's other accounts serviced by the bank; forwarding applicable prospectuses, proxy statements, reports and notices to bank clients who hold shares of the Funds; and such other administrative services as the Funds reasonably may request, to the extent permitted by applicable statute, rule or regulation. Similar agreements may be permitted under the Plans for institutions which provide recordkeeping for and administrative services to 401(k) plans. The Company may also enter into Variable Group Annuity Contractholder Service Agreements ("Variable Contract Agreements") on behalf of Charter, Weingarten and Constellation authorizing payments to selected insurance companies offering variable annuity contracts to employers as funding vehicles for retirement plans qualified under Section 401(a) of the Internal Revenue Code. Services provided pursuant to such Variable Contract Agreements may include some or all of the following: answering inquiries regarding the Fund and the Company; performing sub-accounting; establishing and maintaining Contractholder accounts and records; processing and bunching purchase and redemption transactions; providing periodic statements of contract account balances; forwarding such reports and notices to Contractholders relative to the Fund as deemed necessary; generally, facilitating communications with Contractholders concerning investments in a Fund on behalf of Plan participants; and performing such other administrative services as deemed to be necessary or desirable, to the extent permitted by applicable statute, rule or regulation to provide such services. Financial intermediaries and any other person entitled to receive compensation for selling shares of the Funds may receive different compensation for selling shares of one particular class over another. Under a Shareholder Service Agreement, the Funds agree to pay periodically fees to selected dealers and other institutions who render the foregoing services to their customers. The fees payable under a Shareholder Service Agreement generally will be calculated at the end of each payment period for each business day of the Funds during such period at the annual rate of 0.25% of the average daily net asset value of the Funds' shares purchased or acquired through exchange. Fees calculated in this manner shall be paid 36 71 only to those selected dealers or other institutions who are dealers or institutions of record at the close of business on the last business day of the applicable payment period for the account in which the Funds' shares are held. The Plans are subject to any applicable limitations imposed from time to time by rules of the National Association of Securities Dealers, Inc. AIM Distributors does not act as principal, but rather as agent for the Funds, in making dealer incentive and shareholder servicing payments under the Plans. These payments are an obligation of the Funds and not of AIM Distributors. For the period June 3, 1996 through September 30, 1996, with respect to its Class A shares, Blue Chip paid AIM Distributors under the Plan $97,045, or an amount equal to 0.35% of the Fund's average daily net assets. For the fiscal year ended October 31, 1996, with respect to Class A shares, Blue Chip (for the period October 1, 1996 through October 31, 1996), Capital Development (for the period June 17, 1996 through October 31, 1996), Charter, Weingarten, Aggressive Growth and Constellation paid AIM Distributors under the Plan $34,010, $195,157, $6,952,782, $14,212,254, $6,492,025 and $27,788,170, respectively, or an amount equal to 0.35% (annualized), 0.35% (annualized), 0.30%, 0.30%, 0.25%, and 0.30%, respectively, of the Fund's Class A shares average daily net assets. For the fiscal year ended October 31, 1996, with respect to Class B shares, Blue Chip (for the period October 1, 1996 through October 31, 1996), Capital Development (for the period October 1, 1996 through October 31, 1996), Charter and Weingarten paid AIM Distributors under the Plan $3,166, $9,333, $2,831,042, and $1,514,633 respectively, or an amount equal to 1.00% (annualized), 1.00% (annualized), 1.00% (annualized) and 1.00% (annualized), respectively, of the Fund's Class B shares average daily net assets. 37 72 An estimate by category of actual fees paid by the following Funds under the Class A Plan during the year ended October 31, 1996 were allocated as follows:
OCT 1 - JUNE 3 - JUNE 17- OCT 31 SEPT 30 OCT 31 AGGRESSIVE BLUE CHIP BLUE CHIP CAPITAL GROWTH OCTOBER THRU SEPT. DEVELOPMENT CHARTER CONSTELLATION WEINGARTEN ----------- ----------- ----------- ----------- ----------- ------------- ----------- CLASS A Advertising $ 189,780 $ 4,348 $ 13,198 $ 38,247 $ 732,176 $ 2,749,793 $ 1,330,208 Printing and mailing 28,966 870 2,031 6,039 113,027 421,968 205,032 prospectuses, semi- annual reports and annual reports (other than to current shareholders) Seminars 65,924 1,740 5,077 13,084 251,060 944,929 454,071 Compensation to 841,131 Underwriters to partially offset other marketing expenses Compensation to 6,207,355 27,052 76,739 137,787 5,856,519 23,671,480 11,381,812 Dealers including finder's fees Compensation to Sales Personnel Annual Report Total 6,492,025 34,010 97,045 195,157 6,952,782 27,788,170 14,212,254
38 73 An estimate by category of actual fees paid by the following Funds under the Class B Plan during the year ended October 31, 1996 were allocated as follows:
OCT 1 - OCT 1 - OCT 31 OCT 31 CAPITAL BLUE CHIP DEVELOPMENT CHARTER WEINGARTEN ----------- ----------- ----------- ----------- CLASS B Advertising $ 791 $ 2,352 $ 571,306 $ 229,414 Printing and mailing 0 0 86,994 34,911 prospectuses, semi- annual reports and annual reports (other than to current shareholders) Seminars 0 0 196 78,799 Compensation to 2,375 6,981 2,126,052 1,137,408 Underwriters to partially offset upfront dealer commissions and other marketing costs Compensation to Dealers 0 0 46,494 34,101 Compensation to 0 0 Sales Personnel Annual Report Total 3,166 9,333 2,831,042 1,514,633
The Plans require AIM Distributors to provide the Board of Directors at least quarterly with a written report of the amounts expended pursuant to the Plans and the purposes for which such expenditures were made. The Board of Directors reviews these reports in connection with their decisions with respect to the Plans. As required by Rule 12b-1, the Plans and related forms of Shareholder Service Agreements were approved by the Board of Directors, including a majority of the directors who are not "interested persons" (as defined in the 1940 Act) of the Company and who have no direct or indirect financial interest in the operation of the Plans or in any agreements related to the Plans ("Qualified Directors"). In approving the Plans in accordance with the requirements of Rule 12b-1, the directors considered various factors and determined that there is a reasonable likelihood that the Plans would benefit each class of the Fund and its respective shareholders. The Plans do not obligate the Fund to reimburse AIM Distributors for the actual expenses AIM Distributors may incur in fulfilling its obligations under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee payable to AIM Distributors thereunder at any given time, the Fund will not be obligated to pay more than that fee. If AIM Distributors' expenses are less than the fee it receives, AIM Distributors will retain the full amount of the fee. Unless the Plans are terminated earlier in accordance with their terms, the Class B Plan continues in effect until June 30, 1997, and thereafter, both Plans continue as long as such continuance is specifically approved at least annually by the Board of Directors, including a majority of the Qualified Directors. The Plans may be terminated by the vote of a majority of the Qualified Directors, or, with respect to a particular class, by the vote of a majority of the outstanding voting securities of that class. 39 74 Any change in the Plans that would increase materially the distribution expenses paid by the applicable class requires shareholder approval; otherwise, it may be amended by the directors, including a majority of the Qualified Directors, by votes cast in person at a meeting called for the purpose of voting upon such amendment. As long as the Plans are in effect, the selection or nomination of the Qualified Directors is committed to the discretion of the Qualified Directors. In the event the Class A Plan is amended in a manner which the Board of Directors determines would materially increase the charges paid under the Class A Plan, the Class B shares of the Fund will no longer convert into Class A shares of the Fund unless the Class B shares, voting separately, approve such amendment. If the Class B shareholders do not approve such amendment, the Board of Directors will (i) create a new class of shares of the Fund which is identical in all material respects to the Class A shares as they existed prior to the implementation of the amendment, and (ii) ensure that the existing Class B shares of the Fund will be exchanged or converted into such new class of shares no later than the date the Class B shares were scheduled to convert into Class A shares. The principal differences between the Class A Plan and the Class B Plan are: (i) the Class A Plan allows payment to AIM Distributors or to dealers or financial institutions of up to .35% of average daily net assets of Blue Chip and Capital Development Class A shares, .30% of average daily net assets of Charter, Weingarten and Constellation's Class A shares and up to .25% of average daily net assets of Aggressive Growth's Class A shares as compared to 1.00% of such assets of Blue Chip, Capital Development, Charter and Weingarten's Class B shares; (ii) the Class B Plan obligates the Class B shares to continue to make payments to AIM Distributors following termination of the Class B shares Distribution Agreement with respect to Class B shares sold by or attributable to the distribution efforts of AIM Distributors unless there has been a complete termination of the Class B Plan (as defined in such Plan); and (iii) the Class B Plan expressly authorizes AIM Distributors to assign, transfer or pledge its rights to payments pursuant to the Class B Plan. THE DISTRIBUTOR Information concerning AIM Distributors and the continuous offering of the Funds' shares is set forth in the Prospectus under the headings "How to Purchase Shares" and "Terms and Conditions of Purchase of the AIM Funds." A Master Distribution Agreement with AIM Distributors relating to the Class A shares of the Funds was approved by the Board of Directors on July 19, 1993, and has subsequently been amended to cover additional Funds. A Master Distribution Agreement with AIM Distributors relating to the Class B shares of Charter and Weingarten was also approved by the Board of Directors on May 9, 1995 and has subsequently been amended to cover Blue Chip and Capital Development. Both such Master Distribution Agreements are hereinafter collectively, referred to as the "Distribution Agreements." The Distribution Agreements provide that AIM Distributors will bear the expenses of printing from the final proof and distributing prospectuses and statements of additional information of the Funds relating to public offerings made by AIM Distributors pursuant to the Distribution Agreements (other than those prospectuses and statements of additional information distributed to existing shareholders of the Funds), and any promotional or sales literature used by AIM Distributors or furnished by AIM Distributors to dealers in connection with the public offering of the Funds' shares, including expenses of advertising in connection with such public offerings. AIM Distributors has not undertaken to sell any specified number of shares of any classes of the Funds. AIM Distributors expects to pay sales commissions from its own resources to dealers and institutions who sell Class B shares of Charter, Weingarten, Blue Chip and Capital Development at the time of such sales. Payments with respect to Class B shares will equal 4.0% of the purchase price of the Class B shares sold by the dealer or institution, and will consist of a sales commission equal to 3.75% of the purchase price of the Class B shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. The portion of the payments to AIM Distributors under the Class B Plan which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of such sales commissions plus financing costs. AIM Distributors anticipates that it will require a number of years to recoup from Class B Plan payments the sales commissions paid to dealers and institutions in connection with sales of Class B shares. 40 75 In the future, if multiple distributors serve Charter, Weingarten, Blue Chip or Capital Development, each such distributor (or its assignee or transferee) would receive a share of the payments under the Class B Plan based on the portion of such Fund's Class B shares sold by or attributable to the distribution efforts of that distributor. The Company (on behalf of any class of the Funds) or AIM Distributors may terminate the Distribution Agreements on sixty (60) days' written notice without penalty. The Distribution Agreements will terminate automatically in the event of their assignment. In the event the Class B shares Distribution Agreement is terminated, AIM Distributors would continue to receive payments of asset-based distribution fees in respect of the outstanding Class B shares attributable to the distribution efforts of AIM Distributors; provided, however, that a complete termination of the Class B Plan (as defined in such Plan) would terminate all payments to AIM Distributors. Termination of the Class B Plan or Distribution Agreement does not effect the obligations of Class B shareholders to pay Contingent Deferred Sales Charges. The following chart reflects the total sales charges paid in connection with the sale of Class A shares of each Fund and the amount retained by AIM Distributors for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- SALES AMOUNT SALES AMOUNT SALES AMOUNT CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED ------- -------- ------- -------- ------- -------- Blue Chip........... .............. $ 1,000,546 $ 144,343 N/A N/A N/A N/A Capital Development ............... 6,850,693 926,213 N/A N/A N/A N/A Charter ........................... 16,469,061 2,705,618 $ 9,068,400 $ 1,316,019 $10,252,200 $ 1,386,255 Weingarten ........................ 13,202,260 2,259,328 11,992,225 1,767,515 10,398,176 1,494,020 Constellation ..................... 105,245,937 19,558,836 88,958,038 13,097,651 42,593,206 6,482,169 Aggressive Growth* ............... 11,683,056 2,111,788 57,745,243 8,232,597 11,846,706 1,975,968
The following chart reflects the contingent deferred sales charges paid by Class A and Class B shareholders for the fiscal years ended October 31, 1996 and 1995.
1996 1995* ---- ----- Blue Chip................................................ N/A N/A Capital Development...................................... $ 733** N/A Charter.................................................. $32,497 $55 Weingarten............................................... $34,185 $60
- ------------- * For the period from June 26, 1995 (inception date of Class B shares) through October 31, 1995. ** For the period from October 1, 1996 (inception date for Class B shares) through October 31, 1996. Shares of the BBC Fund were sold at a public offering price which included a sales charge. The BBC Fund waived its sales charge in connection with sales to specified types of investors and on purchases of $1,000,000 or more, but imposed a contingent deferred sales charge upon the redemption of certain shares so purchased, which contingent deferred sales charge was paid to Baird. During the fiscal years ended September 30, 1995 and September 30, 1994, Baird received approximately $126,853 and $109,000, respectively in front-end sales commissions in connection with the sales of BBC Fund shares, all of which it retained. During the fiscal years ended September 30, 1995 and September 30, 1994, Baird received $346 and $141 in deferred sales commissions in connection with sales of BBC Fund shares, respectively, all of which it retained. 41 76 HOW TO PURCHASE AND REDEEM SHARES A complete description of the manner by which shares of the Funds may be purchased appears in the Prospectus under the caption "How to Purchase Shares." The sales charge normally deducted on purchases of Class A shares of the Funds is used to compensate AIM Distributors and participating dealers for their expenses incurred in connection with the distribution of such shares. Since there is little expense associated with unsolicited orders placed directly with AIM Distributors by persons, who because of their relationship with the Funds or with AIM and its affiliates, are familiar with the Funds, or whose programs for purchase involve little expense (e.g., because of the size of the transaction and shareholder records required), AIM Distributors believes that it is appropriate and in the Funds' best interests that such persons be permitted to purchase Class A shares of the Funds through AIM Distributors without payment of a sales charge. The persons who may purchase Class A shares of the Funds without a sales charge are shown in the Prospectus. Complete information concerning the method of exchanging shares of the Funds for shares of the other mutual funds managed or advised by AIM is set forth in the Prospectus under the caption "Exchange Privilege." Information concerning redemption of the Funds' shares is set forth in the Prospectus under the caption "How to Redeem Shares." In addition to the Funds' obligation to redeem shares, AIM Distributors may also repurchase shares as an accommodation to shareholders. To effect a repurchase, those dealers who have executed Selected Dealer Agreements with AIM Distributors must phone orders to the order desk of the Fund telephone: (713) 626-1919, Extension 5001 (in Houston) or (800) 347-4246 (elsewhere) and guarantee delivery of all required documents in good order. A repurchase is effected at the net asset value of the Fund next determined after such order is received. Such arrangement is subject to timely receipt by A I M Fund Services, Inc. of all required documents in good order. If such documents are not received within a reasonable time after the order is placed, the order is subject to cancellation. While there is no charge imposed by the Funds or by AIM Distributors (other than any applicable CDSC) when shares are redeemed or repurchased, dealers may charge a fair service fee for handling the transaction. The right of redemption may be suspended or the date of payment postponed when (a) trading on the New York Stock Exchange is restricted, as determined by applicable rules and regulations of the SEC, (b) the New York Stock Exchange is closed for other than customary weekend and holiday closings, (c) the SEC has by order permitted such suspension, or (d) an emergency as determined by the SEC exists making disposition of portfolio securities or the valuation of the net assets of the Fund not reasonably practicable. NET ASSET VALUE DETERMINATION In accordance with the current rules and regulations of the SEC, the net asset value of a share of each Fund is determined once daily as of the close of trading of the New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern Time), on each business day of the Fund. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern Time) on a particular day, the net asset value of a Fund share is determined as of the close of the NYSE on such day. For purposes of determining net asset value per share, futures and options contract closing prices which are available fifteen (15) minutes after the close of trading on the NYSE will generally be used. The net asset values per share of the Retail Classes and the Institutional Class will differ because different expenses are attributable to each class. The income or loss and the expenses common to all classes of a Fund are allocated to each class on the basis of the net assets of the Fund allocable to each such class, calculated as of the close of business on the previous business day, as adjusted for the current day's shareholder activity of each class. In addition to certain common expenses which are allocated to all classes of a Fund, certain expenses, such as those related to the distribution of shares of a class, are allocated only to the class to which such expenses relate. The net asset value per share of a class is determined by subtracting the liabilities (e.g., the expenses) of the Fund allocated to the class from the assets of the Fund allocated to the class and dividing the result by the total number of shares outstanding of such class. 42 77 Determination of each Fund's net asset value per share is made in accordance with generally accepted accounting principles. Except as provided in the next sentence, a security listed or traded on an exchange 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. Option contracts are valued at the mean between the closing bid and asked prices on the exchange where the contracts are principally traded. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date, or lacking a last sale, at the mean between the last bid and asked price on that day; 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 sixty (60) days or less to maturity are valued at amortized cost, which approximates market value. (See also "How to Purchase Shares," "How to Redeem Shares" and "Determination of Net Asset Value" in the Prospectus.) Generally, trading in foreign securities, as well as corporate bonds, U.S. Government securities and money market instruments, is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of a Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. Fund securities primarily traded in foreign markets may be traded in such markets on days which are not business days of the Fund. Because the net asset value per share of each Fund is determined only on business days of the Fund, the net asset value per share of a Fund may be significantly affected on days when an investor can not exchange or redeem shares of the Fund. DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS Income dividends and capital gains distributions are automatically reinvested in additional shares of the same class of each Fund unless the shareholder has requested in writing to receive such dividends and distributions in cash or that they be invested in shares of another AIM Fund, subject to the terms and conditions set forth in the Prospectus under the caption "Special Plans - Automatic Dividend Investment Plan." If a shareholder's account does not have any shares in it on a dividend or capital gains distribution payment date, the dividend or distribution will be paid in cash whether or not the shareholder has elected to have such dividends or distributions reinvested. TAX MATTERS The following is only a summary of certain additional tax considerations generally affecting the Funds and their shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Fund or its shareholders, and the discussion here and in the Prospectus is not intended as a substitute for careful tax planning. 43 78 QUALIFICATION AS A REGULATED INVESTMENT COMPANY Each Fund has elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, each Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. Distributions by a Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gains of the taxable year and can therefore satisfy the Distribution Requirement. In addition to satisfying the Distribution Requirement, a regulated investment company must (a) derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Income Requirement"), and (b) derive less than 30% of its gross income (exclusive of certain gains on designated hedging transactions that are offset by realized or unrealized losses on offsetting positions) from the sale or other disposition of stock, securities or foreign currencies (or options, futures or forward contracts thereon) held for less than three months (the "Short-Short Gain Test"). However, foreign currency gains, including those derived from options, futures and forward contracts, will not be characterized as Short-Short Gain if they are directly related to the regulated investment company's principal business of investing in stock or securities (or options or futures thereon). Because of the Short-Short Gain Test, a Fund may have to limit the sale of appreciated securities that it has held for less than three months. However, the Short-Short Gain Test will not prevent a Fund from disposing of investments at a loss, since the recognition of a loss before the expiration of the three-month holding period is disregarded. Interest (including original issue discount) received by a Fund at maturity or upon the disposition of a security held for less than three months will not be treated as gross income derived from the sale or other disposition of a security within the meaning of the Short-Short Gain Test. However, any other income that is attributable to realized market appreciation will be treated as gross income from the sale or other disposition of securities for this purpose. In general, gain or loss recognized by a Fund on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by a Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Fund held the debt obligation. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract or of foreign currency itself, will generally be treated as ordinary income or loss. In general, for purposes of determining whether capital gain or loss recognized by a Fund on the disposition of an asset is long-term or short-term, the holding period of the asset may be affected if (a) the asset is used to close a "short sale" (which includes for certain purposes the acquisition of a put option) or is substantially identical to another asset so used, (b) the asset is otherwise held by the Fund as part of a "straddle", or (c) the asset is stock and the Fund grants certain call options with respect thereto. However, for purposes of the Short-Short Gain Test, the holding period of the asset disposed of is reduced only in the case described in clause (a) above. In addition, a Fund may be required to defer the recognition of a loss on the disposition of an asset held as part of a straddle to the extent of any unrecognized gain on the offsetting position. 44 79 Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by a Fund from a closing transaction with respect to, an option written by the Fund will be treated as a short-term capital gain or loss. For purposes of the Short-Short Gain Test, the holding period of an option written by a Fund will commence on the date it is written and end on the date it lapses or the date a closing transaction is entered into. Accordingly, a Fund may be limited in its ability to write options which expire within three months and to enter into closing transactions at a gain within three months of the writing of options. Transactions that may be engaged in by certain of the Funds (such as futures contracts and options on stock indexes and futures contracts) will be subject to special tax treatment as "Section 1256 contracts." Section 1256 contracts are treated as if they are sold for their fair market value on the last business day of the taxable year, regardless of whether a taxpayer's obligations (or rights) under such contracts have terminated (by delivery, exercise, entering into a closing transaction or otherwise) as of such date. The net amount of such gain or loss for the entire taxable year from transactions involving Section 1256 contracts (including gain or loss arising as a consequence of the year-end deemed sale of Section 1256 contracts) is treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. A Fund may elect not to have this special tax treatment apply to Section 1256 contracts that are part of a "mixed straddle" with other investments of the Fund that are not Section 1256 contracts. The Internal Revenue Service has held in several private rulings that gains arising from Section 1256 contracts will be treated for purposes of the Short-Short Gain Test as being derived from securities held for not less than three months if the gains arise as a result of a constructive sale under Code Section 1256. In addition to satisfying the requirement described above, each Fund must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of each Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to which the companies, and securities of other issuers, the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. If for any taxable year a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable as ordinary dividends to the extent of such Fund's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends received deduction in the case of corporate shareholders. EXCISE TAX ON REGULATED INVESTMENT COMPANIES A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year. For purposes of the excise tax, a regulated investment company shall (a) reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year, and (b) exclude foreign currency gains and losses incurred after October 31 of any year (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, include such gains and losses in determining ordinary taxable income for the succeeding calendar year). 45 80 Each Fund intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that a Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. FUND DISTRIBUTIONS Each Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they will qualify for the 70% dividends received deduction for corporations only to the extent discussed below. A Fund may either retain or distribute to shareholders its net capital gain for each taxable year. Each Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired his shares. Conversely, if a Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carry forwards) at the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders treated as if each received a distribution of its pro rata share of such gain, with the result that each shareholder will be required to report its pro rata share of such gain on its tax return as long-term capital gain, will receive a refundable tax credit for its share of tax paid by the Fund on the gain, and will increase the tax basis for its shares by an amount equal to the deemed distribution less the tax credit. Ordinary income dividends paid by the Fund with respect to a taxable year will qualify for the 70% dividends received deduction generally available to corporations (other than corporations, such as "S" corporations, which are not eligible for the deduction because of their special characteristics and other than for purposes of special taxes such as the accumulated earnings tax and the personal holding company tax) to the extent of the amount of qualifying dividends received by the Fund from domestic corporations for the taxable year. A dividend received by the Fund will not be treated as a qualifying dividend (a) if it has been received with respect to any share of stock that the Fund has held for less than 46 days (91 days in the case of certain preferred stock), excluding for this purpose under the rules of Code Section 246(c)(3)and(4) (i) any day more than 45 days (or 90 days in the case of certain preferred stock) after the date on which the stock becomes ex-dividend, and (ii) any period during which the Fund has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, has granted certain options to buy or has otherwise diminished its risk of loss by holding other positions with respect to, such (or substantially identical) stock; (b) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property; or (c) to the extent the stock on which the dividend is paid is treated as debt-financed under the rules of Code Section 246A. Moreover, the dividends received deduction for a corporate shareholder may be disallowed or reduced (a) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund, or (b) by application of Code Section 246(b) which in general limits the dividends received deduction to 70% of the shareholder's taxable income (determined without regard to the dividends received deduction and certain other items). Alternative minimum tax ("AMT") is imposed in addition to, but only to the extent it exceeds, the regular tax and is computed at a maximum rate of 28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount. The corporate dividends received deduction is not itself an item of tax preference that must be added back to taxable income or is otherwise disallowed in determining a corporation's AMTI. However, corporate shareholders will generally be required to take the full amount of any dividend received from the Fund into account (without a dividend received deduction) in determining their adjusted current earnings, which are used in computing an additional corporate preference item (i.e., 75% of the excess of a corporate taxpayer's 46 81 adjusted current earnings over its AMTI (determined without regard to this item and the AMTI net operating loss deduction)) that is includable in AMTI. Investment income that may be received by certain of the Funds from sources within foreign countries may be subject to foreign taxes withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle any such Funds to a reduced rate of, or exemption from, taxes on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of any such Fund's assets to be invested in various countries is not known. Distributions by a Fund that do not constitute ordinary income dividends or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below. Distributions by a Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another Fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. In addition, if the net asset value at the time a shareholder purchases shares of a Fund reflects undistributed net investment income or recognized capital gain net income, or unrealized appreciation in the value of the assets of the Fund, distributions of such amounts will be taxable to the shareholder in the manner described above, although such distributions economically constitute a return of capital to the shareholder. Ordinarily, shareholders are required to take distributions by a Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by the Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. The Funds will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder (a) who has provided either an incorrect tax identification number or no number at all, (b) who is subject to backup withholding by the Internal Revenue Service for failure to report the receipt of interest or dividend income properly, or (c) who has failed to certify to a Fund that it is not subject to backup withholding or that it is a corporation or other "exempt recipient." SALE OR REDEMPTION OF SHARES A shareholder will recognize gain or loss on the sale or redemption of shares of a Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of the Fund within thirty (30) days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. For this purpose, the special holding period rules of Code Section 246(c)(3) and (4) (discussed above in connection with the dividends received deduction for corporations) generally will apply in determining the holding period of shares. Long-term capital gains of non-corporate taxpayers are currently taxed at a maximum rate 11.6% lower than the maximum rate applicable to ordinary income. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income. 47 82 If a shareholder (a) incurs a sales load in acquiring shares of a Fund, (b) disposes of such shares less then 91 days after they are acquired, and (c) subsequently acquires shares of the Fund or another Fund at a reduced sales load pursuant to a right to reinvest at such reduced sales load acquired in connection with the acquisition of the shares disposed of, then the sales load on the shares disposed of (to the extent of the reduction in the sales load on the shares subsequently acquired) shall not be taken into account in determining gain or loss on the shares disposed of, but shall be treated as incurred on the acquisition of the shares subsequently acquired. FOREIGN SHAREHOLDERS Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from a Fund is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from a Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, dividends and return of capital distributions (other than distributions of long-term capital gain) will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the distribution. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of shares of a Fund, capital gain dividends and amounts retained by a Fund that are designated as undistributed net capital gains. If the income from a Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale or redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. In the case of foreign non-corporate shareholders, a Fund may be required to withhold U.S. federal income tax at a rate of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, including the applicability of foreign taxes. EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein. Rules of state and local taxation for ordinary income dividends and capital gain dividends from regulated investment companies often differ from the rules for U.S. federal income taxation described above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in the Funds. 48 83 MISCELLANEOUS INFORMATION SHAREHOLDER INQUIRIES The Transfer Agent may impose certain copying charges for requests for copies of shareholder account statements and other historical account information older than the current year and the immediately preceding year. AUDIT REPORTS The Board of Directors will issue semi-annual reports of the transactions of the Funds to the shareholders. Financial statements, audited by independent auditors, will be issued annually. The firm of KPMG Peat Marwick LLP, 700 Louisiana, NationsBank Building, Houston, Texas 77002, has served as the auditors for Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation and Weingarten for the fiscal year ended October 31, 1996. Price Waterhouse LLP served as the auditors for Baird Blue Chip Fund, Inc., the predecessor of Blue Chip, for fiscal years ended September 30, 1995. LEGAL MATTERS The validity of the issuance of the shares of common stock offered hereby is being passed upon by Ballard Spahr Andrews & Ingersoll, 1735 Market Street, Philadelphia, Pennsylvania. On October 25, 1996 a shareholder of Aggressive Growth filed a lawsuit in United States District Court, Southern District of Texas, against the Company, AIM, AIM Distributors, the directors and certain officers of Aggressive Growth, and the portfolio managers of Aggressive Growth. The action was instituted under Section 36(b) of the Investment Company Act of 1940 and seeks to recover damages allegedly suffered by Aggressive Growth in connection with fees paid for marketing and shareholder services after Aggressive Growth was closed to new investors. CUSTODIAN AND TRANSFER AGENT State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and cash of the Funds. The custodian attends to the collection of principal and income, pays and collects all monies for securities bought and sold by the Funds and performs certain other ministerial duties. A I M Fund Services, Inc.,11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173 (the "Transfer Agent"), acts as transfer and dividend disbursing agent for the Funds. These services do not include any supervisory function over management or provide any protection against any possible depreciation of assets. The Funds pay the Custodian and the Transfer Agent such compensation as may be agreed upon from time to time. Texas Commerce Bank National Association, 712 Main, Houston, Texas 77002, serves as Sub-Custodian for retail purchases of the AIM Funds. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has entered into an agreement with the Company (and certain other AIM Funds), The Shareholder Services Group, Inc. and Financial Data Services, Inc., pursuant to which MLPF&S has agreed to perform certain shareholder sub-accounting services for its customers who beneficially own shares of the Fund(s). 49 84 PRINCIPAL HOLDERS OF SECURITIES BLUE CHIP To the best of the knowledge of the Company, the names and addresses of the holders of 5% or more of the outstanding Class A shares of Blue Chip as of December 31, 1996, and the amount of the outstanding shares held of record and beneficially owned by such holders are set forth below:
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ RETAIL CLASS A SHARES - --------------------- Robert W. Baird, Inc. 29.11%** -0- Attn: Mutual Fund Operations 777 E. Wisconsin Ave. Milwaukee, WI 53202 Merrill Lynch Pierce Fenner & Smith -0- 5.00% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246 RETAIL CLASS B SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith -0- 10.20% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246
CHARTER To the best of the knowledge of the Company, the names and addresses of the holders of 5% or more of the outstanding shares of the Retail Classes of Charter as of December 31, 1996, and the Institutional Class of Charter as of December 31, 1996, and the amount of the outstanding shares held of record and beneficially owned by such holders are set forth below: - ------------------------ * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. ** A shareholder who holds 25% or more of the outstanding shares of a class may be presumed to be in "control" of such class of shares, as defined in the 1940 Act. 50 85
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ RETAIL CLASS A SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith -0- 12.56% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246 Great-West Life and Annuity Insurance 7.66% -0- 401(k) Unit Valuations Attn: Rod Switzer 2T2 8515 E. Orchard Englewood, CO 80111 RETAIL CLASS B SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith -0- 10.56% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ INSTITUTIONAL CLASS - ------------------- Commonwealth of Massachusetts 90.76%** -0- One Ashburton Place 12th Floor Boston, MA 02108
- ----------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. ** A shareholder who holds 25% or more of the outstanding shares of a class may be presumed to be in "control" of such class of shares, as defined in the 1940 Act. 51 86 WEINGARTEN To the best of the knowledge of the Company, the names and addresses of the holders of 5% or more of the outstanding shares of the Retail Classes of Weingarten as of December 31, 1996, and the Institutional Class of Weingarten as of December 31, 1996, and the amount of the outstanding shares held of record and beneficially owned by such holders are set forth below:
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ RETAIL CLASS A SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith -0- 18.98% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ RETAIL CLASS B SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith -0- 12.32% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ INSTITUTIONAL CLASS - ------------------- Commonwealth of Massachusetts 67.53%** -0- One Ashburton Place 12th Floor Boston, MA 02108 Union Planters NationsBank -0- 16.58% P. O. Box 387 Memphis, TN 38147 City of Milwaukee Deferred Comp. 5.78% -0- P. O. Box 2054 Milwaukee, IL 53201
- ----------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. ** A shareholder who holds 25% or more of the outstanding shares of a class may be presumed to be in "control" of such class of shares, as defined in the 1940 Act. 52 87 CONSTELLATION To the best of the knowledge of the Company, the names and addresses of the holders of 5% or more of the outstanding shares of the Retail Classes of Constellation as of December 31, 1996, and of the Institutional Class of Constellation as of December 31, 1996, and the amount of the outstanding shares held of record and beneficially owned by such holders are set forth below:
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ RETAIL CLASS A SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith -0- 16.68% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ INSTITUTIONAL CLASS - ------------------- City of New York Deferred 49.18%** -0- Compensation Plan 40 Street, 3rd Floor New York, NY 10006 Nationwide Ohio Variable Account 13.76% -0- P.O. Box 182029 Columbus, Ohio 43218 Commonwealth of Massachusetts 12.73% -0- One Ashburton Place 12th Floor Boston, MA 02108
- ------------------ * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. ** A shareholder who holds 25% or more of the outstanding shares of a class may be presumed to be in "control" of such class of shares, as defined in the 1940 Act. 53 88 AGGRESSIVE GROWTH To the best of the knowledge of the Company, the names and addresses of the holders of 5% or more of the outstanding Class A shares of Aggressive Growth as of December 31, 1996, and the amount of the outstanding shares held of record and beneficially owned by such holders are set forth below:
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - --------------- ------------ ------------ RETAIL CLASS A SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith -0- 21.40% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246
CAPITAL DEVELOPMENT To the best of the knowledge of the Company, the names and addresses of the holders of 5% or more of the outstanding Class A shares of Capital Development as of December 31, 1996, and the amount of the outstanding shares held of record and beneficially owned by such holders are set forth below:
PERCENT PERCENT OWNED NAME AND ADDRESS OWNED OF OF RECORD AND OF RECORD OWNER RECORD ONLY* BENEFICIALLY - ---------------- ------------ ------------ RETAIL CLASS A SHARES - --------------------- Merrill Lynch Pierce Fenner & Smith-0- 17.74% FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246 Robert W. Baird Inc. 9.57% -0- Attn: Mutual Fund Operations 777 E. Wisconsin Avenue Milwaukee, WI 53202
As of December 31, 1996, the directors/trustees and officers of the Company as a group owned beneficially less than 1% of the outstanding shares of each of any class of Blue Chip, Charter, Weingarten, Constellation, Aggressive Growth and Capital Development. - -------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. ** A shareholder who holds 25% or more of the outstanding shares of a class may be presumed to be in "control" of such class of shares, as defined in the 1940 Act. 54 89 OTHER INFORMATION The Prospectus and this Statement of Additional Information omit certain information contained in the Registration Statement which the Company has filed with the SEC under the 1933 Act and reference is hereby made to the Registration Statement for further information with respect to the Funds and the securities offered hereby. The Registration Statement is available for inspection by the public at the SEC in Washington, D.C. 55 90 APPENDIX DESCRIPTION OF COMMERCIAL PAPER RATINGS STANDARD & POOR'S Commercial paper rated by Standard & Poor's has the following characteristics: Liquidity ratios are adequate to meet cash requirements. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well-established, and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. The relative strength or weakness of the above factors determines whether the issuer's Commercial Paper is rated A-1 or A-2. A-1 indicates the degree of safety regarding time of payment is very strong. A-2 indicates that the capacity for timely payment is strong, but that the relative degree of safety is not as overwhelming as for issues designated A-1. MOODY'S Prime-1 and Prime-2 are the two highest commercial paper ratings assigned by Moody's Investors Service. Among the factors considered by Moody's in assigning ratings are the following: (a) evaluation of the management of the issuer; (b) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (c) evaluation of the issuer's products in relation to competition and customer acceptance; (d) liquidity; (e) amount and quality of long-term debt; (f) trend of earnings over a period of ten years; (g) financial strength of a parent company and the relationships which exist with the issuer; and (h) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. Relative strength or weakness of the above factors determines whether the issuer's commercial paper is rated Prime-1 or Prime-2. DESCRIPTION OF CORPORATE BOND RATINGS STANDARD & POOR'S AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. MOODY'S Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as "high-grade bonds." They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. 56 91 FINANCIAL STATEMENTS FS 92 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Blue Chip Fund: We have audited the accompanying statements of assets and liabilities of the AIM Blue Chip Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1996 and September 30, 1996, the related statements of operations for the one-month period ended October 31, 1996 and the year ended September 30, 1996, the statements of changes in net assets for the one-month period ended October 31, 1996 and the year ended September 30, 1996 and the financial highlights for the one-month period ended October 31, 1996 and the year ended September 30, 1996. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the years in the eight year period ended September 30, 1995 and the period from December 31, 1986 (date operations commenced) to September 30, 1987 were audited by other auditors whose report thereon, dated October 25, 1995, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1996 and September 30, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Blue Chip Fund as of October 31, 1996 and September 30, 1996, the results of its operations for the one-month period ended October 31, 1996 and the year ended September 30, 1996, the changes in its net assets for the one-month period ended October 31, 1996 and the year ended September 30, 1996 and the financial highlights for the one-month period ended October 31, 1996 and the year ended September 30, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Houston, Texas November 22, 1996 FS-1 93 Financials SCHEDULE OF INVESTMENTS October 31, 1996
SHARES MARKET VALUE COMMON STOCKS-81.74% ADVERTISING/BROADCASTING-0.75% 20,000 Interpublic Group of Companies, Inc. $ 970,000 - ---------------------------------------------------------------------------------------------- AEROSPACE/DEFENSE-2.52% 23,900 Boeing Co. (The) 2,279,463 - ---------------------------------------------------------------------------------------------- 7,500 United Technologies Corp. 965,625 - ---------------------------------------------------------------------------------------------- 3,245,088 - ---------------------------------------------------------------------------------------------- AUTOMOBILE (MANUFACTURERS)-0.67% 16,000 General Motors Corp. 862,000 - ---------------------------------------------------------------------------------------------- BANKING-3.80% 31,000 Fifth Third Bancorp 1,941,375 - ---------------------------------------------------------------------------------------------- 25,000 Norwest Bank Corp. 1,096,875 - ---------------------------------------------------------------------------------------------- 29,200 State Street Boston Corp. 1,850,550 - ---------------------------------------------------------------------------------------------- 4,888,800 - ---------------------------------------------------------------------------------------------- BANKING (MONEY CENTER)-0.81% 10,500 Citicorp 1,039,500 - ---------------------------------------------------------------------------------------------- BEVERAGES (SOFT DRINKS)-0.37% 16,000 PepsiCo, Inc. 474,000 - ---------------------------------------------------------------------------------------------- BIOTECHNOLOGY-0.93% 26,000 Guidant Corp. 1,199,250 - ---------------------------------------------------------------------------------------------- BUSINESS SERVICES-4.24% 8,500 AccuStaff, Inc.(a) 227,375 - ---------------------------------------------------------------------------------------------- 10,000 Dun & Bradstreet Corp. 578,750 - ---------------------------------------------------------------------------------------------- 35,000 Equifax, Inc. 1,041,250 - ---------------------------------------------------------------------------------------------- 55,450 Olsten Corp. 1,109,000 - ---------------------------------------------------------------------------------------------- 33,600 Reuters Holdings PLC-Sponsored ADR (United Kingdom) 2,499,000 - ---------------------------------------------------------------------------------------------- 5,455,375 - ---------------------------------------------------------------------------------------------- CHEMICALS-0.80% 18,000 PPG Industries, Inc. 1,026,000 - ---------------------------------------------------------------------------------------------- CHEMICALS (SPECIALTY)-0.82% 28,000 IMC Global, Inc. 1,050,000 - ---------------------------------------------------------------------------------------------- COMPUTER MAINFRAMES-1.00% 10,000 International Business Machines Corp. 1,290,000 - ---------------------------------------------------------------------------------------------- COMPUTER MINI/PCS-1.55% 16,000 COMPAQ Computer Corp.(a) 1,114,000 - ---------------------------------------------------------------------------------------------- 10,600 Dell Computer Corp.(a) 862,575 - ---------------------------------------------------------------------------------------------- 1,976,575 - ---------------------------------------------------------------------------------------------- COMPUTER NETWORKING-1.65% 9,000 Ascend Communications, Inc.(a) 588,375 - ---------------------------------------------------------------------------------------------- 16,500 Cisco Systems, Inc.(a) 1,020,937 - ---------------------------------------------------------------------------------------------- 13,000 FORE Systems, Inc.(a) 516,750 - ---------------------------------------------------------------------------------------------- 2,126,062 - ----------------------------------------------------------------------------------------------
FS-2 94 Financials
SHARES MARKET VALUE COMPUTER SOFTWARE/SERVICES-5.86% 20,500 Computer Associates International, Inc. $ 1,212,062 - ---------------------------------------------------------------------------------------------- 7,000 Computer Sciences Corp.(a) 519,750 - ---------------------------------------------------------------------------------------------- 8,000 Electronic Data Systems Corp. 360,000 - ---------------------------------------------------------------------------------------------- 51,100 Fiserv, Inc.(a) 1,960,962 - ---------------------------------------------------------------------------------------------- 12,000 Microsoft, Corp.(a) 1,647,000 - ---------------------------------------------------------------------------------------------- 31,950 Oracle Systems Corp.(a) 1,351,884 - ---------------------------------------------------------------------------------------------- 7,000 PairGain Technologies, Inc.(a) 482,125 - ---------------------------------------------------------------------------------------------- 7,533,783 - ---------------------------------------------------------------------------------------------- CONGLOMERATES-1.20% 16,600 Du Pont (E.I.) de Nemours & Co. 1,539,650 - ---------------------------------------------------------------------------------------------- COSMETICS & TOILETRIES-2.74% 18,000 Avon Products, Inc. 976,500 - ---------------------------------------------------------------------------------------------- 34,000 Gillette Co. (The) 2,541,500 - ---------------------------------------------------------------------------------------------- 3,518,000 - ---------------------------------------------------------------------------------------------- ELECTRIC POWER-3.05% 26,000 Allegheny Power System, Inc. 776,750 - ---------------------------------------------------------------------------------------------- 27,500 Consolidated Edison Co. of New York, Inc. 804,375 - ---------------------------------------------------------------------------------------------- 28,000 Entergy Corp. 784,000 - ---------------------------------------------------------------------------------------------- 34,000 Houston Industries Inc. 777,750 - ---------------------------------------------------------------------------------------------- 28,600 Illinova Corp. 779,350 - ---------------------------------------------------------------------------------------------- 3,922,225 - ---------------------------------------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-3.56% 22,000 Emerson Electric Co. 1,958,000 - ---------------------------------------------------------------------------------------------- 27,000 General Electric Co. 2,612,250 - ---------------------------------------------------------------------------------------------- 4,570,250 - ---------------------------------------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-1.61% 9,000 Federal Home Loan Mortgage Corp. 909,000 - ---------------------------------------------------------------------------------------------- 14,000 Student Loan Marketing Association 1,158,500 - ---------------------------------------------------------------------------------------------- 2,067,500 - ---------------------------------------------------------------------------------------------- FOOD/PROCESSING-1.95% 30,000 Archer-Daniels-Midland Co. 652,500 - ---------------------------------------------------------------------------------------------- 52,200 Sara Lee Corp. 1,853,100 - ---------------------------------------------------------------------------------------------- 2,505,600 - ---------------------------------------------------------------------------------------------- HOTELS/MOTELS-0.76% 32,000 Hilton Hotels Corp. 972,000 - ---------------------------------------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-1.28% 22,000 Conseco, Inc. 1,177,000 - ---------------------------------------------------------------------------------------------- 20,000 Equitable Companies Inc. 470,000 - ---------------------------------------------------------------------------------------------- 1,647,000 - ---------------------------------------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-5.04% 23,500 Allstate Corp. 1,318,938 - ---------------------------------------------------------------------------------------------- 21,000 American International Group, Inc. 2,281,125 - ---------------------------------------------------------------------------------------------- 6,800 CIGNA Corp. 887,400 - ----------------------------------------------------------------------------------------------
FS-3 95 Financials
SHARES MARKET VALUE INSURANCE (MULTI-LINE PROPERTY)-(Continued) 13,200 MGIC Investment Corp. $ 905,850 - ---------------------------------------------------------------------------------------------- 20,000 Travelers Group, Inc. 1,085,000 - ---------------------------------------------------------------------------------------------- 6,478,313 - ---------------------------------------------------------------------------------------------- LEISURE & RECREATION-0.74% 21,000 Harley-Davidson, Inc. 947,625 - ---------------------------------------------------------------------------------------------- MEDICAL (DRUGS)-5.40% 25,000 Abbott Laboratories 1,265,625 - ---------------------------------------------------------------------------------------------- 51,200 Johnson & Johnson 2,521,600 - ---------------------------------------------------------------------------------------------- 42,500 Merck & Co., Inc. 3,150,313 - ---------------------------------------------------------------------------------------------- 6,937,538 - ---------------------------------------------------------------------------------------------- MEDICAL (INSTRUMENTS/PRODUCTS)-3.17% 32,000 Baxter International Inc. 1,332,000 - ---------------------------------------------------------------------------------------------- 33,900 Medtronic, Inc. 2,182,313 - ---------------------------------------------------------------------------------------------- 14,300 St. Jude Medical, Inc.(a) 564,850 - ---------------------------------------------------------------------------------------------- 4,079,163 - ---------------------------------------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-1.39% 24,000 Columbia/HCA Healthcare Corp. 858,000 - ---------------------------------------------------------------------------------------------- 32,000 Sybron International Corp.(a) 932,000 - ---------------------------------------------------------------------------------------------- 1,790,000 - ---------------------------------------------------------------------------------------------- NATURAL GAS PIPELINE-0.29% 6,200 Columbia Gas System, Inc. 376,650 - ---------------------------------------------------------------------------------------------- OFFICE AUTOMATION-0.52% 17,000 Danka Business Systems PLC-ADR (United Kingdom) 673,625 - ---------------------------------------------------------------------------------------------- OIL & GAS (SERVICES)-2.70% 15,000 Halliburton Co. 849,375 - ---------------------------------------------------------------------------------------------- 10,000 Royal Dutch Petroleum Co.-ADR-New York shares (Netherlands) 1,653,750 - ---------------------------------------------------------------------------------------------- 9,500 Texaco, Inc. 965,438 - ---------------------------------------------------------------------------------------------- 3,468,563 - ---------------------------------------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-1.36% 17,700 Schlumberger Ltd. 1,754,512 - ---------------------------------------------------------------------------------------------- PUBLISHING-0.70% 25,000 New York Times Co. 903,125 - ---------------------------------------------------------------------------------------------- RETAIL (FOOD & DRUG)-0.23% 6,600 Kroger Co.(a) 294,525 - ---------------------------------------------------------------------------------------------- RETAIL (STORES)-6.24% 21,500 Lowe's Companies, Inc. 868,062 - ---------------------------------------------------------------------------------------------- 38,000 Pep Boys-Manny, Moe & Jack 1,330,000 - ---------------------------------------------------------------------------------------------- 45,000 Staples, Inc.(a) 838,125 - ---------------------------------------------------------------------------------------------- 35,000 Sysco Corp. 1,190,000 - ---------------------------------------------------------------------------------------------- 43,000 Toys "R" Us, Inc.(a) 1,456,625 - ---------------------------------------------------------------------------------------------- 50,000 Viking Office Products Inc.(a) 1,456,250 - ---------------------------------------------------------------------------------------------- 33,000 Wal-Mart Stores, Inc. 878,625 - ---------------------------------------------------------------------------------------------- 8,017,687 - ----------------------------------------------------------------------------------------------
FS-4 96 Financials
SHARES MARKET VALUE SEMICONDUCTORS-2.45% 10,000 Altera Corp.(a) $ 620,000 - ---------------------------------------------------------------------------------------------- 23,000 Intel Corp. 2,527,125 - ---------------------------------------------------------------------------------------------- 3,147,125 - ---------------------------------------------------------------------------------------------- SHOES & RELATED APPAREL-0.78% 17,000 NIKE, Inc.-Class B 1,000,875 - ---------------------------------------------------------------------------------------------- TELECOMMUNICATIONS-2.77% 25,000 Lucent Technologies, Inc. 1,175,000 - ---------------------------------------------------------------------------------------------- 20,400 MFS Communications Co., Inc.(a) 1,022,550 - ---------------------------------------------------------------------------------------------- 56,000 WorldCom, Inc.(a) 1,365,000 - ---------------------------------------------------------------------------------------------- 3,562,550 - ---------------------------------------------------------------------------------------------- TELEPHONE-1.88% 19,000 BellSouth Corp. 774,250 - ---------------------------------------------------------------------------------------------- 18,000 Cincinnati Bell, Inc. 888,750 - ---------------------------------------------------------------------------------------------- 15,400 SBC Communications, Inc. 748,825 - ---------------------------------------------------------------------------------------------- 2,411,825 - ---------------------------------------------------------------------------------------------- TEXTILES-0.38% 7,000 Gucci Group NV-ADR-New York shares (Netherlands) 483,000 - ---------------------------------------------------------------------------------------------- TOBACCO-2.41% 20,000 Philip Morris Companies, Inc. 1,852,500 - ---------------------------------------------------------------------------------------------- 43,100 RJR Nabisco Holdings Corp. 1,244,513 - ---------------------------------------------------------------------------------------------- 3,097,013 - ---------------------------------------------------------------------------------------------- TRANSPORTATION-1.37% 70,000 Canadian Pacific, Ltd. (Canada) 1,767,500 - ---------------------------------------------------------------------------------------------- Total Common Stocks 105,069,872 - ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT U.S. TREASURY BILLS-13.10%(b) $17,210,000(c) 5.17%, 04/03/97 16,845,664 - ---------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS-5.40%(d) 939,177 Daiwa Securities America, Inc., 5.53%, 11/01/96(e) 939,177 - ---------------------------------------------------------------------------------------------- 6,000,000 SBC Capital Markets, Inc., 5.55%, 11/01/96(f) 6,000,000 - ---------------------------------------------------------------------------------------------- Total Repurchase Agreements 6,939,177 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS-100.24% 128,854,713 - ---------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-(0.24)% (306,359) - ---------------------------------------------------------------------------------------------- NET ASSETS-100.00% $ 128,548,354 ==============================================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) U.S. Treasury bills are traded on a discount. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (c) A portion of the principal was pledged as collateral to cover margin requirements for open futures contracts. See Note 7. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to insure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 10/31/96 with a maturing value of $750,115,208. Collateralized by $733,115,000 U.S. Treasury obligations, 0% to 10.375% due 11/15/96 to 08/15/23. (f) Joint repurchase agreement entered into 10/31/96 with a maturing value of $700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0% to 9.125% due 11/30/96 to 10/31/01. See Notes to Financial Statements. FS-5 97 Financials SCHEDULE OF INVESTMENTS September 30, 1996
SHARES MARKET VALUE COMMON STOCKS-89.03% ADVERTISING/BROADCASTING-0.89% 20,000 Interpublic Group of Companies, Inc. $ 945,000 - ---------------------------------------------------------------------------------------------- AEROSPACE/DEFENSE-2.97% 23,900 Boeing Co. (The) 2,258,550 - ---------------------------------------------------------------------------------------------- 7,500 United Technologies Corp. 900,938 - ---------------------------------------------------------------------------------------------- 3,159,488 - ---------------------------------------------------------------------------------------------- AIRLINES-0.88% 41,000 Southwest Airlines Co. 937,875 - ---------------------------------------------------------------------------------------------- AUTOMOBILE (MANUFACTURERS)-0.72% 16,000 General Motors Corp. 768,000 - ---------------------------------------------------------------------------------------------- BANKING-4.23% 31,000 Fifth Third Bancorp 1,801,875 - ---------------------------------------------------------------------------------------------- 25,000 Norwest Bank Corp. 1,021,875 - ---------------------------------------------------------------------------------------------- 29,200 State Street Boston Corp. 1,675,350 - ---------------------------------------------------------------------------------------------- 4,499,100 - ---------------------------------------------------------------------------------------------- BANKING (MONEY CENTER)-0.89% 10,500 Citicorp 951,563 - ---------------------------------------------------------------------------------------------- BEVERAGES (SOFT DRINKS)-0.76% 28,500 PepsiCo, Inc. 805,125 - ---------------------------------------------------------------------------------------------- BIOTECHNOLOGY-1.04% 20,000 Guidant Corp. 1,105,000 - ---------------------------------------------------------------------------------------------- BUSINESS SERVICES-4.35% 35,000 Equifax, Inc. 923,125 - ---------------------------------------------------------------------------------------------- 55,450 Olsten Corp. 1,379,319 - ---------------------------------------------------------------------------------------------- 33,600 Reuters Holdings PLC-Sponsored ADR (United Kingdom) 2,326,800 - ---------------------------------------------------------------------------------------------- 4,629,244 - ---------------------------------------------------------------------------------------------- CHEMICALS-1.34% 26,300 PPG Industries, Inc. 1,430,063 - ---------------------------------------------------------------------------------------------- CHEMICALS (SPECIALTY)-0.74% 13,500 Air Products & Chemicals, Inc. 786,375 - ---------------------------------------------------------------------------------------------- COMPUTER MINI/PCS-0.78% 10,600 Dell Computer Corp.(a) 824,150 - ---------------------------------------------------------------------------------------------- COMPUTER NETWORKING-2.03% 9,000 Ascend Communications, Inc.(a) 595,125 - ---------------------------------------------------------------------------------------------- 16,500 Cisco Systems, Inc.(a) 1,024,031 - ---------------------------------------------------------------------------------------------- 13,000 FORE Systems, Inc.(a) 537,875 - ---------------------------------------------------------------------------------------------- 2,157,031 - ----------------------------------------------------------------------------------------------
FS-6 98 Financials
SHARES MARKET VALUE COMPUTER SOFTWARE/SERVICES-7.55% 18,000 Computer Associates International, Inc. $ 1,075,500 - ---------------------------------------------------------------------------------------------- 7,000 Computer Sciences Corp.(a) 538,125 - ---------------------------------------------------------------------------------------------- 16,000 Electronic Data Systems Corp. 982,000 - ---------------------------------------------------------------------------------------------- 51,100 Fiserv, Inc.(a) 1,954,575 - ---------------------------------------------------------------------------------------------- 12,000 Microsoft, Corp.(a) 1,582,500 - ---------------------------------------------------------------------------------------------- 31,950 Oracle Systems Corp.(a) 1,359,872 - ---------------------------------------------------------------------------------------------- 7,000 PairGain Technologies, Inc.(a) 546,875 - ---------------------------------------------------------------------------------------------- 8,039,447 - ---------------------------------------------------------------------------------------------- CONGLOMERATES-1.38% 16,600 Du Pont (E.I.) de Nemours & Co. 1,464,950 - ---------------------------------------------------------------------------------------------- COSMETICS & TOILETRIES-4.47% 10,000 Avon Products, Inc. 496,250 - ---------------------------------------------------------------------------------------------- 34,000 Gillette Co. (The) 2,452,250 - ---------------------------------------------------------------------------------------------- 18,500 Procter & Gamble Co. 1,803,750 - ---------------------------------------------------------------------------------------------- 4,752,250 - ---------------------------------------------------------------------------------------------- ELECTRIC POWER-3.56% 26,000 Allegheny Power System, Inc. 754,000 - ---------------------------------------------------------------------------------------------- 27,500 Consolidated Edison Co. of New York, Inc. 763,125 - ---------------------------------------------------------------------------------------------- 28,000 Entergy Corp. 756,000 - ---------------------------------------------------------------------------------------------- 34,000 Houston Industries Inc. 752,250 - ---------------------------------------------------------------------------------------------- 28,600 Illinova Corp. 757,900 - ---------------------------------------------------------------------------------------------- 3,783,275 - ---------------------------------------------------------------------------------------------- ELECTRIC COMPONENTS/MISCELLANEOUS-4.17% 22,000 Emerson Electric Co. 1,982,750 - ---------------------------------------------------------------------------------------------- 27,000 General Electric Co. 2,457,000 - ---------------------------------------------------------------------------------------------- 4,439,750 - ---------------------------------------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-1.69% 10,000 Federal Home Loan Mortgage Corp. 978,750 - ---------------------------------------------------------------------------------------------- 11,000 Student Loan Marketing Association 820,875 - ---------------------------------------------------------------------------------------------- 1,799,625 - ---------------------------------------------------------------------------------------------- FOOD/PROCESSING-1.75% 52,200 Sara Lee Corp. 1,866,150 - ---------------------------------------------------------------------------------------------- HOTELS/MOTELS-0.85% 32,000 Hilton Hotels Corp. 908,000 - ---------------------------------------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-1.50% 22,000 Conseco, Inc. 1,083,500 - ---------------------------------------------------------------------------------------------- 20,000 Equitable Companies Inc. 515,000 - ---------------------------------------------------------------------------------------------- 1,598,500 - ---------------------------------------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-6.59% 21,000 American International Group, Inc. 2,115,750 - ---------------------------------------------------------------------------------------------- 32,400 Chubb Corp. 1,490,400 - ---------------------------------------------------------------------------------------------- 6,800 CIGNA Corp. 815,150 - ---------------------------------------------------------------------------------------------- 5,200 General Re Corp. 737,100 - ----------------------------------------------------------------------------------------------
FS-7 99 Financials
SHARES MARKET VALUE Insurance (Multi-Line Property)-continued 13,000 MGIC Investment Corp. $ 875,875 - ---------------------------------------------------------------------------------------------- 20,000 Travelers Group, Inc. 982,500 - ---------------------------------------------------------------------------------------------- 7,016,775 - ---------------------------------------------------------------------------------------------- LEISURE & RECREATION-0.85% 21,000 Harley-Davidson, Inc. 903,000 - ---------------------------------------------------------------------------------------------- MEDICAL (DRUGS)-6.43% 25,000 Abbott Laboratories 1,231,250 - ---------------------------------------------------------------------------------------------- 51,200 Johnson & Johnson 2,624,000 - ---------------------------------------------------------------------------------------------- 42,500 Merck & Co., Inc. 2,990,937 - ---------------------------------------------------------------------------------------------- 6,846,187 - ---------------------------------------------------------------------------------------------- MEDICAL (INSTRUMENTS/PRODUCTS)-2.04% 33,900 Medtronic, Inc. 2,173,837 - ---------------------------------------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-1.61% 13,800 Columbia/HCA Healthcare Corp. 784,875 - ---------------------------------------------------------------------------------------------- 32,000 Sybron International Corp.(a) 928,000 - ---------------------------------------------------------------------------------------------- 1,712,875 - ---------------------------------------------------------------------------------------------- NATURAL GAS PIPELINE-0.33% 6,200 Columbia Gas System, Inc. 347,200 - ---------------------------------------------------------------------------------------------- OIL & GAS (SERVICES)-3.02% 15,000 Halliburton Co. 774,375 - ---------------------------------------------------------------------------------------------- 10,000 Royal Dutch Petroleum Co.-ADR-New York shares (Netherlands) 1,561,250 - ---------------------------------------------------------------------------------------------- 9,500 Texaco, Inc. 874,000 - ---------------------------------------------------------------------------------------------- 3,209,625 - ---------------------------------------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-1.41% 17,700 Schlumberger Ltd. 1,495,650 - ---------------------------------------------------------------------------------------------- PUBLISHING-0.79% 25,000 New York Times Co. 843,750 - ---------------------------------------------------------------------------------------------- RESTAURANTS-0.76% 17,000 McDonald's Corp. 805,375 - ---------------------------------------------------------------------------------------------- RETAIL (FOOD & DRUG)-1.12% 28,300 Albertson's, Inc. 1,192,137 - ---------------------------------------------------------------------------------------------- RETAIL (STORES)-5.63% 15,700 Lowe's Companies, Inc. 641,738 - ---------------------------------------------------------------------------------------------- 30,000 Pep Boys-Manny, Moe & Jack 1,068,750 - ---------------------------------------------------------------------------------------------- 45,000 Staples, Inc.(a) 998,437 - ---------------------------------------------------------------------------------------------- 27,000 Sysco Corp. 907,875 - ---------------------------------------------------------------------------------------------- 50,000 Viking Office Products, Inc.(a) 1,500,000 - ---------------------------------------------------------------------------------------------- 33,000 Wal-Mart Stores, Inc. 870,375 - ---------------------------------------------------------------------------------------------- 5,987,175 - ----------------------------------------------------------------------------------------------
FS-8 100 Financials
SHARES MARKET VALUE SEMICONDUCTORS-1.91% 10,000 Altera Corp.(a) $ 506,250 - ---------------------------------------------------------------------------------------------- 10,500 Intel Corp. 1,002,094 - ---------------------------------------------------------------------------------------------- 9,500 Texas Instruments, Inc. 523,688 - ---------------------------------------------------------------------------------------------- 2,032,032 - ---------------------------------------------------------------------------------------------- SHOES & RELATED APPAREL-0.97% 8,500 NIKE, Inc.-Class B 1,032,750 - ---------------------------------------------------------------------------------------------- TELECOMMUNICATIONS-1.91% 25,000 Lucent Technologies, Inc. 1,146,875 - ---------------------------------------------------------------------------------------------- 20,400 MFS Communications Co., Inc.(a) 889,950 - ---------------------------------------------------------------------------------------------- 2,036,825 - ---------------------------------------------------------------------------------------------- TELEPHONE-2.25% 19,000 BellSouth Corp. 703,000 - ---------------------------------------------------------------------------------------------- 18,000 Cincinnati Bell, Inc. 954,000 - ---------------------------------------------------------------------------------------------- 15,400 SBC Communications, Inc. 741,125 - ---------------------------------------------------------------------------------------------- 2,398,125 - ---------------------------------------------------------------------------------------------- TEXTILES-0.95% 14,000 Gucci Group NV-ADR-New York shares (Netherlands) 1,015,000 - ---------------------------------------------------------------------------------------------- TOBACCO-1.92% 13,500 Philip Morris Companies, Inc. 1,211,625 - ---------------------------------------------------------------------------------------------- 32,000 RJR Nabisco Holdings Corp. 832,000 - ---------------------------------------------------------------------------------------------- 2,043,625 - ---------------------------------------------------------------------------------------------- Total Common Stocks 94,741,904 - ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT U.S. TREASURY BILLS-4.49%(b) $ 4,910,000(c) 5.17%, 04/03/97 4,783,027 - ---------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS-5.42%(d) 766,387 Daiwa Securities America, Inc., 5.80%, 10/01/96(e) 766,387 - ---------------------------------------------------------------------------------------------- 5,000,000 UBS Securities Inc., 5.90%, 10/01/96(f) 5,000,000 - ---------------------------------------------------------------------------------------------- Total Repurchase Agreements 5,766,387 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS-98.94% 105,291,318 - ---------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-1.06% 1,123,392 - ---------------------------------------------------------------------------------------------- NET ASSETS-100.00% $ 106,414,710 ==============================================================================================
NOTES TO SCHEDULE OF INVESTMENTS: (a) Non-income producing security. (b) U.S. treasury bills are traded on a discount. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (c) A portion of the principal was pledged as collateral to cover margin requirements for open futures contracts. See Note 7. (d) Collateral on repurchase agreements, include the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 09/30/96 with a maturing value of $750,737,063. Collateralized by $696,875,000 U.S. Treasury obligations, 7.875% to 8.375% due 11/15/07 to 08/15/08. (f) Joint repurchase agreement entered into 09/30/96 with a maturing value of $300,049,167. Collateralized by $678,362,131 U.S. Government agency obligations, 0% to 11.00% due 10/01/00 to 03/01/33. See Notes to Financial Statements. FS-9 101 Financials STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, SEPTEMBER 30, 1996 1996 ------------ ------------- ASSETS: Investments, at market value (cost: $101,592,848 and $78,291,809) $128,854,713 $105,291,318 - -------------------------------------------------------------------------------------------- Receivables for: Investments sold 1,528,029 -- - -------------------------------------------------------------------------------------------- Capital stock sold 1,934,587 1,144,249 - -------------------------------------------------------------------------------------------- Dividends and interest 65,749 144,747 - -------------------------------------------------------------------------------------------- Variation margin 115,600 -- - -------------------------------------------------------------------------------------------- Investment for deferred compensation plan 1,494 713 - -------------------------------------------------------------------------------------------- Other assets 46,398 48,053 - -------------------------------------------------------------------------------------------- Total assets 132,546,570 106,629,080 - -------------------------------------------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 2,150,800 -- - -------------------------------------------------------------------------------------------- Capital stock reacquired 1,692,177 33,810 - -------------------------------------------------------------------------------------------- Deferred compensation 1,494 713 - -------------------------------------------------------------------------------------------- Accrued advisory fees 68,230 60,011 - -------------------------------------------------------------------------------------------- Accrued accounting services fees 4,309 16,263 - -------------------------------------------------------------------------------------------- Accrued directors' fees 595 1,580 - -------------------------------------------------------------------------------------------- Accrued distribution fees 37,233 76,346 - -------------------------------------------------------------------------------------------- Accrued transfer agent fees 9,908 10,150 - -------------------------------------------------------------------------------------------- Accrued operating expenses 33,470 15,497 - -------------------------------------------------------------------------------------------- Total liabilities 3,998,216 214,370 - -------------------------------------------------------------------------------------------- Net assets applicable to shares outstanding $128,548,354 $106,414,710 ============================================================================================ NET ASSETS: Class A $120,447,685 $106,414,710 - -------------------------------------------------------------------------------------------- Class B $ 8,100,669 -- - -------------------------------------------------------------------------------------------- CAPITAL STOCK, $.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 750,000,000 - -------------------------------------------------------------------------------------------- Outstanding 4,618,824 4,163,564 - -------------------------------------------------------------------------------------------- Class B: Authorized 750,000,000 750,000,000 - -------------------------------------------------------------------------------------------- Outstanding 310,679 -- - -------------------------------------------------------------------------------------------- CLASS A: Net asset value and redemption price per share $ 26.08 $ 25.56 - -------------------------------------------------------------------------------------------- Offering price per share: (Net asset value divided by 94.50%) $ 27.60 $ 27.05 - -------------------------------------------------------------------------------------------- CLASS B: Net asset value and offering price per share $ 26.07 -- ============================================================================================
See Notes to Financial Statements. FS-10 102 Financials STATEMENTS OF OPERATIONS
ONE MONTH ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, 1996 1996 ----------------- -------------- INVESTMENT INCOME: Dividends (net of $2,518 and $23,207 foreign withholding tax) $ 60,573 $ 1,208,166 - ----------------------------------------------------------------------------------------------------------- Interest 79,751 166,454 - ----------------------------------------------------------------------------------------------------------- Total investment income 140,324 1,374,620 - ----------------------------------------------------------------------------------------------------------- EXPENSES: Advisory fees 75,253 578,569 - ----------------------------------------------------------------------------------------------------------- Custodian fees 2,838 19,467 - ----------------------------------------------------------------------------------------------------------- Distribution fees -- Class A 34,010 190,772 - ----------------------------------------------------------------------------------------------------------- Distribution fees -- Class B 3,166 -- - ----------------------------------------------------------------------------------------------------------- Transfer agent fees -- Class A 5,591 57,849 - ----------------------------------------------------------------------------------------------------------- Transfer agent fees -- Class B 1,601 -- - ----------------------------------------------------------------------------------------------------------- Accounting service fees 4,309 51,360 - ----------------------------------------------------------------------------------------------------------- Directors' fees 581 8,111 - ----------------------------------------------------------------------------------------------------------- Other 12,931 73,915 - ----------------------------------------------------------------------------------------------------------- Total expenses 140,280 980,043 - ----------------------------------------------------------------------------------------------------------- Less expenses assumed by advisor (7,024) (19,409) - ----------------------------------------------------------------------------------------------------------- Net expenses 133,256 960,634 - ----------------------------------------------------------------------------------------------------------- Net investment income 7,068 413,986 - ----------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES AND FUTURES CONTRACTS: Net realized gain on sales of investment securities 1,953,887 17,138,864 - ----------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of: Investment securities 262,356 (1,150,933) - ----------------------------------------------------------------------------------------------------------- Futures contracts (7,768) (22,050) - ----------------------------------------------------------------------------------------------------------- 254,588 (1,172,983) - ----------------------------------------------------------------------------------------------------------- Net gain on investment securities and futures contracts 2,208,475 15,965,881 - ----------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $ 2,215,543 $ 16,379,867 ==========================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
ONE MONTH ENDED YEAR ENDED SEPTEMBER 30, OCTOBER 31, --------------------------------------- 1996 1996 1995 ----------------- ----------------- ----------------- OPERATIONS: Net investment income $ 7,068 $ 413,986 $ 435,096 - ------------------------------------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities 1,953,887 17,138,864 3,508,717 - ------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities and futures contracts 254,588 (1,172,983) 11,889,076 - ------------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 2,215,543 16,379,867 15,832,889 - ------------------------------------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income -- (616,045) (358,084) - ------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains -- (8,878,928) (1,424,952) - ------------------------------------------------------------------------------------------------------------------------- Capital stock transactions - net: Class A 11,821,515 28,205,736 (2,840,672) - ------------------------------------------------------------------------------------------------------------------------- Class B 8,096,586 -- -- - ------------------------------------------------------------------------------------------------------------------------- Net increase in net assets 22,133,644 35,090,630 11,209,181 - ------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 106,414,710 71,324,080 60,114,899 - ------------------------------------------------------------------------------------------------------------------------- End of period $ 128,548,354 $ 106,414,710 $ 71,324,080 ========================================================================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 87,482,889 $ 67,564,788 $ 39,359,052 - ------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income 209,005 201,937 403,996 - ------------------------------------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities 13,624,413 11,670,526 3,410,590 - ------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investment securities and futures contracts 27,232,047 26,977,459 28,150,442 - ------------------------------------------------------------------------------------------------------------------------- $ 128,548,354 $ 106,414,710 $ 71,324,080 =========================================================================================================================
See Notes to Financial Statements. FS-11 103 Financials NOTES TO FINANCIAL STATEMENTS NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Blue Chip Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six operating diversified portfolios: AIM Blue Chip Fund, AIM Aggressive Growth Fund, AIM Capital Development Fund, AIM Charter Fund, AIM Constellation Fund, and AIM Weingarten Fund. Prior to June 3, 1996, the Fund was the Baird Blue Chip Fund, Inc. which was incorporated under the laws of Wisconsin. Pursuant to an Agreement and Plan of Reorganization between the Company and the Baird Blue Chip Fund, Inc., the Fund was reorganized as a portfolio of the Company effective June 3, 1996. As a result of the reorganization, the Fund's fiscal year was changed from September 30 to October 31. The Fund currently offers two different classes of shares: the Class A shares and the Class B shares. Class B shares commenced operations on October 1, 1996. Class A shares are sold with a front-end sales charge. Class B 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 Fund's investment objective is long-term growth of capital. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. 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. A. Security Valuations--A security listed or traded on an exchange is valued at its last price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. 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 that are issued or guaranteed by the U.S. Treasury are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Foreign Currency Translation--Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. C. Foreign Currency Contracts--A forward 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 forward 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. FS-12 104 Financials NOTE 1-SIGNIFICANT ACCOUNTING POLICIES-continued D. Securities Transactions, Investment Income and Distributions--Securities transactions are recorded on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. E. Federal Income Taxes--The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. Stock Index Futures Contracts--The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in the value of contracts may not correlate with changes in the value of the securities being hedged. G. Expenses--Operating expenses directly attributable to a class of shares are charged to that class' operations. Expenses which are applicable to both classes, e.g., advisory fees, are allocated between them. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $350 million of the Fund's average daily net assets, plus 0.625% of the fund's average daily net assets in excess of $350 million. AIM has agreed to waive advisory fees for two years to the extent necessary to keep the annual expense ratio for Class A shares at 1.31% for such period. During the one month ended October 31, 1996 and the period from June 3, 1996 through September 30, 1996, AIM voluntarily waived advisory fees in the amounts of $7,024 and $19,409, respectively. Prior to June 3, 1996, the Baird Blue Chip Fund, Inc., ("BBC") had a management agreement with Robert W. Baird & Co. Incorporated ("RWB") to serve as investment advisor and manager. Under the terms of the agreement, the BBC paid RWB an advisory fee at the annual rate of 0.74% of the daily net assets of the BBC. At a special meeting held on March 15, 1996, the shareholders of the BBC approved a transaction whereby the assets (net of liabilities) of the BBC would be sold to AIM Blue Chip Fund, a newly-created portfolio of AIM Equity Funds, Inc., pursuant to the Agreement and Plan of Reorganization dated December 20, 1995, as amended, between the BBC and AIM Equity Funds, Inc. (the "Agreement and Plan of Reorganization"). The requisite vote for approval was a majority of the shares of the BBC outstanding on the record date (January 25, 1996). Of the 3,085,577 shares outstanding on the record date, 1,925,583 shares (or 62.4% of the total outstanding shares) were present at the meeting in person or by proxy, 1,773,720 shares (or 57.5% of the total outstanding shares) voted for approval of the Agreement and Plan of Reorganization and the reorganization transaction, and 151,863 shares either voted against or abstained from voting on the matter. The transaction occurred on June 3, 1996. 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 one month ended October 31, 1996 and the period from June 3, 1996 through September 30, 1996, AIM was reimbursed $4,309 and $16,236, respectively, for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing transfer agency services to the Fund. During the one month ended October 31, 1996 and the period from June 3, 1996 through September 30, 1996, AFS was paid $4,759 and $16,223, respectively, for such services. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares and Class B 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 FS-13 105 Financials NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES-continued (the "Class A Plan") and with respect to the Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A Plan, pays AIM Distributors compensation at an annual rate of 0.35% of the average daily net assets attributable to the Class A shares. The Class A Plan is designed to compensate AIM Distributors for certain promotional and other sales related costs and provides periodic payments to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class A shares of the Fund. 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 attributable to the Class B shares. Of this amount, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class B shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class B shares of the Fund. Any amounts not paid as a service fee under such 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. AIM Distributors may, from time to time, assign, transfer or pledge to one or more assignees, its rights to all or a portion of (a) compensation received by AIM Distributors from the Fund pursuant to the Class B Plan (but not AIM Distributors' duties and obligations pursuant to the Class B Plan) and (b) any contingent deferred sales charges payable to AIM Distributors related to the Class B shares. During the one month ended October 31, 1996, the Class A shares and the Class B shares paid AIM Distributors $34,010 and $3,166, respectively, as compensation pursuant to the Plans. During the period from June 3, 1996 through September 30, 1996, the Class A shares paid by AIM Distributors $97,045 as compensation pursuant to the Class A Plan. Prior to June 3, 1996, the BBC had adopted a distribution plan (the "Plan"), pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan provided that the BBC may incur certain costs which may not exceed the lesser of a monthly payment amount equal to 0.45% per year of the BBC's daily net assets or the actual distribution costs incurred by RWB during the year. During the period October 1, 1995 through June 3, 1996, BBC paid RWB $93,727 as compensation under the Plan. AIM Distributors received commissions of $42,859 and $101,484 from sales of shares of the Class A's capital stock transactions during the one month ended October 31, 1996 and the period from June 3, 1996 through September 30, 1996, respectively. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of capital stock. During the one month ended October 31, 1996 and the period from June 3, 1996 through September 30, 1996, AIM Distributors did not receive contingent deferred sales charges imposed on redemption of Fund Shares. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the period October 1, 1995 through June 3, 1996, the BBC was advised that RWB received $51,342 from investors representing commissions on sales of BBC shares and no brokerage fees on the execution of purchases and sales of portfolio securities were paid by the BBC. During the one month ended October 31, 1996 and the period from June 3, 1996 through September 30, 1996, the Fund paid legal fees of $66 and $362, respectively, for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank d/b/a Chemical Bank. The Fund may borrow up to the lesser of (i) $325,000,000 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. During the one month ended October 31, 1996 and the period from July 19, 1996 through September 30, 1996, 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 0.08% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. FS-14 106 Financials NOTE 4-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the one month ended October 31, 1996 were $18,525,377 and $10,284,796, respectively, and during the year ended September 30, 1996 were $54,111,108 and $43,365,584, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis is as follows:
OCTOBER 31, SEPTEMBER 30, 1996 1996 ------------ -------------- Aggregate unrealized appreciation of investment securities $27,860,837 $ 27,738,465 - ---------------------------------------------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (650,839) (738,956) - ---------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investment securities $27,209,998 $ 26,999,509 ======================================================================================================================
Costs of investments for tax purposes for the one month ended October 31, 1996 and the period from June 3, 1996 through September 30, 1996 are $101,644,715 and $78,291,809, respectively. NOTE 5-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 6-CAPITAL STOCK Changes in capital stock outstanding during the one month ended October 31, 1996 and the years ended September 30, 1996 and 1995 were as follows:
OCTOBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 ---------------------- ------------------------ ---------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- ----------- --------- ------------ -------- ----------- Sold: Class A 620,358 $16,142,093 1,504,902 $ 36,636,393 235,753 $ 4,808,974 - -------------------------------------------------- ---------------------- ------------------------ ---------------------- Class B* 313,256 8,163,778 -- -- -- -- - -------------------------------------------------- ---------------------- ------------------------ ---------------------- Issued as reinvestment of dividends: Class A -- -- 178,537 4,200,245 43,313 809,149 - -------------------------------------------------- ---------------------- ------------------------ ---------------------- Reacquired: Class A (165,098) (4,320,578) (513,296) (12,630,902) (414,147) (8,458,795) - -------------------------------------------------- ---------------------- ------------------------ ---------------------- Class B* (2,577) (67,192) -- -- -- -- - -------------------------------------------------- ---------------------- ------------------------ ---------------------- 765,939 $19,918,101 1,170,143 $ 28,205,736 (135,081) $(2,840,672) ================================================== ====================== ======================== ======================
* Class B shares commenced operations on October 1, 1996. NOTE 7-OPEN FUTURES CONTRACTS On October 31, 1996, $473,000, principal amount of U.S. Treasury bills were pledged as collateral to cover margin requirements for open futures contracts. On September 30, 1996, $195,000, principal amount of U.S. Treasury bills were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts were as follows:
UNREALIZED NO. OF APPRECIATION/ CONTRACT CONTRACTS MONTH/COMMITMENT (DEPRECIATION) ------------- --------- ------------------ -------------- Open futures contracts at October 31, 1996: S&P 500 Index 34 March 97/Buy $ (29,818) Open futures contracts at September 30, 1996: S&P 500 Index 14 March 97/Buy (22,050)
FS-15 107 Financials NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of capital stock outstanding of the Class A shares during the one month ended October 31, 1996 and each of the years in the nine-year period ended September 30, 1996 and for a share of capital stock outstanding of the Class B shares during the period October 1, 1996 (date operations commenced) through October 31, 1996.
OCTOBER 31, SEPTEMBER 30, ----------- ----------------------------------------------------------- CLASS A: 1996 1996(a) 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $ 25.56 $ 23.83 $ 19.22 $ 18.89 $ 18.24 - ------------------------------------------ --------- ---------- --------- --------- --------- Income from investment operations: Net investment income (0.00) 0.33 0.14 0.15 0.19 - ------------------------------------------ --------- ---------- --------- --------- --------- Net realized and unrealized gains (losses) on investments 0.52 4.61 5.05 1.24 0.63 - ------------------------------------------ --------- ---------- --------- --------- --------- Total from investment operations 0.52 4.94 5.19 1.39 0.82 - ------------------------------------------ --------- ---------- --------- --------- --------- Less distributions: Dividends from net investment income -- (0.21) (0.12) (0.21) (0.17) - ------------------------------------------ --------- ---------- --------- --------- --------- Distributions from net realized gains -- (3.00) (0.46) (0.85) -- - ------------------------------------------ --------- ---------- --------- --------- --------- Total distributions -- (3.21) (0.58) (1.06) (0.17) - ------------------------------------------ --------- ---------- --------- --------- --------- Net asset value, end of period 26.08 25.56 23.83 19.22 18.89 ========================================== ========= ========== ========= ========= ========= Total return(b) 2.04% 22.39% 27.84% 7.69% 4.54% ========================================== ========= ========== ========= ========= ========= Ratios/supplement data: Net assets, end of period (000s omitted) $ 120,448 $ 106,415 $ 71,324 $ 60,115 $ 65,112 ========================================== ========= ========== ========= ========= ========= Ratio of expenses to average net assets 1.30%(c) 1.26%(d) 1.3% 1.4% 1.3% ========================================== ========= ========== ========= ========= ========= Ratio of net investment income to average net assets 0.12%(c) 0.53%(d) 0.7% 0.8% 1.0% ========================================== ========= ========== ========= ========= ========= Portfolio turnover rate 10% 58% 17% 13% 25% ========================================== ========= ========== ========= ========= ========= Average Brokerage Commission Rate $ 0.0665 N/A N/A N/A N/A ========================================== ========= ========== ========= ========= ========= SEPTEMBER 30, --------------------------------------------------------------------------- CLASS A: 1992 1991 1990 1989 1988 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $ 16.77 $ 13.60 $ 13.82 $ 11.48 $ 13.10 - ------------------------------------------ --------- --------- --------- --------- --------- Income from investment operations: Net investment income 0.20 0.23 0.25 0.24 0.12 - ------------------------------------------ --------- --------- --------- --------- --------- Net realized and unrealized gains (losses) on investments 1.48 3.19 (0.20) 2.25 (1.68) - ------------------------------------------ --------- --------- --------- --------- --------- Total from investment operations 1.68 3.42 0.05 2.49 (1.56) - ------------------------------------------ --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income (0.21) (0.25) (0.27) (0.15) (0.02) - ------------------------------------------ --------- --------- --------- --------- --------- Distributions from net realized gains -- -- -- -- (0.04) - ------------------------------------------ --------- --------- --------- --------- --------- Total distributions (0.21) (0.25) (0.27) (0.15) (0.06) - ------------------------------------------ --------- --------- --------- --------- --------- Net asset value, end of period 18.24 16.77 13.60 13.82 11.48 ========================================== ========= ========= ========= ========= ========= Total return(b) 10.10% 25.52% 0.34% 21.98% (11.81)% ========================================== ========= ========= ========= ========= ========= Ratios/supplement data: Net assets, end of period (000s omitted) $ 61,601 $ 46,958 $ 31,706 $ 21,170 $ 18,681 ========================================== ========= ========= ========= ========= ========= Ratio of expenses to average net assets 1.4% 1.5% 1.6% 1.7% 2.2% ========================================== ========= ========= ========= ========= ========= Ratio of net investment income to average net assets 1.2% 1.6% 2.0% 1.9% 3.3% ========================================== ========= ========= ========= ========= ========= Portfolio turnover rate 5% 9% 12% 15% 15% ========================================== ========= ========= ========= ========= ========= Average Brokerage Commission Rate N/A N/A N/A N/A N/A ========================================== ========= ========= ========= ========= =========
(a) The Fund changed investment advisors on June 3, 1996. (b) Does not deduct sales charges and periods for less than one year are not annualized. (c) Ratios are based on average net assets of $114,411,384. Ratios of expenses and net investment income to average net assets prior to fee waivers are 1.37% and 0.05%, respectively. (d) Ratios are based on average net assets of $77,923,118. Ratios of expenses and net investment income to average net assets prior to fee waivers are 1.28% and 0.50%, respectively.
OCTOBER 31, CLASS B: 1996 ----------- Net asset value, beginning of period $ 25.56 - --------------------------------------------- --------- Income from investment operations: Net investment income (0.01) - --------------------------------------------- --------- Net realized and unrealized gains (losses) on investments 0.52 - --------------------------------------------- --------- Total from investment operations 0.51 - --------------------------------------------- --------- Net asset value, end of period 26.07 ============================================= ========= Total return(a) 2.00% ============================================= ========= Ratios/supplement data: Net assets, end of period (000s omitted) $ 8,101 ============================================= ========= Ratio of expenses to average net assets 2.01% (b) ============================================= ========= Ratio of net investment income (loss) to average net assets (0.58) (b) ============================================= ========= Portfolio turnover rate 10% ============================================= ========= Average Brokerage Commission Rate $ 0.0665 ============================================= =========
(a) Does not deduct sales charges and periods for less than one year are not annualized. (b) Ratios are annualized and based on average net assets of $3,728,067. Ratios of expenses and net investment income (loss) to average net assets prior to fee waivers are 2.08% (annualized) and (0.65)% (annualized), respectively. NOTE 9-SUBSEQUENT EVENT On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO PLC announced the execution of an Agreement and Plan of Merger pursuant to which AIM Management will be merged with and into a direct wholly-owned subsidiary of INVESCO PLC. AIM Management is the parent company of the Fund's advisor. The merger is conditional on, among other things, approval by the shareholders of INVESCO PLC and AIM Management and the shareholders of the AIM Funds and the mutual funds managed by INVESCO PLC, and is expected to take place during the first quarter of 1997. FS-16 108 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Charter Fund: 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, 1996, 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 three-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. The financial highlights for each of the years in the seven-year period ended October 31, 1993 were audited by other auditors whose report thereon, dated November 12, 1993 expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1996, 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, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the three-year period then ended, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Houston, Texas December 6, 1996 FS-17 109 SCHEDULE OF INVESTMENTS October 31, 1996
MARKET SHARES VALUE COMMON STOCKS-75.58% ADVERTISING/BROADCASTING-0.56% Eagle River Interactive, Inc.(a) 400,000 $ 3,750,000 - ----------------------------------------------------------------- True North Communications, Inc. 600,000 14,250,000 - ----------------------------------------------------------------- 18,000,000 - ----------------------------------------------------------------- AEROSPACE/DEFENSE-2.00% Boeing Co. (The) 160,000 15,260,000 - ----------------------------------------------------------------- Gulfstream Aerospace Corp.(a) 700,000 16,537,500 - ----------------------------------------------------------------- Northrop Grumman Corp. 100,000 8,075,000 - ----------------------------------------------------------------- Rockwell International Corp. 200,000 11,000,000 - ----------------------------------------------------------------- United Technologies Corp. 100,000 12,875,000 - ----------------------------------------------------------------- 63,747,500 - ----------------------------------------------------------------- AIRLINES-0.25% Sabre Group Holdings Inc.(a) 260,000 7,930,000 - ----------------------------------------------------------------- APPLIANCES-0.31% Sunbeam Corp., Inc. 400,000 9,850,000 - ----------------------------------------------------------------- AUTOMOBILE/TRUCK PARTS & TIRES-0.46% Lear Corp.(a) 400,000 14,800,000 - ----------------------------------------------------------------- AUTOMOBILE (MANUFACTURERS)-0.84% General Motors Corp. 500,000 26,937,500 - ----------------------------------------------------------------- BANKING-0.50% Marshall & Ilsley Corp. 500,000 16,062,500 - ----------------------------------------------------------------- BANKING (MONEY CENTER)-1.11% BankAmerica Corp. 200,000 18,300,000 - ----------------------------------------------------------------- Chase Manhattan Corp. 200,000 17,150,000 - ----------------------------------------------------------------- 35,450,000 - ----------------------------------------------------------------- BEVERAGES-0.24% PepsiCo. Inc. 260,000 7,702,500 - ----------------------------------------------------------------- BUSINESS SERVICES-2.43% Accustaff Inc.(a) 300,000 8,025,000 - ----------------------------------------------------------------- CUC International, Inc.(a) 500,000 12,250,000 - ----------------------------------------------------------------- Diebold, Inc. 400,000 23,000,000 - ----------------------------------------------------------------- Dun & Bradstreet Corp. 214,900 12,437,338 - ----------------------------------------------------------------- Equifax, Inc. 600,000 17,850,000 - ----------------------------------------------------------------- Olsten Corp. 200,000 4,000,000 - ----------------------------------------------------------------- 77,562,338 - ----------------------------------------------------------------- COMPUTER MAINFRAMES-0.48% International Business Machines Corp. 120,000 15,480,000 - ----------------------------------------------------------------- COMPUTER NETWORKING-2.25% Ascend Communications, Inc.(a) 300,000 19,612,500 - ----------------------------------------------------------------- Cascade Communications Corp.(a) 160,000 11,620,000 - ----------------------------------------------------------------- Cisco Systems, Inc.(a) 400,000 24,750,000 - ----------------------------------------------------------------- ECI Telecommunications Ltd. Designs 800,000 16,000,000 - ----------------------------------------------------------------- 71,982,500 - ----------------------------------------------------------------- COMPUTER PERIPHERALS-0.39% U.S. Robotics Corp.(a) 200,000 12,575,000 - ----------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-4.94% Computer Associates International, Inc. 300,000 17,737,500 - ----------------------------------------------------------------- Electronic Data Systems Corp. 600,000 27,000,000 - ----------------------------------------------------------------- Farallon Communications(a) 235,000 2,996,250 - ----------------------------------------------------------------- MARKET SHARES VALUE COMPUTER SOFTWARE/SERVICES-(CONTINUED) Fiserv, Inc.(a) 340,000 $ 13,047,500 - ----------------------------------------------------------------- HBO & Co. 200,000 12,025,000 - ----------------------------------------------------------------- Informix Corp.(a) 300,000 6,656,250 - ----------------------------------------------------------------- Learning Co., Inc. (The)(a) 300,000 6,093,750 - ----------------------------------------------------------------- Microsoft Corp.(a) 120,000 16,470,000 - ----------------------------------------------------------------- Oracle Corp.(a) 300,000 12,693,750 - ----------------------------------------------------------------- Saville Systems Ireland PLC-ADR (Ireland)(a) 200,000 8,625,000 - ----------------------------------------------------------------- Sterling Commerce, Inc.(a) 700,000 19,687,500 - ----------------------------------------------------------------- Wallace Computer Services, Inc. 500,000 14,687,500 - ----------------------------------------------------------------- 157,720,000 - ----------------------------------------------------------------- CONGLOMERATES-2.20% AlliedSignal Inc. 200,000 13,100,000 - ----------------------------------------------------------------- Corning, Inc. 240,000 9,300,000 - ----------------------------------------------------------------- E.I. du Pont de Nemours and Co. 160,000 14,840,000 - ----------------------------------------------------------------- Loews Corp. 400,000 33,050,000 - ----------------------------------------------------------------- 70,290,000 - ----------------------------------------------------------------- COSMETICS & TOILETRIES-1.21% Avon Products, Inc. 240,000 13,020,000 - ----------------------------------------------------------------- Gillette Co. (The) 140,000 10,465,000 - ----------------------------------------------------------------- Warner-Lambert Co. 240,000 15,270,000 - ----------------------------------------------------------------- 38,755,000 - ----------------------------------------------------------------- ELECTRIC POWER-2.22% Allegheny Power System, Inc. 400,000 11,950,000 - ----------------------------------------------------------------- American Electric Power Co. 360,000 14,940,000 - ----------------------------------------------------------------- Carolina Power & Light Co. 280,000 10,115,000 - ----------------------------------------------------------------- Duke Power Co. 300,000 14,662,500 - ----------------------------------------------------------------- Southern Co. 500,000 11,062,500 - ----------------------------------------------------------------- Texas Utilities Co. 200,000 8,100,000 - ----------------------------------------------------------------- 70,830,000 - ----------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-1.49% General Electric Co. 200,000 19,350,000 - ----------------------------------------------------------------- General Signal Corp. 200,000 8,150,000 - ----------------------------------------------------------------- Honeywell, Inc. 140,000 8,697,500 - ----------------------------------------------------------------- Imation Corp.(a) 58,100 1,590,487 - ----------------------------------------------------------------- Sony Corp.-ADR (Japan) 160,000 9,660,000 - ----------------------------------------------------------------- 47,447,987 - ----------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-1.40% Merrill Lynch & Co., Inc. 240,000 16,860,000 - ----------------------------------------------------------------- Morgan Stanley Group, Inc. 220,000 11,055,000 - ----------------------------------------------------------------- Ryder System, Inc. 300,000 8,925,000 - ----------------------------------------------------------------- United Assets Management Corp. 320,000 7,840,000 - ----------------------------------------------------------------- 44,680,000 - ----------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-3.58% American Express Co. 200,000 9,400,000 - ----------------------------------------------------------------- Federal Home Loan Mortgage Corp. 340,000 34,340,000 - ----------------------------------------------------------------- Federal National Mortgage Association 1,800,000 70,425,000 - ----------------------------------------------------------------- 114,165,000 - -----------------------------------------------------------------
FS-18 110
MARKET SHARES VALUE FINANCE (SAVINGS & LOAN)-0.32% Washington Mutual, Inc. 240,000 $ 10,140,000 - ----------------------------------------------------------------- FOOD/PROCESSING-0.94% Dole Food Co. 240,000 9,360,000 - ----------------------------------------------------------------- Interstate Bakeries Corp. 240,000 10,170,000 - ----------------------------------------------------------------- Nabisco Holdings Corp. 277,100 10,321,975 - ----------------------------------------------------------------- 29,851,975 - ----------------------------------------------------------------- FUNERAL SERVICES-0.25% Loewen Group, Inc. 200,000 7,925,000 - ----------------------------------------------------------------- GAMING-0.33% International Game Technology 500,000 10,562,500 - ----------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-0.23% Provident Companies, Inc. 200,000 7,425,000 - ----------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-3.90% Allstate Corp. 400,000 22,450,000 - ----------------------------------------------------------------- CIGNA Corp. 300,000 39,150,000 - ----------------------------------------------------------------- ITT Hartford Group, Inc. 140,000 8,820,000 - ----------------------------------------------------------------- MBIA, Inc. 100,000 8,862,500 - ----------------------------------------------------------------- Travelers Group, Inc. 400,000 21,700,000 - ----------------------------------------------------------------- Travelers/Aetna Property Casualty Corp. 400,000 12,000,000 - ----------------------------------------------------------------- USF&G Corp. 600,000 11,400,000 - ----------------------------------------------------------------- 124,382,500 - ----------------------------------------------------------------- LEISURE & RECREATION-1.16% Brunswick Corp. 500,000 11,750,000 - ----------------------------------------------------------------- Callaway Golf Co. 300,000 9,187,500 - ----------------------------------------------------------------- Eastman Kodak Co. 200,000 15,950,000 - ----------------------------------------------------------------- 36,887,500 - ----------------------------------------------------------------- MACHINE TOOLS-0.48% Stanley Works 540,000 15,255,000 - ----------------------------------------------------------------- MEDICAL (DRUGS)-8.94% American Home Products Corp. 360,000 22,050,000 - ----------------------------------------------------------------- Bristol-Myers Squibb Co. 300,000 31,725,000 - ----------------------------------------------------------------- Johnson & Johnson 680,000 33,490,000 - ----------------------------------------------------------------- Lilly (Eli) & Co. 240,000 16,920,000 - ----------------------------------------------------------------- Pfizer Inc. 300,000 24,825,000 - ----------------------------------------------------------------- Pharmacia & Upjohn, Inc. 800,000 28,800,000 - ----------------------------------------------------------------- Rhone-Poulenc Rorer, Inc. 480,000 32,220,000 - ----------------------------------------------------------------- Schering-Plough Corp. 500,000 32,000,000 - ----------------------------------------------------------------- SmithKline Beecham PLC-ADR (United Kingdom) 640,000 40,080,000 - ----------------------------------------------------------------- Teva Pharmaceuticals Industries Ltd.-ADR (Israel) 320,000 13,400,000 - ----------------------------------------------------------------- Watson Pharmaceuticals, Inc.(a) 300,000 10,012,500 - ----------------------------------------------------------------- 285,522,500 - ----------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-3.12% American Medical Response, Inc.(a) 300,000 9,000,000 - ----------------------------------------------------------------- Columbia/HCA Healthcare Corp. 900,000 32,175,000 - ----------------------------------------------------------------- MedPartners, Inc.(a) 1,000,000 21,125,000 - ----------------------------------------------------------------- OrNda HealthCorp(a) 360,000 9,810,000 - ----------------------------------------------------------------- Oxford Health Plans, Inc.(a) 100,000 4,550,000 - ----------------------------------------------------------------- PacifiCare Health System, Inc.(a) 28,500 2,002,125 - ----------------------------------------------------------------- RoTech Medical Corp.(a) 400,000 6,400,000 - ----------------------------------------------------------------- Tenet Healthcare Corp.(a) 700,000 14,612,500 - ----------------------------------------------------------------- 99,674,625 - ----------------------------------------------------------------- MARKET SHARES VALUE MEDICAL INSTRUMENTS/PRODUCTS-1.29% Baxter International, Inc. 400,000 $ 16,650,000 - ----------------------------------------------------------------- Boston Scientific Corp.(a) 300,000 16,312,500 - ----------------------------------------------------------------- Omnicare, Inc. 300,000 8,175,000 - ----------------------------------------------------------------- 41,137,500 - ----------------------------------------------------------------- NATURAL GAS PIPELINE-1.49% PanEnergy Corp. 300,000 11,550,000 - ----------------------------------------------------------------- Sonat, Inc. 200,000 9,850,000 - ----------------------------------------------------------------- Williams Companies, Inc. 500,000 26,125,000 - ----------------------------------------------------------------- 47,525,000 - ----------------------------------------------------------------- OIL & GAS (SERVICES)-3.39% Halliburton Co. 260,000 14,722,500 - ----------------------------------------------------------------- Mobil Corp. 160,000 18,680,000 - ----------------------------------------------------------------- National Fuel Gas Co. 42,500 1,583,125 - ----------------------------------------------------------------- Petroleum Geo-Services A.S.A.-ADR (Norway)(a) 266,600 9,131,050 - ----------------------------------------------------------------- Reading & Bates Corp.(a) 420,000 12,075,000 - ----------------------------------------------------------------- Royal Dutch Petroleum Co. (Netherlands) 100,000 16,537,500 - ----------------------------------------------------------------- Texaco, Inc. 160,000 16,260,000 - ----------------------------------------------------------------- Transocean Offshore Inc. 160,000 10,120,000 - ----------------------------------------------------------------- YPF S.A.-ADR (Argentina) 400,000 9,100,000 - ----------------------------------------------------------------- 108,209,175 - ----------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-0.81% Coastal Corp. 400,000 17,200,000 - ----------------------------------------------------------------- Diamond Offshore Drilling, Inc.(a) 140,000 8,522,500 - ----------------------------------------------------------------- 25,722,500 - ----------------------------------------------------------------- PUBLISHING-0.91% Gannett Co., Inc. 168,000 12,747,000 - ----------------------------------------------------------------- Tribune Co. 200,000 16,350,000 - ----------------------------------------------------------------- 29,097,000 - ----------------------------------------------------------------- RAILROADS-0.11% Wisconsin Central Transportation Corp. 100,000 3,600,000 - ----------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS-2.38% Crescent Real Estate Equities, Inc. 400,000 16,700,000 - ----------------------------------------------------------------- FelCor Suite Hotels, Inc. 320,000 10,480,000 - ----------------------------------------------------------------- National Health Investors, Inc. 300,000 10,462,500 - ----------------------------------------------------------------- Patroit American Hospitality, Inc. 440,000 15,455,000 - ----------------------------------------------------------------- Spieker Properties, Inc. 300,000 9,225,000 - ----------------------------------------------------------------- Starwood Lodging Trust 300,000 13,500,000 - ----------------------------------------------------------------- 75,822,500 - ----------------------------------------------------------------- RETAIL (FOOD & DRUG)-0.89% Food Lion, Inc.-Class A 1,300,000 11,131,250 - ----------------------------------------------------------------- Safeway, Inc.(a) 400,000 17,150,000 - ----------------------------------------------------------------- 28,281,250 - ----------------------------------------------------------------- RETAIL (STORES)-1.69% Blue Square-Israel Ltd-ADR (Israel)(a) 110,500 1,740,375 - ----------------------------------------------------------------- Dayton-Hudson Corp. 300,000 10,387,500 - ----------------------------------------------------------------- Fila Holdings S.p.A.-ADR (Italy) 141,700 10,202,400 - ----------------------------------------------------------------- J.C. Penney Co., Inc. 300,000 15,750,000 - ----------------------------------------------------------------- Wal-Mart Stores, Inc. 600,000 15,975,000 - ----------------------------------------------------------------- 54,055,275 - ----------------------------------------------------------------- SEMICONDUCTORS-1.24% Intel Corp. 360,000 39,555,000 - -----------------------------------------------------------------
FS-19 111
MARKET SHARES VALUE SHOES & RELATED APPAREL-0.44% NIKE, Inc. Class B 240,000 $ 14,130,000 - ----------------------------------------------------------------- TELECOMMUNICATIONS-6.19% ADC Telecommunications(a) 140,000 9,572,500 - ----------------------------------------------------------------- American Portable Telecom, Inc.(a) 500,000 3,812,500 - ----------------------------------------------------------------- Andrew Corp.(a) 340,000 16,575,000 - ----------------------------------------------------------------- Frontier Corp. 540,000 15,660,000 - ----------------------------------------------------------------- Koor Industries Ltd.-ADR (Israel) 240,000 4,170,000 - ----------------------------------------------------------------- LCI International, Inc.(a) 315,789 10,065,775 - ----------------------------------------------------------------- Lucent Technologies, Inc. 400,000 18,800,000 - ----------------------------------------------------------------- MFS Communications Co., Inc.(a) 1,004,936 50,372,417 - ----------------------------------------------------------------- Nokia Corp.-Class A-ADR (Finland) 360,000 16,695,000 - ----------------------------------------------------------------- Pacific Telesis Group 300,000 10,200,000 - ----------------------------------------------------------------- Telecomunicacoes Brasileiras S.A.-ADR (Brazil) 200,000 14,900,000 - ----------------------------------------------------------------- Telefonaktiebolaget L.M. Ericsson-ADR (Sweden) 600,000 16,575,000 - ----------------------------------------------------------------- Tellabs, Inc.(a) 120,000 10,215,000 - ----------------------------------------------------------------- 197,613,192 - ----------------------------------------------------------------- TELEPHONE-2.79% Ameritech Corp. 300,000 16,425,000 - ----------------------------------------------------------------- BellSouth Corp. 500,000 20,375,000 - ----------------------------------------------------------------- Cincinnati Bell, Inc. 800,000 39,500,000 - ----------------------------------------------------------------- SBC Communications, Inc. 260,000 12,642,500 - ----------------------------------------------------------------- 88,942,500 - ----------------------------------------------------------------- TEXTILES-0.23% VF Corp. 109,900 7,184,712 - ----------------------------------------------------------------- TOBACCO-3.11% Philip Morris Companies, Inc. 700,000 64,837,500 - ----------------------------------------------------------------- RJR Nabisco Holdings Corp. 1,200,000 34,650,000 - ----------------------------------------------------------------- 99,487,500 - ----------------------------------------------------------------- TRANSPORTATION-0.09% Hvide Marine, Inc. Class A(a) 200,000 2,975,000 - ----------------------------------------------------------------- Total Common Stocks 2,412,932,529 - -----------------------------------------------------------------
PRINCIPAL AMOUNT CONVERTIBLE CORPORATE BONDS-12.95% AUTOMOBILE/TRUCK PARTS & TIRES-0.41% Magna International, Inc., Conv. Sub Deb., 5.00%, 10/15/02 $12,000,000 $ 13,110,000 - ----------------------------------------------------------------- BUSINESS SERVICES-0.30% Career Horizons, Inc., Conv. Bonds, 7.00%, 11/01/02(b) (acquired 10/16/95-11/27/95; cost $4,015,000) 4,000,000 9,725,601 - ----------------------------------------------------------------- CHEMICALS-1.08% Hexcel Corp., Conv. Sub. Notes, 7.00%, 08/01/03 6,000,000 8,010,000 - ----------------------------------------------------------------- Sandoz Capital BVI Ltd. (Switzerland), Sr. Conv. Deb., 2.00%, 10/06/02(b) (acquired 01/09/96-06/05/96; cost $24,018,250) 24,000,000 26,430,000 - ----------------------------------------------------------------- 34,440,000 - ----------------------------------------------------------------- COMPUTER NETWORKING-0.77% 3Com Corp., Conv. Sub. Notes, 10.25%, 11/01/01(b) (acquired 11/07/95-08/28/96; cost $19,300,448) 12,000,000 24,720,000 - -----------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE COMPUTER SOFTWARE/SERVICES-0.25% Comverse Technology Inc., Conv. Sub. Deb., 5.75%, 10/01/06(b) (acquired 10/01/96-10/24/96; cost $8,029,250) $ 8,000,000 $ 7,960,000 - ----------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-0.95% ADT Operations, Conv. Sub. Notes, 4.32%, 07/06/10(c) 25,000,000 14,937,500 - ----------------------------------------------------------------- Checkpoint Systems Inc., Conv. Sub. Deb., 5.25%, 11/01/05(b) (acquired 10/17/95-11/15/95; cost $4,013,125) 4,000,000 5,450,750 - ----------------------------------------------------------------- SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06(b) (acquired 10/24/96-10/28/96; cost $9,952,680) 8,000,000 9,800,000 - ----------------------------------------------------------------- 30,188,250 - ----------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-0.59% First Financial Management Corp., Conv. Deb., 5.00%, 12/15/99 10,000,000 18,800,000 - ----------------------------------------------------------------- HOTELS/MOTELS-0.62% HFS, Inc., Conv. Sr. Notes, 4.75%, 03/01/03 10,000,000 12,887,500 - ----------------------------------------------------------------- Prime Hospitality Corp., Conv. Sub. Notes, 7.00%, 04/15/02 5,000,000 7,012,500 - ----------------------------------------------------------------- 19,900,000 - ----------------------------------------------------------------- MACHINERY (MISCELLANEOUS)-0.57% Thermo Electron Corp., Conv. Sub. Deb., 4.25%, 01/01/03(b) (acquired 11/29/95-04/01/96; cost $17,830,575) 16,000,000 18,240,000 - ----------------------------------------------------------------- MEDICAL (DRUGS)-0.47% ICN Pharmaceuticals Inc., Conv. Sub. Notes, 8.50%, 11/15/99 14,000,000 15,155,000 - ----------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-1.87% Genesis Health Ventures, Sr. Conv. Sub. Deb., 6.00%, 11/30/03 5,000,000 7,684,995 - ----------------------------------------------------------------- HEALTHSOUTH Rehabilitation Corp., Conv. Sub. Deb., 5.00%, 04/01/01 6,000,000 12,120,000 - ----------------------------------------------------------------- Multicare Companies, Conv. Sub. Deb., 7.00%, 03/15/03(b) (acquired 11/30/95; cost $6,210,000) 6,000,000 7,132,500 - ----------------------------------------------------------------- Phycor, Inc., Conv. Sub. Deb., 4.50%, 02/15/03 12,000,000 12,225,000 - ----------------------------------------------------------------- Quintiles Transnational, Conv. Sub. Notes, 4.25%, 05/31/00(b) (acquired 04/23/96; cost $12,027,000) 12,000,000 12,480,000 - ----------------------------------------------------------------- Renal Treatment Centers, Conv. Sub Notes, 5.625%, 07/15/06(b) (acquired 06/06/96-06/07/96; cost $7,988,500) 8,000,000 8,000,000 - ----------------------------------------------------------------- 59,642,495 - ----------------------------------------------------------------- OFFICE AUTOMATION-0.55% Danka Business Systems PLC, Conv. Sub. Deb., 6.75%, 04/01/02 (United Kingdom) 12,000,000 17,580,000 - ----------------------------------------------------------------- OFFICE PRODUCTS-0.23% U.S. Office Products Co., Conv. Sub. Notes, 5.50%, 02/01/01 6,500,000 7,426,531 - -----------------------------------------------------------------
FS-20 112
PRINCIPAL MARKET AMOUNT VALUE OIL EQUIPMENT & SUPPLIES-0.56% Apache Corp., Conv. Sub. Deb., 6.00%, 01/15/02(b) (acquired 06/14/96-08/22/96; cost $9,188,750) $ 8,000,000 $ 10,120,000 - ----------------------------------------------------------------- Pride Petroleum Services, Inc., Conv. Sub. Deb., 6.25%, 02/15/06 5,000,000 7,725,000 - ----------------------------------------------------------------- 17,845,000 - ----------------------------------------------------------------- POLLUTION CONTROL-0.62% Sanifill, Inc., Conv. Sub. Deb., 5.00%, 03/01/06 6,000,000 7,770,000 - ----------------------------------------------------------------- U.S. Filter Corp., Conv. Sub. Notes, 6.00%, 09/15/05 6,200,000 11,888,500 - ----------------------------------------------------------------- 19,658,500 - ----------------------------------------------------------------- RETAIL (STORES)-2.03% Federated Department Stores, Conv. Notes, 5.00%, 10/01/03 10,000,000 11,287,500 - ----------------------------------------------------------------- Home Depot, Inc., Conv. Sub. Notes, 3.25%, 10/01/01 11,000,000 11,027,500 - ----------------------------------------------------------------- SAKS Holdings, Conv. Sub. Notes, 5.50%, 09/15/06 15,000,000 15,900,000 - ----------------------------------------------------------------- Sports Authority, Inc. (The), Conv. Sub. Notes, 5.25%, 09/15/01(b) (acquired 09/17/96; cost $14,000,000) 14,000,000 13,930,000 - ----------------------------------------------------------------- Staples, Inc., Conv. Sub. Deb., 4.50%, 10/01/00(b) (acquired 09/16/96-10/28/96; cost $13,282,260) 12,000,000 12,720,000 - ----------------------------------------------------------------- 64,865,000 - ----------------------------------------------------------------- SEMICONDUCTORS-0.81% Altera Corp., Conv. Sub. Notes, 5.75%, 06/15/02(b) (acquired 09/16/96-09/26/96; cost $14,249,080) 12,000,000 16,440,000 - ----------------------------------------------------------------- Analog Devices, Conv. Sub. Notes, 3.50%, 12/01/00 8,000,000 9,300,000 - ----------------------------------------------------------------- 25,740,000 - ----------------------------------------------------------------- TRANSPORTATION (MISCELLANEOUS)-0.27% Seacor Holdings Inc., Conv. Sub. Notes, 5.375%, 11/15/06(b) (acquired 10/30/96; cost $8,250,000) 8,250,000 8,497,500 - ----------------------------------------------------------------- Total Convertible Corporate Bonds 413,493,877 - -----------------------------------------------------------------
SHARES CONVERTIBLE PREFERRED STOCKS-6.55% COMPUTER SOFTWARE/SERVICES-1.08% Ceridian Corp.-$2.75 Conv. Pfd. 220,000 23,980,000 - ----------------------------------------------------------------- Vanstar Corp.-$3.375 Conv. Pfd.(b) (acquired 09/2796-10/30/96; cost $10,034,500) 200,000 10,350,000 - ----------------------------------------------------------------- 34,330,000 - ----------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-0.75% Penncorp Financial Group-$3.375 Conv. Pfd. 100,000 8,100,000 - ----------------------------------------------------------------- SunAmerica Inc.-Series E, $3.10 Dep. Conv. Pfd. 180,000 15,795,000 - ----------------------------------------------------------------- 23,895,000 - ----------------------------------------------------------------- FUNERAL SERVICES-1.06% SCI Financial LLC-Series A, $3.125 Conv. Pfd. 360,000 33,840,000 - ----------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-0.79% Conseco Inc.-$4.279 Conv. Pfd. PRIDES 260,000 25,350,000 - -----------------------------------------------------------------
MARKET SHARES VALUE INSURANCE (MULTI-LINE PROPERTY)-0.66% Aetna Inc.-$4.758 Conv. Pfd. 160,000 $ 11,220,000 - ----------------------------------------------------------------- PMI Group, Inc.-$2.30 Exch. Conv. Pfd. 200,000 9,925,000 - ----------------------------------------------------------------- 21,145,000 - ----------------------------------------------------------------- MEDICAL INSTRUMENTS/PRODUCTS-0.38% U.S. Surgical Corp.-Series A, $2.20 Conv. Pfd 300,000 12,000,000 - ----------------------------------------------------------------- PUBLISHING-0.27% Hollinger International, Inc.-$0.951 Conv. Pfd PRIDES 700,000 8,575,000 - ----------------------------------------------------------------- RETAIL (STORES)-0.57% TJX Companies, Inc.-Series E, $7.00 Conv. Pfd 80,000 18,200,000 - ----------------------------------------------------------------- TELECOMMUNICATIONS-0.82% MFS Communications Co., Inc.-$2.68 Conv. Pfd 300,000 26,025,000 - ----------------------------------------------------------------- UTILITIES (MISCELLANEOUS)-0.17% MCN Corp.-$2.013 Conv. Pfd. PRIDES 200,000 5,500,000 - ----------------------------------------------------------------- Total Convertible Preferred Stocks 208,860,000 - -----------------------------------------------------------------
PRINCIPAL AMOUNT U. S. TREASURY NOTES-4.52% 5.375%, 11/30/97 $ 12,000,000 $ 11,981,400 - ----------------------------------------------------------------- 5.25%, 12/31/97 12,000,000 11,961,960 - ----------------------------------------------------------------- 5.00%, 01/31/98 12,000,000 11,915,400 - ----------------------------------------------------------------- 5.125%, 02/28/98 12,000,000 11,925,360 - ----------------------------------------------------------------- 6.125%, 03/31/98 12,000,000 12,084,240 - ----------------------------------------------------------------- 5.875%, 04/30/98 12,000,000 12,043,200 - ----------------------------------------------------------------- 6.00%, 05/31/98 12,000,000 12,061,680 - ----------------------------------------------------------------- 6.25%, 06/30/98 12,000,000(d) 12,110,160 - ----------------------------------------------------------------- 6.25%, 07/31/98 12,000,000(d) 12,110,880 - ----------------------------------------------------------------- 6.125%, 08/31/98 12,000,000 12,085,200 - ----------------------------------------------------------------- 6.00%, 09/30/98 12,000,000(d) 12,060,600 - ----------------------------------------------------------------- 5.875%, 10/31/98 12,000,000 12,030,120 - ----------------------------------------------------------------- Total U. S. Treasury Notes 144,370,200 - ----------------------------------------------------------------- TOTAL INVESTMENTS-99.60% 3,179,656,606 - ----------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-0.40% 12,814,809 - ----------------------------------------------------------------- NET ASSETS-100.00% $ 3,192,471,415 =================================================================
Abbreviations: ADR - American Depository Receipt Conv. - Convertible Deb. - Debenture Dep. - Depository Exch. - Exchangeable Jr. - Junior Pfd. - Preferred PRIDES - Preferred Redemption Increase Dividend Equity Security Sr. - Senior Sub. - Subordinated Notes to Schedule of Investments: (a) Non-income producing security. (b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of these securities has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of these securities at October 31, 1996 was $201,996,351 which represented 6.33% of net assets. (c) Zero coupon bond. The interest rate shown represents the rate of the original issue discount. (d) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contracts. See Note 7. See Notes to Financial Statements. FS-21 113 Financials STATEMENT OF ASSETS AND LIABILITIES October 31, 1996 ASSETS: Investments, at market value (cost $2,723,507,418) $3,179,656,606 - --------------------------------------------------------- Cash 4,227,663 - --------------------------------------------------------- Receivable for: Investments sold 46,357,131 - --------------------------------------------------------- Capital stock sold 10,899,789 - --------------------------------------------------------- Dividends and interest 9,846,941 - --------------------------------------------------------- Variation margin 425,000 - --------------------------------------------------------- Investment for deferred compensation plan 30,282 - --------------------------------------------------------- Other assets 60,778 - --------------------------------------------------------- Total assets 3,251,504,190 - --------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 51,431,948 - --------------------------------------------------------- Capital stock reacquired 3,913,155 - --------------------------------------------------------- Deferred compensation 30,282 - --------------------------------------------------------- Accrued advisory fees 1,684,854 - --------------------------------------------------------- Accrued administrative services fees 12,855 - --------------------------------------------------------- Accrued distribution fees 1,104,528 - --------------------------------------------------------- Accrued transfer agent fees 571,997 - --------------------------------------------------------- Accrued operating expenses 283,156 - --------------------------------------------------------- Total liabilities 59,032,775 - --------------------------------------------------------- Net assets applicable to shares outstanding $3,192,471,415 ========================================================= NET ASSETS: Class A $2,647,207,658 ========================================================= Class B $ 515,672,339 ========================================================= Institutional Class $ 29,591,418 ========================================================= CAPITAL STOCK, $.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 236,469,378 ========================================================= Class B: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 46,136,132 ========================================================= Institutional Class: Authorized 200,000,000 - --------------------------------------------------------- Outstanding 2,633,153 ========================================================= Class A: Net asset value and redemption price per share $ 11.19 ========================================================= Offering price per share: (Net asset value of $11.19 divided by 94.50%) $ 11.84 ========================================================= Class B: Net asset value and offering price per share $ 11.18 ========================================================= Institutional Class: Net asset value, offering and redemption price per share $ 11.24 =========================================================
STATEMENT OF OPERATIONS For the year ended October 31, 1996 INVESTMENT INCOME: Dividends (net of $226,295 foreign withholding tax) $ 51,362,438 - -------------------------------------------------------- Interest 25,650,354 - -------------------------------------------------------- Total investment income 77,012,792 - -------------------------------------------------------- EXPENSES: Advisory fees 16,686,866 - -------------------------------------------------------- Administrative services fees 114,489 - -------------------------------------------------------- Custodian fees 228,479 - -------------------------------------------------------- Directors' fees 23,489 - -------------------------------------------------------- Distribution fees-Class A 6,952,782 - -------------------------------------------------------- Distribution fees-Class B 2,831,042 - -------------------------------------------------------- Transfer agent fees-Class A 3,479,192 - -------------------------------------------------------- Transfer agent fees-Class B 755,257 - -------------------------------------------------------- Transfer agent fees-Institutional Class 2,105 - -------------------------------------------------------- Other 735,932 - -------------------------------------------------------- Total expenses 31,809,633 - -------------------------------------------------------- Less fees waived by advisor (156,975) - -------------------------------------------------------- Expenses paid indirectly (40,776) - -------------------------------------------------------- Net expenses 31,611,882 - -------------------------------------------------------- Net investment income 45,400,910 - -------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS: Net realized gain (loss) on sales of: Investment securities 187,783,804 - -------------------------------------------------------- Foreign currencies 108,458 - -------------------------------------------------------- Futures contracts (153,728) - -------------------------------------------------------- 187,738,534 - -------------------------------------------------------- UNREALIZED APPRECIATION (DEPRECIATION) OF: Investment securities 171,825,605 - -------------------------------------------------------- Foreign currencies 1,822 - -------------------------------------------------------- Futures contracts (51,980) - -------------------------------------------------------- 171,775,447 - -------------------------------------------------------- Net gain on investment securities, foreign currencies and futures contracts 359,513,981 - -------------------------------------------------------- Net increase in net assets resulting from operations $404,914,891 ========================================================
See Notes to Financial Statements. FS-22 114 Financials STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1996 and 1995
1996 1995 OPERATIONS: Net investment income $ 45,400,910 $ 26,980,252 - ------------------------------------------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities, foreign currencies and futures contracts 187,738,534 179,125,169 - ------------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investment securities, foreign currencies and futures contracts 171,775,447 200,981,202 - ------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 404,914,891 407,086,623 - ------------------------------------------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income: Class A (34,698,850) (34,589,802) - ------------------------------------------------------------------------------------------------------------------------------- Class B (2,262,959) (55,355) - ------------------------------------------------------------------------------------------------------------------------------- Institutional Class (506,177) (536,096) - ------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains on investments: Class A (170,497,932) (57,274,888) - ------------------------------------------------------------------------------------------------------------------------------- Class B (8,672,692) (12,593) - ------------------------------------------------------------------------------------------------------------------------------- Institutional Class (2,168,635) (759,222) - ------------------------------------------------------------------------------------------------------------------------------- Net equalization credits (charges): Class A 511,762 (284,916) - ------------------------------------------------------------------------------------------------------------------------------- Class B 219,669 24,584 - ------------------------------------------------------------------------------------------------------------------------------- Institutional Class 1,194 (13,270) - ------------------------------------------------------------------------------------------------------------------------------- Share transactions-net: Class A 518,654,491 86,486,354 - ------------------------------------------------------------------------------------------------------------------------------- Class B 417,063,105 66,768,426 - ------------------------------------------------------------------------------------------------------------------------------- Institutional Class 2,366,710 (206,795) - ------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets 1,124,924,577 466,633,050 - ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 2,067,546,838 1,600,913,788 - ------------------------------------------------------------------------------------------------------------------------------- End of period $3,192,471,415 $2,067,546,838 =============================================================================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $2,544,742,646 $1,606,658,340 - ------------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income 8,877,492 102,563 - ------------------------------------------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities, foreign currencies and futures contracts 182,752,246 176,462,351 - ------------------------------------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities and futures contracts 456,099,031 284,323,584 - ------------------------------------------------------------------------------------------------------------------------------- $3,192,471,415 $2,067,546,838 ===============================================================================================================================
See Notes to Financial Statements. FS-23 115 Financials NOTES TO FINANCIAL STATEMENTS October 31, 1996 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 operating diversified 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 three different classes of shares: Class A shares, Class B shares and the Institutional Class. 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 following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. 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. A. Security Valuations-Except as provided in the next sentence, a security listed or traded on an exchange 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. Exchange listed convertible bonds are valued at the mean between the closing bid and asked prices obtained from a broker-dealer. 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 that are issued or guaranteed by the U.S. Treasury 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 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, 1996 $109,380 was reclassified from undistributed net realized gains to undistributed net investment income as a result of differing book/tax treatment of foreign currency transactions. Net assets of the Fund were unaffected as a result of this reclassification. 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-Operating expenses directly attributable to a class of shares are charged to that class' operations. Expenses which are applicable to all classes, e.g. advisory fees, are allocated among them. E. Equalization-The Fund follows 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. F. Foreign Currency Translations-Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. FS-24 116 Financials 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. G. Foreign Currency Contracts-A forward 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 forward 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. H. Stock Index Futures Contracts-The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being 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 approval of Board of Directors would be necessary before AIM can discontinue this waiver. During the year ended October 31, 1996, AIM waived fees of $156,975. 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, 1996, AIM was reimbursed $114,489 for such services. The Fund, pursuant to a transfer agency and services agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing transfer agency services to the Class A and Class B shares. During the year ended October 31, 1996, AFS was paid $2,264,602 for such services. During the year ended October 31, 1996, the Fund paid A I M Institutional Fund Services, Inc. ("AIFS") $2,105 for shareholder and transfer agency services with respect to the Institutional Class. The Fund received reductions in transfer agency fees of $37,315 from dividends received on balances in cash management bank accounts. In addition, the Fund incurred expenses of $3,461 for pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction in the Fund's total expenses of $40,776 during the year ended October 31, 1996. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A and Class B shares and a master distribution agreement with Fund Management Company ("FMC") to serve as the distributor for the Institutional Class. The Company has adopted Plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares (the "Class A Plan") and with respect to the Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A Plan, pays AIM Distributors compensation at the annual rate of 0.30% of the average daily net assets attributable to the Class A shares. The Class A Plan is designed to compensate AIM Distributors for certain promotional and other sales related costs and provides periodic payments to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class A shares of the Fund. 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 attributable to the Class B shares. Of this amount, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class B shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class B shares of the Fund. Any amounts not paid as a service fee under such 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. AIM Distributors may, from time to time, assign, transfer or pledge to one or more designees, its rights to all or a designed portion of (a) compensation received by AIM Distributors from the Fund pursuant to the Class B Plan (but not AIM Distributors' duties and obligations pursuant to the Class B Plan), and (b) any contingent deferred sales charges received by AIM FS-25 117 Financials Distributors related to the Class B shares. During the year ended October 31, 1996, the Class A and Class B shares paid AIM Distributors $6,952,782 and $2,831,042, respectively, as compensation under the Plans. AIM Distributors received commissions of $2,705,618 from sales of shares of the Class A shares of the Fund during the year ended October 31, 1996. 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, 1996, AIM Distributors received commissions of $32,497 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, AIFS and FMC. During the year ended October 31, 1996, the Fund paid legal fees of $8,908 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-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 4-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) $325,000,000 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 July 19, 1996, the Fund was limited to borrowing $28,500,000. During the year ended October 31, 1996, 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 0.08% 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 5-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, 1996 was $5,045,277,974 and $4,249,301,619, respectively. The amount of unrealized appreciation (depreciation) of investment securities as of October 31, 1996, on a tax basis, is as follows: Aggregate unrealized appreciation of investment securities $479,518,418 - ------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (24,739,986) - ------------------------------------------------------------ Net unrealized appreciation of investment securities $454,778,432 ============================================================ Cost of investments for tax purposes is $2,724,878,174.
NOTE 6-CAPITAL STOCK Changes in the capital stock outstanding for the years ended October 31, 1996 and 1995 were as follows:
1996 1995 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------- ----------- ------------- Sold - --------------------------------------------------------------------------------------------------------------------------------- Class A 71,824,128 $752,853,277 40,727,782 $396,439,839 - --------------------------------------------------------------------------------------------------------------------------------- Class B* 41,436,800 435,348,846 6,409,868 67,237,422 - --------------------------------------------------------------------------------------------------------------------------------- Institutional Class 448,911 4,759,971 335,121 3,269,772 - --------------------------------------------------------------------------------------------------------------------------------- Issued as reinvestment of dividends: - --------------------------------------------------------------------------------------------------------------------------------- Class A 19,521,139 192,994,968 10,283,705 77,653,310 - --------------------------------------------------------------------------------------------------------------------------------- Class B* 1,039,513 10,333,913 5,996 64,162 - --------------------------------------------------------------------------------------------------------------------------------- Institutional Class 252,209 2,504,537 134,103 1,130,381 - --------------------------------------------------------------------------------------------------------------------------------- Reacquired: Class A (40,679,494) (427,193,754) (42,561,203) (387,606,795) - --------------------------------------------------------------------------------------------------------------------------------- Class B* (2,705,793) (28,619,654) (50,252) (533,158) - --------------------------------------------------------------------------------------------------------------------------------- Institutional Class (464,310) (4,897,798) (519,822) (4,606,948) - --------------------------------------------------------------------------------------------------------------------------------- 90,673,103 $938,084,306 14,765,298 $153,047,985 =================================================================================================================================
* Class B shares commenced sales on June 26, 1995. NOTE 7-FUTURES CONTRACT On October 31, 1996, $1,738,000 par value U.S. Treasury obligations were pledged as collateral to cover margin requirements for futures contracts. Futures contracts outstanding at October 31, 1996: (Contracts--$500 times index/delivery month/commitment)
UNREALIZED APPRECIATION (DEPRECIATION) -------------- S&P 500 Index/125 contracts/March 97/Buy $(51,980) =================================================================================================================================
FS-26 118 Financials NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a Class A share outstanding during each of the years in the ten-year period ended October 31, 1996 and for a Class B share outstanding during the year ended October 31, 1996 and the period June 26, 1995 (date sales commenced) through October 31, 1995.
CLASS A: 1996 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- -------- Net asset value, beginning of period $ 10.63 $ 8.90 $ 9.46 $ 8.36 $ 8.42 $ 6.55 - -------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- Income from investment operations: Net investment income 0.19 0.15 0.21 0.17 0.18 0.18 - -------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- Net gains (losses) on securities (both realized and unrealized) 1.43 2.11 (0.45) 1.22 0.16 2.15 - -------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- Total from investment operations 1.62 2.26 (0.24) 1.39 0.34 2.33 - -------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- Less distributions: Dividends from net investment income (0.16) (0.20) (0.16) (0.29) (0.17) (0.15) - -------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- Distributions from capital gains (0.90) (0.33) (0.16) -- (0.23) (0.31) - -------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- Total distributions (1.06) (0.53) (0.32) (0.29) (0.40) (0.46) - -------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- Net asset value, end of period $ 11.19 $ 10.63 $ 8.90 $ 9.46 $ 8.36 $ 8.42 ====================================== ========== ========== ========== ========== ========== ======== Total return(a) 16.70% 27.03% (2.55)% 16.92% 4.17% 37.65% ====================================== ========== ========== ========== ========== ========== ======== Ratios/supplemental data: Net assets, end of period (000s omitted) $2,647,208 $1,974,417 $1,579,074 $1,690,482 $1,256,151 $443,546 ====================================== ========== ========== ========== ========== ========== ======== Ratio of expenses to average net assets 1.12%(b)(c) 1.17% 1.17% 1.17% 1.17% 1.29% ====================================== ========== ========== ========== ========== ========== ======== Ratio of net investment income to average net assets 1.81%(b) 1.55% 2.32% 1.89% 2.14% 2.14% ====================================== ========== ========== ========== ========== ========== ======== Portfolio turnover rate 164% 161% 126% 144% 95% 144% ====================================== ========== ========== ========== ========== ========== ======== Average broker commission rate(d) $ 0.0638 N/A N/A N/A N/A N/A ====================================== ========== ========== ========== ========== ========== ======== 1990 1989 1988 1987 -------- ------- ------- ------- < Net asset value, beginning of period $ 6.97 $ 5.40 $ 6.61 $ 8.18 - -------------------------------------- -------- ------- ------- ------- Income from investment operations: Net investment income 0.18 0.21 0.15 0.09 - -------------------------------------- -------- ------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 0.08 1.55 0.16 0.35 - -------------------------------------- -------- ------- ------- ------- Total from investment operations 0.26 1.76 0.31 0.44 - -------------------------------------- -------- ------- ------- ------- Less distributions: Dividends from net investment income (0.26) (0.19) (0.12) (0.14) - -------------------------------------- -------- ------- ------- ------- Distributions from capital gains (0.42) -- (1.40) (1.87) - -------------------------------------- -------- ------- ------- ------- Total distributions (0.68) (0.19) (1.52) (2.01) - -------------------------------------- -------- ------- ------- ------- Net asset value, end of period $ 6.55 $ 6.97 $ 5.40 $ 6.61 ====================================== ======== ======= ======= ======= Total return(a) 3.86% 33.68% 5.90% 6.72% ====================================== ======== ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $102,499 $70,997 $65,799 $82,756 ====================================== ======== ======= ======= ======= Ratio of expenses to average net assets 1.35% 1.35% 1.46% 1.15% ====================================== ======== ======= ======= ======= Ratio of net investment income to average net assets 2.51% 3.73% 2.83% 1.57% ====================================== ======== ======= ======= ======= Portfolio turnover rate 215% 131% 247% 225% ====================================== ======== ======= ======= ======= Average broker commission rate(d) N/A N/A N/A N/A ====================================== ======== ======= ======= =======
(a) Does not deduct sales charges. (b) Ratios are based on average net assets of $2,317,594,098. (c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratios of expenses to average net assets would have remained the same. (d) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996.
CLASS B: 1996 1995 ---------- ------- Net asset value, beginning of period $ 10.62 $ 9.81 - ---------------------------------------------------------------------------------------- -------- ------- Income from investment operations: Net investment income 0.10 0.03 - ---------------------------------------------------------------------------------------- -------- ------- Net gains (losses) on securities (both realized and unrealized) 1.45 0.80 - ---------------------------------------------------------------------------------------- -------- ------- Total from investment operations 1.55 0.83 - ---------------------------------------------------------------------------------------- -------- ------- Less distributions: Dividends from net investment income (0.09) (0.02) - ---------------------------------------------------------------------------------------- -------- ------- Distributions from capital gains (0.90) -- - ---------------------------------------------------------------------------------------- -------- ------- Total distributions (0.99) (0.02) - ---------------------------------------------------------------------------------------- -------- ------- Net asset value, end of period $ 11.18 $ 10.62 ======================================================================================== ======== ======= Total return(a) 15.90% 8.48% ======================================================================================== ======== ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $515,672 $67,592 ======================================================================================== ======== ======= Ratio of expenses to average net assets 1.94%(b)(c) 1.98%(d) ======================================================================================== ======== ======= Ratio of net investment income to average net assets 0.99%(b) 0.74%(d) ======================================================================================== ======== ======= Portfolio turnover rate 164% 161% ======================================================================================== ======== ======= Average broker commission rate(e) $ 0.0638 N/A ======================================================================================== ======== =======
(a) Total returns do not deduct contingent deferred sales charge and are not annualized for periods less than one year. (b) Ratios are based on average net assets of $283,104,175. (c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratios of expenses to average net assets would have remained the same. (d) Annualized. (e) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. NOTE 9-SUBSEQUENT EVENT On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO PLC announced the execution of an Agreement and Plan of Merger pursuant to which AIM Management will be merged with and into a direct wholly-owned subsidiary of INVESCO PLC. AIM Management is the parent company of the fund's advisor. The merger is conditional on, among other things, approval by the shareholders of INVESCO PLC and AIM Management and the shareholders of the AIM Funds and the mutual funds managed by INVESCO PLC, and is expected to take place during the first quarter of 1997. FS-27 119 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Weingarten Fund: 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, 1996, 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 eight year period then ended, the ten months ended October 31, 1988, and the year ended December 31, 1987. 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, 1996, 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, 1996, 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 eight year period then ended, the ten months ended October 31, 1988, and the year ended December 31, 1987, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Houston, Texas December 6, 1996 FS-28 120 SCHEDULE OF INVESTMENTS October 31, 1996
MARKET SHARES VALUE DOMESTIC COMMON STOCKS-87.88% ADVERTISING/BROADCASTING-0.50% Interpublic Group of Companies, Inc. 550,000 $ 26,675,000 - ---------------------------------------------------------------- AEROSPACE/DEFENSE-1.24% Boeing Co. (The) 275,000 26,228,125 - ---------------------------------------------------------------- Gulfstream Aerospace Corp.(a) 850,000 20,081,250 - ---------------------------------------------------------------- United Technologies Corp. 150,000 19,312,500 - ---------------------------------------------------------------- 65,621,875 - ---------------------------------------------------------------- AUTOMOBILE (MANUFACTURERS)-0.28% Chrysler Corp. 450,000 15,131,250 - ---------------------------------------------------------------- BANKING-0.79% Chase Manhattan Corp. 200,000 17,150,000 - ---------------------------------------------------------------- Citicorp 250,000 24,750,000 - ---------------------------------------------------------------- 41,900,000 - ---------------------------------------------------------------- BEVERAGES-0.42% PepsiCo Inc. 750,000 22,218,750 - ---------------------------------------------------------------- BIOTECHNOLOGY-1.09% AMGEN Inc.(a) 250,000 15,328,125 - ---------------------------------------------------------------- Guidant Corp. 920,600 42,462,675 - ---------------------------------------------------------------- 57,790,800 - ---------------------------------------------------------------- BUILDING MATERIALS-0.49% Georgia-Pacific Corp. 350,000 26,250,000 - ---------------------------------------------------------------- BUSINESS SERVICES-2.08% AccuStaff, Inc.(a) 511,000 13,669,250 - ---------------------------------------------------------------- CUC International Inc.(a) 750,000 18,375,000 - ---------------------------------------------------------------- Diebold, Inc. 343,100 19,728,250 - ---------------------------------------------------------------- Equifax Inc. 700,000 20,825,000 - ---------------------------------------------------------------- Healthcare COMPARE Corp.(a) 525,000 23,100,000 - ---------------------------------------------------------------- Interim Services Inc.(a) 58,500 2,340,000 - ---------------------------------------------------------------- Olsten Corp. 619,800 12,396,000 - ---------------------------------------------------------------- 110,433,500 - ---------------------------------------------------------------- CHEMICALS (SPECIALTY)-0.33% Morton International, Inc. 450,000 17,718,750 - ---------------------------------------------------------------- COMPUTER MINI/PCS-2.89% COMPAQ Computer Corp.(a) 550,000 38,293,750 - ---------------------------------------------------------------- Dell Computer Corp.(a) 395,100 32,151,263 - ---------------------------------------------------------------- Gateway 2000 Inc.(a) 850,000 40,003,125 - ---------------------------------------------------------------- Sun Microsystems Inc.(a) 700,000 42,700,000 - ---------------------------------------------------------------- 153,148,138 - ---------------------------------------------------------------- COMPUTER NETWORKING-4.44% Ascend Communications, Inc.(a) 350,000 22,881,250 - ---------------------------------------------------------------- Cabletron Systems, Inc.(a) 650,000 40,543,750 - ---------------------------------------------------------------- Cascade Communications Corp.(a) 550,000 39,943,750 - ---------------------------------------------------------------- Cisco Systems, Inc.(a) 925,000 57,234,375 - ---------------------------------------------------------------- FORE Systems, Inc.(a) 525,000 20,868,750 - ---------------------------------------------------------------- MARKET SHARES VALUE COMPUTER NETWORKING-(CONTINUED) 3Com Corp.(a) 800,000 $ 54,100,000 - ---------------------------------------------------------------- 235,571,875 - ---------------------------------------------------------------- COMPUTER PERIPHERALS-0.88% Storage Technology Corp.(a) 1,091,500 46,525,188 - ---------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-8.86% BMC Software, Inc.(a) 500,000 41,500,000 - ---------------------------------------------------------------- Cadence Design Systems, Inc.(a) 829,000 30,258,500 - ---------------------------------------------------------------- Ceridian Corp.(a) 400,000 19,850,000 - ---------------------------------------------------------------- Computer Associates International, Inc. 675,000 39,909,375 - ---------------------------------------------------------------- Computer Sciences Corp.(a) 214,400 15,919,200 - ---------------------------------------------------------------- Compuware Corp.(a) 700,000 36,925,000 - ---------------------------------------------------------------- Electronic Data Systems Corp. 1,000,000 45,000,000 - ---------------------------------------------------------------- Electronics For Imaging, Inc.(a) 31,800 2,289,600 - ---------------------------------------------------------------- First Data Corp. 250,000 19,937,500 - ---------------------------------------------------------------- Fiserv, Inc.(a) 850,000 32,618,750 - ---------------------------------------------------------------- HBO & Co. 600,000 36,075,000 - ---------------------------------------------------------------- Microsoft Corp.(a) 200,000 27,450,000 - ---------------------------------------------------------------- Oracle Corp.(a) 450,000 19,040,625 - ---------------------------------------------------------------- Parametric Technology Co.(a) 554,800 27,115,850 - ---------------------------------------------------------------- Sterling Commerce, Inc.(a) 750,000 21,093,750 - ---------------------------------------------------------------- Synopsys, Inc.(a) 342,700 15,421,500 - ---------------------------------------------------------------- Wallace Computer Services, Inc. 1,350,000 39,656,250 - ---------------------------------------------------------------- 470,060,900 - ---------------------------------------------------------------- CONGLOMERATES-2.88% AlliedSignal Inc. 300,000 19,650,000 - ---------------------------------------------------------------- Loews Corp. 750,000 61,968,750 - ---------------------------------------------------------------- Textron Inc. 160,000 14,200,000 - ---------------------------------------------------------------- Tyco International Ltd. 875,000 43,421,875 - ---------------------------------------------------------------- U.S. Industries Inc.(a) 500,000 13,500,000 - ---------------------------------------------------------------- 152,740,625 - ---------------------------------------------------------------- CONTAINERS-0.31% Sealed Air Corp.(a) 425,000 16,521,875 - ---------------------------------------------------------------- COSMETICS & TOILETRIES-1.00% Avon Products, Inc. 375,000 20,343,750 - ---------------------------------------------------------------- Gillette Co. (The) 237,100 17,723,225 - ---------------------------------------------------------------- Procter & Gamble Co. 150,000 14,850,000 - ---------------------------------------------------------------- 52,916,975 - ---------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-1.21% Amphenol Corp.(a) 95,000 1,888,125 - ---------------------------------------------------------------- Checkpoint Systems, Inc.(a) 1,500,000 33,562,500 - ---------------------------------------------------------------- Thermo Instrument Systems, Inc.(a) 450,000 13,612,500 - ---------------------------------------------------------------- Waters Corp.(a) 487,300 15,106,300 - ---------------------------------------------------------------- 64,169,425 - ---------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-1.59% Bear Stearns Companies Inc. 535,720 12,656,385 - ---------------------------------------------------------------- Charles Schwab Corp. 342,100 8,552,500 - ----------------------------------------------------------------
FS-29 121
MARKET SHARES VALUE FINANCE (ASSET MANAGEMENT)-(CONTINUED) Franklin Resources, Inc. 271,000 $ 19,105,500 - ---------------------------------------------------------------- PaineWebber Group Inc. 850,000 19,975,000 - ---------------------------------------------------------------- Price (T. Rowe) Associates 248,800 8,490,300 - ---------------------------------------------------------------- Salomon Inc. 350,000 15,793,750 - ---------------------------------------------------------------- 84,573,435 - ---------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-5.20% Beneficial Corp. 250,000 14,625,000 - ---------------------------------------------------------------- Federal Home Loan Mortgage Corp. 508,200 51,328,200 - ---------------------------------------------------------------- Federal National Mortgage Association 1,358,600 53,155,225 - ---------------------------------------------------------------- Finova Group, Inc. 250,000 15,437,500 - ---------------------------------------------------------------- Green Tree Financial Corp. 608,900 24,127,663 - ---------------------------------------------------------------- Household International, Inc. 175,000 15,487,500 - ---------------------------------------------------------------- Student Loan Marketing Association 1,000,000 82,750,000 - ---------------------------------------------------------------- SunAmerica, Inc. 500,000 18,750,000 - ---------------------------------------------------------------- 275,661,088 - ---------------------------------------------------------------- FOOD/PROCESSING-1.60% ConAgra, Inc. 407,700 20,334,038 - ---------------------------------------------------------------- Dean Foods Co. 725,000 21,025,000 - ---------------------------------------------------------------- Lancaster Colony Corp. 394,233 14,783,738 - ---------------------------------------------------------------- Sysco Corp. 850,000 28,900,000 - ---------------------------------------------------------------- 85,042,776 - ---------------------------------------------------------------- FUNERAL SERVICES-0.32% Service Corp. International 600,000 17,100,000 - ---------------------------------------------------------------- GAMING-0.34% International Game Technology 850,000 17,956,250 - ---------------------------------------------------------------- HOTELS/MOTELS-1.17% Hilton Hotels Corp. 660,000 20,047,500 - ---------------------------------------------------------------- Host Marriott Corp.(a) 1,800,000 27,675,000 - ---------------------------------------------------------------- Marriott International, Inc. 250,000 14,218,750 - ---------------------------------------------------------------- 61,941,250 - ---------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-1.66% Conseco, Inc. 1,100,000 58,850,000 - ---------------------------------------------------------------- Equitable Companies, Inc. 700,000 16,450,000 - ---------------------------------------------------------------- Provident Companies, Inc. 350,000 12,993,750 - ---------------------------------------------------------------- 88,293,750 - ---------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-4.90% Allstate Corp. 451,300 25,329,213 - ---------------------------------------------------------------- American International Group, Inc. 225,000 24,440,625 - ---------------------------------------------------------------- CIGNA Corp. 325,000 42,412,500 - ---------------------------------------------------------------- Everest Re Holdings, Inc. 912,000 23,256,000 - ---------------------------------------------------------------- ITT Hartford Group, Inc. 325,000 20,475,000 - ---------------------------------------------------------------- MGIC Investment Corp. 310,700 21,321,788 - ---------------------------------------------------------------- Old Republic International Corp. 383,700 9,496,575 - ---------------------------------------------------------------- PMI Group, Inc. (The) 706,100 40,335,963 - ---------------------------------------------------------------- TIG Holdings, Inc. 332,000 9,586,500 - ---------------------------------------------------------------- Travelers Group, Inc. 800,000 43,400,000 - ---------------------------------------------------------------- 260,054,164 - ---------------------------------------------------------------- MARKET SHARES VALUE LEISURE & RECREATION-1.16% Carnival Corporation-Class A 850,000 $ 25,606,250 - ---------------------------------------------------------------- Coleman Co., Inc. (The)(a) 405,300 5,370,225 - ---------------------------------------------------------------- Eastman Kodak Co. 130,300 10,391,425 - ---------------------------------------------------------------- Harley-Davidson, Inc. 450,000 20,306,250 - ---------------------------------------------------------------- 61,674,150 - ---------------------------------------------------------------- MACHINERY (MISCELLANEOUS)-0.64% Thermo Electron Corp.(a) 930,000 33,945,000 - ---------------------------------------------------------------- MEDICAL (DRUGS)-5.62% Abbott Laboratories 525,000 26,578,125 - ---------------------------------------------------------------- American Home Products Corp. 400,000 24,500,000 - ---------------------------------------------------------------- AmeriSource Health Corp.(a) 380,000 16,102,500 - ---------------------------------------------------------------- Bristol-Myers Squibb Co. 325,000 34,368,750 - ---------------------------------------------------------------- Cardinal Health, Inc. 175,000 13,737,500 - ---------------------------------------------------------------- Express Scripts, Inc.-Class A(a) 300,000 8,737,500 - ---------------------------------------------------------------- ICN Pharmaceuticals, Inc. 1,150,000 21,850,000 - ---------------------------------------------------------------- Merck & Co., Inc. 600,000 44,475,000 - ---------------------------------------------------------------- Pharmacia & Upjohn, Inc. 450,000 16,200,000 - ---------------------------------------------------------------- Rhone-Poulenc Rorer, Inc. 554,900 37,247,663 - ---------------------------------------------------------------- Schering-Plough Corp. 608,100 38,918,400 - ---------------------------------------------------------------- Watson Pharmaceuticals, Inc.(a) 461,200 15,392,550 - ---------------------------------------------------------------- 298,107,988 - ---------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-3.60% Columbia/HCA Healthcare Corp. 1,050,000 37,537,500 - ---------------------------------------------------------------- Health Care and Retirement Corp.(a) 222,350 5,475,369 - ---------------------------------------------------------------- HEALTHSOUTH Corp.(a) 1,100,000 41,250,000 - ---------------------------------------------------------------- Living Centers of America, Inc.(a) 256,000 5,984,000 - ---------------------------------------------------------------- MedPartners, Inc.(a) 2,110,000 44,573,750 - ---------------------------------------------------------------- Oxford Health Plans, Inc.(a) 300,000 13,650,000 - ---------------------------------------------------------------- Quorum Health Group, Inc.(a) 750,000 20,250,000 - ---------------------------------------------------------------- Tenet Healthcare Corp.(a) 1,072,900 22,396,788 - ---------------------------------------------------------------- 191,117,407 - ---------------------------------------------------------------- MEDICAL INSTRUMENTS/PRODUCTS-3.53% Baxter International Inc. 550,000 22,893,750 - ---------------------------------------------------------------- Becton, Dickinson & Co. 650,000 28,275,000 - ---------------------------------------------------------------- Boston Scientific Corp.(a) 250,077 13,597,937 - ---------------------------------------------------------------- Medtronic, Inc. 500,000 32,187,500 - ---------------------------------------------------------------- St. Jude Medical, Inc. 446,700 17,644,650 - ---------------------------------------------------------------- Stryker Corp 750,000 22,312,500 - ---------------------------------------------------------------- Sybron International Corp.(a) 1,050,000 30,581,250 - ---------------------------------------------------------------- U.S. Surgical Corp. 478,500 20,037,188 - ---------------------------------------------------------------- 187,529,775 - ---------------------------------------------------------------- NATURAL GAS PIPELINE-0.66% Columbia Gas System, Inc. 362,000 21,991,500 - ---------------------------------------------------------------- Williams Cos., Inc (The) 250,000 13,062,500 - ---------------------------------------------------------------- 35,054,000 - ---------------------------------------------------------------- OFFICE AUTOMATION-0.04% Xerox Corp. 49,100 2,277,013 - ---------------------------------------------------------------- OFFICE PRODUCTS-0.78% Avery Dennison Corp. 225,000 14,821,875 - ----------------------------------------------------------------
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MARKET SHARES VALUE OFFICE PRODUCTS-(CONTINUED) Reynolds & Reynolds Co.-Class A 1,000,000 $ 26,375,000 - ---------------------------------------------------------------- 41,196,875 - ---------------------------------------------------------------- OIL & GAS (SERVICES)-2.00% Louisiana Land & Exploration Co. 374,900 21,322,438 - ---------------------------------------------------------------- NorAm Energy Corp. 2,000,000 30,750,000 - ---------------------------------------------------------------- Reading & Bates Corp.(a) 775,000 22,281,250 - ---------------------------------------------------------------- Transocean Offshore Inc. 505,800 31,991,850 - ---------------------------------------------------------------- 106,345,538 - ---------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-2.58% Baker Hughes Inc. 600,000 21,375,000 - ---------------------------------------------------------------- Coastal Corp. 295,000 12,685,000 - ---------------------------------------------------------------- Cooper Cameron Corp.(a) 95,300 6,087,288 - ---------------------------------------------------------------- Dresser Industries, Inc. 450,000 14,793,750 - ---------------------------------------------------------------- Halliburton Co. 400,000 22,650,000 - ---------------------------------------------------------------- Rowan Companies, Inc.(a) 1,200,000 26,850,000 - ---------------------------------------------------------------- Schlumberger Ltd. 150,000 14,868,750 - ---------------------------------------------------------------- Tidewater Inc. 400,000 17,500,000 - ---------------------------------------------------------------- 136,809,788 - ---------------------------------------------------------------- PAPER & FOREST PRODUCTS-0.62% Kimberly-Clark Corp. 350,000 32,637,500 - ---------------------------------------------------------------- PUBLISHING-0.38% New York Times Co. 400,000 14,450,000 - ---------------------------------------------------------------- Times Mirror Co. (The) 122,400 5,661,000 - ---------------------------------------------------------------- 20,111,000 - ---------------------------------------------------------------- RESTAURANTS-0.38% Applebee's International, Inc. 828,000 20,182,500 - ---------------------------------------------------------------- RETAIL (FOOD & DRUG)-1.59% American Stores Co. 925,000 38,271,875 - ---------------------------------------------------------------- Kroger Co.(The)(a) 244,400 10,906,350 - ---------------------------------------------------------------- Safeway Inc.(a) 817,800 35,063,175 - ---------------------------------------------------------------- 84,241,400 - ---------------------------------------------------------------- RETAIL (STORES)-6.84% AutoZone, Inc.(a) 450,000 11,531,250 - ---------------------------------------------------------------- Consolidated Stores Corp.(a) 742,600 28,682,925 - ---------------------------------------------------------------- Dayton-Hudson Corp. 1,033,100 35,771,088 - ---------------------------------------------------------------- Federated Department Stores, Inc.(a) 500,000 16,500,000 - ---------------------------------------------------------------- Gap Inc. (The) 750,000 21,750,000 - ---------------------------------------------------------------- Home Depot, Inc. 550,000 30,112,500 - ---------------------------------------------------------------- Lowe's Companies, Inc. 1,117,200 45,106,950 - ---------------------------------------------------------------- Micro Warehouse, Inc.(a) 97,600 2,244,800 - ---------------------------------------------------------------- Pep Boys-Manny, Moe & Jack 2,200,000 77,000,000 - ---------------------------------------------------------------- Price/Costco Inc.(a) 538,700 10,706,663 - ---------------------------------------------------------------- Staples, Inc.(a) 2,000,025 37,250,466 - ---------------------------------------------------------------- Toys "R" Us, Inc.(a) 1,300,000 44,037,500 - ---------------------------------------------------------------- Viking Office Products Inc.(a) 58,600 1,706,725 - ---------------------------------------------------------------- 362,400,867 - ---------------------------------------------------------------- SEMICONDUCTORS-2.32% Altera Corp.(a) 400,000 24,800,000 - ---------------------------------------------------------------- MARKET SHARES VALUE SEMICONDUCTORS-(CONTINUED) Intel Corp. 750,000 $ 82,406,250 - ---------------------------------------------------------------- Texas Instruments, Inc. 325,000 15,640,625 - ---------------------------------------------------------------- 122,846,875 - ---------------------------------------------------------------- SHOES & RELATED APPAREL-0.55% NIKE, Inc.-Class B 500,000 29,437,500 - ---------------------------------------------------------------- TELECOMMUNICATIONS-4.66% ADC Telecommunications, Inc.(a) 941,000 64,340,875 - ---------------------------------------------------------------- Andrew Corp.(a) 400,000 19,500,000 - ---------------------------------------------------------------- Frontier Corp. 469,300 13,609,700 - ---------------------------------------------------------------- Lucent Technologies, Inc. 1,000,000 47,000,000 - ---------------------------------------------------------------- MFS Communications Company, Inc.(a) 781,600 39,177,700 - ---------------------------------------------------------------- PairGain Technologies, Inc.(a) 275,000 18,940,625 - ---------------------------------------------------------------- Tellabs, Inc.(a) 400,000 34,050,000 - ---------------------------------------------------------------- 360 Communications Co.(a) 463,333 10,482,909 - ---------------------------------------------------------------- 247,101,809 - ---------------------------------------------------------------- TELEPHONE-0.72% Cincinnati Bell, Inc. 775,000 38,265,625 - ---------------------------------------------------------------- TEXTILES-0.54% Fruit of the Loom, Inc.(a) 319,500 11,621,813 - ---------------------------------------------------------------- Liz Claiborne, Inc. 400,000 16,900,000 - ---------------------------------------------------------------- 28,521,813 - ---------------------------------------------------------------- TOBACCO-2.20% Philip Morris Companies, Inc. 575,000 53,259,375 - ---------------------------------------------------------------- RJR Nabisco Holdings Corp. 856,200 24,722,775 - ---------------------------------------------------------------- Universal Corp. 146,700 3,997,575 - ---------------------------------------------------------------- UST, Inc. 1,200,000 34,650,000 - ---------------------------------------------------------------- 116,629,725 - ---------------------------------------------------------------- Total Domestic Common Stocks 4,662,451,787 - ----------------------------------------------------------------
PRINCIPAL AMOUNT CONVERTIBLE CORPORATE BONDS & NOTES-0.56% RESTAURANTS-0.56% Boston Chicken, Inc., Conv. Notes, 8.00%(b), 06/01/15 $ 78,540,000 25,427,325 - ---------------------------------------------------------------- Boston Chicken, Inc., Conv. Sub. Deb., 4.50%, 02/01/04 3,245,000 4,259,063 - ---------------------------------------------------------------- Total Convertible Corporate Bonds & Notes 29,686,388 - ----------------------------------------------------------------
SHARES FOREIGN STOCKS & OTHER EQUITY INTERESTS-10.88% BRAZIL-0.42% Telecomunicacoes Brasileiras S/A-ADR (Telecommunications) 300,000 22,350,000 - ---------------------------------------------------------------- CANADA-1.33% Canadian Pacific, Ltd. (Transportation-Miscellaneous) 650,000 16,412,500 - ---------------------------------------------------------------- Newbridge Networks Corp.(a) (Computer Networking) 1,200,000 37,950,000 - ----------------------------------------------------------------
FS-31 123
MARKET SHARES VALUE CANADA-(CONTINUED) Northern Telecom Ltd. (Telecommunications) 250,000 $ 16,281,250 - ---------------------------------------------------------------- 70,643,750 - ---------------------------------------------------------------- FRANCE-0.25% Roussel-Uclaf (Medical-Drugs) 50,000 13,232,273 - ---------------------------------------------------------------- GERMANY-0.42% Adidas A.G.(Shoes & Related Apparel) 160,900 13,790,821 - ---------------------------------------------------------------- Veba A.G. (Electric Services) 158,000 8,426,875 - ---------------------------------------------------------------- 22,217,696 - ---------------------------------------------------------------- HONG KONG-0.85% HSBC Holdings PLC(a) (Banking) 820,000 16,702,878 - ---------------------------------------------------------------- Sun Hung Kai Properties Ltd. (Real Estate) 2,505,000 28,509,350 - ---------------------------------------------------------------- 45,212,228 - ---------------------------------------------------------------- IRELAND-0.30% Elan Corp. PLC-ADR(a) (Medical-Drugs) 580,000 16,095,000 - ---------------------------------------------------------------- ISRAEL-0.71% ECI Telecommunications Ltd. Designs (Computer Networking) 824,700 16,494,000 - ---------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Medical-Drugs) 500,000 20,937,500 - ---------------------------------------------------------------- 37,431,500 - ---------------------------------------------------------------- ITALY-1.17% Fila Holding S.p.A.-ADR (Retail-Stores) 504,100 36,295,200 - ---------------------------------------------------------------- Telecom Italia Mobile S.p.A. (Telecommunications) 6,000,000 12,371,786 - ---------------------------------------------------------------- Telecom Italia S.p.A. (Telecommunications) 6,000,000 13,415,952 - ---------------------------------------------------------------- 62,082,938 - ---------------------------------------------------------------- JAPAN-1.41% Canon, Inc. (Office Automation) 1,045,000 20,008,783 - ---------------------------------------------------------------- Honda Motor Co. (Automobile-Manufacturers) 608,000 14,525,141 - ---------------------------------------------------------------- Sony Corp. (Electronic Components/Miscellaneous) 321,900 19,310,324 - ---------------------------------------------------------------- TDK Corp. (Electronic Components/Miscellaneous) 356,000 20,886,917 - ---------------------------------------------------------------- 74,731,165 - ---------------------------------------------------------------- MARKET SHARES VALUE MALAYSIA-0.20% Malayan Banking Berhad (Banking) 1,074,000 $ 10,627,350 - ---------------------------------------------------------------- NETHERLANDS-0.33% Gucci Group NV-New York Shares (Textiles) 250,000 17,250,000 - ---------------------------------------------------------------- SWEDEN-1.18% ASTRA AB-A Shares (Medical-Drugs) 340,000 15,615,067 - ---------------------------------------------------------------- Telefonaktiebolaget L.M. Ericsson-ADR (Telecommunications) 1,700,000 46,962,500 - ---------------------------------------------------------------- 62,577,567 - ---------------------------------------------------------------- SWITZERLAND-0.90% Ciba-Geigy AG (Chemicals) 20,000 24,636,075 - ---------------------------------------------------------------- Sandoz AG (Chemicals) 20,000 23,117,088 - ---------------------------------------------------------------- 47,753,163 - ---------------------------------------------------------------- UNITED KINGDOM-1.41% Danka Business Systems PLC-ADR (Office Automation) 376,600 14,922,775 - ---------------------------------------------------------------- Granada Group PLC (Leisure & Recreation) 1,000,000 14,379,882 - ---------------------------------------------------------------- Smithkline Beecham PLC-ADR (Medical-Drugs) 700,000 43,837,500 - ---------------------------------------------------------------- Stolt-Nielsen S.A. (Transportation-Miscellaneous) 121,500 1,898,437 - ---------------------------------------------------------------- 75,038,594 - ---------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests 577,243,224 - ----------------------------------------------------------------
PRINCIPAL AMOUNT REPURCHASE AGREEMENTS-2.44%(C) Daiwa Securities America Inc., 5.53%, 11/01/96(d) $ 326,080 326,080 - ---------------------------------------------------------------- SBC Capital Markets, Inc. 5.55%, 11/01/96(e) 129,000,000 129,000,000 - ---------------------------------------------------------------- Total Repurchase Agreements 129,326,080 - ---------------------------------------------------------------- TOTAL INVESTMENTS-101.76% 5,398,707,479 - ---------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-(1.76)% (93,272,392) - ---------------------------------------------------------------- TOTAL NET ASSETS-100.00% $5,305,435,087 ================================================================
Abbreviations: ADR-American Depository Receipt Notes to Schedule of Investments: (a) Non-income producing security. (b) Zero coupon bond. The interest rate shown represents the rate of the original issue discount. (c) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (d) Joint repurchase agreement entered into on 10/31/96 with maturing value of $750,115,208 Collateralized by $733,115,000 U.S. Treasury obligations, 0% to 10.375% due 11/15/96 to 08/15/23. (e) Joint repurchase agreement entered into on 10/31/96 with maturing value of $700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0% to 9.125% due 11/30/96 to 10/31/01. See Notes to Financial Statements. FS-32 124 STATEMENT OF ASSETS AND LIABILITIES October 31, 1996 ASSETS: Investments, at market value (cost $4,364,479,746) $5,398,707,479 - --------------------------------------------------------- Foreign currencies, at market value (cost $253,890) 253,726 - --------------------------------------------------------- Receivables for: Investments sold 11,950,581 - --------------------------------------------------------- Options written 1,337,955 - --------------------------------------------------------- Capital stock sold 5,563,124 - --------------------------------------------------------- Dividends and interest 3,124,499 - --------------------------------------------------------- Investment for deferred compensation plan 59,575 - --------------------------------------------------------- Other assets 110,155 - --------------------------------------------------------- Total assets 5,421,107,094 - --------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 76,633,560 - --------------------------------------------------------- Options written 25,795,994 - --------------------------------------------------------- Capital stock reacquired 7,180,052 - --------------------------------------------------------- Deferred compensation 59,575 - --------------------------------------------------------- Accrued advisory fees 2,735,952 - --------------------------------------------------------- Accrued administrative service fees 12,099 - --------------------------------------------------------- Accrued distribution fees 1,499,021 - --------------------------------------------------------- Accrued transfer agent fees 878,973 - --------------------------------------------------------- Accrued operating expenses 876,781 - --------------------------------------------------------- Total liabilities 115,672,007 - --------------------------------------------------------- Net assets applicable to shares outstanding $5,305,435,087 ========================================================= NET ASSETS: Class A $4,977,492,845 ========================================================= Class B $ 267,459,433 ========================================================= Institutional Class $ 60,482,809 ========================================================= CAPITAL STOCK, $.001 PAR VALUE PER SHARE: CLASS A: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 246,580,037 ========================================================= CLASS B: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 13,389,126 ========================================================= INSTITUTIONAL CLASS: Authorized 200,000,000 - --------------------------------------------------------- Outstanding 2,955,876 ========================================================= CLASS A: Net asset value and redemption price per share $ 20.19 - --------------------------------------------------------- Offering price per share: (Net asset value of $20.19 divided by 94.50%) $ 21.37 ========================================================= CLASS B: Net asset value and offering price per share $ 19.98 ========================================================= INSTITUTIONAL CLASS: Net asset value, offering and redemption price per share $ 20.46 =========================================================
STATEMENT OF OPERATIONS For the year ended October 31, 1996 INVESTMENT INCOME: Dividends (net of $1,308,115 foreign withholding tax) $ 55,329,053 - --------------------------------------------------------- Interest 15,225,042 - --------------------------------------------------------- Total investment income 70,554,095 - --------------------------------------------------------- EXPENSES: Advisory fees 31,419,183 - --------------------------------------------------------- Administrative service fees 132,643 - --------------------------------------------------------- Custodian fees 402,058 - --------------------------------------------------------- Directors' fees 31,363 - --------------------------------------------------------- Distribution fees-Class A 14,212,254 - --------------------------------------------------------- Distribution fees-Class B 1,514,633 - --------------------------------------------------------- Transfer agent fees-Class A 8,434,506 - --------------------------------------------------------- Transfer agent fees-Class B 452,997 - --------------------------------------------------------- Transfer agent fees-Institutional Class 4,292 - --------------------------------------------------------- Other 1,337,876 - --------------------------------------------------------- Total expenses 57,941,805 - --------------------------------------------------------- Less: Fees waived by advisor (1,458,804) - --------------------------------------------------------- Expenses paid indirectly (76,493) - --------------------------------------------------------- Net expenses 56,406,508 - --------------------------------------------------------- Net investment income 14,147,587 - --------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain (loss) on sales of: Investment securities 593,755,723 - --------------------------------------------------------- Foreign currencies 946,540 - --------------------------------------------------------- Futures contracts (7,874,291) - --------------------------------------------------------- Options contracts 3,720,144 - --------------------------------------------------------- 590,548,116 - --------------------------------------------------------- Net unrealized appreciation (depreciation) of: Investment securities 81,966,541 - --------------------------------------------------------- Foreign currencies 366,935 - --------------------------------------------------------- Options contracts (3,194,922) - --------------------------------------------------------- 79,138,554 - --------------------------------------------------------- Net gain on investment securities, foreign currencies, futures and option contracts 669,686,670 - --------------------------------------------------------- Net increase in net assets resulting from operations $ 683,834,257 =========================================================
See Notes to Financial Statements. FS-33 125 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1996 and 1995
1996 1995 -------------- -------------- OPERATIONS: Net investment income (loss) $ 14,147,587 $ (1,259,456) - --------------------------------------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities, foreign currencies, futures and options contracts 590,548,116 620,641,509 - --------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investment securities, foreign currencies, and options contracts 79,138,554 411,202,260 - --------------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 683,834,257 1,030,584,313 - --------------------------------------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income: Class A -- (14,842,521) - --------------------------------------------------------------------------------------------------------------------------- Institutional Class -- (290,923) - --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains on investment securities: Class A (606,609,217) (387,332,253) - --------------------------------------------------------------------------------------------------------------------------- Class B (7,814,517) -- - --------------------------------------------------------------------------------------------------------------------------- Institutional Class (7,332,667) (4,072,920) - --------------------------------------------------------------------------------------------------------------------------- Net equalization credits: Class A 2,368,957 204,025 - --------------------------------------------------------------------------------------------------------------------------- Class B 992,175 297,921 - --------------------------------------------------------------------------------------------------------------------------- Institutional Class 65,590 71,195 - --------------------------------------------------------------------------------------------------------------------------- Share transactions-net: Class A 362,344,237 (17,628,236) - --------------------------------------------------------------------------------------------------------------------------- Class B 210,825,508 41,458,876 - --------------------------------------------------------------------------------------------------------------------------- Institutional Class 5,462,015 6,504,480 - --------------------------------------------------------------------------------------------------------------------------- Net increase in net assets 644,136,338 654,953,957 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 4,661,298,749 4,006,344,792 - --------------------------------------------------------------------------------------------------------------------------- End of period $5,305,435,087 $4,661,298,749 =========================================================================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $3,649,184,459 $3,070,552,699 - --------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income 44,516,626 25,028,873 - --------------------------------------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities, foreign currencies, futures and options contracts 580,711,311 613,833,040 - --------------------------------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, and option contracts 1,031,022,691 951,884,137 - --------------------------------------------------------------------------------------------------------------------------- $5,305,435,087 $4,661,298,749 ===========================================================================================================================
See Notes to Financial Statements. FS-34 126 NOTES TO FINANCIAL STATEMENTS October 31, 1996 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Weingarten Fund (the "Fund") is a series 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 operating diversified 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 three different classes of shares: the Class A shares, Class B shares and the Institutional Class. Matters affecting each portfolio or class will be voted on exclusively by such shareholders. The assets, liabilities and operations of each portfolio are accounted for separately. The Fund's investment objective is to seek growth of capital principally through investment in common stocks of seasoned and better capitalized companies. Information presented in these financial statements pertains only to the Fund. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. 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. A. Security Valuations--Except as provided in the next sentence, a security listed or traded on an exchange 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. Exchange listed convertible bonds are valued at the mean between the closing bid and asked prices obtained from a broker-dealer. 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. 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. 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 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 contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract 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 contract is closed, the Fund records 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 contract may not correlate with changes in 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 FS-35 127 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. The Fund will not write a covered call option if, immediately thereafter, the aggregate value of the securities underlying all such options, determined as of the dates such options were written, would exceed 25% of the net assets of the Fund. F. 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, 1996 $1,913,444 was reclassified from undistributed net realized gains to undistributed net investment income as a result of differing book/tax treatment of foreign currency transactions. Net assets of the Fund were unaffected as a result of this reclassification. G. 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. H. Expenses--Operating expenses directly attributable to a class of shares are charged to that class' operations. Expenses which are applicable to all classes, eg. advisory fees, are allocated among them. I. Equalization--The Fund follows the accounting practice known as equalization by which a portion of the proceeds from sales and the 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 undistributed net investment income per share is unaffected by sales or redemptions of Fund shares. 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, 1996, AIM waived fees of $1,458,804. 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, 1996, AIM was reimbursed $132,643 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing transfer agency services to the Class A shares and Class B shares. During the year ended October 31, 1996, AFS was reimbursed $4,391,818 for such services. During the year ended October 31, 1996, the Fund, pursuant to a transfer agency and service agreement, paid A I M Institutional Fund Services, Inc. ("AIFS") $4,292 for shareholder and transfer agency services with respect to the Institutional Class. The Fund received reductions in transfer agency fees of $70,737 from dividends received on balances in cash management bank FS-36 128 accounts. In addition, the Fund incurred expenses of $5,756 for pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction in the Fund's total expenses of $76,493 during the year ended October 31, 1996. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A and Class B shares and a master distribution agreement with Fund Management Company ("FMC") to serve as the distributor for the Institutional Class. The Company has adopted Plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares (the "Class A Plan") and with respect to the Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A Plan, pays AIM Distributors compensation at the annual rate of 0.30% of the average daily net assets attributable to the Class A shares. The Class A Plan is designed to compensate AIM Distributors for certain promotional and other sales related costs, and to implement a program which provides periodic payments to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class A shares of the Fund. 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 attributable to the Class B shares. Of this amount, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class B shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class B shares of the Fund. Any amounts not paid as a service fee under such 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. AIM Distributors may, from time to time, assign, transfer or pledge to one or more designees, its rights to all or a designated portion of (a) compensation received by AIM Distributors from the Fund pursuant to the Class B Plan (but not AIM Distributors duties and obligations pursuant to the Class B Plan) and (b) any contingent deferred sales charges received by AIM Distributors related to the Class B shares. During the year ended October 31, 1996, the Class A shares and the Class B shares paid AIM Distributors $14,212,254 and $1,514,633, respectively, as compensation under the Plans. AIM Distributors received commissions of $2,259,328 from sales of shares of the Class A shares of the Fund during the year ended October 31, 1996. 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, 1996, AIM Distributors received commissions of $34,185 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, AIFS and FMC. During the year ended October 31, 1996, the Fund paid legal fees of $14,974 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-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the year ended October 31, 1996 was $7,636,727,517 and $7,477,919,832, respectively. The amount of unrealized appreciation (depreciation) of investment securities on a tax basis as of October 31, 1996 is as follows: Aggregate unrealized appreciation of investment securities $1,085,136,998 - ----------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (61,959,672) - ----------------------------------------------------------- Net unrealized appreciation of investment securities $1,023,177,326 ===========================================================
Cost of investments for tax purposes is $4,375,530,153. 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) $325,000,000 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 July 19, 1996, the Fund was limited to borrowing $68,400,000. During the year ended October 31, 1996, 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 0.08% 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-OPTION CONTRACTS WRITTEN Transactions in call options written during the year ended October 31, 1996 are summarized as follows:
OPTION CONTRACTS --------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ------------ Beginning of year -0- -- - -------------------------------------------------------------- Written 139,095 $ 55,345,942 - -------------------------------------------------------------- Closed (61,183) (25,179,074) - -------------------------------------------------------------- Exercised (16,555) (4,365,829) - -------------------------------------------------------------- Expired (12,549) (3,199,967) - -------------------------------------------------------------- End of year 48,808 $ 22,601,072 - --------------------------------------------------------------
FS-37 129 Open call option contracts written at October 31, 1996 were as follows:
OCTOBER 31, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUM 1996 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) ----- -------- ------ --------- ----------- ------------ -------------- Baxter International Inc. Dec 40 77 $ 22,868 $ 19,250 $ 3,618 Beneficial Corp. Jan 55 1,250 635,605 632,813 2,792 Boston Scientific Corp. Jan 50 2,500 1,824,939 1,625,000 199,939 Cascade Communications Corp. Jan 80 2,750 1,535,823 1,546,875 (11,052) Chase Manhattan Corp. Jan 75 2,000 1,641,945 2,375,000 (733,055) Electronics For Imaging, Inc. Jan 80 318 242,126 174,900 67,226 Federal Home Loan Mortgage Corp. Jan 90 2,332 1,885,359 2,915,000 (1,029,641) Federal National Mortgage Association Dec 30 6,086 3,170,699 5,705,625 (2,534,926) First Data Corp. Dec 85 2,500 554,981 296,875 258,106 HBO & Co. Feb 60 3,000 1,337,955 2,400,000 (1,062,045) HBO & Co. Feb 70 3,000 1,649,987 1,218,750 431,237 PaineWebber Group Inc. Jan 25 8,500 930,718 850,000 80,718 Parametric Technology Co. Dec 50 1,580 622,066 424,625 197,441 Procter & Gamble Co. Dec 90 1,500 874,771 1,500,000 (625,229) Storage Technology Corp. Dec 40 4,915 2,451,088 2,058,156 392,932 Sun Microsystems Inc. Nov 60 4,000 2,383,920 1,162,500 1,221,420 Williams Cos., Inc. (The) Dec 50 2,500 836,222 890,625 (54,403) - --------------------------------------------------------------------------------------------------------------------------------- 48,808 $22,601,072 $25,795,994 $ (3,194,922) - ---------------------------------------------------------------------------------------------------------------------------------
NOTE 7-CAPITAL STOCK Changes in the capital stock outstanding during the years ended October 31, 1996 and 1995 were as follows:
1996 1995 --------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ---------- ---------- ---------- Sold: Class A 34,550,539 $648,183,624 32,034,901 $559,325,258 - ---------------------------------------------------------------------------------------------------------------------------- Class B* 12,381,545 231,706,372 2,180,033 43,415,613 - ---------------------------------------------------------------------------------------------------------------------------- Institutional Class 516,716 9,877,153 559,557 10,092,219 - ---------------------------------------------------------------------------------------------------------------------------- Issued as a reinvestment of dividends: Class A 32,395,132 557,844,149 24,460,017 361,036,594 - ---------------------------------------------------------------------------------------------------------------------------- Class B* 425,933 7,326,082 -- -- - ---------------------------------------------------------------------------------------------------------------------------- Institutional Class 338,803 5,871,449 199,304 2,950,819 - ---------------------------------------------------------------------------------------------------------------------------- Reacquired: Class A (44,929,759) (843,683,536) (54,445,065) (937,990,088) - ---------------------------------------------------------------------------------------------------------------------------- Class B* (1,500,861) (28,206,946) (97,524) (1,956,737) - ---------------------------------------------------------------------------------------------------------------------------- Institutional Class (552,275) (10,286,587) (363,327) (6,538,558) - ---------------------------------------------------------------------------------------------------------------------------- 33,625,773 $578,631,760 4,527,896 $30,335,120 ============================================================================================================================
* Class B shares commenced sales on June 26, 1995. FS-38 130 Financials NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a Class A share outstanding during each of the years in the eight-year period ended October 31, 1996, the ten months ended October 31, 1988 and the year ended December 31, 1987 and for a Class B share outstanding during the year ended October 31, 1996 and the period June 26, 1995 (date sales commenced) through October 31, 1995.(a) CLASS A:
OCTOBER 31, --------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- ---------- -------- Net asset value, beginning of period $ 20.33 $ 17.82 $ 17.62 $ 16.68 $ 15.76 $ 11.15 $ 12.32 - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Income from investment operations: Net investment income 0.06 -- 0.07 0.10 0.10 0.11 0.09 - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Net gains (losses) on securities (both realized and unrealized) 2.51 4.36 0.57 0.93 0.98 4.80 (0.56) - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Total from investment operations 2.57 4.36 0.64 1.03 1.08 4.91 (0.47) - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Less distributions: Dividends from net investment income -- (0.07) (0.11) (0.09) (0.07) (0.09) (0.06) - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Distributions from net realized capital gains (2.71) (1.78) (0.33) -- (0.09) (0.21) (0.64) - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Total distributions (2.71) (1.85) (0.44) (0.09) (0.16) (0.30) (0.70) - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Net asset value, end of period $ 20.19 $ 20.33 $ 17.82 $ 17.62 $ 16.68 $ 15.76 $ 11.15 ======================================== ========== ========== ========== ========== ========== ========== ======== Total return(c) 14.81% 28.20% 3.76% 6.17% 6.85% 44.88% (4.03)% ======================================== ========== ========== ========== ========== ========== ========== ======== Ratios/supplemental data: Net assets, end of period (000s omitted) $4,977,493 $4,564,730 $3,965,858 $4,999,983 $5,198,835 $2,534,331 $632,522 ======================================== ========== ========== ========== ========== ========== ========== ======== Ratio of expenses to average net assets(d) 1.12%(f)(g) 1.17% 1.21% 1.13% 1.13% 1.18% 1.25% ======================================== ========== ========== ========== ========== ========== ========== ======== Ratio of net investment income to average net assets(e) 0.33%(f) (0.02)% 0.45% 0.62% 0.60% 0.72% 0.75% ======================================== ========== ========== ========== ========== ========== ========== ======== Portfolio turnover rate 159% 139% 136% 109% 37% 46% 79% ======================================== ========== ========== ========== ========== ========== ========== ======== Average broker commission rate(i) $ 0.0615 N/A N/A N/A N/A N/A N/A ======================================== ========== ========== ========== ========== ========== ========== ======== Borrowings for the period: Amount of debt outstanding at end of period (000s omitted) -- -- -- -- -- -- -- ======================================== ========== ========== ========== ========== ========== ========== ======== Average amount of debt outstanding during the period (000s omitted)(j) -- $ 593 -- -- -- -- $ 485 ======================================== ========== ========== ========== ========== ========== ========== ======== Average number of shares outstanding during the period (000s omitted)(j) 248,189 229,272 249,351 314,490 246,273 102,353 44,770 ======================================== ========== ========== ========== ========== ========== ========== ======== Average amount of debt per share during the period -- $ 0.0026 -- -- -- -- $ 0.011 ======================================== ========== ========== ========== ========== ========== ========== ======== DECEMBER 31, ------------ 1989 1988(b) 1987 -------- -------- -------- Net asset value, beginning of period $ 9.23 $ 8.36 $ 8.82 - ---------------------------------------- -------- -------- -------- Income from investment operations: Net investment income 0.10 0.07 0.07 - ---------------------------------------- -------- -------- -------- Net gains (losses) on securities (both realized and unrealized) 3.10 0.80 0.83 - ---------------------------------------- -------- -------- -------- Total from investment operations 3.20 0.87 0.90 - ---------------------------------------- -------- -------- -------- Less distributions: Dividends from net investment income (0.11) -- (0.09) - ---------------------------------------- -------- -------- -------- Distributions from net realized capital gains -- -- (1.27) - ---------------------------------------- -------- -------- -------- Total distributions (0.11) -- (1.36) - ---------------------------------------- -------- -------- -------- Net asset value, end of period $ 12.32 $ 9.23 $ 8.36 - ---------------------------------------- -------- -------- -------- Total return(c) 35.13% 10.41% 9.75% - ---------------------------------------- -------- -------- -------- Ratios/supplemental data: Net assets, end of period (000s omitted) $393,320 $297,284 $286,453 ======================================== ======== ======== ======== Ratio of expenses to average net assets(d) 1.19% 1.08%(h) 0.95% ======================================== ======== ======== ======== Ratio of net investment income to average net assets(e) 0.96% 0.90%(h) 0.66% ======================================== ======== ======== ======== Portfolio turnover rate 87% 93% 108% ======================================== ======== ======== ======== Average broker commission rate(i) N/A N/A N/A ======================================== ======== ======== ======== Borrowings for the period: Amount of debt outstanding at end of period (000s omitted) $ 3,781 -- $ 355 ======================================== ======== ======== ======== Average amount of debt outstanding during the period (000s omitted)(j) $ 1,083 $ 229 $ 509 ======================================== ======== ======== ======== Average number of shares outstanding during the period (000s omitted)(j) 31,275 33,031 25,825 ======================================== ======== ======== ======== Average amount of debt per share during the period $ 0.035 $ 0.007 $ 0.020 ======================================== ======== ======== ========
(a) Per share information has been restated to reflect a 2 for 1 stock split, effected in the form of a dividend, on September 29, 1987. (b) The Fund changed investment advisors on September 30, 1988. (c) Does not deduct sales charges and, for periods less than one year, total returns are not annualized. (d) Ratios of expenses prior to waiver of advisory fees are 1.15%, 1.19%, 1.24%, 1.17%, and 1.15% for the years 1996-1992, respectively. (e) Ratios of net investment income (loss) prior to waiver of advisory fees are 0.30%, (0.04)%, 0.42%, 0.58%, and 0.58% for the years 1996-1992, respectively. (f) After waiver of advisory fees. Ratios are based on average net assets of $4,737,418,087. (g) Includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have remained the same. (h) Annualized. (i) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. (j) Averages computed on a daily basis. FS-39 131 Financials CLASS B:
1996 1995 --------- --------- Net asset value, beginning of period $ 20.28 $ 18.56 - -------------------------------------------------------------------------------------------------- --------- --------- Income from investment operations: Net investment income (loss) (0.05)(a) (0.03) - -------------------------------------------------------------------------------------------------- --------- --------- Net gains (losses) on securities (both realized and unrealized) 2.46 1.75 - -------------------------------------------------------------------------------------------------- --------- --------- Total from investment operations 2.41 1.72 - -------------------------------------------------------------------------------------------------- --------- --------- Less distributions: Distributions from net realized capital gains (2.71) -- - -------------------------------------------------------------------------------------------------- --------- --------- Net asset value, end of period $ 19.98 $ 20.28 ================================================================================================== ========= ========= Total return(b) 13.95% 9.27% ================================================================================================== ========= ========= Ratios/supplemental data: Net assets, end of period (000's omitted) $ 267,459 $ 42,238 ================================================================================================== ========= ========= Ratio of expenses to average net assets 1.95%(c)(d) 1.91%(e) ================================================================================================== ========= ========= Ratio of net investment income (loss) to average net assets (0.50)%(c) (0.76)%(e) ================================================================================================== ========= ========= Portfolio turnover rate 159% 139% ================================================================================================== ========= ========= Average broker commission rate(f) $ 0.0615 N/A ================================================================================================== ========= ========= Borrowings for the period: Amount of debt outstanding at end of period (000s omitted) -- -- ================================================================================================== ========= ========= Average amount of debt outstanding during the period (000s omitted)(g) -- $ 3 ================================================================================================== ========= ========= Average number of shares outstanding during the period (000s omitted)(g) 7,956 1,036 ================================================================================================== ========= ========= Average amount of debt per share during the period -- $ 0.0029 ================================================================================================== ========= =========
(a) Calculated using average shares outstanding. (b) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (c) After waiver of advisory fees. Ratios are based on average net assets of $151,463,325. Ratios of expenses and net investment income (loss) to average net assets prior to waiver of advisory fees were 1.98% and (0.53)%. (d) Includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have remained the same. (e) Annualized. After waiver of advisory fees. Annualized ratios of expenses and net investment income (loss) to average net assets prior to waiver of advisory fees were 1.94% and (0.79)%, respectively. (f) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. (g) Averages computed on a daily basis. NOTE 9-SUBSEQUENT EVENT On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO PLC announced the execution of an agreement and plan of merger pursuant to which AIM Management will be merged with and into a direct wholly-owned subsidiary of INVESCO PLC. AIM Management is the parent company of the Fund's advisor. The merger is conditional on, among other things, approval by the shareholders of INVESCO PLC and AIM Management and the shareholders of the AIM funds and the mutual funds managed by INVESCO PLC, and is expected to take place during the first quarter of 1997. FS-40 132 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Constellation Fund: 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, 1996, 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 eight-year period then ended, the ten months ended October 31, 1988, and the year ended December 31, 1987. 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, 1996, 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, 1996, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the eight-year period then ended, the ten months ended October 31, 1988, and the year ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Houston, Texas December 6, 1996 FS-41 133 SCHEDULE OF INVESTMENTS October 31, 1996
MARKET SHARES VALUE DOMESTIC COMMON STOCKS-84.91% ADVERTISING/BROADCASTING-1.58% American Radio Systems Corp.(a)(b) 650,000 $ 19,825,000 - ----------------------------------------------------------------- CanWest Global Communications Corp. 2,250,000 23,906,250 - ----------------------------------------------------------------- Chancellor Corp.-Class A(a)(b) 500,000 16,125,000 - ----------------------------------------------------------------- Clear Channel Communications, Inc.(a) 750,000 54,750,000 - ----------------------------------------------------------------- Infinity Broadcasting Corp.-Class A(a) 787,500 22,837,500 - ----------------------------------------------------------------- Jacor Communications, Inc.(a) 1,000,000 28,000,000 - ----------------------------------------------------------------- Paxson Communications Corp.(a) 1,000,000 8,875,000 - ----------------------------------------------------------------- True North Communications, Inc. 325,700 7,735,375 - ----------------------------------------------------------------- 182,054,125 - ----------------------------------------------------------------- AUTOMOBILE/TRUCKS PARTS & TIRES-0.12% Mark IV Industries, Inc. 656,250 14,191,406 - ----------------------------------------------------------------- BANKING-0.55% Bank of Boston Corp. 1,000,000 64,000,000 - ----------------------------------------------------------------- BIOTECHNOLOGY-0.73% AMGEN Inc.(a) 1,000,000 61,312,500 - ----------------------------------------------------------------- Guidant Corp. 500,000 23,062,500 - ----------------------------------------------------------------- 84,375,000 - ----------------------------------------------------------------- BUSINESS SERVICES-0.90% AccuStaff, Inc.(a) 500,000 13,375,000 - ----------------------------------------------------------------- APAC Teleservices, Inc.(a) 200,000 9,225,000 - ----------------------------------------------------------------- Career Horizons, Inc.(a) 350,000 14,218,750 - ----------------------------------------------------------------- Corrections Corporation of America 100,100 2,602,600 - ----------------------------------------------------------------- CUC International, Inc.(a) 900,000 22,050,000 - ----------------------------------------------------------------- Equifax, Inc. 500,000 14,875,000 - ----------------------------------------------------------------- HealthCare COMPARE Corp.(a) 493,900 21,731,600 - ----------------------------------------------------------------- Paychex, Inc. 100,000 5,700,000 - ----------------------------------------------------------------- 103,777,950 - ----------------------------------------------------------------- CHEMICALS (SPECIALTY)-0.52% Airgas, Inc.(a) 1,857,400 42,023,675 - ----------------------------------------------------------------- IMC Global, Inc. 500,000 18,750,000 - ----------------------------------------------------------------- 60,773,675 - ----------------------------------------------------------------- COMPUTER MINI/PCS-2.77% Compaq Computer Corp.(a) 1,350,000 93,993,750 - ----------------------------------------------------------------- Dell Computer Corp.(a) 900,000 73,237,500 - ----------------------------------------------------------------- Rational Software Corp.(a) 1,050,000 40,293,750 - ----------------------------------------------------------------- Sun Microsystems, Inc.(a) 1,850,000 112,850,000 - ----------------------------------------------------------------- 320,375,000 - ----------------------------------------------------------------- COMPUTER NETWORKING-5.83% ACT Networks, Inc.(a)(b) 500,000 17,125,000 - ----------------------------------------------------------------- Ascend Communications, Inc.(a) 1,486,800 97,199,550 - ----------------------------------------------------------------- Auspex Systems, Inc.(a) 311,700 3,194,925 - ----------------------------------------------------------------- Cabletron Systems, Inc.(a) 1,000,000 62,375,000 - ----------------------------------------------------------------- Cascade Communications Corp.(a) 1,500,000 108,937,500 - ----------------------------------------------------------------- Cisco Systems, Inc.(a) 2,500,000 154,687,500 - ----------------------------------------------------------------- MARKET SHARES VALUE COMPUTER NETWORKING-(CONTINUED) FORE Systems, Inc.(a) 1,650,000 $ 65,587,500 - ----------------------------------------------------------------- Shiva Corp.(a) 212,400 8,708,400 - ----------------------------------------------------------------- Sync Research, Inc.(a)(b) 500,000 6,625,000 - ----------------------------------------------------------------- 3Com Corp.(a) 2,000,000 135,250,000 - ----------------------------------------------------------------- Xircom, Inc.(a) 662,200 13,409,550 - ----------------------------------------------------------------- 673,099,925 - ----------------------------------------------------------------- COMPUTER PERIPHERALS-1.39% Adaptec, Inc.(a) 500,000 30,437,500 - ----------------------------------------------------------------- American Power Conversion Corp.(a) 563,300 12,040,537 - ----------------------------------------------------------------- Microchip Technology, Inc.(a) 1,000,050 36,251,812 - ----------------------------------------------------------------- U.S. Robotics Corp.(a) 1,300,000 81,737,500 - ----------------------------------------------------------------- 160,467,349 - ----------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-12.85% Affiliated Computer Services, Inc.(a) 245,600 13,508,000 - ----------------------------------------------------------------- BISYS Group, Inc. (The)(a) 463,200 17,254,200 - ----------------------------------------------------------------- BMC Software, Inc.(a) 1,000,000 83,000,000 - ----------------------------------------------------------------- Cadence Design Systems, Inc.(a) 500,000 18,250,000 - ----------------------------------------------------------------- Ceridian Corp.(a) 1,000,000 49,625,000 - ----------------------------------------------------------------- Computer Associates International, Inc. 1,875,000 110,859,375 - ----------------------------------------------------------------- Computer Sciences Corp.(a) 700,000 51,975,000 - ----------------------------------------------------------------- Compuware Corp.(a) 1,000,000 52,750,000 - ----------------------------------------------------------------- CSG Systems International, Inc.(a) 510,000 8,542,500 - ----------------------------------------------------------------- DST Systems, Inc.(a) 1,000,000 30,750,000 - ----------------------------------------------------------------- Electronic Arts, Inc.(a) 850,000 31,875,000 - ----------------------------------------------------------------- First Data Corp. 600,000 47,850,000 - ----------------------------------------------------------------- HBO & Co. 1,000,000 60,125,000 - ----------------------------------------------------------------- HPR, Inc.(a) 500,000 7,000,000 - ----------------------------------------------------------------- IDX Systems Corp.(a) 306,900 9,053,550 - ----------------------------------------------------------------- Integrated Systems, Inc.(a) 428,700 11,574,900 - ----------------------------------------------------------------- Intuit, Inc.(a) 750,000 20,250,000 - ----------------------------------------------------------------- McAfee Associates, Inc.(a) 1,524,200 69,351,100 - ----------------------------------------------------------------- Metromail Corp. 500,000 9,187,500 - ----------------------------------------------------------------- Microsoft Corp.(a) 2,000,000 274,500,000 - ----------------------------------------------------------------- National Data Corp. 600,000 24,675,000 - ----------------------------------------------------------------- Network General Corp.(a)(b) 2,185,000 52,713,125 - ----------------------------------------------------------------- Oracle Corp.(a) 2,499,950 105,779,134 - ----------------------------------------------------------------- Parametric Technology Corp.(a) 2,400,000 117,300,000 - ----------------------------------------------------------------- Physician Computer Network, Inc.(a) 1,500,000 13,406,250 - ----------------------------------------------------------------- Pure Atria Corp.(a) 57,700 1,572,325 - ----------------------------------------------------------------- Sterling Commerce, Inc.(a) 1,696,300 47,708,438 - ----------------------------------------------------------------- Sterling Software, Inc.(a) 500,000 16,250,000 - ----------------------------------------------------------------- Structural Dynamics Research Corp.(a) 1,100,000 19,525,000 - ----------------------------------------------------------------- SunGard Data Systems Inc.(a) 530,000 22,657,500 - ----------------------------------------------------------------- Synopsys, Inc.(a) 1,500,000 67,500,000 - ----------------------------------------------------------------- Tecnomatix Technologies Ltd.(a) 329,500 5,725,063 - ----------------------------------------------------------------- Transition Systems, Inc.(a) 33,300 316,350 - -----------------------------------------------------------------
FS-42 134
MARKET SHARES VALUE COMPUTER SOFTWARE/SERVICES-(CONTINUED) Wind River Systems(a) 300,000 $ 12,750,000 - ----------------------------------------------------------------- 1,485,159,310 - ----------------------------------------------------------------- CONGLOMERATES-0.63% Corning, Inc. 1,000,000 38,750,000 - ----------------------------------------------------------------- Tyco International Ltd. 411,982 20,444,606 - ----------------------------------------------------------------- U.S. Industries, Inc.(a) 500,000 13,500,000 - ----------------------------------------------------------------- 72,694,606 - ----------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-1.04% AMETEK, Inc. 200,000 3,975,000 - ----------------------------------------------------------------- Berg Electronics Corp.(a) 500,000 14,125,000 - ----------------------------------------------------------------- BMC Industries, Inc. 500,000 14,812,500 - ----------------------------------------------------------------- Checkpoint Systems, Inc.(a) 450,000 10,068,750 - ----------------------------------------------------------------- Methode Electronics, Inc.-Class A 450,000 8,775,000 - ----------------------------------------------------------------- Molex, Inc.-Class A 234,375 7,587,890 - ----------------------------------------------------------------- SCI Systems, Inc.(a) 500,000 24,875,000 - ----------------------------------------------------------------- Symbol Technologies, Inc.(a) 600,000 26,925,000 - ----------------------------------------------------------------- Thermo Instrument Systems, Inc.(a) 300,000 9,075,000 - ----------------------------------------------------------------- 120,219,140 - ----------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-0.11% Imperial Credit Industries, Inc.(a) 700,000 12,687,500 - ----------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-4.20% Aames Financial Corp. 309,100 13,793,587 - ----------------------------------------------------------------- Beneficial Corp. 400,000 23,400,000 - ----------------------------------------------------------------- Capital One Financial Corp. 1,500,000 46,687,500 - ----------------------------------------------------------------- Cityscape Financial Corp.(a) 474,300 12,213,225 - ----------------------------------------------------------------- Concord EFS, Inc.(a) 97,100 2,815,900 - ----------------------------------------------------------------- Credit Acceptance Corp.(a) 1,128,800 30,477,600 - ----------------------------------------------------------------- First USA, Inc. 400,000 23,000,000 - ----------------------------------------------------------------- Green Tree Financial Corp. 2,150,000 85,193,750 - ----------------------------------------------------------------- Household International, Inc. 650,000 57,525,000 - ----------------------------------------------------------------- MBNA Corp. 1,500,000 56,625,000 - ----------------------------------------------------------------- Money Store, Inc. (The) 1,250,000 32,187,500 - ----------------------------------------------------------------- Olympic Financial Ltd.(a) 1,431,200 22,720,300 - ----------------------------------------------------------------- PMT Services, Inc.(a) 553,500 11,070,000 - ----------------------------------------------------------------- Southern Pacific Funding Corp.(a) 116,100 3,657,150 - ----------------------------------------------------------------- Student Loan Marketing Association 450,000 37,237,500 - ----------------------------------------------------------------- SunAmerica, Inc. 700,000 26,250,000 - ----------------------------------------------------------------- 484,854,012 - ----------------------------------------------------------------- FINANCE (SAVINGS & LOAN)-0.17% Washington Mutual, Inc. 458,400 19,367,400 - ----------------------------------------------------------------- FOOD/PROCESSING-0.25% Richfood Holdings, Inc. 1,182,100 28,518,163 - ----------------------------------------------------------------- FUNERAL SERVICES-0.96% Service Corp. International 3,000,000 85,500,000 - ----------------------------------------------------------------- Stewart Enterprises, Inc.-Class A 750,000 25,687,500 - ----------------------------------------------------------------- 111,187,500 - ----------------------------------------------------------------- MARKET SHARES VALUE FURNITURE-0.26% Leggett & Platt, Inc. 1,000,000 $ 29,875,000 - ----------------------------------------------------------------- GAMING-0.75% GTECH Holdings Corp.(a) 750,000 22,125,000 - ----------------------------------------------------------------- International Game Technology 1,875,000 39,609,375 - ----------------------------------------------------------------- Trump Hotels & Casino Resorts, Inc.(a)(b) 1,540,800 24,460,200 - ----------------------------------------------------------------- 86,194,575 - ----------------------------------------------------------------- HOMEBUILDING-0.06% Oakwood Homes Corp. 250,000 6,625,000 - ----------------------------------------------------------------- HOTELS/MOTELS-1.40% Doubletree Corp.(a) 652,800 26,479,200 - ----------------------------------------------------------------- HFS, Inc.(a) 1,200,000 87,900,000 - ----------------------------------------------------------------- Promus Hotel Corp.(a) 650,000 20,637,500 - ----------------------------------------------------------------- Sun International Hotels Ltd.(a) 560,300 26,474,175 - ----------------------------------------------------------------- 161,490,875 - ----------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-0.64% Compdent Corp.(a)(b) 700,000 24,062,500 - ----------------------------------------------------------------- Conseco, Inc. 500,000 26,750,000 - ----------------------------------------------------------------- RISCORP, Inc.-Class A(a) 172,300 861,500 - ----------------------------------------------------------------- United Companies Financial Corp. 750,000 22,406,250 - ----------------------------------------------------------------- 74,080,250 - ----------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-1.02% CapMAC Holdings Inc.(b) 850,000 28,368,750 - ----------------------------------------------------------------- MGIC Investment Corp. 1,250,000 85,781,250 - ----------------------------------------------------------------- Progressive Corp. 44,900 3,086,875 - ----------------------------------------------------------------- 117,236,875 - ----------------------------------------------------------------- LEISURE & RECREATION-0.98% Callaway Golf Co. 1,250,000 38,281,250 - ----------------------------------------------------------------- Harley-Davidson, Inc. 1,000,000 45,125,000 - ----------------------------------------------------------------- Mattel, Inc. 625,000 18,046,875 - ----------------------------------------------------------------- Speedway Motorsports, Inc.(a) 511,200 11,693,700 - ----------------------------------------------------------------- 113,146,825 - ----------------------------------------------------------------- MACHINERY (MISCELLANEOUS)-0.35% Pentair, Inc. 500,000 12,625,000 - ----------------------------------------------------------------- Thermo Electron Corp.(a) 750,000 27,375,000 - ----------------------------------------------------------------- 40,000,000 - ----------------------------------------------------------------- MEDICAL (DRUGS)-1.51% Cardinal Health, Inc. 1,400,000 109,900,000 - ----------------------------------------------------------------- Curative Technologies, Inc.(a) 265,000 6,028,750 - ----------------------------------------------------------------- Dura Pharmaceuticals, Inc.(a) 250,000 8,625,000 - ----------------------------------------------------------------- Express Scripts, Inc.-Class A(a) 750,000 21,843,750 - ----------------------------------------------------------------- Jones Medical Industries, Inc. 402,350 17,502,225 - ----------------------------------------------------------------- Parexel International Corp.(a) 217,100 10,637,900 - ----------------------------------------------------------------- 174,537,625 - ----------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-7.66% American HomePatient Inc.(a)(b) 750,000 17,812,500 - ----------------------------------------------------------------- American Medical Response, Inc.(a) 300,000 9,000,000 - ----------------------------------------------------------------- American Oncology Resources, Inc.(a) 336,900 2,695,200 - ----------------------------------------------------------------- Apria Healthcare Group, Inc.(a)(b) 1,750,000 33,468,750 - ----------------------------------------------------------------- ClinTrials Research Inc.(a) 243,300 9,032,513 - -----------------------------------------------------------------
FS-43 135
MARKET SHARES VALUE MEDICAL (PATIENT SERVICES)-(CONTINUED) Columbia/HCA Healthcare Corp. 2,625,000 $ 93,843,750 - ----------------------------------------------------------------- Genesis Health Ventures, Inc.(a) 1,000,000 22,875,000 - ----------------------------------------------------------------- Health Care and Retirement Corp.(a) 2,250,000 55,406,250 - ----------------------------------------------------------------- Health Management Associates, Inc.-Class A(a) 2,999,987 65,999,714 - ----------------------------------------------------------------- HEALTHSOUTH Corp.(a) 3,071,000 115,162,500 - ----------------------------------------------------------------- Lincare Holdings, Inc.(a) 1,000,000 37,500,000 - ----------------------------------------------------------------- Manor Care, Inc. 1,000,000 39,250,000 - ----------------------------------------------------------------- MedPartners, Inc.(a) 800,000 16,900,000 - ----------------------------------------------------------------- OccuSystems, Inc.(a) 430,000 11,771,250 - ----------------------------------------------------------------- OrNda HealthCorp(a) 2,000,000 54,500,000 - ----------------------------------------------------------------- Orthodontic Centers of America, Inc.(a) 524,200 7,535,375 - ----------------------------------------------------------------- Oxford Health Plans, Inc.(a) 1,498,600 68,186,300 - ----------------------------------------------------------------- PhyCor, Inc.(a) 1,050,000 32,550,000 - ----------------------------------------------------------------- Physicians Resource Group, Inc.(a) 500,000 13,500,000 - ----------------------------------------------------------------- Quorum Health Group, Inc.(a) 600,000 16,200,000 - ----------------------------------------------------------------- Tenet Healthcare Corp.(a) 2,250,000 46,968,750 - ----------------------------------------------------------------- Total Renal Care Holdings, Inc.(a) 550,000 21,450,000 - ----------------------------------------------------------------- Universal Health Services, Inc.-Class B(a) 1,350,000 33,750,000 - ----------------------------------------------------------------- Vencor, Inc.(a) 2,000,000 59,250,000 - ----------------------------------------------------------------- 884,607,852 - ----------------------------------------------------------------- MEDICAL INSTRUMENTS/PRODUCTS-4.32% Advanced Technology Laboratories, Inc.(a) 650,000 19,825,000 - ----------------------------------------------------------------- Boston Scientific Corp.(a) 1,014,552 55,166,265 - ----------------------------------------------------------------- CardioThoracic Systems, Inc.(a) 250,000 4,750,000 - ----------------------------------------------------------------- Dentsply International, Inc. 550,000 23,168,750 - ----------------------------------------------------------------- Gulf South Medical Supply, Inc.(a)(b) 1,160,400 25,528,800 - ----------------------------------------------------------------- IDEXX Laboratories, Inc.(a) 1,000,000 39,250,000 - ----------------------------------------------------------------- Invacare Corp. 885,200 24,785,600 - ----------------------------------------------------------------- Medtronic, Inc. 500,000 32,187,500 - ----------------------------------------------------------------- Nellcor Puritan Bennett, Inc.(a) 500,000 9,750,000 - ----------------------------------------------------------------- Omnicare, Inc. 2,000,000 54,500,000 - ----------------------------------------------------------------- Physician Sales & Service, Inc.(a) 750,000 15,937,500 - ----------------------------------------------------------------- Quintiles Transnational Corp.(a) 500,000 32,875,000 - ----------------------------------------------------------------- Spine-Tech, Inc.(a) 57,600 1,454,400 - ----------------------------------------------------------------- St. Jude Medical, Inc.(a) 780,200 30,817,900 - ----------------------------------------------------------------- Steris Corp.(a) 825,000 31,143,750 - ----------------------------------------------------------------- Sybron International Corp.(a) 2,000,000 58,250,000 - ----------------------------------------------------------------- Target Therapeutics, Inc.(a) 225,000 8,325,000 - ----------------------------------------------------------------- US Surgical Corp. 750,000 31,406,250 - ----------------------------------------------------------------- 499,121,715 - ----------------------------------------------------------------- OFFICE PRODUCTS-0.52% Avery Dennison Corp. 300,000 19,762,500 - ----------------------------------------------------------------- Reynolds & Reynolds Co.-Class A 1,517,100 40,013,513 - ----------------------------------------------------------------- 59,776,013 - ----------------------------------------------------------------- OIL & GAS (DRILLING)-0.35% Reading & Bates Corp.(a) 1,400,000 40,250,000 - ----------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION)-0.52% Burlington Resources, Inc. 750,000 37,781,250 - ----------------------------------------------------------------- MARKET SHARES VALUE OIL & GAS (EXPLORATION & PRODUCTION)-(CONTINUED) Transocean Offshore Inc. 350,000 $ 22,137,500 - ----------------------------------------------------------------- 59,918,750 - ----------------------------------------------------------------- OIL & GAS (SERVICES)-0.52% Camco International, Inc. 613,700 23,780,875 - ----------------------------------------------------------------- Global Marine, Inc.(a) 2,000,000 36,750,000 - ----------------------------------------------------------------- 60,530,875 - ----------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-2.18% Baker Hughes, Inc. 1,000,000 35,625,000 - ----------------------------------------------------------------- Cooper Cameron Corp.(a) 27,500 1,756,563 - ----------------------------------------------------------------- Diamond Offshore Drilling, Inc.(a) 1,000,000 60,875,000 - ----------------------------------------------------------------- ENSCO International, Inc.(a) 750,000 32,437,500 - ----------------------------------------------------------------- Marine Drilling Co., Inc.(a) 2,000,000 27,750,000 - ----------------------------------------------------------------- Pride Petroleum Services, Inc.(a) 518,700 9,077,250 - ----------------------------------------------------------------- Rowan Co., Inc.(a) 1,300,000 29,087,500 - ----------------------------------------------------------------- Smith International, Inc.(a) 750,000 28,500,000 - ----------------------------------------------------------------- Varco International, Inc.(a) 1,326,100 26,190,475 - ----------------------------------------------------------------- 251,299,288 - ----------------------------------------------------------------- POLLUTION CONTROL-0.51% United Waste Systems, Inc.(a) 592,200 20,356,875 - ----------------------------------------------------------------- US Filter Corp.(a) 206,000 7,107,000 - ----------------------------------------------------------------- USA Waste Services, Inc.(a) 1,000,000 32,000,000 - ----------------------------------------------------------------- 59,463,875 - ----------------------------------------------------------------- PUBLISHING-0.28% Gartner Group, Inc.(a) 608,200 18,702,150 - ----------------------------------------------------------------- Times Mirror Co. (The) 300,000 13,875,000 - ----------------------------------------------------------------- 32,577,150 - ----------------------------------------------------------------- RESTAURANTS-1.30% Apple South, Inc. 500,000 5,875,000 - ----------------------------------------------------------------- Applebee's International, Inc. 843,600 20,562,750 - ----------------------------------------------------------------- Brinker International, Inc.(a) 1,400,000 23,800,000 - ----------------------------------------------------------------- Cracker Barrel Old Country Store, Inc. 500,000 10,187,500 - ----------------------------------------------------------------- Lone Star Steakhouse & Saloon, Inc.(a) 1,250,000 32,031,250 - ----------------------------------------------------------------- Outback Steakhouse, Inc.(a) 750,000 17,390,625 - ----------------------------------------------------------------- Planet Hollywood International, Inc.-Class A(a) 750,000 15,562,500 - ----------------------------------------------------------------- Starbucks Corp.(a) 750,000 24,375,000 - ----------------------------------------------------------------- 149,784,625 - ----------------------------------------------------------------- RETAIL (FOOD & DRUG)-3.13% American Stores Co. 1,000,000 41,375,000 - ----------------------------------------------------------------- Eckerd Corp.(a) 1,262,800 35,042,700 - ----------------------------------------------------------------- Kroger Co. (The)(a) 1,200,000 53,550,000 - ----------------------------------------------------------------- Revco D.S., Inc.(a) 1,000,000 30,125,000 - ----------------------------------------------------------------- Safeway, Inc.(a) 2,000,000 85,750,000 - ----------------------------------------------------------------- Thrifty PayLess Holdings, Inc.(a) 1,513,800 32,357,475 - ----------------------------------------------------------------- Vons Companies, Inc. (The) 1,500,000 83,062,500 - ----------------------------------------------------------------- 361,262,675 - ----------------------------------------------------------------- RETAIL (STORES)-10.61% AutoZone, Inc.(a) 1,500,000 38,437,500 - ----------------------------------------------------------------- Bed Bath & Beyond, Inc.(a) 1,000,000 25,250,000 - ----------------------------------------------------------------- Boise Cascade Office Products Corp.(a) 293,100 5,568,900 - -----------------------------------------------------------------
FS-44 136
MARKET SHARES VALUE RETAIL (STORES)-(CONTINUED) CDW Computer Centers, Inc.(a) 650,000 $ 40,909,373 - ----------------------------------------------------------------- Claire's Stores, Inc. 400,000 6,800,000 - ----------------------------------------------------------------- CompUSA, Inc.(a) 1,000,000 46,250,000 - ----------------------------------------------------------------- Consolidated Stores Corp.(a) 1,600,000 61,800,000 - ----------------------------------------------------------------- Corporate Express, Inc.(a) 1,090,000 35,561,250 - ----------------------------------------------------------------- Dayton Hudson Corp. 1,500,000 51,937,500 - ----------------------------------------------------------------- Dillard Department Stores, Inc. 500,000 15,875,000 - ----------------------------------------------------------------- Dollar General Corp. 1,087,093 30,166,830 - ----------------------------------------------------------------- Dollar Tree Stores, Inc.(a) 600,000 22,650,000 - ----------------------------------------------------------------- Finish Line, Inc. (The) Class A(a) 422,700 17,964,750 - ----------------------------------------------------------------- Gap, Inc. (The) 1,000,000 29,000,000 - ----------------------------------------------------------------- Global DirectMail Corp.(a) 700,000 34,475,000 - ----------------------------------------------------------------- Gymboree Corp.(a)(b) 1,447,000 45,218,750 - ----------------------------------------------------------------- Home Depot, Inc. 100,000 5,475,000 - ----------------------------------------------------------------- Jones Apparel Group, Inc.(a) 600,000 18,750,000 - ----------------------------------------------------------------- Kohl's Corp.(a) 838,600 30,189,600 - ----------------------------------------------------------------- Lowe's Co., Inc. 1,000,000 40,375,000 - ----------------------------------------------------------------- Men's Wearhouse, Inc. (The)(a)(b) 1,075,050 22,172,906 - ----------------------------------------------------------------- Meyer (Fred), Inc.(a) 700,000 24,587,500 - ----------------------------------------------------------------- Micro Warehouse, Inc.(a) 1,250,000 28,750,000 - ----------------------------------------------------------------- Neiman Marcus Group, Inc. (The)(a) 300,000 9,787,500 - ----------------------------------------------------------------- Oakley, Inc.(a) 2,000,000 29,750,000 - ----------------------------------------------------------------- Pep Boys-Manny, Moe & Jack 1,250,000 43,750,000 - ----------------------------------------------------------------- Petco Animal Supplies, Inc.(a)(b) 675,000 15,862,500 - ----------------------------------------------------------------- PETsMART, Inc.(a) 2,000,000 54,000,000 - ----------------------------------------------------------------- Ross Stores, Inc. 437,200 18,143,800 - ----------------------------------------------------------------- Saks Holdings, Inc.(a) 272,900 9,551,500 - ----------------------------------------------------------------- Sports Authority, Inc. (The)(a) 1,500,000 36,375,000 - ----------------------------------------------------------------- Staples, Inc.(a) 4,000,000 74,500,000 - ----------------------------------------------------------------- Sunglass Hut International, Inc.(a) 628,900 5,581,489 - ----------------------------------------------------------------- Tech Data Corp.(a) 1,500,000 38,625,000 - ----------------------------------------------------------------- Tiffany & Co. 758,900 28,079,300 - ----------------------------------------------------------------- TJX Companies, Inc. 750,000 30,000,000 - ----------------------------------------------------------------- Toys "R" Us, Inc.(a) 2,000,000 67,750,000 - ----------------------------------------------------------------- Viking Office Products, Inc.(a) 2,500,000 72,812,500 - ----------------------------------------------------------------- Williams-Sonoma, Inc.(a) 500,000 13,750,000 - ----------------------------------------------------------------- 1,226,483,448 - ----------------------------------------------------------------- SCIENTIFIC INSTRUMENTS-0.08% Input/Output, Inc.(a) 300,000 8,925,000 - ----------------------------------------------------------------- SEMICONDUCTORS-2.68% Altera Corp.(a) 750,000 46,500,000 - ----------------------------------------------------------------- Intel Corp. 2,200,000 241,725,000 - ----------------------------------------------------------------- Solectron Corp.(a) 300,000 16,050,000 - ----------------------------------------------------------------- Vitesse Semiconductor Corp.(a) 150,000 4,781,250 - ----------------------------------------------------------------- 309,056,250 - ----------------------------------------------------------------- SHOES & RELATED APPAREL-1.08% Nike, Inc.-Class B 1,000,000 58,875,000 - ----------------------------------------------------------------- Nine West Group, Inc.(a) 1,100,000 54,862,500 - ----------------------------------------------------------------- Wolverine World Wide, Inc. 450,000 11,137,500 - ----------------------------------------------------------------- 124,875,000 - ----------------------------------------------------------------- MARKET SHARES VALUE TELECOMMUNICATIONS-5.33% ACC Corp. 358,350 $ 15,229,875 - ----------------------------------------------------------------- ADC Telecommunications, Inc.(a) 1,500,000 102,562,500 - ----------------------------------------------------------------- Allen Group, Inc. 596,700 9,472,613 - ----------------------------------------------------------------- Andrew Corp.(a) 1,750,000 85,312,500 - ----------------------------------------------------------------- Aspect Telecommunications Corp.(a) 550,000 32,725,000 - ----------------------------------------------------------------- Billing Information Concepts(a) 400,000 10,450,000 - ----------------------------------------------------------------- Frontier Corp. 1,000,000 29,000,000 - ----------------------------------------------------------------- MCI Communications Corp. 2,000,000 50,250,000 - ----------------------------------------------------------------- PairGain Technologies, Inc.(a) 1,366,100 94,090,138 - ----------------------------------------------------------------- PictureTel Corp.(a) 500,000 13,500,000 - ----------------------------------------------------------------- Premiere Technologies, Inc.(a) 50,300 817,375 - ----------------------------------------------------------------- Premisys Communications, Inc.(a) 500,000 25,000,000 - ----------------------------------------------------------------- QUALCOMM, Inc.(a) 600,000 23,850,000 - ----------------------------------------------------------------- Tellabs, Inc.(a) 800,000 68,100,000 - ----------------------------------------------------------------- U.S. Long Distance Corp.(a) 343,300 2,875,138 - ----------------------------------------------------------------- United States Satellite Broadcasting Company, Inc.(a) 412,100 6,645,112 - ----------------------------------------------------------------- Western Wireless Corp.-Class A(a)(b) 550,000 9,075,000 - ----------------------------------------------------------------- WorldCom, Inc.(a) 1,500,000 36,562,500 - ----------------------------------------------------------------- 615,517,751 - ----------------------------------------------------------------- TELEPHONE-0.23% Century Telephone Enterprises, Inc. 55,700 1,789,363 - ----------------------------------------------------------------- Cincinnati Bell, Inc. 500,000 24,687,500 - ----------------------------------------------------------------- 26,476,863 - ----------------------------------------------------------------- TEXTILES-1.78% Designer Holdings Ltd.(a) 250,000 4,781,250 - ----------------------------------------------------------------- Liz Claiborne, Inc. 1,250,000 52,812,500 - ----------------------------------------------------------------- Nautica Enterprises, Inc.(a) 1,200,000 36,900,000 - ----------------------------------------------------------------- Russell Corp. 1,000,000 28,375,000 - ----------------------------------------------------------------- Tommy Hilfiger Corp.(a) 1,000,000 52,000,000 - ----------------------------------------------------------------- Unifi, Inc. 978,600 30,458,926 - ----------------------------------------------------------------- 205,327,676 - ----------------------------------------------------------------- TRANSPORTATION (MISCELLANEOUS)-0.16% AirNet Systems, Inc.(a) 560,000 7,280,000 - ----------------------------------------------------------------- Rural/Metro Corp.(a) 300,000 10,950,000 - ----------------------------------------------------------------- 18,230,000 - ----------------------------------------------------------------- TRUCKING-0.10% USFreightways Corp. 550,000 12,031,250 - ----------------------------------------------------------------- Total Domestic Common Stocks 9,806,505,142 - ----------------------------------------------------------------- FOREIGN STOCKS & OTHER EQUITY INTERESTS-3.85% CANADA-0.73% Agrium, Inc. (Chemicals) 891,100 11,918,463 - ----------------------------------------------------------------- Newbridge Networks Corp. (Computer Networking)(a) 1,500,000 47,437,500 - ----------------------------------------------------------------- Potash Corp. of Saskatchewan Inc. (Metals-Miscellaneous) 350,000 24,806,250 - ----------------------------------------------------------------- 84,162,213 - ----------------------------------------------------------------- FRANCE-0.12% Roussel-Uclaf (Medical-Drugs) 50,580 13,385,768 - -----------------------------------------------------------------
FS-45 137
MARKET SHARES VALUE IRELAND-0.50% CBT Group PLC-ADR (Computer Software/Services)(a) 49,400 $ 2,717,000 - ----------------------------------------------------------------- Elan Corp. PLC-ADR (Medical-Drugs)(a) 2,000,000 55,500,000 - ----------------------------------------------------------------- 58,217,000 - ----------------------------------------------------------------- ISRAEL-0.30% ECI Telecommunications Ltd. Designs (Computer Networking)(a) 1,250,000 25,000,000 - ----------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Medical-Drugs) 225,000 9,421,875 - ----------------------------------------------------------------- 34,421,875 - ----------------------------------------------------------------- ITALY-0.30% Fila Holding S.p.A.-ADR (Retail/Stores) 425,000 30,600,000 - ----------------------------------------------------------------- Telecom Italia Mobile S.p.A. (Telecommunications) 1,074,000 2,214,550 - ----------------------------------------------------------------- Telecom Italia S.p.A. (Telecommunications) 1,074,000 2,401,456 - ----------------------------------------------------------------- 35,216,006 - ----------------------------------------------------------------- NETHERLANDS-0.54% Baan Co. N.V. (Computer Software/Services)(a) 800,000 29,600,000 - ----------------------------------------------------------------- Gucci Group NV-ADR (Textiles) 385,000 26,565,000 - ----------------------------------------------------------------- Ver Ned Uitgever Bezit (Publishing) 328,500 5,963,223 - ----------------------------------------------------------------- 62,128,223 - ----------------------------------------------------------------- SWEDEN-0.54% Telefonaktiebolaget LM Ericsson-ADR (Telecommunications) 2,250,000 62,156,250 - ----------------------------------------------------------------- SWITZERLAND-0.05% Ciba-Geigy AG (Chemicals) 5,000 6,159,018 - ----------------------------------------------------------------- UNITED KINGDOM-0.77% Burton Group PLC (Retail-Stores) 2,700,000 6,558,838 - ----------------------------------------------------------------- Danka Business Systems PLC-ADR (Office Automation) 1,937,500 76,773,438 - ----------------------------------------------------------------- Granada Group PLC (Leisure & Recreation) 390,000 5,608,154 - ----------------------------------------------------------------- 88,940,430 - ----------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests 444,786,783 - -----------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE CONVERTIBLE CORPORATE BONDS-0.07% FINANCE (CONSUMER CREDIT)-0.07% Cityscape Financial Corp., Conv. Sub. Deb. 6.00%, 05/01/06 (Acquired 08/06/96-08/29/96; Cost $10,090,613)(c) $ 7,815,000 $ 8,252,260 - ----------------------------------------------------------------- Total Convertible Corporate Bonds 8,252,260 - ----------------------------------------------------------------- REPURCHASE AGREEMENTS-5.65%(d) Daiwa Securities America Inc., 5.53%, 11/01/96(e) 38,201,444 38,201,444 - ----------------------------------------------------------------- SBC Capital Markets Inc., 5.55%, 11/01/96(f) 179,000,000 179,000,000 - ----------------------------------------------------------------- Smith Barney Shearson Inc., 5.60%, 11/01/96(g) 173,000,000 173,000,000 - ----------------------------------------------------------------- UBS Securities Inc., 5.60%, 11/01/96(h) 262,043,993 262,003,237 - ----------------------------------------------------------------- Total Repurchase Agreements 652,204,681 - ----------------------------------------------------------------- U.S. TREASURY SECURITIES-5.42% U.S. TREASURY BILLS-5.42%(i) 5.18%, 12/26/96(j) 208,115,000 206,624,896 - ----------------------------------------------------------------- 5.05%, 01/02/97(j) 387,710,000 384,542,409 - ----------------------------------------------------------------- 4.53%, 02/06/97 35,000,000 34,536,950 - ----------------------------------------------------------------- Total U.S. Treasury Securities 625,704,255 - ----------------------------------------------------------------- TOTAL INVESTMENTS-99.90% 11,537,453,121 - ----------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-0.10% 11,087,841 - ----------------------------------------------------------------- NET ASSETS-100.00% $ 11,548,540,962 =================================================================
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 October 31, 1996 was $358,443,781 which represented 3.10% of the Fund's net assets. (c) 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 this security has been determined in accordance with procedures established by the Board of Directors. The market value of this security at October 31, 1996 was $8,252,260, which represents 0.07% of net assets. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 10/31/96 with a maturing value of $750,115,208. Collaterized by $733,115,000 U.S. Treasury obligations, 0% to 10.375% due 11/15/96 to 08/15/23. (f) Joint repurchase agreement entered into 10/31/96 with a maturing value of $700,107,917. Collaterized by $691,506,000 U.S. Treasury obligations 0% to 9.125% due 11/30/96 to 10/31/01. (g) Joint repurchase agreement entered into 10/31/96 with a maturing value of $200,031,111. Collaterized by $254,910,124 U.S. Treasury obligations, 0% to 9.50% due 11/15/96 to 09/01/34. (h) Joint repurchase agreement entered into 10/31/96 with a maturing value of $300,046,667. Collaterized by $609,995,215 U.S. Government agency obligations 0% to 11.00% due 05/01/09 to 03/01/33. (i) 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. (j) A portion of the principal balance was pledged as collateral to cover margin requirements for open future contracts. See Note 6. Abbreviations: ADR-American Depository Receipt Conv.-Convertible Deb.-Debentures Sub.-Subordinated See Notes to Financial Statements. FS-46 138 STATEMENT OF ASSETS AND LIABILITIES October 31, 1996 ASSETS: Investments, at market value (cost $8,806,097,768) $11,537,453,121 - --------------------------------------------------------- Foreign currencies, at market value (cost $26,216) 26,258 - --------------------------------------------------------- Receivables for: Investments sold 15,784,521 - --------------------------------------------------------- Capital stock sold 46,649,903 - --------------------------------------------------------- Dividends and interest 2,142,548 - --------------------------------------------------------- Variation margin 6,284,875 - --------------------------------------------------------- Investment for deferred compensation plan 63,878 - --------------------------------------------------------- Other assets 58,196 - --------------------------------------------------------- Total assets 11,608,463,300 - --------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 30,867,907 - --------------------------------------------------------- Capital stock reacquired 16,227,770 - --------------------------------------------------------- Deferred compensation 63,878 - --------------------------------------------------------- Accrued advisory fees 6,018,167 - --------------------------------------------------------- Accrued administrative services fees 19,531 - --------------------------------------------------------- Accrued directors' fees 4,297 - --------------------------------------------------------- Accrued distribution fees 2,890,747 - --------------------------------------------------------- Accrued transfer agent fees 2,020,918 - --------------------------------------------------------- Accrued operating expenses 1,809,123 - --------------------------------------------------------- Total liabilities 59,922,338 - --------------------------------------------------------- Net assets applicable to shares outstanding $11,548,540,962 ========================================================= NET ASSETS: Class A $11,255,506,428 ========================================================= Institutional Class $ 293,034,534 ========================================================= CAPITAL STOCK, $.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 441,753,223 ========================================================= Institutional Class: Authorized 200,000,000 - --------------------------------------------------------- Outstanding 11,265,330 ========================================================= CLASS A: Net asset value and redemption price per share $ 25.48 ========================================================= Offering price per share: (Net asset value of $25.48 divided by 94.50%) $ 26.96 ========================================================= INSTITUTIONAL CLASS: Net asset value, offering and redemption price per share $ 26.01 =========================================================
STATEMENT OF OPERATIONS For the year ended October 31, 1996 INVESTMENT INCOME: Dividends (net of $366,503 foreign withholding tax) $ 21,861,327 - --------------------------------------------------------- Interest 60,273,163 - --------------------------------------------------------- Total investment income 82,134,490 - --------------------------------------------------------- EXPENSES: Advisory fees 59,483,795 - --------------------------------------------------------- Administrative service fees 212,800 - --------------------------------------------------------- Custodian fees 611,167 - --------------------------------------------------------- Directors' fees 54,355 - --------------------------------------------------------- Distribution fees-Class A 27,788,170 - --------------------------------------------------------- Transfer agent fees-Class A 17,524,711 - --------------------------------------------------------- Transfer agent fees-Institutional Class 16,972 - --------------------------------------------------------- Other 3,499,379 - --------------------------------------------------------- Total expenses 109,191,349 - --------------------------------------------------------- Less: Fees waived by advisor (1,869,383) - --------------------------------------------------------- Expenses paid indirectly (144,866) - --------------------------------------------------------- Net expenses 107,177,100 - --------------------------------------------------------- Net investment income (loss) (25,042,610) - --------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS: Net realized gain (loss) on sales of: Investment securities 347,014,327 - --------------------------------------------------------- Foreign currencies (475,360) - --------------------------------------------------------- Futures contracts 47,580,962 - --------------------------------------------------------- 394,119,929 - --------------------------------------------------------- Unrealized appreciation of: Investment securities 651,403,520 - --------------------------------------------------------- Foreign currencies 146,156 - --------------------------------------------------------- Futures contracts 21,195,970 - --------------------------------------------------------- 672,745,646 - --------------------------------------------------------- Net gain on investment securities, foreign currencies and futures contracts 1,066,865,575 - --------------------------------------------------------- Net increase in net assets resulting from operations $1,041,822,965 - ---------------------------------------------------------
See Notes to Financial Statements. FS-47 139 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1996 and 1995
1996 1995 OPERATIONS: Net investment income (loss) $ (25,042,610) $ (16,016,980) - -------------------------------------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities, foreign currencies and futures contracts 394,119,929 237,427,697 - -------------------------------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and futures contracts 672,745,646 1,307,034,097 - -------------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 1,041,822,965 1,528,444,814 - -------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains on investment securities: Class A (233,242,373) (107,823,749) - -------------------------------------------------------------------------------------------------------------------------- Institutional Class (4,789,469) (1,218,145) - -------------------------------------------------------------------------------------------------------------------------- Share transactions-net: Class A 3,470,281,071 1,878,176,040 - -------------------------------------------------------------------------------------------------------------------------- Institutional Class 135,200,711 75,813,810 - -------------------------------------------------------------------------------------------------------------------------- Net increase in net assets 4,409,272,905 3,373,392,770 - -------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 7,139,268,057 3,765,875,287 - -------------------------------------------------------------------------------------------------------------------------- End of period $11,548,540,962 $7,139,268,057 - -------------------------------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 8,408,805,783 $4,828,771,443 - -------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (124,538) (54,010) - -------------------------------------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities, foreign currencies and futures contracts 388,200,602 231,637,155 - -------------------------------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and futures contracts 2,751,659,115 2,078,913,469 - -------------------------------------------------------------------------------------------------------------------------- $11,548,540,962 $7,139,268,057 ==========================================================================================================================
See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS October 31, 1996 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 diversified 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 two different classes of shares: the Class A shares and the Institutional Class. 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 following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. 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. A. Security Valuations--A security listed or traded on an exchange 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 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 that are issued or guaranteed by the U.S. Treasury 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 FS-48 140 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 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, 1996, $475,360 was reclassified from undistributed net realized gains to undistributed net investment income (loss) as a result of differing book/tax treatments on foreign currency transactions. In addition, $25,447,442 was reclassified from undistributed net investment income (loss) to paid-in capital as a result of a net operating tax loss. 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--Operating expenses directly attributable to a class of shares are charged to that class' operations. Expenses which are applicable to both classes, e.g. advisory fees, are allocated between them. E. Foreign Currency Translation--Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. F. Foreign Currency Contracts--A forward 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 forward 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 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. 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 voluntary 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, 1996, AIM waived fees of $1,869,383. 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, 1996, AIM was reimbursed $212,800 for such services. The Fund, pursuant to a transfer agency and services agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency services to the Class A shares. During the year ended October 31, 1996, AFS was paid $8,671,663 for such services. During the year ended October 31, 1996, the Fund paid A I M Institutional Fund Services, Inc. ("AIFS") with respect to the Institutional Class $16,972 for shareholder and transfer agency services. The Fund received reductions in transfer agency fees of $132,361 from dividends received on balances in cash management bank accounts. In addition, the Fund incurred FS-49 141 expenses of $12,505 from pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction of Fund's total expenses of $144,866 during the year ended October 31, 1996. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares and a master distribution agreement with Fund Management Company ("FMC") to serve as the distributor for the Institutional Class. The Company has adopted a Plan pursuant to Rule 12b-l under the 1940 Act (the "Plan"), with respect to the Class A shares, whereby the Fund pays AIM Distributors an annual rate of 0.30% of the Class A shares average daily net assets as compensation for services related to the sales and distribution of the Class A shares. The Plan provides that payments to dealers and financial institutions that provide continuing personal shareholder services to their customers who purchase and own shares of the Class A shares, in amounts of up to 0.25% of the average net assets of the Class A shares attributable to the customers of such dealers or financial institutions, may be characterized as a service fee. The Plan also provides that payments in excess of service fees are characterized as an asset- based sales charge under the Plan. The Plan also imposes a cap on the total amount of sales charges, including asset-based sales charges, that may be paid by the Company with respect to the Fund's Class A shares. During the year ended October 31, 1996, the Class A shares paid AIM Distributors $27,788,170 as compensation under the Plan. AIM Distributors received commissions of $19,558,836 from Class A capital stock transactions during the year ended October 31, 1996. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of capital stock. Certain officers and directors of the Company are officers and directors of AIM, AIM Capital, AIM Distributors, AFS, AIFS and FMC. During the year ended October 31, 1996 the Fund paid legal fees of $21,521 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-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 4-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) $325,000,000 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 July 19, 1996, the Fund was limited to borrowing $83,000,000. During the year ended October 31, 1996, 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 0.08% 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 5-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, 1996 was $7,936,731,509 and $5,239,321,023, respectively. The amount of unrealized appreciation (depreciation) of investment securities as of October 31, 1996, on a tax basis, is as follows: Aggregate unrealized appreciation of investment securities $3,001,882,643 - ------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (273,922,974) - ------------------------------------------------------- Net unrealized appreciation of investment securities $2,727,959,669 =======================================================
Cost of investments for tax purposes is $8,809,493,452. NOTE 6-FUTURES CONTRACT On October 31, 1996, $25,487,000 par value U.S. Treasury obligations were pledged as collateral to cover margin requirements for futures contracts. Futures contracts outstanding at October 31, 1996: (Contracts--$500 times index/delivery month/commitment)
UNREALIZED APPRECIATION S&P 500 Index/1,835 contracts/Dec. 96/Buy $ 20,302,845 =======================================================
NOTE 7-CAPITAL STOCK Changes in the capital stock outstanding for the years ended October 31, 1996 and 1995 were as follows:
1996 1995 ------------------------------ ------------------------------ SHARES AMOUNT SHARES AMOUNT ------------ --------------- ------------ --------------- Sold: Class A 282,903,859 $ 6,791,107,589 214,014,863 $ 4,411,919,689 - --------------------------------------------------------------------------------- Institutional Class 7,711,696 189,568,037 5,036,915 105,368,663 - --------------------------------------------------------------------------------- Issued as reinvestment of dividends: Class A 10,007,849 218,670,843 6,006,043 99,940,399 - --------------------------------------------------------------------------------- Institutional Class 200,095 4,444,113 60,580 1,019,563 - --------------------------------------------------------------------------------- Reacquired: Class A (146,642,433) (3,539,497,361) (128,002,913) (2,633,684,048) - --------------------------------------------------------------------------------- Institutional Class (2,422,264) (58,811,439) (1,476,157) (30,574,416) - --------------------------------------------------------------------------------- 151,758,802 $ 3,605,481,782 95,639,331 $ 1,953,989,850 =================================================================================
NOTE 8-SUBSEQUENT EVENT On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO PLC announced the execution of an agreement and plan of merger pursuant to which AIM Management will be merged with and into a direct wholly-owned subsidiary of INVESCO PLC. AIM Management is the parent company of the Fund's advisor. The merger is conditional on, among other things, approval by the shareholders of INVESCO PLC and AIM Management and the shareholders of the AIM funds and the mutual funds managed by INVESCO PLC, and is expected to take place during the first quarter of 1997. FS-50 142 NOTE 9-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during each of the years in the eight-year period ended October 31, 1996, the ten months ended October 31, 1988, and the year ended December 31, 1987.(a)
OCTOBER 31, --------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 1990 ----------- ---------- ---------- ---------- -------- -------- ------- Net asset value, beginning of period $ 23.69 $ 18.31 $ 17.04 $ 13.25 $ 11.72 $ 6.59 $ 9.40 - -------------------------------- ----------- ---------- ---------- ---------- -------- -------- ------- Income from investment operations: Net investment income (loss) (0.06) (0.05) (0.02) (0.04) (0.04) (0.03) (0.03) - -------------------------------- ----------- ---------- ---------- ---------- -------- -------- ------- Net gains (losses) on securities (both realized and unrealized) 2.60 5.95 1.29 3.83 1.76 5.16 (1.23) - -------------------------------- ----------- ---------- ---------- ---------- -------- -------- ------- Total from investment operations 2.54 5.90 1.27 3.79 1.72 5.13 (1.26) - -------------------------------- ----------- ---------- ---------- ---------- -------- -------- ------- Less distributions: Dividends from net investment income -- -- -- -- -- -- (0.01) - -------------------------------- ----------- ---------- ---------- ---------- -------- -------- ------- Distributions from capital gains (0.75) (0.52) -- -- (0.19) -- (1.54) - -------------------------------- ----------- ---------- ---------- ---------- -------- -------- ------- Total distributions (0.75) (0.52) -- -- (0.19) -- (1.55) - -------------------------------- ----------- ---------- ---------- ---------- -------- -------- ------- Net asset value, end of period $ 25.48 $ 23.69 $ 18.31 $ 17.04 $ 13.25 $ 11.72 $ 6.59 ================================ =========== ========== ========== ========== ======== ======== ======= Total return(c) 11.26% 33.43% 7.45% 28.60% 14.82% 77.85% (16.17)% ================================ =========== ========== ========== ========== ======== ======== ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $11,255,506 $7,000,350 $3,726,029 $2,756,497 $966,472 $342,835 $83,304 ================================ =========== ========== ========== ========== ======== ======== ======= Ratio of expenses to average net assets(d) 1.14%(e)(f) 1.16% 1.20% 1.22% 1.21% 1.35% 1.37% ================================ =========== ========== ========== ========== ======== ======== ======= Ratio of net investment income (loss) to average net assets(g) (0.27)%(e) (0.32)% (0.15)% (0.31)% (0.42)% (0.41)% (0.44)% ================================ =========== ========== ========== ========== ======== ======== ======= Portfolio turnover rate 58% 45% 79% 70% 62% 109% 192% ================================ =========== ========== ========== ========== ======== ======== ======= Average broker commission rate(i) $ 0.0596 N/A N/A N/A N/A N/A N/A ================================ =========== ========== ========== ========== ======== ======== ======= Borrowings for the period: Amount of debt outstanding at end of period (000s omitted) -- -- -- -- -- -- -- ================================ =========== ========== ========== ========== ======== ======== ======= Average amount of debt outstanding during the period (000s omitted)(j) -- -- -- -- -- -- $ 2,344 ================================ =========== ========== ========== ========== ======== ======== ======= Average amount of shares outstanding during the period (000s omitted)(j) 381,030 244,731 182,897 124,101 55,902 21,205 11,397 ================================ =========== ========== ========== ========== ======== ======== ======= Average amount of debt per share during the period -- -- -- -- -- -- $ 0.21 ================================ =========== ========== ========== ========== ======== ======== ======= DECEMBER 31, 1989 1988(b) 1987 ------- ------- ------------ Net asset value, beginning of period $ 7.34 $ 6.35 $ 10.58 - -------------------------------- ------- ------- -------- Income from investment operations: Net investment income (loss) 0.01 (0.03) (0.05) - -------------------------------- ------- ------- -------- Net gains (losses) on securities (both realized and unrealized) 2.46 1.02 0.36 - -------------------------------- ------- ------- -------- Total from investment operations 2.47 0.99 0.31 - -------------------------------- ------- ------- -------- Less distributions: Dividends from net investment income -- -- -- - -------------------------------- ------- ------- -------- Distributions from capital gains (0.41) -- (4.54) - -------------------------------- ------- ------- -------- Total distributions (0.41) -- (4.54) - -------------------------------- ------- ------- -------- Net asset value, end of period $ 9.40 $ 7.34 $ 6.35 ================================ ======= ======= ======== Total return(c) 35.50% 15.59% 2.85% ================================ ======= ======= ======== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $74,731 $78,272 $ 71,418 ================================ ======= ======= ======== Ratio of expenses to average net assets(d) 1.36% 1.30%(h) 1.11% ================================ ======= ======= ======== Ratio of net investment income (loss) to average net assets(g) 0.07% (0.57) (0.41)% ================================ ======= ======= ======== Portfolio turnover rate 149% 131% 135% ================================ ======= ======= ======== Average broker commission rate(i) N/A N/A N/A ================================ ======= ======= ======== Borrowings for the period: Amount of debt outstanding at end of period (000s omitted) $ 9,610 $ 5,266 $ 109 ================================ ======= ======= ======== Average amount of debt outstanding during the period (000s omitted)(j) $ 2,609 $ 2,148 $ 2,366 ================================ ======= ======= ======== Average amount of shares outstanding during the period (000s omitted)(j) 10,050 10,845 9,668 ================================ ======= ======= ======== Average amount of debt per share during the period $ 0.26 $ 0.20 $ 0.24 ================================ ======= ======= ======== (a) Per share information has been restated to reflect a 2 for 1 stock split, effected in the form of a dividend, on June 19, 1987. (b) The Fund changed investment advisors on September 30, 1988. (c) Does not deduct sales charges and for periods less than one year, total returns are not annualized. (d) Ratios of expenses prior to waiver of advisory fees are 1.16%, 1.18% and 1.21% for the years 1996-1994, respectively. (e) Ratios are based on average net assets of $9,262,723,318. (f) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have remained the same. (g) Ratios of net investment income (loss) prior to waiver of advisory fees are (0.29)%, (0.34)% and (0.16)% for the years 1996-1994, respectively. (h) Annualized. (i) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. (j) Averages computed on a daily basis.
FS-51 143 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Aggressive Growth Fund: We have audited the accompanying statement of assets and liabilities of AIM Aggressive Growth Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1996, 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 three-year period then ended and the ten month period ended October 31, 1993. 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, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Aggressive Growth Fund as of October 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the three-year period then ended and the ten month period ended October 31, 1993, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Houston, Texas December 6, 1996 FS-52 144 SCHEDULE OF INVESTMENTS October 31, 1996
PRINCIPAL MARKET AMOUNT VALUE CONVERTIBLE BONDS-0.53% BUILDING MATERIALS-0.09% Eagle Hardware & Garden, Inc., Conv. Sub. Deb., 6.25%, 03/15/01 $ 1,665,000 $ 2,697,300 - ----------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-0.44% Cityscape Financial Corp., Conv. Sub. Deb., 6.00%, 05/01/06(a) (Acquired 08/06/96; Cost $1,326,624) 960,000 1,013,713 - ----------------------------------------------------------------- RAC Financial Group, Inc., Conv. Sub. Notes, 7.25%, 08/15/03(a) (Acquired 09/06/96-09/30/96; Cost $7,894,726) 6,160,000 10,964,800 - ----------------------------------------------------------------- 11,978,513 - ----------------------------------------------------------------- Total Convertible Bonds 14,675,813 - -----------------------------------------------------------------
SHARES COMMON STOCKS-92.35% ADVERTISING/BROADCASTING-2.58% American Radio Systems Corp.(b) 150,000 4,575,000 - ----------------------------------------------------------------- Chancellor Corp.-Class A(b) 250,000 8,062,500 - ----------------------------------------------------------------- Clear Channel Communications, Inc.(b) 200,000 14,600,000 - ----------------------------------------------------------------- Evergreen Media Corp.-Class A(b) 250,000 6,750,000 - ----------------------------------------------------------------- Heftel Broadcasting Corp.(b) 275,000 9,968,750 - ----------------------------------------------------------------- Heritage Media Corp.(b) 300,000 4,575,000 - ----------------------------------------------------------------- Jacor Communications, Inc.(b) 400,000 11,200,000 - ----------------------------------------------------------------- Meredith Corp. 100,000 5,025,000 - ----------------------------------------------------------------- Paxson Communications Corp.(b) 335,000 2,973,125 - ----------------------------------------------------------------- SFX Broadcasting, Inc.-Class A(b) 75,000 3,225,000 - ----------------------------------------------------------------- 70,954,375 - ----------------------------------------------------------------- AEROSPACE/DEFENSE-0.28% BE Aerospace, Inc.(b) 355,000 7,721,250 - ----------------------------------------------------------------- AUTOMOBILE/TRUCKS PARTS & TIRES-0.21% Borg-Warner Automotive, Inc. 150,000 5,756,250 - ----------------------------------------------------------------- BANKING-0.22% Cole Taylor Financial Group, Inc. 200,000 6,012,500 - ----------------------------------------------------------------- BUILDING MATERIALS-0.10% Danaher Corp. 70,000 2,861,250 - ----------------------------------------------------------------- BUSINESS SERVICES-2.88% APAC Teleservices, Inc.(b) 100,000 4,612,500 - ----------------------------------------------------------------- Cambridge Technology Partners, Inc.(b) 225,000 7,425,000 - ----------------------------------------------------------------- Career Horizons, Inc.(b) 200,000 8,125,000 - ----------------------------------------------------------------- Claremont Technology Group, Inc.(b) 101,300 3,089,650 - ----------------------------------------------------------------- Data Processing Resources Corp.(b) 86,500 1,740,812 - ----------------------------------------------------------------- IntelliQuest Information Group, Inc.(b)(c) 375,000 8,250,000 - ----------------------------------------------------------------- Leasing Solutions, Inc.(b) 146,600 4,617,900 - ----------------------------------------------------------------- Pharmaceutical Product Development, Inc.(b) 377,700 7,223,512 - ----------------------------------------------------------------- RemedyTemp, Inc.-Class A(b) 165,000 3,300,000 - ----------------------------------------------------------------- MARKET SHARES VALUE BUSINESS SERVICES-(CONTINUED) Robert Half International, Inc.(b) 300,000 $ 12,037,500 - ----------------------------------------------------------------- Romac International, Inc.(b) 200,000 5,750,000 - ----------------------------------------------------------------- RTW, Inc.(b) 275,000 4,262,500 - ----------------------------------------------------------------- Sterling Healthcare Group(b) 100,000 1,762,500 - ----------------------------------------------------------------- Superior Consultant Holdings Corp.(b) 60,000 1,470,000 - ----------------------------------------------------------------- Vincam Group, Inc. (The)(b) 100,000 3,175,000 - ----------------------------------------------------------------- Whittman-Hart, Inc.(b) 50,000 2,375,000 - ----------------------------------------------------------------- 79,216,874 - ----------------------------------------------------------------- CHEMICALS-0.18% Agrium, Inc. (Canada) 363,800 4,865,825 - ----------------------------------------------------------------- CHEMICALS (SPECIALTY)-0.58% Airgas, Inc.(b) 711,000 16,086,375 - ----------------------------------------------------------------- COMPUTER MINI/PCS-0.49% Rational Software Corp.(b) 350,000 13,431,250 - ----------------------------------------------------------------- COMPUTER NETWORKING-4.45% ACT Networks, Inc.(b) 376,200 12,884,850 - ----------------------------------------------------------------- Ascend Communications, Inc.(b) 337,200 22,044,450 - ----------------------------------------------------------------- Auspex Systems, Inc.(b) 300,000 3,075,000 - ----------------------------------------------------------------- Cascade Communications Corp.(b) 480,000 34,860,000 - ----------------------------------------------------------------- Coherent Communications Systems Corp.(b) 267,200 5,177,000 - ----------------------------------------------------------------- Digital Systems International, Inc.(b) 40,500 551,812 - ----------------------------------------------------------------- DSP Communications, Inc.(b) 125,000 4,750,000 - ----------------------------------------------------------------- FORE Systems, Inc.(b) 408,800 16,249,800 - ----------------------------------------------------------------- Ortel Corp.(b) 100,000 2,075,000 - ----------------------------------------------------------------- Shiva Corp.(b) 100,000 4,100,000 - ----------------------------------------------------------------- Sync Research, Inc.(b) 200,000 2,650,000 - ----------------------------------------------------------------- VideoServer, Inc.(b) 200,000 9,475,000 - ----------------------------------------------------------------- Xircom, Inc.(b) 217,000 4,394,250 - ----------------------------------------------------------------- 122,287,162 - ----------------------------------------------------------------- COMPUTER PERIPHERALS-0.97% American Power Conversion Corp.(b) 140,800 3,009,600 - ----------------------------------------------------------------- MicroTouch Systems, Inc.(b) 200,000 3,625,000 - ----------------------------------------------------------------- U.S. Robotics Corp.(b) 319,600 20,094,850 - ----------------------------------------------------------------- 26,729,450 - ----------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-14.97% Affiliated Computer Services, Inc.(b) 300,000 16,500,000 - ----------------------------------------------------------------- Amisys Managed Care Systems(b) 215,000 3,278,750 - ----------------------------------------------------------------- Analysts International Corp. 200,000 5,000,000 - ----------------------------------------------------------------- ANSYS, Inc.(b) 318,500 3,901,625 - ----------------------------------------------------------------- Applied Microsystems Corp.(b)(c) 200,000 2,175,000 - ----------------------------------------------------------------- Applix, Inc.(b) 198,500 4,813,625 - ----------------------------------------------------------------- Avant! Corp.(b) 150,684 4,558,191 - ----------------------------------------------------------------- BDM International Inc.(b) 14,700 738,675 - ----------------------------------------------------------------- Bell & Howell Co.(b) 250,000 6,687,500 - ----------------------------------------------------------------- BISYS Group, Inc. (The)(b) 150,000 5,587,500 - -----------------------------------------------------------------
FS-53 145
MARKET SHARES VALUE COMPUTER SOFTWARE/SERVICES-(CONTINUED) CBT Group PLC-ADR(b) (Ireland) 153,900 $ 8,464,500 - ----------------------------------------------------------------- Cellular Technical Services Co.(b) 350,000 5,643,750 - ----------------------------------------------------------------- CFI Proservices, Inc.(b)(c) 165,000 3,217,500 - ----------------------------------------------------------------- Citrix Systems, Inc.(b) 200,000 11,050,000 - ----------------------------------------------------------------- Clarify, Inc.(b) 10,400 501,800 - ----------------------------------------------------------------- Computer Data Systems, Inc. 6,700 180,900 - ----------------------------------------------------------------- Computer Task Group, Inc. 100,000 3,775,000 - ----------------------------------------------------------------- Cooper & Chyan Technology, Inc.(b) 450,000 13,781,250 - ----------------------------------------------------------------- CSG Systems International, Inc.(b) 185,200 3,102,100 - ----------------------------------------------------------------- CyberMedia, Inc.(b) 17,600 391,600 - ----------------------------------------------------------------- Dendrite International, Inc.(b) 250,000 6,656,250 - ----------------------------------------------------------------- Documentum, Inc.(b) 100,000 3,725,000 - ----------------------------------------------------------------- Engineering Animation, Inc.(b)(c) 310,100 7,597,450 - ----------------------------------------------------------------- Forte Software, Inc.(b) 100,000 3,775,000 - ----------------------------------------------------------------- GT Interactive Software Corp.(b) 143,900 2,752,087 - ----------------------------------------------------------------- HBO & Co. 200,000 12,025,000 - ----------------------------------------------------------------- HPR, Inc.(b) 500,000 7,000,000 - ----------------------------------------------------------------- IDX Systems Corp.(b) 65,600 1,935,200 - ----------------------------------------------------------------- Indus Group, Inc.(b) 250,000 5,062,500 - ----------------------------------------------------------------- Integrated Systems, Inc.(b) 390,000 10,530,000 - ----------------------------------------------------------------- Jack Henry & Associates 195,000 7,873,125 - ----------------------------------------------------------------- JDA Software Group, Inc.(b) 100,000 3,437,500 - ----------------------------------------------------------------- McAfee Associates, Inc.(b) 250,000 11,375,000 - ----------------------------------------------------------------- Medic Computer Systems, Inc.(b) 350,000 9,887,500 - ----------------------------------------------------------------- National Data Corp. 200,000 8,225,000 - ----------------------------------------------------------------- Network General Corp.(b) 600,000 14,475,000 - ----------------------------------------------------------------- OpenVision Technologies, Inc.(b) 300,000 3,225,000 - ----------------------------------------------------------------- Optika Imaging Systems, Inc.(b) 70,000 472,500 - ----------------------------------------------------------------- OrCAD, Inc.(b)(c) 320,000 3,280,000 - ----------------------------------------------------------------- Par Technology Corp.(b) 350,000 4,812,500 - ----------------------------------------------------------------- Peerless Systems Corp.(b) 200,000 2,125,000 - ----------------------------------------------------------------- PeopleSoft, Inc.(b) 100,000 8,975,000 - ----------------------------------------------------------------- Physician Computer Network, Inc.(b) 600,000 5,362,500 - ----------------------------------------------------------------- Pure Atria Corp.(b) 595,307 16,222,116 - ----------------------------------------------------------------- Radius, Inc.(b) 151 208 - ----------------------------------------------------------------- Renaissance Solutions, Inc.(b) 250,000 10,062,500 - ----------------------------------------------------------------- S3 Inc.(b) 500,000 9,437,500 - ----------------------------------------------------------------- Sapient Corp.(b) 20,100 929,625 - ----------------------------------------------------------------- Saville Systems Ireland PLC-ADR (Ireland)(b) 300,000 12,937,500 - ----------------------------------------------------------------- Scopus Technology, Inc.(b) 56,200 2,163,700 - ----------------------------------------------------------------- Segue Software, Inc.(b)(c) 100,000 1,337,500 - ----------------------------------------------------------------- SQA, Inc.(b) 180,400 4,938,450 - ----------------------------------------------------------------- Sterling Commerce, Inc.(b) 159,260 4,479,187 - ----------------------------------------------------------------- Sterling Software, Inc.(b) 100,000 3,250,000 - ----------------------------------------------------------------- SunGard Data Systems Inc.(b) 300,000 12,825,000 - ----------------------------------------------------------------- Sykes Enterprises, Inc.(b) 60,900 2,831,850 - ----------------------------------------------------------------- Synopsys, Inc.(b) 6,700 301,500 - ----------------------------------------------------------------- Systemsoft Corp.(b) 200,000 5,650,000 - ----------------------------------------------------------------- Technology Solutions Co.(b) 337,500 13,120,312 - ----------------------------------------------------------------- Transition Systems, Inc.(b) 19,600 186,200 - ----------------------------------------------------------------- MARKET SHARES VALUE COMPUTER SOFTWARE/SERVICES-(CONTINUED) Unify Corp.(b)(c) 500,000 $ 4,687,500 - ----------------------------------------------------------------- Vanstar Corp.(b) 300,000 7,125,000 - ----------------------------------------------------------------- Veritas Software Corp.(b) 360,000 18,180,000 - ----------------------------------------------------------------- Viasoft, Inc.(b) 175,000 8,618,750 - ----------------------------------------------------------------- Visio Corp.(b) 150,000 6,918,750 - ----------------------------------------------------------------- Wind River Systems(b) 250,000 10,625,000 - ----------------------------------------------------------------- Xylan Corp.(b) 175,000 7,000,000 - ----------------------------------------------------------------- 411,761,526 - ----------------------------------------------------------------- CONSUMER NON-DURABLES-0.59% Central Garden and Pet Co.(b) 275,000 6,496,875 - ----------------------------------------------------------------- Herbalife International, Inc. 152,000 3,021,000 - ----------------------------------------------------------------- USA Detergents, Inc.(b) 200,000 6,600,000 - ----------------------------------------------------------------- 16,117,875 - ----------------------------------------------------------------- CONTAINERS-0.03% Apogee Enterprises, Inc. 25,000 962,500 - ----------------------------------------------------------------- COSMETICS & TOILETRIES-0.69% Helen of Troy Ltd.(b) 346,200 6,318,150 - ----------------------------------------------------------------- Nature's Sunshine Products, Inc. 250,000 5,531,250 - ----------------------------------------------------------------- NBTY, Inc.(b) 450,000 7,031,250 - ----------------------------------------------------------------- 18,880,650 - ----------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-2.90% AMETEK, Inc. 200,000 3,975,000 - ----------------------------------------------------------------- BMC Industries, Inc. 500,000 14,812,500 - ----------------------------------------------------------------- Checkpoint Systems, Inc.(b) 100,000 2,237,500 - ----------------------------------------------------------------- Harman International Industries, Inc. 126,000 6,473,250 - ----------------------------------------------------------------- Methode Electronics, Inc.-Class A 187,500 3,656,250 - ----------------------------------------------------------------- Perceptron, Inc.(b) 300,000 7,425,000 - ----------------------------------------------------------------- Sawtek Inc.(b) 81,900 2,477,475 - ----------------------------------------------------------------- SCI Systems, Inc.(b) 125,000 6,218,750 - ----------------------------------------------------------------- Sipex Corp.(b)(c) 480,000 12,660,000 - ----------------------------------------------------------------- Symbol Technologies, Inc.(b) 200,000 8,975,000 - ----------------------------------------------------------------- Technitrol, Inc. 6,700 221,937 - ----------------------------------------------------------------- ThermoQuest Corp.(b) 200,000 2,625,000 - ----------------------------------------------------------------- Ultrak, Inc.(b) 300,000 7,912,500 - ----------------------------------------------------------------- 79,670,162 - ----------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-0.20% Imperial Credit Industries, Inc.(b) 300,000 5,437,500 - ----------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-3.90% Aames Financial Corp. 185,000 8,255,625 - ----------------------------------------------------------------- AmeriCredit Corp.(b) 100,000 1,900,000 - ----------------------------------------------------------------- Amresco, Inc.(b) 330,000 6,971,250 - ----------------------------------------------------------------- Cityscape Financial Corp.(b) 90,700 2,335,525 - ----------------------------------------------------------------- CMAC Investment Corp. 150,000 10,368,750 - ----------------------------------------------------------------- Concord EFS, Inc.(b) 500,000 14,500,000 - ----------------------------------------------------------------- Consumer Portfolio Services, Inc.(b) 105,000 1,286,250 - ----------------------------------------------------------------- Credit Acceptance Corp.(b) 282,400 7,624,800 - ----------------------------------------------------------------- First Alliance Corp.(b) 110,000 2,997,500 - ----------------------------------------------------------------- IMC Mortgage Co.(b) 100,000 3,750,000 - -----------------------------------------------------------------
FS-54 146
MARKET SHARES VALUE FINANCE (CONSUMER CREDIT)-(CONTINUED) Metris Companies Inc.(b) 50,000 $ 1,187,500 - ----------------------------------------------------------------- Money Store, Inc. (The) 716,600 18,452,450 - ----------------------------------------------------------------- Olympic Financial Ltd.(b) 486,200 7,718,425 - ----------------------------------------------------------------- PMT Services, Inc.(b) 235,600 4,712,000 - ----------------------------------------------------------------- RAC Financial Group, Inc.(b) 161,000 9,660,000 - ----------------------------------------------------------------- Southern Pacific Funding Corp.(b) 147,800 4,655,700 - ----------------------------------------------------------------- WFS Financial, Inc.(b) 44,550 935,550 - ----------------------------------------------------------------- 107,311,325 - ----------------------------------------------------------------- FINANCE (LEASING COMPANIES)-0.09% Oxford Resources Corp.-Class A(b) 100,000 2,550,000 - ----------------------------------------------------------------- FINANCE (SAVINGS & LOAN)-0.50% Bay View Capital Corp. 200,000 7,900,000 - ----------------------------------------------------------------- TCF Financial Corp. 150,000 5,812,500 - ----------------------------------------------------------------- 13,712,500 - ----------------------------------------------------------------- FOOD/PROCESSING-0.63% Delta & Pine Land Co. 150,000 5,400,000 - ----------------------------------------------------------------- Richfood Holdings, Inc. 489,700 11,814,012 - ----------------------------------------------------------------- 17,214,012 - ----------------------------------------------------------------- FUNERAL SERVICES-0.78% Equity Corporation International(b) 369,900 8,507,700 - ----------------------------------------------------------------- Stewart Enterprises, Inc.-Class A 375,000 12,843,750 - ----------------------------------------------------------------- 21,351,450 - ----------------------------------------------------------------- FURNITURE-0.30% Ethan Allen Interiors, Inc. 234,400 8,379,800 - ----------------------------------------------------------------- GAMING-0.21% Primadonna Resorts, Inc.(b) 350,000 5,643,750 - ----------------------------------------------------------------- HOMEBUILDING-0.32% American Homestar Corp.(b) 150,000 3,187,500 - ----------------------------------------------------------------- Coachmen Industries, Inc. 200,000 5,600,000 - ----------------------------------------------------------------- 8,787,500 - ----------------------------------------------------------------- HOTELS/MOTELS-0.37% Prime Hospitality Corp.(b) 450,000 6,862,500 - ----------------------------------------------------------------- Suburban Lodges of America, Inc.(b) 80,000 1,670,000 - ----------------------------------------------------------------- Wyndham Hotel Corp.(b) 83,300 1,582,700 - ----------------------------------------------------------------- 10,115,200 - ----------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-0.79% Compdent Corp.(b) 200,000 6,875,000 - ----------------------------------------------------------------- CRA Managed Care, Inc.(b) 100,000 5,075,000 - ----------------------------------------------------------------- First Commonwealth, Inc.(b) 162,500 3,412,500 - ----------------------------------------------------------------- United Companies Financial Corp. 210,000 6,273,750 - ----------------------------------------------------------------- 21,636,250 - ----------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-0.70% CapMAC Holdings, Inc. 250,000 8,343,750 - ----------------------------------------------------------------- HCC Insurance Holdings, Inc. 250,000 6,375,000 - ----------------------------------------------------------------- Vesta Insurance Group, Inc. 178,500 4,574,063 - ----------------------------------------------------------------- 19,292,813 - ----------------------------------------------------------------- MARKET SHARES VALUE LEISURE & RECREATION-1.17% Cannondale Corp.(b)(c) 400,000 $ 7,700,000 - ----------------------------------------------------------------- Lewis Galoob Toys, Inc.(b) 200,000 5,375,000 - ----------------------------------------------------------------- Penske Motorsports, Inc.(b) 100,000 3,425,000 - ----------------------------------------------------------------- Platinum Entertainment, Inc.(b) 200,000 2,050,000 - ----------------------------------------------------------------- West Marine, Inc.(b) 250,000 8,812,500 - ----------------------------------------------------------------- WMS Industries, Inc.(b) 200,000 4,900,000 - ----------------------------------------------------------------- 32,262,500 - ----------------------------------------------------------------- MACHINE TOOLS-0.17% Precision Castparts Corp. 100,000 4,675,000 - ----------------------------------------------------------------- MACHINERY (MISCELLANEOUS)-0.08% Greenwich Air Services, Inc.-Class B(b) 125,000 2,109,375 - ----------------------------------------------------------------- MEDICAL (DRUGS)-2.15% Arbor Drugs, Inc. 200,000 4,525,000 - ----------------------------------------------------------------- Biovail Corp. International(b) (Canada) 250,000 7,312,500 - ----------------------------------------------------------------- Cardinal Health, Inc. 225,000 17,662,500 - ----------------------------------------------------------------- Curative Technologies, Inc.(b) 200,000 4,550,000 - ----------------------------------------------------------------- Dura Pharmaceuticals, Inc.(b) 200,000 6,900,000 - ----------------------------------------------------------------- Express Scripts, Inc.-Class A(b) 200,000 5,825,000 - ----------------------------------------------------------------- Medicis Pharmaceutical Corp.(b) 150,000 7,537,500 - ----------------------------------------------------------------- Parexel International Corp.(b) 100,000 4,900,000 - ----------------------------------------------------------------- 59,212,500 - ----------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-10.87% ABR Information Services, Inc.(b) 150,000 10,387,500 - ----------------------------------------------------------------- American HomePatient, Inc.(b) 337,350 8,012,062 - ----------------------------------------------------------------- American Medical Response, Inc.(b) 250,000 7,500,000 - ----------------------------------------------------------------- American Oncology Resources, Inc.(b) 71,900 575,200 - ----------------------------------------------------------------- Apria Healthcare Group, Inc.(b) 250,000 4,781,250 - ----------------------------------------------------------------- Arbor Health Care Co.(b)(c) 450,000 9,843,750 - ----------------------------------------------------------------- Atria Communities, Inc.(b) 250,000 3,156,250 - ----------------------------------------------------------------- ClinTrials Research Inc.(b) 62,500 2,320,313 - ----------------------------------------------------------------- EmCare Holdings, Inc.(b) 300,000 7,500,000 - ----------------------------------------------------------------- Enterprise Systems, Inc.(b) 125,000 2,015,625 - ----------------------------------------------------------------- Envoy Corp.(b) 350,000 12,862,500 - ----------------------------------------------------------------- FPA Medical Management, Inc.(b) 200,000 3,725,000 - ----------------------------------------------------------------- Genesis Health Ventures, Inc.(b) 250,000 5,718,750 - ----------------------------------------------------------------- Health Care and Retirement Corp.(b) 525,000 12,928,125 - ----------------------------------------------------------------- Health Management Associates, Inc.-Class A(b) 737,662 16,228,564 - ----------------------------------------------------------------- HEALTHSOUTH Corp. (b) 675,530 25,332,375 - ----------------------------------------------------------------- Hologic, Inc.(b) 183,000 4,163,250 - ----------------------------------------------------------------- Lincare Holdings, Inc.(b) 200,000 7,500,000 - ----------------------------------------------------------------- MedPartners, Inc.(b) 150,000 3,168,750 - ----------------------------------------------------------------- Multicare Co., Inc.(b) 375,000 6,750,000 - ----------------------------------------------------------------- Myriad Genetics, Inc.(b) 100,000 2,475,000 - ----------------------------------------------------------------- NCS HealthCare, Inc.-Class A(b)(c) 200,000 6,075,000 - ----------------------------------------------------------------- OccuSystems, Inc.(b) 287,200 7,862,100 - ----------------------------------------------------------------- OrNda HealthCorp.(b) 400,000 10,900,000 - ----------------------------------------------------------------- Orthodontic Centers of America, Inc.(b) 625,000 8,984,375 - ----------------------------------------------------------------- Oxford Health Plans, Inc.(b) 300,000 13,650,000 - -----------------------------------------------------------------
FS-55 147
MARKET SHARES VALUE MEDICAL (PATIENT SERVICES)-(CONTINUED) Pediatrix Medical Group, Inc.(b) 220,000 $ 8,662,500 - ----------------------------------------------------------------- PhyCor, Inc.(b) 187,500 5,812,500 - ----------------------------------------------------------------- Physicians Resource Group, Inc.(b) 303,200 8,186,400 - ----------------------------------------------------------------- Quorum Health Group, Inc.(b) 300,000 8,100,000 - ----------------------------------------------------------------- Renal Care Group, Inc.(b) 200,000 7,400,000 - ----------------------------------------------------------------- Renal Treatment Centers, Inc.(b) 200,000 5,350,000 - ----------------------------------------------------------------- RoTech Medical Corp.(b) 650,000 10,400,000 - ----------------------------------------------------------------- Sunrise Assisted Living, Inc.(b) 94,800 2,180,400 - ----------------------------------------------------------------- Total Renal Care Holdings, Inc.(b) 150,000 5,850,000 - ----------------------------------------------------------------- Universal Health Services, Inc.-Class B(b) 400,000 10,000,000 - ----------------------------------------------------------------- UroCor, Inc.(b) 142,800 1,677,900 - ----------------------------------------------------------------- Vencor, Inc.(b) 400,000 11,850,000 - ----------------------------------------------------------------- Veterinary Centers of America, Inc.(b) 500,000 9,187,500 - ----------------------------------------------------------------- 299,072,939 - ----------------------------------------------------------------- MEDICAL INSTRUMENTS/PRODUCTS-4.35% Advanced Technology Laboratories, Inc.(b) 150,000 4,575,000 - ----------------------------------------------------------------- Boston Scientific Corp.(b) 47,115 2,561,878 - ----------------------------------------------------------------- Capstone Pharmacy Services, Inc.(b) 350,000 4,090,625 - ----------------------------------------------------------------- CardioThoracic Systems, Inc.(b) 125,000 2,375,000 - ----------------------------------------------------------------- Dentsply International, Inc. 300,000 12,637,500 - ----------------------------------------------------------------- ESC Medical Systems Ltd.(b) (Israel) 47,850 1,321,856 - ----------------------------------------------------------------- General Surgical Innovations, Inc.(b) 301,900 2,188,775 - ----------------------------------------------------------------- Gulf South Medical Supply, Inc.(b) 317,200 6,978,400 - ----------------------------------------------------------------- Henry Schein, Inc.(b) 200,000 7,950,000 - ----------------------------------------------------------------- IRIDEX Corp.(b)(c) 150,000 1,200,000 - ----------------------------------------------------------------- Lunar Corp.(b) 100,000 3,112,500 - ----------------------------------------------------------------- Mentor Corp. 200,000 4,425,000 - ----------------------------------------------------------------- MiniMed, Inc.(b) 150,000 3,937,500 - ----------------------------------------------------------------- National Dentex Corp.(b)(c) 185,000 3,491,875 - ----------------------------------------------------------------- Omnicare, Inc. 400,000 10,900,000 - ----------------------------------------------------------------- Patterson Dental Co.(b) 400,000 11,200,000 - ----------------------------------------------------------------- Physician Sales & Service, Inc.(b) 200,000 4,250,000 - ----------------------------------------------------------------- ResMed, Inc.(b) 275,000 4,606,250 - ----------------------------------------------------------------- Suburban Ostomy Supply Co., Inc.(b)(c) 556,900 6,787,219 - ----------------------------------------------------------------- Sybron International Corp.(b) 600,000 17,475,000 - ----------------------------------------------------------------- Target Therapeutics, Inc.(b) 100,000 3,700,000 - ----------------------------------------------------------------- 119,764,378 - ----------------------------------------------------------------- METALS-0.39% Oregon Metallurgical Corp.(b) 150,000 4,725,000 - ----------------------------------------------------------------- Rental Service Corp.(b) 103,600 2,382,800 - ----------------------------------------------------------------- Shaw Group, Inc.(b) 150,000 3,693,750 - ----------------------------------------------------------------- 10,801,550 - ----------------------------------------------------------------- OFFICE AUTOMATION-0.34% Danka Business Systems PLC-ADR (United Kingdom) 237,900 9,426,788 - ----------------------------------------------------------------- OFFICE PRODUCTS-0.55% Daisytek International Corp.(b)(c) 394,700 15,097,275 - ----------------------------------------------------------------- MARKET SHARES VALUE OIL & GAS (EXPLORATION & PRODUCTION)-0.75% Benton Oil & Gas Co.(b) 325,000 $ 7,962,500 - ----------------------------------------------------------------- Devon Energy Corp. 300,000 10,462,500 - ----------------------------------------------------------------- Forasol-Foramer N.V.(b) (France) 125,000 2,156,250 - ----------------------------------------------------------------- 20,581,250 - ----------------------------------------------------------------- OIL & GAS (SERVICES)-1.15% Camco International, Inc. 225,000 8,718,750 - ----------------------------------------------------------------- Energy Ventures, Inc.(b) 261,000 11,484,000 - ----------------------------------------------------------------- SEACOR Holdings Inc.(b) 100,000 5,400,000 - ----------------------------------------------------------------- Veritas DGC, Inc.(b) 300,000 6,150,000 - ----------------------------------------------------------------- 31,752,750 - ----------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-0.41% Marine Drilling Co., Inc.(b) 458,300 6,358,913 - ----------------------------------------------------------------- Varco International, Inc.(b) 250,000 4,937,500 - ----------------------------------------------------------------- 11,296,413 - ----------------------------------------------------------------- PAPER & FOREST PRODUCTS-0.14% Schweitzer-Mauduit International, Inc. 125,000 3,843,750 - ----------------------------------------------------------------- POLLUTION CONTROL-2.19% ATC Environmental, Inc.(b) 300,000 3,262,500 - ----------------------------------------------------------------- GTS Duratek, Inc.(b) 150,000 1,743,750 - ----------------------------------------------------------------- United Waste Systems, Inc.(b) 398,700 13,705,313 - ----------------------------------------------------------------- US Filter Corp.(b) 450,000 15,525,000 - ----------------------------------------------------------------- USA Waste Services, Inc.(b) 810,000 25,920,000 - ----------------------------------------------------------------- 60,156,563 - ----------------------------------------------------------------- PUBLISHING-0.53% Gartner Group, Inc.(b) 253,600 7,798,200 - ----------------------------------------------------------------- World Color Press, Inc.(b) 300,000 6,712,500 - ----------------------------------------------------------------- 14,510,700 - ----------------------------------------------------------------- RESTAURANTS-1.97% Apple South, Inc. 499,962 5,874,554 - ----------------------------------------------------------------- Foodmaker, Inc.(b) 600,000 5,850,000 - ----------------------------------------------------------------- Landry's Seafood Restaurants, Inc.(b) 275,000 5,637,500 - ----------------------------------------------------------------- Lone Star Steakhouse & Saloon, Inc.(b) 175,000 4,484,375 - ----------------------------------------------------------------- Papa John's International, Inc.(b) 150,000 7,462,500 - ----------------------------------------------------------------- Planet Hollywood International, Inc.-Class A(b) 200,000 4,150,000 - ----------------------------------------------------------------- Showbiz Pizza Time, Inc.(b) 274,600 5,080,100 - ----------------------------------------------------------------- Sonic Corp.(b) 400,000 9,100,000 - ----------------------------------------------------------------- Starbucks Corp.(b) 200,000 6,500,000 - ----------------------------------------------------------------- 54,139,029 - ----------------------------------------------------------------- RETAIL (FOOD & DRUG)-0.26% Quality Food Centers, Inc.(b) 200,000 7,300,000 - ----------------------------------------------------------------- RETAIL (STORES)-11.45% Barnett, Inc.(b) 82,200 1,941,975 - ----------------------------------------------------------------- Bed Bath & Beyond, Inc.(b) 200,000 5,050,000 - ----------------------------------------------------------------- Blyth Industries, Inc.(b) 329,700 12,817,088 - ----------------------------------------------------------------- Buckle, Inc. (The)(b) 170,000 4,335,000 - ----------------------------------------------------------------- CDW Computer Centers, Inc.(b) 150,000 9,440,625 - ----------------------------------------------------------------- Claire's Stores, Inc. 250,000 4,250,000 - -----------------------------------------------------------------
FS-56 148
MARKET SHARES VALUE RETAIL (STORES)-(CONTINUED) Compucom Systems, Inc.(b) 800,000 $ 7,800,000 - ----------------------------------------------------------------- CompUSA, Inc.(b) 250,000 11,562,500 - ----------------------------------------------------------------- Corporate Express, Inc.(b) 200,000 6,525,000 - ----------------------------------------------------------------- Dollar Tree Stores, Inc.(b) 175,000 6,606,250 - ----------------------------------------------------------------- Duty Free International, Inc. 400,000 6,400,000 - ----------------------------------------------------------------- Eagle Hardware & Garden, Inc.(b) 300,000 8,587,500 - ----------------------------------------------------------------- Fila Holding S.p.A.-ADR (Italy) 115,000 8,280,000 - ----------------------------------------------------------------- Finish Line, Inc. (The)-Class A(b) 161,400 6,859,500 - ----------------------------------------------------------------- Gadzooks, Inc.(b) 200,050 5,801,450 - ----------------------------------------------------------------- Gargoyles, Inc.(b) 100,000 1,325,000 - ----------------------------------------------------------------- Global DirectMail Corp.(b) 250,000 12,312,500 - ----------------------------------------------------------------- Gymboree Corp.(b) 391,000 12,218,750 - ----------------------------------------------------------------- Inacom Corp.(b) 200,000 6,325,000 - ----------------------------------------------------------------- Just for Feet, Inc.(b) 300,000 7,762,500 - ----------------------------------------------------------------- Loehmann's Holdings, Inc.(b)(c) 500,000 13,437,500 - ----------------------------------------------------------------- Marks Bros. Jewelers, Inc.(b)(c) 275,000 6,393,750 - ----------------------------------------------------------------- Men's Wearhouse, Inc. (The)(b) 321,000 6,620,625 - ----------------------------------------------------------------- Meyer (Fred), Inc.(b) 200,000 7,025,000 - ----------------------------------------------------------------- Micro Warehouse, Inc.(b) 500,000 11,500,000 - ----------------------------------------------------------------- MSC Industrial Direct Co., Inc.-Class A(b) 200,000 7,400,000 - ----------------------------------------------------------------- Neiman Marcus Group, Inc. (The)(b) 150,000 4,893,750 - ----------------------------------------------------------------- 99 Cents Only Stores(b) 100,000 1,475,000 - ----------------------------------------------------------------- O'Reilly Automotive, Inc.(b) 200,000 7,075,000 - ----------------------------------------------------------------- Oakley, Inc.(b) 700,000 10,412,500 - ----------------------------------------------------------------- Performance Food Group Co.(b)(c) 458,750 7,053,281 - ----------------------------------------------------------------- Petco Animal Supplies, Inc.(b) 427,500 10,046,250 - ----------------------------------------------------------------- Pier 1 Imports, Inc. 525,000 7,350,000 - ----------------------------------------------------------------- Rexall Sundown, Inc.(b) 150,000 4,068,750 - ----------------------------------------------------------------- Sports Authority, Inc. (The)(b) 492,500 11,943,125 - ----------------------------------------------------------------- Stein Mart, Inc.(b) 200,000 3,575,000 - ----------------------------------------------------------------- Sunglass Hut International, Inc.(b) 132,200 1,173,275 - ----------------------------------------------------------------- Tech Data Corp.(b) 800,000 20,600,000 - ----------------------------------------------------------------- Wet Seal, Inc.-Class A(b) 265,000 8,347,500 - ----------------------------------------------------------------- Williams-Sonoma, Inc.(b) 250,000 6,875,000 - ----------------------------------------------------------------- Wilmar Industries, Inc.(b) 150,000 3,225,000 - ----------------------------------------------------------------- Zale Corp.(b) 425,000 8,234,375 - ----------------------------------------------------------------- 314,925,319 - ----------------------------------------------------------------- SCHOOLS-0.08% Children's Comprehensive Services, Inc.(b) 150,000 2,212,500 - ----------------------------------------------------------------- SCIENTIFIC INSTRUMENTS-0.71% Dynatech Corp.(b) 71,800 3,549,613 - ----------------------------------------------------------------- Input/Output, Inc.(b) 400,000 11,900,000 - ----------------------------------------------------------------- Thermo Optek Corp.(b) 350,000 4,200,000 - ----------------------------------------------------------------- 19,649,613 - ----------------------------------------------------------------- SECURITY & SAFETY SERVICES-0.08% Cornell Corrections, Inc.(b) 200,000 2,100,000 - ----------------------------------------------------------------- SEMICONDUCTORS-1.83% Actel Corp.(b) 166,700 2,979,763 - ----------------------------------------------------------------- MARKET SHARES VALUE SEMICONDUCTORS-(CONTINUED) Chips & Technologies, Inc.(b) 400,000 $ 7,950,000 - ----------------------------------------------------------------- Computer Products, Inc.(b) 550,000 10,862,500 - ----------------------------------------------------------------- HADCO Corp.(b) 230,000 6,986,250 - ----------------------------------------------------------------- Sanmina Corp.(b) 250,000 11,437,500 - ----------------------------------------------------------------- Vitesse Semiconductor Corp.(b) 75,000 2,390,625 - ----------------------------------------------------------------- VLSI Technology, Inc.(b) 450,000 7,762,500 - ----------------------------------------------------------------- 50,369,138 - ----------------------------------------------------------------- SHOES & RELATED APPAREL-0.70% Vans, Inc.(b) 600,000 9,975,000 - ----------------------------------------------------------------- Wolverine World Wide, Inc. 375,000 9,281,250 - ----------------------------------------------------------------- 19,256,250 - ----------------------------------------------------------------- TELECOMMUNICATIONS-6.18% ADC Telecommunications, Inc.(b) 300,000 20,512,500 - ----------------------------------------------------------------- Allen Group, Inc. 132,000 2,095,500 - ----------------------------------------------------------------- Andrew Corp.(b) 450,000 21,937,500 - ----------------------------------------------------------------- Anicom, Inc.(b) 400,000 3,600,000 - ----------------------------------------------------------------- Aspect Telecommunications Corp.(b) 125,000 7,437,500 - ----------------------------------------------------------------- Billing Information Concepts(b) 350,000 9,143,750 - ----------------------------------------------------------------- Brightpoint, Inc.(b)(c) 499,950 12,498,750 - ----------------------------------------------------------------- LCI International, Inc.(b) 300,000 9,562,500 - ----------------------------------------------------------------- P-COM, Inc.(b) 100,000 2,200,000 - ----------------------------------------------------------------- PairGain Technologies, Inc.(b) 386,500 26,620,187 - ----------------------------------------------------------------- Precision Response Corp.(b) 50,000 1,787,500 - ----------------------------------------------------------------- Premiere Technologies, Inc.(b) 50,200 815,750 - ----------------------------------------------------------------- Premisys Communications, Inc.(b) 200,000 10,000,000 - ----------------------------------------------------------------- Proxim, Inc.(b) 100,000 2,275,000 - ----------------------------------------------------------------- Tellabs, Inc.(b) 100,000 8,512,500 - ----------------------------------------------------------------- Teltrend, Inc.(b) 300,000 9,900,000 - ----------------------------------------------------------------- TESSCO Technologies, Inc.(b)(c) 300,000 11,850,000 - ----------------------------------------------------------------- Tollgrade Communications, Inc.(b) 99,000 2,574,000 - ----------------------------------------------------------------- U.S. Long Distance Corp.(b) 307,500 2,575,313 - ----------------------------------------------------------------- United States Satellite Broadcasting Co., Inc.(b) 123,600 1,993,050 - ----------------------------------------------------------------- Xpedite Systems, Inc.(b) 100,000 2,050,000 - ----------------------------------------------------------------- 169,941,300 - ----------------------------------------------------------------- TEXTILES-2.43% Designer Holdings Ltd.(b) 350,000 6,693,750 - ----------------------------------------------------------------- Mohawk Industries, Inc.(b) 350,000 8,487,500 - ----------------------------------------------------------------- Nautica Enterprises, Inc.(b) 450,000 13,837,500 - ----------------------------------------------------------------- Springs Industries, Inc.-Class A 150,000 6,768,750 - ----------------------------------------------------------------- St. John Knits, Inc. 250,000 11,437,500 - ----------------------------------------------------------------- Tommy Hilfiger Corp.(b) 250,000 13,000,000 - ----------------------------------------------------------------- WestPoint Stevens, Inc.(b) 250,000 6,656,250 - ----------------------------------------------------------------- 66,881,250 - ----------------------------------------------------------------- TRANSPORTATION-0.51% Hub Group, Inc.(b)(c) 400,000 8,900,000 - ----------------------------------------------------------------- Rural/Metro Corp.(b) 100,000 3,650,000 - -----------------------------------------------------------------
FS-57 149
MARKET SHARES VALUE TRANSPORTATION-(CONTINUED) Trico Marine Services, Inc.(b) 40,800 $ 1,438,200 - ----------------------------------------------------------------- 13,988,200 - ----------------------------------------------------------------- Total Common Stocks 2,540,073,704 - -----------------------------------------------------------------
PRINCIPAL AMOUNT U.S. TREASURY SECURITIES-1.98% U.S. TREASURY BILLS(d) 5.046%, 01/02/97(e) $ 55,000,000 54,550,650 - ----------------------------------------------------------------- Total U.S. Treasury Securities 54,550,650 - ----------------------------------------------------------------- PRINCIPAL MARKET AMOUNT VALUE REPURCHASE AGREEMENTS-5.39%(f) Daiwa Securities America, Inc., 5.53% 11/01/96(g) $ 222,124 $ 222,124 - ----------------------------------------------------------------- Dresdner Securities (USA), Inc., 5.54% 11/01/96(h) 47,000,000 47,000,000 - ----------------------------------------------------------------- SBC Capital Markets, Inc., 5.55% 11/01/96(i) 101,000,000 101,000,000 - ----------------------------------------------------------------- Total Repurchase Agreements 148,222,124 - ----------------------------------------------------------------- TOTAL INVESTMENTS-100.25% 2,757,522,291 - ----------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-(0.25%) (6,958,348) - ----------------------------------------------------------------- NET ASSETS-100.00% $ 2,750,563,943 =================================================================
Investment Abbreviations: ADR - American Depository Receipt Conv. - Convertible Deb. - Debentures Sub. - Subordinated Notes to Schedule of Investments: (a) 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 procedures established by the Board of Directors. The aggregate market value of these securities at October 31,1996 was $11,978,513 which represented 0.44% of the Fund's net assets. (b) Non-income producing security. (c) 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 October 31, 1996 was $153,533,350 which represented 5.58% of the Fund's net assets. (d) U.S. Treasury bills are traded on 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. (e) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contracts. See Note 6. (f) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102 percent 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. (g) Joint repurchase agreement entered into 10/31/96 with a maturing value of $750,115,208. Collateralized by $733,115,000 U.S. Treasury obligations, 0% to 10.375% due 11/15/96 to 08/15/23. (h) Joint repurchase agreement entered into 10/31/96 with a maturing value of $200,030,778. Collateralized by $198,651,000 U.S. Treasury obligations, 4.75% to 9.25% due 11/30/97 to 06/30/99. (i) Joint repurchase agreement entered into 10/31/96 with a maturing value of $700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0% to 9.125% due 11/30/96 to 10/31/01. See Notes to Financial Statements. FS-58 150 STATEMENT OF ASSETS AND LIABILITIES October 31, 1996 ASSETS: Investments, at market value (cost $2,102,644,643) $2,757,522,291 - --------------------------------------------------------- Cash 391,114 - --------------------------------------------------------- Receivables for: Investments sold 13,844,684 - --------------------------------------------------------- Capital stock sold 13,253,569 - --------------------------------------------------------- Dividends and interest 222,317 - --------------------------------------------------------- Variation margin 568,550 - --------------------------------------------------------- Investment for deferred compensation plan 23,229 - --------------------------------------------------------- Other assets 130,315 - --------------------------------------------------------- Total assets 2,785,956,069 - --------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 25,232,620 - --------------------------------------------------------- Capital stock reacquired 7,170,183 - --------------------------------------------------------- Deferred compensation 23,229 - --------------------------------------------------------- Accrued advisory fees 1,548,580 - --------------------------------------------------------- Accrued administrative service fees 8,365 - --------------------------------------------------------- Accrued distribution fees 608,714 - --------------------------------------------------------- Accrued directors fees 1,339 - --------------------------------------------------------- Accrued transfer agent fees 509,702 - --------------------------------------------------------- Accrued operating expenses 289,394 - --------------------------------------------------------- Total liabilities 35,392,126 - --------------------------------------------------------- NET ASSETS APPLICABLE TO SHARES OUTSTANDING $2,750,563,943 - --------------------------------------------------------- Capital stock, $.001 par value per share: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 61,224,358 - --------------------------------------------------------- NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 44.93 - --------------------------------------------------------- OFFERING PRICE PER SHARE: (Net asset value of $44.93 divided by 94.50%) $ 47.54 - ---------------------------------------------------------
STATEMENT OF OPERATIONS For the year ended October 31, 1996 INVESTMENT INCOME: Interest $ 6,964,425 - -------------------------------------------------------- Dividends (net of $26,363 foreign withholding tax) 1,998,154 - -------------------------------------------------------- Total investment income 8,962,579 - -------------------------------------------------------- EXPENSES: Advisory fees 16,492,564 - -------------------------------------------------------- Custodian fees 244,961 - -------------------------------------------------------- Directors' fees 21,529 - -------------------------------------------------------- Distribution fees 6,492,025 - -------------------------------------------------------- Administrative services fees 97,857 - -------------------------------------------------------- Transfer agent fees 4,108,892 - -------------------------------------------------------- Other 1,248,996 - -------------------------------------------------------- Total expenses 28,706,824 - -------------------------------------------------------- Less: Expenses paid indirectly (40,269) - -------------------------------------------------------- Net expenses 28,666,555 - -------------------------------------------------------- Net investment income (loss) (19,703,976) - -------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FUTURES CONTRACTS AND FOREIGN CURRENCIES: Net realized gain on sales of: Investment securities 124,457,350 - -------------------------------------------------------- Futures contracts 17,081,337 - -------------------------------------------------------- 141,538,687 - -------------------------------------------------------- Unrealized appreciation (depreciation) of: Investment securities 214,736,369 - -------------------------------------------------------- Futures contracts (3,538,650) - -------------------------------------------------------- Foreign currencies (42) - -------------------------------------------------------- 211,197,677 - -------------------------------------------------------- Net gain on investment securities, futures contracts and foreign currencies 352,736,364 - -------------------------------------------------------- Net increase in net assets resulting from operations $333,032,388 - --------------------------------------------------------
See Notes to Financial Statements. FS-59 151 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1996 and 1995
1996 1995 -------------- -------------- OPERATIONS: Net investment income (loss) $ (19,703,976) $ (2,318,274) - --------------------------------------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities, futures contracts and foreign currencies 141,538,687 52,290,438 - --------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investment securities, futures contracts and foreign currencies 211,197,677 314,756,271 - --------------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 333,032,388 364,728,435 - --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains on investment securities (54,512,548) -- - --------------------------------------------------------------------------------------------------------------------------- Net increase from capital stock transactions 226,490,173 1,193,587,768 - --------------------------------------------------------------------------------------------------------------------------- Net increase in net assets 505,010,013 1,558,316,203 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 2,245,553,930 687,237,727 - --------------------------------------------------------------------------------------------------------------------------- End of period $2,750,563,943 $2,245,553,930 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $1,957,915,109 $1,748,790,238 - --------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (44,163) (16,714) - --------------------------------------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities, futures contracts and foreign currencies 133,729,499 49,014,585 - --------------------------------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, futures contracts and foreign currencies 658,963,498 447,765,821 - --------------------------------------------------------------------------------------------------------------------------- $2,750,563,943 $2,245,553,930 ===========================================================================================================================
See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS October 31, 1996 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Aggressive Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six diversified portfolios: AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The Fund has temporarily discontinued public sales of its shares to new investors. The Fund is a diversified portfolio which seeks to achieve long-term growth of capital by investing primarily in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the Fund's investment advisor are expected to achieve earnings growth over time at a rate in excess of 15% per year. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations--Except as provided in the next sentence, a security listed or traded on an exchange is valued at its last price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Exchange listed convertible bonds are valued at the mean between the closing bid and asked prices obtained from a broker-dealer. 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 that are issued or guaranteed by the U.S. Treasury 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 FS-60 152 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 recorded on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. On October 31, 1996, $2,311,225 was reclassified from paid-in capital to undistributed net realized gains as a result of differing book/tax treatments. In addition, $19,676,527 was reclassified from undistributed net investment income (loss) to paid-in capital as a result of a net operating tax loss. 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. Stock Index Futures Contracts--The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in the value of contracts may not correlate with changes in the value of the securities being hedged. E. Foreign Currency Transactions--Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. F. Foreign Currency Contracts--A forward 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 forward 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. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $150 million of the Fund's average daily net assets, plus 0.625% of the fund's average daily net assets in excess of $150 million. 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, 1996, AIM was reimbursed $97,857 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing transfer agency services to the Fund. During the year ended October 31, 1996, AFS was paid $2,047,282 for such services. The Fund received reductions in transfer agency fees of $37,293 from dividends received on balances in cash management accounts. In addition, the Fund incurred expenses of $2,976 from pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $40,269 during the year ended October 31, 1996. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Company has adopted a plan pursuant to rule 12b-1 under the 1940 Act (the "Plan"), whereby the Fund pays to AIM Distributors an annual rate of 0.25% of the Fund's average daily net assets as compensation for services related to the sales and distribution of the Fund's shares. The Plan provides that payments to dealers and financial institutions that provide continuing personal shareholder services to their customers who purchase and own shares of the Fund, in amounts of up to 0.25% of the average net assets of the Fund attributable to the customers of such dealers or financial institutions, may be characterized as a service fee. Any amounts not paid as a service fee under the Plan would constitute an assets-based sales charge. The Plan also imposes a cap on the total amount of sales charges, including asset-based sales charges, that may be paid by the Company with respect to the Fund's shares. During the year ended October 31, 1996, the Fund paid AIM Distributors $6,492,025 as compensation under the Plan. AIM Distributors received commissions of $2,111,788 from sales of shares of the Fund's capital stock during the year ended October 31, 1996. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of capital stock. During the year ended October 31, 1996, AIM Distributors received $31,306 in contingent FS-61 153 deferred sales charges imposed on redemptions of the Fund's capital stock. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the year ended October 31, 1996, the Fund paid legal fees of $12,003 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-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) $325,000,000 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 July 19, 1996, the Fund was limited to borrowing $14,900,000. During the year ended October 31, 1996, 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 0.08% 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 4-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the year ended October 31, 1996 were $2,207,324,806 and $1,964,387,494, respectively. The amount of unrealized appreciation (depreciation) of investment securities as of October 31, 1996 is as follows: Aggregate unrealized appreciation of investment securities $740,464,004 - ---------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (86,292,810) - ---------------------------------------------------------- Net unrealized appreciation of investment securities $654,171,194 ========================================================== Cost of investment for tax purposes is $2,103,351,097.
NOTE 5-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 6-FUTURES CONTRACTS On October 31, 1996, $2,306,000 par value U.S. Treasury obligations were pledged as collateral to cover margin requirements for futures contracts. Futures contracts outstanding at October 31, 1996: (Contracts -- $500 times index/delivery month/commitment)
UNREALIZED APPRECIATION ------------- S&P 500 Index/166 Contracts/Dec 96/Buy $4,085,850
NOTE 7-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 1996 and 1995 were as follows:
1996 1995 ---------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ----------- --------------- ----------- -------------- Sold 30,538,437 $ 1,334,476,880 53,971,580 $1,912,251,434 - -------------------------------------------------------------------- Issued as reinvestment of dividends 1,291,013 49,897,557 -- -- - -------------------------------------------------------------------- Reacquired (26,568,998) (1,157,884,264) (22,228,120) (718,663,666) - -------------------------------------------------------------------- 5,260,452 $ 226,490,173 31,743,460 $1,193,587,768 ====================================================================
FS-62 154 NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of capital stock outstanding during each of the years in the three-year period ended October 31, 1996, the ten month period ended October 31, 1993 and each of the years in the six-year period ended December 31, 1992.
OCTOBER 31, DECEMBER 31, --------------------------------------------------- ------------------------------ 1996 1995 1994 1993 1992(a) 1991 1990 ---------- ---------- -------- -------- ------- ------- ------ Net asset value, beginning of period $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06 $ 11.85 $ 13.30 - ------------------------------------ ---------- ---------- -------- -------- ------- ------- ------- Income from investment operations: Net investment income (loss) (0.32) (0.04) (0.05) (0.02) (0.03) (0.04) 0.08 ---------- ---------- -------- -------- ------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 6.09 11.80 4.57 5.35 3.41 7.29 (0.95) ---------- ---------- -------- -------- ------- ------- ------- Total from investment operations 5.77 11.76 4.52 5.33 3.38 7.25 (0.87) ---------- ---------- -------- -------- ------- ------- ------- Less distributions: Dividends from net investment income -- -- -- -- -- -- (0.09) ---------- ---------- -------- -------- ------- ------- ------- Distributions from capital gains (0.97) -- -- -- (0.92) (3.04) (0.49) ---------- ---------- -------- -------- ------- ------- ------- Total distributions (0.97) -- -- -- (0.92) (3.04) (0.58) ---------- ---------- -------- -------- ------- ------- ------- Net asset value, end of period $ 44.93 $ 40.13 $ 28.37 $ 23.85 $ 18.52 $ 16.06 $ 11.85 ========== ========== ======== ======== ======= ======= ======= Total return(b) 14.77% 41.45% 18.96% 28.78% 21.34% 63.90% (6.50)% ========== ========== ======== ======== ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $2,750,564 $2,245,554 $687,238 $217,256 $38,238 $16,218 $ 9,234 ========== ========== ======== ======== ======= ======= ======= Ratio of expenses to average net assets(c) 1.11 (e)(f) 1.08% 1.07% 1.00%(g) 1.25% 1.25% 1.25% ========== ========== ======== ======== ======= ======= ======= Ratio of net investment income (loss) to average net assets(d) (0.76)%(e) (0.19)% (0.26)% (0.24)%(g) (0.59)% (0.31)% 0.62% ========== ========== ======== ======== ======= ======= ======= Portfolio turnover rate 79% 52% 75% 61% 164% 165% 137% ========== ========== ======== ======== ======= ======= ======= Average broker commission rate(h) $ 0.0545 N/A N/A N/A N/A N/A N/A ========== ========== ======== ======== ======= ======= ======= 1989 1988 1987 ------- ------- ------- Net asset value, beginning of period $ 11.07 $ 9.86 $ 12.10 - ------------------------------------ ------- ------- ------- Income from investment operations: Net investment income (loss) 0.03 0.05 -- ------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 2.28 1.21 (1.38) ------- ------- ------- Total from investment operations 2.31 1.26 (1.38) ------- ------- ------- Less distributions: Dividends from net investment income (0.03) (0.05) -- ------- ------- ------- Distributions from capital gains (0.05) -- (0.86) ------- ------- ------- Total distributions (0.08) (0.05) (0.86) ------- ------- ------- Net asset value, end of period $ 13.30 $ 11.07 $ 9.86 ======= ======= ======= Total return(b) 20.89% 12.77% (11.52)% ======= ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $11,712 $12,793 $13,991 ======= ======= ======= Ratio of expenses to average net assets(c) 1.25% 1.22% 1.20% ======= ======= ======= Ratio of net investment income (loss) to average net assets(d) 0.24% 0.38% 0.01% ======= ======= ======= Portfolio turnover rate 69% 56% 118% ======= ======= ======= Average broker commission rate(h) N/A N/A N/A ======= ======= =======
(a) The Fund changed investment advisors on June 30, 1992. (b) Does not deduct sales charges and for periods less than one year, total returns are not annualized. (c) Ratios of expenses to average net assets prior to reduction of advisory fees and expense reimbursements were 1.15%, 1.09%, 1.17% (annualized), 1.65%, 1.83%, 1.99%, 1.80%, 1.56% and 1.29% for 1995-87, respectively. (d) Ratios of net investment income (loss) to average net assets prior to reduction of advisory fees and expense reimbursements were (0.26)%, (0.28)%, (0.41)% (annualized), (0.99)%, (0.89)%, (0.11)%, (0.31)%, 0.04% and (0.08)% for 1995-87, respectively. (e) Ratios are based on average net assets of $2,596,810,191. (f) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have been 1.10%. (g) Annualized. (h) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. NOTE 9-SUBSEQUENT EVENT On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO PLC announced the execution of an agreement and plan of merger pursuant to which AIM Management will be merged with and into a direct wholly-owned subsidiary of INVESCO PLC. AIM Management is the parent company of the Fund's advisor. The merger is conditional on, among other things, approval by the shareholders of INVESCO PLC and AIM Management and the shareholders of the AIM funds and the mutual funds managed by INVESCO PLC, and is expected to take place during the first quarter of 1997. NOTE 10-LEGAL PROCEEDINGS A claim, Saltzberg v. AIM Equity Funds, Inc., et al., was filed in Southern District Court in Texas in October 1996 against AIM and certain other subsidiaries of AIM Management. The claim was instituted under section 36(b) of the Investment Company Act of 1940 and seeks to recover damages allegedly suffered by the Fund in connection with fees paid for marketing and shareholder services after the Fund was closed to new investors. AIM Management is investigating whether there is any basis at all for this claim and intends to defend it vigorously. FS-63 155 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders AIM Capital Development Fund: We have audited the accompanying statement of assets and liabilities of AIM Capital Development Fund (a series portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1996, the related statement of operations, the statement of changes in net assets, and the financial highlights for the period June 17, 1996 (date operations commenced) through October 31, 1996. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit 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, 1996, 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AIM Capital Development Fund as of October 31, 1996, the results of its operations, the changes in its net assets, and the financial highlights for the period June 17, 1996 (date operations commenced) through October 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Houston, Texas December 6, 1996 FS-64 156 SCHEDULE OF INVESTMENTS October 31, 1996
MARKET SHARES VALUE COMMON STOCKS-87.58% ADVERTISING/BROADCASTING-3.57% Alliance Communications Corp.-Class B(a) 60,000 $ 525,000 - ---------------------------------------------------------------- Cox Radio, Inc.-Class A(a) 71,200 1,290,500 - ---------------------------------------------------------------- Eagle River Interactive, Inc.(a) 27,000 253,125 - ---------------------------------------------------------------- Evergreen Media Corp.-Class A(a) 1,800 48,600 - ---------------------------------------------------------------- Film Roman, Inc.(a) 70,800 544,275 - ---------------------------------------------------------------- Heritage Media Corp.(a) 8,400 128,100 - ---------------------------------------------------------------- Lamar Advertising Co.(a) 33,900 932,250 - ---------------------------------------------------------------- Metro Networks, Inc.(a) 61,600 1,247,400 - ---------------------------------------------------------------- SFX Broadcasting, Inc.-Class A(a) 1,200 51,600 - ---------------------------------------------------------------- Snyder Communications, Inc.(a) 73,400 1,431,300 - ---------------------------------------------------------------- Universal Outdoor Holdings, Inc.(a) 50,000 1,468,750 - ---------------------------------------------------------------- Univision Communications, Inc.(a) 54,500 1,839,375 - ---------------------------------------------------------------- 9,760,275 - ---------------------------------------------------------------- AEROSPACE/DEFENSE-0.63% Gulfstream Aerospace Corp.(a) 69,200 1,634,850 - ---------------------------------------------------------------- Tracor, Inc.(a) 3,900 88,725 - ---------------------------------------------------------------- 1,723,575 - ---------------------------------------------------------------- AIRLINES-0.57% Aviation Sales Co.(a) 20,000 390,000 - ---------------------------------------------------------------- Eagle USA Airfreight, Inc.(a) 2,400 65,400 - ---------------------------------------------------------------- Sabre Group Holdings Inc.(a) 36,500 1,113,250 - ---------------------------------------------------------------- 1,568,650 - ---------------------------------------------------------------- APPLIANCES-0.20% Service Experts, Inc.(a) 21,800 555,900 - ---------------------------------------------------------------- AUTOMOBILE/TRUCK PARTS & TIRES-0.38% Cross-Continent Auto Retailers, Inc.(a) 28,500 730,313 - ---------------------------------------------------------------- Rush Enterprises, Inc.(a) 25,000 309,375 - ---------------------------------------------------------------- 1,039,688 - ---------------------------------------------------------------- AUTOMOBILE (MANUFACTURERS)-0.97% United Auto Group, Inc.(a) 77,400 2,660,625 - ---------------------------------------------------------------- BANKING-1.02% AmSouth Bancorporation 6,000 278,250 - ---------------------------------------------------------------- Banknorth Group, Inc. 16,000 552,000 - ---------------------------------------------------------------- Cullen/Frost Bankers, Inc. 8,000 240,500 - ---------------------------------------------------------------- Hibernia Corp. 20,000 222,500 - ---------------------------------------------------------------- Marshall & Ilsley Corp. 46,500 1,493,813 - ---------------------------------------------------------------- 2,787,063 - ---------------------------------------------------------------- BEVERAGES-0.35% Diedrich Coffee, Inc.(a) 94,700 970,675 - ---------------------------------------------------------------- BUILDING MATERIALS-0.50% Juno Lighting, Inc. 65,000 1,011,562 - ---------------------------------------------------------------- LSI Industries, Inc. 35,000 350,000 - ---------------------------------------------------------------- 1,361,562 - ---------------------------------------------------------------- MARKET SHARES VALUE BUILDING MATERIALS (TOOLS)-0.16% Regal-Beloit Corp. 24,200 $ 429,550 - ---------------------------------------------------------------- BUSINESS SERVICES-4.33% Abacus Direct Corp.(a) 57,800 1,517,250 - ---------------------------------------------------------------- Alliance Capital Management L.P. 3,000 83,625 - ---------------------------------------------------------------- American List Corp. 25,000 687,500 - ---------------------------------------------------------------- Claremont Technology Group, Inc.(a) 13,000 396,500 - ---------------------------------------------------------------- Copart, Inc.(a) 3,900 71,663 - ---------------------------------------------------------------- CUC International, Inc.(a) 46,500 1,139,250 - ---------------------------------------------------------------- Donnelley Enterprise Solutions Inc.(a) 50,400 1,260,000 - ---------------------------------------------------------------- HealthPlan Services Corp.(a) 32,500 589,063 - ---------------------------------------------------------------- International Telecommunication Data Systems, Inc.(a) 40,000 650,000 - ---------------------------------------------------------------- Lason Holdings, Inc.(a) 41,400 734,850 - ---------------------------------------------------------------- Mecon, Inc.(a) 19,500 375,375 - ---------------------------------------------------------------- MedQuist, Inc.(a) 3,300 58,575 - ---------------------------------------------------------------- MemberWorks, Inc.(a) 48,100 697,450 - ---------------------------------------------------------------- Metzler Group, Inc.(a) 70,600 1,645,862 - ---------------------------------------------------------------- National Processing, Inc.(a) 25,000 475,000 - ---------------------------------------------------------------- On Assignment, Inc.(a) 5,000 153,750 - ---------------------------------------------------------------- Superior Consultant Holdings Corp.(a) 17,000 416,500 - ---------------------------------------------------------------- XLConnect Solutions, Inc.(a) 31,000 906,750 - ---------------------------------------------------------------- 11,858,963 - ---------------------------------------------------------------- CHEMICALS-0.22% Arcadian Corp. 25,000 615,625 - ---------------------------------------------------------------- CHEMICALS (SPECIALTY)-0.12% IMC Global, Inc. 8,600 322,500 - ---------------------------------------------------------------- COMPUTER MAINFRAMES-0.37% Amdahl Corp.(a) 100,000 1,025,000 - ---------------------------------------------------------------- COMPUTER MINI/PCS-0.05% Dell Computer Corp.(a) 900 73,237 - ---------------------------------------------------------------- Gateway 2000, Inc.(a) 1,200 56,475 - ---------------------------------------------------------------- 129,712 - ---------------------------------------------------------------- COMPUTER NETWORKING-3.31% ACT Networks, Inc.(a) 16,000 548,000 - ---------------------------------------------------------------- Ascend Communications, Inc.(a) 32,000 2,092,000 - ---------------------------------------------------------------- Auspex Systems, Inc.(a) 8,600 88,150 - ---------------------------------------------------------------- Bay Networks, Inc.(a) 8,000 162,000 - ---------------------------------------------------------------- Belden, Inc. 45,000 1,293,750 - ---------------------------------------------------------------- Black Box Corp.(a) 13,600 459,000 - ---------------------------------------------------------------- Cabletron Systems, Inc.(a) 15,500 966,812 - ---------------------------------------------------------------- Cheyenne Software, Inc.(a) 15,000 455,625 - ---------------------------------------------------------------- Coherent Communications Systems Corp.(a) 5,000 96,875 - ---------------------------------------------------------------- DSP Communications, Inc.(a) 1,200 45,600 - ---------------------------------------------------------------- FORE Systems, Inc.(a) 28,000 1,113,000 - ---------------------------------------------------------------- Harmonic Lightwaves, Inc.(a) 10,200 172,125 - ---------------------------------------------------------------- InterVoice, Inc.(a) 20,000 260,000 - ----------------------------------------------------------------
FS-65 157
MARKET SHARES VALUE COMPUTER NETWORKING-(CONTINUED) Optical Data Systems, Inc.(a) 20,000 $ 292,500 - ---------------------------------------------------------------- 3Com Corp.(a) 15,000 1,014,375 - ---------------------------------------------------------------- 9,059,812 - ---------------------------------------------------------------- COMPUTER PERIPHERALS-1.67% FileNet Corp.(a) 20,000 567,500 - ---------------------------------------------------------------- Microchip Technology, Inc.(a) 2,100 76,125 - ---------------------------------------------------------------- Printronix, Inc.(a) 87,500 1,082,812 - ---------------------------------------------------------------- Raster Graphics, Inc.(a) 50,000 418,750 - ---------------------------------------------------------------- Read-Rite Corp.(a) 20,000 355,000 - ---------------------------------------------------------------- U.S. Robotics Corp.(a) 33,000 2,074,875 - ---------------------------------------------------------------- 4,575,062 - ---------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-14.02% Adobe Systems, Inc. 2,700 93,488 - ---------------------------------------------------------------- ANSYS, Inc.(a) 80,000 980,000 - ---------------------------------------------------------------- Aurum Software, Inc.(a) 24,300 771,525 - ---------------------------------------------------------------- Bell & Howell Co.(a) 21,200 567,100 - ---------------------------------------------------------------- BMC Software, Inc.(a) 13,500 1,120,500 - ---------------------------------------------------------------- Broderbund Software, Inc.(a) 20,000 562,500 - ---------------------------------------------------------------- Business Objects S.A.-ADR(a) (France) 50,000 743,750 - ---------------------------------------------------------------- C/NET, Inc.(a) 24,500 392,000 - ---------------------------------------------------------------- Cadence Design Systems, Inc.(a) 5,200 189,800 - ---------------------------------------------------------------- CCC Information Services Group(a) 149,000 2,793,750 - ---------------------------------------------------------------- Check Point Software Technologies Ltd.(a) 25,000 687,500 - ---------------------------------------------------------------- Citrix Systems, Inc.(a) 7,000 386,750 - ---------------------------------------------------------------- Computer Learning Centers, Inc.(a) 2,100 56,175 - ---------------------------------------------------------------- Computervision Corp.(a) 6,300 56,700 - ---------------------------------------------------------------- Compuware Corp.(a) 15,000 791,250 - ---------------------------------------------------------------- Cooper & Chyan Technology, Inc.(a) 1,200 36,750 - ---------------------------------------------------------------- CSG Systems International, Inc.(a) 2,400 40,200 - ---------------------------------------------------------------- CyberMedia, Inc.(a) 23,400 520,650 - ---------------------------------------------------------------- Dassault Systemes S.A.-ADR(a) (France) 20,000 867,500 - ---------------------------------------------------------------- DataWorks Corp.(a) 2,700 72,900 - ---------------------------------------------------------------- Dendrite International, Inc.(a) 21,000 559,125 - ---------------------------------------------------------------- Document Sciences Corp.(a) 55,000 701,250 - ---------------------------------------------------------------- DST Systems, Inc.(a) 34,000 1,045,500 - ---------------------------------------------------------------- Electronic Arts, Inc.(a) 1,500 56,250 - ---------------------------------------------------------------- FactSet Research Systems, Inc.(a) 9,600 230,400 - ---------------------------------------------------------------- Farallon Communications(a) 15,000 191,250 - ---------------------------------------------------------------- GT Interactive Software Corp.(a) 5,000 95,625 - ---------------------------------------------------------------- Hyperion Software Corp.(a) 90,000 1,833,750 - ---------------------------------------------------------------- Infinity Financial Technology, Inc.(a) 35,000 573,125 - ---------------------------------------------------------------- Information Resources, Inc.(a) 10,400 131,300 - ---------------------------------------------------------------- Informix Corp.(a) 80,000 1,775,000 - ---------------------------------------------------------------- Intuit, Inc.(a) 15,000 405,000 - ---------------------------------------------------------------- JDA Software Group, Inc.(a) 15,000 515,625 - ---------------------------------------------------------------- Learning Company, Inc. (The)(a) 20,000 406,250 - ---------------------------------------------------------------- Macromedia, Inc.(a) 25,000 415,625 - ---------------------------------------------------------------- May & Speh, Inc.(a) 3,000 49,875 - ---------------------------------------------------------------- Memco Software Ltd.(a) (Israel) 67,700 1,235,525 - ---------------------------------------------------------------- Mercury Interactive Corp.(a) 35,000 446,250 - ---------------------------------------------------------------- MARKET SHARES VALUE COMPUTER SOFTWARE/SERVICES-(CONTINUED) Metromail Corp.(a) 85,000 $ 1,561,875 - ---------------------------------------------------------------- Midway Games Inc.(a) 40,000 800,000 - ---------------------------------------------------------------- National Instruments Corp.(a) 15,000 427,500 - ---------------------------------------------------------------- Network General Corp.(a) 28,000 675,500 - ---------------------------------------------------------------- Object Design, Inc.(a) 20,000 228,750 - ---------------------------------------------------------------- OneWave, Inc.(a) 25,000 350,000 - ---------------------------------------------------------------- OpenVision Technologies, Inc.(a) 14,500 155,875 - ---------------------------------------------------------------- Parametric Technology Corp.(a) 2,000 97,750 - ---------------------------------------------------------------- PHAMIS, Inc.(a) 20,000 300,000 - ---------------------------------------------------------------- Physician Computer Network, Inc.(a) 25,100 224,331 - ---------------------------------------------------------------- Platinum Technology, Inc.(a) 25,000 359,375 - ---------------------------------------------------------------- Quality Systems, Inc.(a) 25,000 192,188 - ---------------------------------------------------------------- S3 Inc.(a) 5,000 94,375 - ---------------------------------------------------------------- Saville Systems Ireland PLC-ADR(a) (Ireland) 29,000 1,250,625 - ---------------------------------------------------------------- SEI Corp. 61,000 1,235,250 - ---------------------------------------------------------------- SELECT Software Tools-ADR(a) (United Kingdom) 29,100 640,200 - ---------------------------------------------------------------- Shared Medical Systems Corp. 8,000 386,000 - ---------------------------------------------------------------- Siebel Systems, Inc.(a) 21,000 1,144,500 - ---------------------------------------------------------------- Spectrum Holobyte, Inc.(a) 7,500 42,188 - ---------------------------------------------------------------- Structural Dynamics Research Corp.(a) 3,000 53,250 - ---------------------------------------------------------------- SunGard Data Systems Inc.(a) 58,500 2,500,875 - ---------------------------------------------------------------- Symantec Corp.(a) 5,100 55,462 - ---------------------------------------------------------------- Technology Modeling Associates, Inc.(a) 53,500 571,780 - ---------------------------------------------------------------- TRO Learning, Inc.(a) 2,400 42,600 - ---------------------------------------------------------------- Trusted Information Systems, Inc.(a) 75,000 1,012,500 - ---------------------------------------------------------------- USCS International, Inc.(a) 15,000 270,000 - ---------------------------------------------------------------- VeriFone, Inc.(a) 1,500 50,437 - ---------------------------------------------------------------- Versant Object Technology Corp.(a) 20,000 390,000 - ---------------------------------------------------------------- Viewlogic Systems, Inc.(a) 7,000 66,062 - ---------------------------------------------------------------- Wallace Computer Services, Inc. 10,000 293,750 - ---------------------------------------------------------------- Xylan Corp.(a) 12,000 480,000 - ---------------------------------------------------------------- 38,350,511 - ---------------------------------------------------------------- CONGLOMERATES-0.18% Amway Asia Pacific Ltd. (Hong Kong) 13,900 498,662 - ---------------------------------------------------------------- CONSUMER NON-DURABLES-0.48% Central Garden and Pet Co.(a) 1,800 42,525 - ---------------------------------------------------------------- First Years (The), Inc. 20,000 310,000 - ---------------------------------------------------------------- TAG Heuer International SA-ADR(a) (Luxembourg) 33,700 539,200 - ---------------------------------------------------------------- USA Detergents, Inc.(a) 13,000 429,000 - ---------------------------------------------------------------- 1,320,725 - ---------------------------------------------------------------- COSMETICS & TOILETRIES-1.38% Carson, Inc.(a) 68,600 1,114,750 - ---------------------------------------------------------------- Estee Lauder Companies-Class A 14,500 623,500 - ---------------------------------------------------------------- French Fragrances, Inc.(a) 50,000 443,750 - ---------------------------------------------------------------- General Nutrition Companies, Inc.(a) 75,000 1,368,750 - ---------------------------------------------------------------- Tambrands, Inc. 5,000 213,125 - ---------------------------------------------------------------- 3,763,875 - ----------------------------------------------------------------
FS-66 158
MARKET SHARES VALUE ELECTRONIC COMPONENTS/ MISCELLANEOUS-0.30% Oak Industries, Inc.(a) 1,500 $ 38,062 - ---------------------------------------------------------------- SRS Labs, Inc.(a) 50,000 787,500 - ---------------------------------------------------------------- 825,562 - ---------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-0.44% Hambrecht & Quist Group(a) 28,000 556,500 - ---------------------------------------------------------------- Investors Financial Services Corp. 10,000 258,750 - ---------------------------------------------------------------- Lehman Brothers Holdings, Inc. 10,000 251,250 - ---------------------------------------------------------------- Schwab (Charles) Corp. 6,000 150,000 - ---------------------------------------------------------------- 1,216,500 - ---------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-1.12% CMAC Investment Corp. 6,500 449,313 - ---------------------------------------------------------------- Federal National Mortgage Association(b) 52,000 2,034,500 - ---------------------------------------------------------------- Green Tree Financial Corp. 3,600 142,650 - ---------------------------------------------------------------- Medaphis Corp.(a) 5,000 44,375 - ---------------------------------------------------------------- Metris Companies Inc.(a) 11,600 275,500 - ---------------------------------------------------------------- SunAmerica, Inc. 1,800 67,500 - ---------------------------------------------------------------- T. Rowe Price Associates 1,800 61,425 - ---------------------------------------------------------------- 3,075,263 - ---------------------------------------------------------------- FOOD/PROCESSING-0.97% Delta & Pine Land Co. 43,000 1,548,000 - ---------------------------------------------------------------- Lancaster Colony Corp. 20,000 750,000 - ---------------------------------------------------------------- Universal Foods Corp. 10,000 353,750 - ---------------------------------------------------------------- 2,651,750 - ---------------------------------------------------------------- FUNERAL SERVICES-0.37% Carriage Services, Inc.(a) 45,100 1,020,388 - ---------------------------------------------------------------- FURNITURE-0.39% Kimball International, Inc. 30,000 1,080,000 - ---------------------------------------------------------------- GAMING-0.65% GTECH Holdings Corp.(a) 35,000 1,032,500 - ---------------------------------------------------------------- International Game Technology 10,000 211,250 - ---------------------------------------------------------------- Station Casinos, Inc.(a) 20,000 222,500 - ---------------------------------------------------------------- Trump Hotels & Casino Resorts, Inc.(a) 20,000 317,500 - ---------------------------------------------------------------- 1,783,750 - ---------------------------------------------------------------- GAS DISTRIBUTION-0.02% Southwestern Energy Co. 3,300 49,088 - ---------------------------------------------------------------- HOMEBUILDING-0.14% Clayton Homes, Inc. 15,000 253,125 - ---------------------------------------------------------------- Shelter Components Corp. 10,000 131,250 - ---------------------------------------------------------------- 384,375 - ---------------------------------------------------------------- HOTELS/MOTELS-0.29% U.S. Franchise Systems, Inc.(a) 31,500 456,750 - ---------------------------------------------------------------- Wyndham Hotel Corp.(a) 18,000 342,000 - ---------------------------------------------------------------- 798,750 - ---------------------------------------------------------------- INSURANCE (BROKER)-0.09% Poe & Brown, Inc. 10,000 258,125 - ---------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-0.48% American Travelers Corp.(a) 2,100 72,188 - ---------------------------------------------------------------- John Alden Financial Corp. 30,000 558,750 - ---------------------------------------------------------------- MARKET SHARES VALUE INSURANCE (LIFE & HEALTH)-(CONTINUED) UNUM Corp. 5,200 $ 326,950 - ---------------------------------------------------------------- Western National Corp. 19,900 358,200 - ---------------------------------------------------------------- 1,316,088 - ---------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-2.77% ACE, Ltd. 4,000 219,000 - ---------------------------------------------------------------- AMBAC, Inc. 2,900 181,250 - ---------------------------------------------------------------- American Re Corp. 900 57,937 - ---------------------------------------------------------------- Amerin Corp.(a) 55,000 1,086,250 - ---------------------------------------------------------------- CapMAC Holdings, Inc. 20,000 667,500 - ---------------------------------------------------------------- Exel Ltd. 1,200 45,600 - ---------------------------------------------------------------- HCC Insurance Holdings, Inc. 7,500 191,250 - ---------------------------------------------------------------- Horace Mann Educators Corp. 8,000 274,000 - ---------------------------------------------------------------- MBIA, Inc. 2,100 186,112 - ---------------------------------------------------------------- MGIC Investment Corp. 11,400 782,325 - ---------------------------------------------------------------- Mercury General Corp. 900 43,875 - ---------------------------------------------------------------- Mid Ocean Ltd. 1,800 84,600 - ---------------------------------------------------------------- Progressive Corp. 30,000 2,062,500 - ---------------------------------------------------------------- RenaissanceRe Holdings Ltd. 1,500 43,688 - ---------------------------------------------------------------- TIG Holdings, Inc. 20,000 577,500 - ---------------------------------------------------------------- Transatlantic Holdings, Inc. 3,000 216,000 - ---------------------------------------------------------------- UnionAmerica Holdings PLC-ADR (United Kingdom) 19,500 363,188 - ---------------------------------------------------------------- Vesta Insurance Group, Inc. 5,000 128,125 - ---------------------------------------------------------------- W. R. Berkley Corp. 7,000 364,000 - ---------------------------------------------------------------- 7,574,700 - ---------------------------------------------------------------- LEISURE & RECREATION-2.68% Gaylord Entertainment Co.-Class A 60,000 1,185,000 - ---------------------------------------------------------------- Golden Bear Golf, Inc.(a) 20,700 372,600 - ---------------------------------------------------------------- Harley-Davidson, Inc. 40,000 1,805,000 - ---------------------------------------------------------------- K2, Inc. 18,000 414,000 - ---------------------------------------------------------------- King World Productions, Inc.(a) 1,800 64,800 - ---------------------------------------------------------------- North Face (The), Inc.(a) 49,000 992,250 - ---------------------------------------------------------------- Platinum Entertainment, Inc.(a) 15,000 153,750 - ---------------------------------------------------------------- Steinway Musical Instruments(a) 20,000 355,000 - ---------------------------------------------------------------- Toy Biz, Inc.(a) 95,000 1,686,250 - ---------------------------------------------------------------- Travis Boats & Motors, Inc.(a) 30,000 322,500 - ---------------------------------------------------------------- 7,351,150 - ---------------------------------------------------------------- MACHINERY (MISCELLANEOUS)-1.55% American Residential Services, Inc.(a) 80,800 1,535,200 - ---------------------------------------------------------------- Greenwich Air Services, Inc.-Class B(a) 30,000 506,250 - ---------------------------------------------------------------- Pall Corp. 70,000 1,793,750 - ---------------------------------------------------------------- Pfeiffer Vacuum Technology AG-ADR(a) (Germany) 25,000 400,000 - ---------------------------------------------------------------- 4,235,200 - ---------------------------------------------------------------- MEDICAL (DRUGS)-1.84% Allergan, Inc. 1,200 36,600 - ---------------------------------------------------------------- AmeriSource Health Corp.(a) 25,000 1,059,375 - ---------------------------------------------------------------- Applied Analytical Industries, Inc.(a) 39,300 854,775 - ---------------------------------------------------------------- BioChem Pharma, Inc.(a) (Canada) 7,800 332,475 - ---------------------------------------------------------------- Dura Pharmaceuticals, Inc.(a) 20,000 690,000 - ----------------------------------------------------------------
FS-67 159
MARKET SHARES VALUE MEDICAL (DRUGS)-(CONTINUED) Elan Corp. PLC-ADR(a) (Ireland) 8,000 $ 222,000 - ---------------------------------------------------------------- Express Scripts, Inc.-Class A(a) 5,500 160,188 - ---------------------------------------------------------------- Gilead Sciences, Inc.(a) 8,000 187,000 - ---------------------------------------------------------------- Liposome Company, Inc.(a) 15,000 256,875 - ---------------------------------------------------------------- North American Vaccine, Inc.(a) 37,500 834,375 - ---------------------------------------------------------------- R.P. Scherer Corp.(a) 5,000 231,875 - ---------------------------------------------------------------- Watson Pharmaceuticals, Inc.(a) 5,000 166,875 - ---------------------------------------------------------------- 5,032,413 - ---------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-2.97% Advance Paradigm, Inc.(a) 100,000 812,500 - ---------------------------------------------------------------- Alternative Living Services, Inc.(a) 65,000 934,375 - ---------------------------------------------------------------- FPA Medical Management, Inc.(a) 22,000 409,750 - ---------------------------------------------------------------- Health Management Associates, Inc.-Class A(a) 2,100 46,200 - ---------------------------------------------------------------- HealthCor Holdings, Inc.(a) 55,000 522,500 - ---------------------------------------------------------------- HEALTHSOUTH Corp.(a) 1,200 45,000 - ---------------------------------------------------------------- Horizon Mental Health Management, Inc.(a) 7,000 187,250 - ---------------------------------------------------------------- Intensiva Healthcare Corp.(a) 70,000 490,000 - ---------------------------------------------------------------- Manor Care, Inc. 6,000 235,500 - ---------------------------------------------------------------- Mariner Health Group, Inc.(a) 7,400 62,900 - ---------------------------------------------------------------- Medical Resources, Inc.(a) 50,000 431,250 - ---------------------------------------------------------------- MedPartners, Inc.(a) 5,715 120,729 - ---------------------------------------------------------------- NovaCare, Inc.(a) 9,300 76,725 - ---------------------------------------------------------------- Oxford Health Plans, Inc.(a) 13,500 614,250 - ---------------------------------------------------------------- PacifiCare Health Systems, Inc.-Class B(a) 8,000 562,000 - ---------------------------------------------------------------- Paracelsus Healthcare Corp.(a) 100,000 437,500 - ---------------------------------------------------------------- Physician Corp. of America(a) 10,000 110,625 - ---------------------------------------------------------------- Sierra Health Services, Inc.(a) 5,100 145,988 - ---------------------------------------------------------------- Sunrise Assisted Living, Inc.(a) 35,000 805,000 - ---------------------------------------------------------------- TresCom International, Inc.(a) 5,000 63,750 - ---------------------------------------------------------------- Vencor, Inc.(a) 3,000 88,875 - ---------------------------------------------------------------- Veterinary Centers of America, Inc.(a) 50,000 918,750 - ---------------------------------------------------------------- 8,121,417 - ---------------------------------------------------------------- MEDICAL INSTRUMENTS/PRODUCTS-5.66% Biomet, Inc. 90,000 1,451,250 - ---------------------------------------------------------------- Dentsply International, Inc. 35,000 1,474,375 - ---------------------------------------------------------------- Gulf South Medical Supply, Inc.(a) 11,000 242,000 - ---------------------------------------------------------------- Haemonetics(a) 30,000 536,250 - ---------------------------------------------------------------- Heartstream, Inc.(a) 60,000 690,000 - ---------------------------------------------------------------- ICU Medical, Inc.(a) 25,000 221,875 - ---------------------------------------------------------------- IDEXX Laboratories, Inc.(a) 14,000 549,500 - ---------------------------------------------------------------- Maxxim Medical, Inc.(a) 10,000 138,750 - ---------------------------------------------------------------- MiniMed, Inc.(a) 27,500 721,875 - ---------------------------------------------------------------- Nitinol Medical Technologies, Inc.(a) 62,000 651,000 - ---------------------------------------------------------------- Sofamor Danek Group, Inc.(a) 30,000 825,000 - ---------------------------------------------------------------- St. Jude Medical, Inc.(a) 30,000 1,185,000 - ---------------------------------------------------------------- Suburban Ostomy Supply Co., Inc.(a) 100,000 1,218,750 - ---------------------------------------------------------------- Sybron International Corp.(a) 80,000 2,330,000 - ---------------------------------------------------------------- TECNOL Medical Products, Inc.(a) 60,000 765,000 - ---------------------------------------------------------------- Trex Medical Corp.(a) 25,000 440,625 - ---------------------------------------------------------------- US Surgical Corp. 3,000 125,625 - ---------------------------------------------------------------- MARKET SHARES VALUE MEDICAL INSTRUMENTS/PRODUCTS-(CONTINUED) Ventritex, Inc.(a) 5,000 $ 114,063 - ---------------------------------------------------------------- Xomed Surgical Products, Inc.(a) 70,000 1,811,250 - ---------------------------------------------------------------- 15,492,188 - ---------------------------------------------------------------- METALS (MISCELLANEOUS)-0.53% Potash Corp. of Saskatchewan Inc. (Canada) 12,500 885,938 - ---------------------------------------------------------------- Rental Service Corp.(a) 24,200 556,600 - ---------------------------------------------------------------- 1,442,538 - ---------------------------------------------------------------- NATURAL GAS PIPELINES-0.33% NGC Corp. 50,000 900,000 - ---------------------------------------------------------------- OFFICE AUTOMATION-0.14% Danka Business Systems PLC-ADR (United Kingdom) 10,000 396,250 - ---------------------------------------------------------------- OFFICE PRODUCTS-0.92% Daisytek International Corp.(a) 30,000 1,147,500 - ---------------------------------------------------------------- Deluxe Corp. 40,000 1,305,000 - ---------------------------------------------------------------- OfficeMax, Inc.(a) 4,500 60,750 - ---------------------------------------------------------------- 2,513,250 - ---------------------------------------------------------------- OIL & GAS (DRILLING)-0.62% Atwood Oceanics, Inc.(a) 17,000 943,500 - ---------------------------------------------------------------- Reading & Bates Corp.(a) 26,000 747,500 - ---------------------------------------------------------------- 1,691,000 - ---------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION)-2.95% Anadarko Petroleum Corp. 4,000 254,500 - ---------------------------------------------------------------- Apache Corp. 6,500 230,750 - ---------------------------------------------------------------- Burlington Resources, Inc. 25,000 1,259,375 - ---------------------------------------------------------------- Cabot Oil and Gas Corp.-Class A 66,000 1,023,000 - ---------------------------------------------------------------- Cross Timbers Oil Co. 2,100 49,613 - ---------------------------------------------------------------- Devon Energy Corp. 10,000 348,750 - ---------------------------------------------------------------- Houston Exploration Co. (The)(a) 75,000 1,284,375 - ---------------------------------------------------------------- Newfield Exploration Co.(a) 2,500 118,125 - ---------------------------------------------------------------- Noble Affiliates, Inc. 6,000 261,000 - ---------------------------------------------------------------- Nuevo Energy Co.(a) 8,900 443,888 - ---------------------------------------------------------------- Petroleum Securities Australia Ltd.-ADR(a) (Australia) 18,000 366,750 - ---------------------------------------------------------------- Pogo Producing Co. 21,500 954,062 - ---------------------------------------------------------------- Ranger Oil Ltd. (Canada) 6,000 45,000 - ---------------------------------------------------------------- Rutherford-Moran Oil Corp.(a) 25,000 743,750 - ---------------------------------------------------------------- Santa Fe Energy Resources, Inc.(a) 8,400 119,700 - ---------------------------------------------------------------- Snyder Oil Corp. 4,800 73,200 - ---------------------------------------------------------------- Transocean Offshore Inc. 8,000 506,000 - ---------------------------------------------------------------- 8,081,838 - ---------------------------------------------------------------- OIL & GAS (SERVICES)-1.28% Camco International, Inc. 8,000 310,000 - ---------------------------------------------------------------- Energy Ventures, Inc.(a) 18,000 792,000 - ---------------------------------------------------------------- GeoScience Corp.(a) 25,000 268,750 - ---------------------------------------------------------------- Oceaneering International, Inc.(a) 20,000 360,000 - ---------------------------------------------------------------- Petroleum Geo-Services ASA-ADR(a) (Norway) 18,300 626,775 - ---------------------------------------------------------------- SEACOR Holdings Inc.(a) 12,000 648,000 - ---------------------------------------------------------------- 3-D Geophysical, Inc.(a) 25,000 206,250 - ----------------------------------------------------------------
FS-68 160
MARKET SHARES VALUE OIL & GAS (SERVICES)-(CONTINUED) Veritas DGC, Inc.(a) 13,900 $ 284,950 - ---------------------------------------------------------------- 3,496,725 - ---------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-3.06% Baker Hughes, Inc. 16,500 587,812 - ---------------------------------------------------------------- BJ Services Co.(a) 3,000 134,625 - ---------------------------------------------------------------- Cooper Cameron Corp.(a) 10,500 670,688 - ---------------------------------------------------------------- ENSCO International, Inc.(a) 33,000 1,427,250 - ---------------------------------------------------------------- Falcon Drilling Company, Inc.(a) 15,000 530,625 - ---------------------------------------------------------------- GulfMark International, Inc.(a) 11,000 610,500 - ---------------------------------------------------------------- National-Oilwell, Inc.(a) 25,000 581,250 - ---------------------------------------------------------------- Noble Drilling Corp.(a) 25,400 473,075 - ---------------------------------------------------------------- Petroleum Helicopters, Inc. 10,000 175,000 - ---------------------------------------------------------------- Pride Petroleum Services, Inc.(a) 39,000 682,500 - ---------------------------------------------------------------- Smith International, Inc.(a) 20,000 760,000 - ---------------------------------------------------------------- Tidewater, Inc. 6,000 262,500 - ---------------------------------------------------------------- Tuboscope Vetco International Corp.(a) 60,000 915,000 - ---------------------------------------------------------------- Weatherford Enterra, Inc.(a) 19,000 551,000 - ---------------------------------------------------------------- 8,361,825 - ---------------------------------------------------------------- PAPER & FOREST PRODUCTS-1.27% American Pad & Paper Co.(a) 105,000 1,968,750 - ---------------------------------------------------------------- Thermo Fibergen Inc.(a) 45,000 568,125 - ---------------------------------------------------------------- Wausau Paper Mills Co. 48,125 926,406 - ---------------------------------------------------------------- 3,463,281 - ---------------------------------------------------------------- POLLUTION CONTROL-0.02% Tetra Technologies, Inc.(a) 2,400 50,100 - ---------------------------------------------------------------- PUBLISHING-0.16% Desktop Data, Inc.(a) 2,000 47,500 - ---------------------------------------------------------------- Harte-Hanks Communications, Inc. 1,800 46,575 - ---------------------------------------------------------------- Readers Digest Association, Inc.-Class A 1,200 42,750 - ---------------------------------------------------------------- Scholastic Corp.(a) 2,600 190,450 - ---------------------------------------------------------------- World Color Press, Inc.(a) 4,800 107,400 - ---------------------------------------------------------------- 434,675 - ---------------------------------------------------------------- RAILROADS-0.26% Kansas City Southern Industries, Inc. 15,000 705,000 - ---------------------------------------------------------------- REAL ESTATE-0.19% Insignia Financial Group, Inc.-Class A(a) 24,000 519,000 - ---------------------------------------------------------------- RESTAURANTS-2.09% Apple South, Inc. 35,000 411,250 - ---------------------------------------------------------------- Boston Chicken, Inc.(a) 18,000 654,750 - ---------------------------------------------------------------- Brinker International, Inc.(a) 25,000 425,000 - ---------------------------------------------------------------- Cracker Barrel Old Country Store, Inc. 8,000 163,000 - ---------------------------------------------------------------- IHOP Corp.(a) 5,000 110,000 - ---------------------------------------------------------------- Landry's Seafood Restaurants, Inc.(a) 1,800 36,900 - ---------------------------------------------------------------- Logan's Roadhouse, Inc.(a) 20,000 365,000 - ---------------------------------------------------------------- Longhorn Steaks, Inc.(a) 10,000 160,000 - ---------------------------------------------------------------- New York Bagel Enterprises(a) 110,000 921,250 - ---------------------------------------------------------------- Outback Steakhouse, Inc.(a) 10,000 231,875 - ---------------------------------------------------------------- Ryan's Family Steak Houses, Inc.(a) 150,000 1,106,250 - ---------------------------------------------------------------- Showbiz Pizza Time, Inc.(a) 34,800 643,800 - ---------------------------------------------------------------- MARKET SHARES VALUE RESTAURANTS-(CONTINUED) Taco Cabana-Class A(a) 50,000 $ 293,750 - ---------------------------------------------------------------- Wendy's International, Inc. 9,800 202,125 - ---------------------------------------------------------------- 5,724,950 - ---------------------------------------------------------------- RETAIL (FOOD & DRUG)-1.95% Casey's General Stores, Inc. 72,000 1,296,000 - ---------------------------------------------------------------- Dominick's Supermarkets, Inc.(a) 45,000 894,375 - ---------------------------------------------------------------- Eckerd Corp. (The)(a) 25,000 693,750 - ---------------------------------------------------------------- Einstein/Noah Bagel Corp.(a) 20,100 675,862 - ---------------------------------------------------------------- Revco D.S., Inc.(a) 25,000 753,125 - ---------------------------------------------------------------- Starbucks Corp.(a) 1,800 58,500 - ---------------------------------------------------------------- Wild Oats Markets Inc.(a) 45,000 956,250 - ---------------------------------------------------------------- 5,327,862 - ---------------------------------------------------------------- RETAIL (STORES)-7.72% Abercrombie & Fitch Co.-Class A(a) 35,000 770,000 - ---------------------------------------------------------------- American Eagle Outfitters, Inc.(a) 15,000 262,500 - ---------------------------------------------------------------- Bed, Bath & Beyond, Inc.(a) 3,000 75,750 - ---------------------------------------------------------------- Best Buy Co., Inc.(a) 35,000 573,125 - ---------------------------------------------------------------- Borders Group, Inc.(a) 1,200 37,800 - ---------------------------------------------------------------- Brookstone, Inc.(a) 10,000 111,250 - ---------------------------------------------------------------- CompUSA, Inc.(a) 13,200 610,500 - ---------------------------------------------------------------- Consolidated Stores Corp.(a) 900 34,762 - ---------------------------------------------------------------- Corporate Express, Inc.(a) 13,000 424,125 - ---------------------------------------------------------------- Dollar Tree Stores, Inc.(a) 13,000 490,750 - ---------------------------------------------------------------- Duty Free International, Inc. 8,900 142,400 - ---------------------------------------------------------------- Family Dollar Stores, Inc. 115,000 1,955,000 - ---------------------------------------------------------------- Finish Line, Inc. (The)-Class A(a) 37,000 1,572,500 - ---------------------------------------------------------------- Gadzooks, Inc.(a) 24,000 696,000 - ---------------------------------------------------------------- Garden Ridge Corp.(a) 70,000 673,750 - ---------------------------------------------------------------- Gargoyles, Inc.(a) 25,000 331,250 - ---------------------------------------------------------------- Gymboree Corp.(a) 3,000 93,750 - ---------------------------------------------------------------- Hot Topic, Inc.(a) 46,500 1,116,000 - ---------------------------------------------------------------- Kohl's Corp.(a) 3,000 108,000 - ---------------------------------------------------------------- Little Switzerland, Inc.(a) 70,000 341,250 - ---------------------------------------------------------------- Loehmann's Holdings, Inc.(a) 3,900 104,813 - ---------------------------------------------------------------- Mac Frugals Bargains Close-Outs, Inc.(a) 60,000 1,462,500 - ---------------------------------------------------------------- Marks Bros. Jewelers, Inc.(a) 1,800 41,850 - ---------------------------------------------------------------- Melville Corp.(a) 10,000 372,500 - ---------------------------------------------------------------- Mossimo, Inc.(a) 5,000 108,125 - ---------------------------------------------------------------- Neiman Marcus Group, Inc. (The)(a) 16,000 522,000 - ---------------------------------------------------------------- Oakley, Inc.(a) 30,000 446,250 - ---------------------------------------------------------------- Office Depot, Inc.(a) 12,000 235,500 - ---------------------------------------------------------------- Pep Boys-Manny, Moe & Jack 1,200 42,000 - ---------------------------------------------------------------- Petco Animal Supplies, Inc.(a) 7,000 164,500 - ---------------------------------------------------------------- Pier 1 Imports, Inc. 54,000 756,000 - ---------------------------------------------------------------- Price/Costco, Inc.(a) 10,000 198,750 - ---------------------------------------------------------------- Proffitt's, Inc.(a) 4,200 169,575 - ---------------------------------------------------------------- Sports & Recreation, Inc.(a) 50,000 431,250 - ---------------------------------------------------------------- Sports Authority, Inc. (The)(a) 35,000 848,750 - ---------------------------------------------------------------- Stage Stores, Inc.(a) 134,700 2,458,275 - ---------------------------------------------------------------- Staples, Inc.(a) 3,600 67,050 - ----------------------------------------------------------------
FS-69 161
MARKET SHARES VALUE RETAIL (STORES)-(CONTINUED) Sunglass Hut International, Inc.(a) 65,000 $ 576,875 - ---------------------------------------------------------------- Talbots, Inc. 25,000 712,500 - ---------------------------------------------------------------- Tiffany & Co. 11,800 436,600 - ---------------------------------------------------------------- U.S. Office Products Co.(a) 10,000 290,000 - ---------------------------------------------------------------- Whole Foods Market, Inc.(a) 6,800 174,250 - ---------------------------------------------------------------- Williams-Sonoma, Inc.(a) 1,800 49,500 - ---------------------------------------------------------------- Zale Corp.(a) 2,400 46,500 - ---------------------------------------------------------------- 21,136,375 - ---------------------------------------------------------------- SCHOOLS-0.02% Sylvan Learning Systems, Inc.(a) 1,200 50,700 - ---------------------------------------------------------------- SCIENTIFIC INSTRUMENTS-0.61% Fisher Scientific International 30,000 1,346,250 - ---------------------------------------------------------------- Input/Output, Inc.(a) 11,000 327,250 - ---------------------------------------------------------------- 1,673,500 - ---------------------------------------------------------------- SEMICONDUCTORS-0.44% Analog Devices, Inc.(a) 6,800 176,800 - ---------------------------------------------------------------- Maxim Integrated Products, Inc.(a) 2,400 84,000 - ---------------------------------------------------------------- SDL, Inc.(a) 35,000 595,000 - ---------------------------------------------------------------- Xilinx, Inc.(a) 10,700 350,425 - ---------------------------------------------------------------- 1,206,225 - ---------------------------------------------------------------- SHOES & RELATED APPAREL-0.04% Kenneth Cole Productions, Inc.(a) 4,500 74,250 - ---------------------------------------------------------------- Nine West Group, Inc.(a) 900 44,887 - ---------------------------------------------------------------- 119,137 - ---------------------------------------------------------------- TELECOMMUNICATIONS-3.61% ADC Telecommunications, Inc.(a) 900 61,537 - ---------------------------------------------------------------- Advanced Fibre Communications, Inc.(a) 17,200 982,550 - ---------------------------------------------------------------- American Portable Telecom, Inc.(a) 60,000 457,500 - ---------------------------------------------------------------- Andrew Corp.(a) 900 43,875 - ---------------------------------------------------------------- Billing Information Concepts(a) 15,000 391,875 - ---------------------------------------------------------------- General Instrument Corp.(a) 23,000 462,875 - ---------------------------------------------------------------- LCC International, Inc.-Class A(a) 85,200 1,246,050 - ---------------------------------------------------------------- Metromedia International Group, Inc.(a) 50,000 493,750 - ---------------------------------------------------------------- Mobile Telecommunication Technologies Corp.(a) 4,200 55,650 - ---------------------------------------------------------------- MARKET SHARES VALUE TELECOMMUNICATIONS-(CONTINUED) Octel Communications Corp.(a) 30,000 $ 476,250 - ---------------------------------------------------------------- Omnipoint Corp.(a) 20,000 545,000 - ---------------------------------------------------------------- P-COM, Inc.(a) 30,000 660,000 - ---------------------------------------------------------------- RMH Teleservices, Inc.(a) 55,000 405,625 - ---------------------------------------------------------------- Tellabs, Inc.(a) 8,500 723,563 - ---------------------------------------------------------------- Teltrend, Inc.(a) 41,000 1,353,000 - ---------------------------------------------------------------- 360 Communications Co.(a) 3,000 67,875 - ---------------------------------------------------------------- Tollgrade Communications, Inc.(a) 35,000 910,000 - ---------------------------------------------------------------- Transaction Network Services, Inc.(a) 30,000 408,750 - ---------------------------------------------------------------- U.S. Long Distance Corp.(a) 15,000 125,625 - ---------------------------------------------------------------- 9,871,350 - ---------------------------------------------------------------- TEXTILES-0.69% Ashworth, Inc.(a) 15,000 97,500 - ---------------------------------------------------------------- G & K Services, Inc.-Class A 28,500 826,500 - ---------------------------------------------------------------- Guess ?, Inc.(a) 75,000 956,250 - ---------------------------------------------------------------- 1,880,250 - ---------------------------------------------------------------- TOBACCO-0.27% Consolidated Cigar Holdings, Inc.(a) 27,000 735,750 - ---------------------------------------------------------------- TRANSPORTATION (MISCELLANEOUS)-1.20% AirNet Systems, Inc.(a) 6,000 78,000 - ---------------------------------------------------------------- Hvide Marine, Inc.-Class A(a) 120,000 1,785,000 - ---------------------------------------------------------------- Trico Marine Services, Inc.(a) 40,000 1,410,000 - ---------------------------------------------------------------- 3,273,000 - ---------------------------------------------------------------- Total Common Stocks 239,699,298 - ----------------------------------------------------------------
PRINCIPAL AMOUNT REPURCHASE AGREEMENTS-10.12%(c) Daiwa Securities America Inc., 5.53%, 11/01/96(d) $ 694,693 694,693 - ---------------------------------------------------------------- SBC Capital Markets Inc., 5.55%, 11/01/96(e) 27,000,000 27,000,000 - ---------------------------------------------------------------- Total Repurchase Agreements 27,694,693 - ---------------------------------------------------------------- TOTAL INVESTMENTS-97.70% 267,393,991 - ---------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-2.30% 6,293,618 - ---------------------------------------------------------------- NET ASSETS-100.00% $ 273,687,609 ================================================================
Abbreviations: ADR -- American Depository Receipt Notes to Schedule of Investments: (a) Non-income producing security. (b) Deposited in escrow with custodian as collateral for securities sold short. See Note 7. (c) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sale price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (d) Joint repurchase agreement entered into 10/31/96 with a maturing value of $750,115,208. Collateralized by $733,115,000 U.S. Treasury obligations, 0% to 10.375% due 11/15/96 to 08/15/23. (e) Joint repurchase agreement entered into 10/31/96 with a maturing value of $700,107,917. Collateralized by $691,506,000 U.S. Treasury obligations, 0% to 9.125% due 11/30/96 to 10/31/01. See Notes to Financial Statements. FS-70 162 STATEMENT OF ASSETS AND LIABILITIES October 31, 1996 ASSETS: Investments, at market value (cost $233,856,598) $ 267,393,991 - --------------------------------------------------------- Receivables for: Investments sold 139,372 - --------------------------------------------------------- Investments sold short 1,917,412 - --------------------------------------------------------- Capital stock sold 12,253,790 - --------------------------------------------------------- Dividends and interest 55,565 - --------------------------------------------------------- Investment for deferred compensation plan 1,508 - --------------------------------------------------------- Other assets 43,850 - --------------------------------------------------------- Total assets 281,805,488 - --------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 5,401,638 - --------------------------------------------------------- Capital stock reacquired 378,040 - --------------------------------------------------------- Deferred compensation 1,508 - --------------------------------------------------------- Market value of securities sold short (proceeds from sales $1,917,412) 2,034,500 - --------------------------------------------------------- Accrued advisory fees 74,799 - --------------------------------------------------------- Accrued administrative service fees 5,535 - --------------------------------------------------------- Accrued directors' fees 630 - --------------------------------------------------------- Accrued distribution fees 78,807 - --------------------------------------------------------- Accrued transfer agent fees 44,095 - --------------------------------------------------------- Accrued operating expenses 98,327 - --------------------------------------------------------- Total liabilities 8,117,879 - --------------------------------------------------------- Net assets applicable to shares outstanding $ 273,687,609 ========================================================= NET ASSETS: Class A $ 251,252,680 ========================================================= Class B $ 22,434,929 ========================================================= CAPITAL STOCK, $.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 22,659,779 ========================================================= Class B: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 2,024,023 ========================================================= CLASS A: Net asset value and redemption price per share $ 11.09 ========================================================= Offering price per share: (Net assets value of $11.09 divided by 94.50%) $ 11.74 ========================================================= CLASS B: Net asset value and offering price per share $ 11.08 =========================================================
STATEMENT OF OPERATIONS For the period June 17, 1996 (date operations commenced) through October 31, 1996 INVESTMENT INCOME: Dividends (net of $584 foreign withholding tax) $ 180,536 - -------------------------------------------------------- Interest 419,404 - -------------------------------------------------------- Total investment income 599,940 - -------------------------------------------------------- EXPENSES: Advisory fees 425,194 - -------------------------------------------------------- Administrative service fees 19,841 - -------------------------------------------------------- Custodian fees 28,363 - -------------------------------------------------------- Directors' fees 3,657 - -------------------------------------------------------- Distribution fees-Class A 195,157 - -------------------------------------------------------- Distribution fees-Class B 9,333 - -------------------------------------------------------- Transfer agent fees-Class A 132,291 - -------------------------------------------------------- Transfer agent fees-Class B 2,247 - -------------------------------------------------------- Dividends on short sales 9,405 - -------------------------------------------------------- Other 88,065 - -------------------------------------------------------- Total expenses 913,553 - -------------------------------------------------------- Less: Fees waived by advisor (144,946) - -------------------------------------------------------- Expenses paid indirectly (1,037) - -------------------------------------------------------- Net expenses 767,570 - -------------------------------------------------------- Net investment income (loss) (167,630) - -------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Net realized gain (loss) on sales of investment securities (5,381,138) - -------------------------------------------------------- Unrealized appreciation (depreciation) of: Investment securities 33,537,393 - -------------------------------------------------------- Securities sold short (117,088) - -------------------------------------------------------- 33,420,305 - -------------------------------------------------------- Net gain on investment securities 28,039,167 - -------------------------------------------------------- Net increase in net assets resulting from operations $ 27,871,537 ========================================================
See Notes to Financial Statements. FS-71 163 STATEMENT OF CHANGES IN NET ASSETS For the period June 17, 1996 (date operations commenced) through October 31, 1996 OPERATIONS: Net investment income (loss) $ (167,630) - --------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on sales of investment securities (5,381,138) - --------------------------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities 33,420,305 - --------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 27,871,537 - --------------------------------------------------------------------------------------------------------------------- Share transactions-net: Class A 222,946,738 - --------------------------------------------------------------------------------------------------------------------- Class B 22,869,334 - --------------------------------------------------------------------------------------------------------------------- Net increase in net assets 273,687,609 - --------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period -- - --------------------------------------------------------------------------------------------------------------------- End of period $ 273,687,609 - --------------------------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 245,649,966 - --------------------------------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (1,524) - --------------------------------------------------------------------------------------------------------------------- Undistributed net realized gain (loss) on sales of investment securities (5,381,138) - --------------------------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities 33,420,305 - --------------------------------------------------------------------------------------------------------------------- $ 273,687,609 =====================================================================================================================
See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS October 31, 1996 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six diversified portfolios: AIM Capital Development Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Charter Fund, AIM Constellation Fund and AIM Weingarten Fund. The Fund currently offers two different classes of shares: the Class A shares and the Class B shares. Class A shares commenced operations on June 17, 1996 and Class B shares commenced sales on October 1, 1996. Class A shares are sold with a front-end sales charge. Class B shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term capital appreciation. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. 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. A. Security Valuations--A security listed or traded on an exchange 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 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 that are issued or guaranteed by the U.S. Treasury 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. 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 specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income, dividend expense on short sales and distributions to shareholders are recorded on the ex-dividend date. On October 31, 1996, FS-72 164 $166,106 was reclassified from undistributed net investment income (loss) to paid-in capital as a result of a net operating tax loss. Net assets of the Fund were unaffected by the reclassification. C. Accounting for Securities Sold Short--When the Fund sells common stock short, an amount equal to the proceeds of the sales is recorded as an asset. This asset is offset by a liability (representing the borrowed security) recorded on the books of the Fund at the market value of the common stock determined each day in accordance with the procedures for security valuations discussed in "A" above. The Fund's risk is that the value of the security will increase rather than decline and thus an unrealized loss will be recorded. When the Fund closes out a short position by delivering the stock sold short, the Fund will realize a gain or loss and the liability related to such short position will be eliminated. The Fund will attempt to hedge against market risk by entering into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns. Such short sales may protect the Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such securities may be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio may be wholly or partially offset by a corresponding loss in the short position. 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. The Fund has a capital loss carryforward of $4,645,136 (which may be carried forward to offset future taxable gains, if any) which expires, if not previously utilized, in the year 2004. E. Expenses--Operating expenses directly attributable to a class of shares are charged to that class' operations. Expenses which are applicable to both classes, e.g. advisory fees, are allocated between them. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $350 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $350 million. AIM has agreed to waive advisory fees on the Fund to the extent necessary to keep the annual expense ratio for Class A shares at 1.34% for two years commencing August 12, 1996. During the period June 17, 1996 (date operations commenced) through October 31, 1996, AIM waived fees of $144,946. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to reimburse AIM for certain administrative costs incurred in providing accounting services to the Fund. During the period June 17, 1996 (date operations commenced) through October 31, 1996, AIM was reimbursed $19,841 for such services. The Fund, pursuant to a transfer agency and services agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency services to the Fund. During the period June 17, 1996 (date operations commenced) through October 31, 1996, AFS was paid $75,666 for such services. The Fund received reductions in transfer agency fees of $746 from dividends received on balances in cash management accounts. In addition, the Fund incurred expenses of $291 from pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $1,037 during the period June 17, 1996 (date operations commenced) through October 31, 1996. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares and Class B shares of the Fund. The Company has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares (the "Class A Plan") and with respect to the Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A Plan, pays AIM Distributors compensation at the annual rate of 0.35% of the average daily net assets attributable to the Class A shares. The Class A Plan is designed to compensate AIM Distributors for certain promotional and other sales related costs and provides periodic payments to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class A shares of the Fund. 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 this amount, the Fund pays a service fee of 0.25% of the average daily net assets of the Class B shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class B shares of the Fund. Any amounts not paid as a service fee under such 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. AIM Distributors may, from time to time, assign, transfer or pledge to one or more assignees, its rights to all or a portion of (a) compensation received by AIM Distributors from the Fund pursuant to the Class B Plan (but not AIM Distributors' duties and obligations pursuant to the Class B Plan) and (b) any contingent deferred sales charges payable to AIM Distributors related to the Class B shares. During the respective commencement periods of operations through October 31, 1996, the Class A shares and the Class B shares paid AIM Distributors $195,157 and $9,333, respectively, as compensation pursuant to the Plans. AIM Distributors received commissions of $926,213 from Class A capital stock transactions during the period June 17, 1996 (date operations commenced) through October 31, 1996. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A capital stock. During the period June 17, 1996 (date operations commenced) through October 31, 1996, AIM Distributors received $733 in contingent deferred sales charges imposed on redemptions of capital stock. Certain officers and directors of the Company are officers and directors of AIM, AIM Distributors and AFS. During the period June 17, 1996 (date operations commenced) through October 31, 1996 the Fund paid legal fees of $415 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. FS-73 165 NOTE 3-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 4-BANK BORROWINGS Effective July 19, 1996, 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) $325,000,000 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. During the period July 19, 1996 through October 31, 1996, 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 0.08% 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 5-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the period June 17, 1996 (date operations commenced) through October 31, 1996 was $226,688,330 and $15,145,287, respectively. The amount of unrealized appreciation (depreciation) of investment securities as of October 31, 1996, on a tax basis, is as follows: Aggregate unrealized appreciation of investment securities $ 42,977,708 - ------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (10,176,317) - ------------------------------------------------------- Net unrealized appreciation of investment securities $ 32,801,391 =======================================================
Cost of investments for tax purposes is $234,592,600. NOTE 6-CAPITAL STOCK Changes in the capital stock outstanding during the period June 17, 1996 (date operations commenced) through October 31, 1996 were as follows:
1996 ------------------------------ SHARES AMOUNT ------------ --------------- Sold: Class A 24,923,432 $ 246,810,746 - ----------------------------------------------------------------------- Class B* 2,026,599 22,898,153 - ----------------------------------------------------------------------- Reacquired: Class A (2,263,653) (23,864,008) - ----------------------------------------------------------------------- Class B* (2,576) (28,819) - ----------------------------------------------------------------------- 24,683,802 $ 245,816,072 ======================================================================= * Class B shares commenced sales on October 1, 1996.
NOTE 7-SECURITIES SOLD SHORT Outstanding short sales as of October 31, 1996:
PROCEEDS UNREALIZED SHARES MARKET FROM SHORT APPRECIATION ISSUER SOLD SHORT VALUE SALES (DEPRECIATION) - ------------------------ ---------- ---------- ----------- -------------- Federal National Mortgage Association 52,000 $2,034,500 $1,917,412 $ (117,088) ============================================================================
NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during the period June 17, 1996 (date operations commenced) through October 31, 1996 and for a share of Class B capital stock outstanding the period October 1, 1996 (date sales commenced) through October 31, 1996.
CLASS A CLASS B 1996 1996 ---------- ---------- Net asset value, beginning of period $ 10.00 $ 11.26 - ------------------------------------------ ---------- ---------- Income from investment operations: Net investment income (loss) (0.01)(a) (0.01)(a) - ------------------------------------------ ---------- ---------- Net gains (losses) on securities (both realized and unrealized) 1.10 (0.17) - ------------------------------------------ ---------- ---------- Total from investment operations 1.09 (0.18) - ------------------------------------------ ---------- ---------- Net asset value, end of period $ 11.09 $ 11.08 ========================================== ========== ========== Total return(b) 10.90% (1.60)% ========================================== ========== ========== RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $ 251,253 $ 22,435 ========================================== ========== ========== Ratio of expenses to average net assets(c)(d) 1.35%(e) 1.89%(f) ========================================== ========== ========== Ratio of net investment income (loss) to average net assets(c) (0.29)%(e) (0.83)%(f) ========================================== ========== ========== Portfolio turnover rate 13% 13% ========================================== ========== ========== Average broker commission rate $ 0.0550 $ 0.0550 ========================================== ========== ==========
(a) Calculated using average shares outstanding. (b) Does not deduct sales charges and for periods less than one year, total returns are not annualized. (c) After fee waivers. Ratios are annualized and based on average net assets of $148,555,639 for the Class A shares and $10,988,774 for the Class B shares. (d) Excluding indirectly paid expenses, the ratios of expenses to average net assets would have been 1.34% for the Class A shares. The ratio for the Class B shares would have remained the same. (e) Annualized ratios of expenses and net investment income (loss) to average net assets prior to fee waivers is 1.60% and (0.54)%, respectively, for Class A shares. (f) Annualized ratios of expenses and net investment income (loss) to average net assets prior to fee waivers is 2.28% and (1.22)%, respectively, for Class B shares. NOTE 9-SUBSEQUENT EVENT On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO PLC announced the execution of an agreement and plan of merger pursuant to which AIM Management will be merged with and into a direct wholly-owned subsidiary of INVESCO PLC. AIM Management is the parent company of the Fund's advisor. The merger is conditional on, among other things, approval by the shareholders of INVESCO PLC and AIM Management and the shareholders of the AIM funds and the mutual funds managed by INVESCO PLC, and is expected to take place during the first quarter of 1997. FS-74 -----END PRIVACY-ENHANCED MESSAGE-----