-----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, R5TVBPwLwzz0HYTI4dS7/kmvpk1mR8SRkA+VSeouRpHHhPZbDe++QMI8PXLPJ5CP 4tfFmA8kCnKH2JigK3cizg== 0000950129-01-001040.txt : 20010224 0000950129-01-001040.hdr.sgml : 20010224 ACCESSION NUMBER: 0000950129-01-001040 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20010222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIM EQUITY FUNDS 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: SEC FILE NUMBER: 002-25469 FILM NUMBER: 1552149 BUSINESS ADDRESS: STREET 1: ELEVEN GREENWAY PLZ STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7136261919 MAIL ADDRESS: STREET 1: AIM EQUITY FUNDS STREET 2: 11 GREENWAY PLZ STE 100 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: AIM EQUITY FUNDS INC DATE OF NAME CHANGE: 19920703 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 h84467re497.txt AIM EQUITY FUNDS - RETAIL - 497(E) 1 STATEMENT OF ADDITIONAL INFORMATION RETAIL CLASSES OF AIM AGGRESSIVE GROWTH FUND AIM BLUE CHIP FUND AIM CAPITAL DEVELOPMENT FUND AIM CHARTER FUND AIM CONSTELLATION FUND AIM DENT DEMOGRAPHIC TRENDS FUND AIM EMERGING GROWTH FUND AIM LARGE CAP BASIC VALUE FUND AIM LARGE CAP GROWTH FUND AIM MID CAP GROWTH FUND AIM WEINGARTEN FUND (SERIES PORTFOLIOS OF AIM EQUITY FUNDS) 11 GREENWAY PLAZA SUITE 100 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 (800) 347-4246. ------------------- STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 21, 2000, AS REVISED FEBRUARY 22, 2001, RELATING TO THE AIM AGGRESSIVE GROWTH FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM BLUE CHIP FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM CAPITAL DEVELOPMENT FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM CHARTER FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM CONSTELLATION FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM DENT DEMOGRAPHIC TRENDS FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM EMERGING GROWTH FUND DATED JUNE 21, 2000, THE AIM LARGE CAP BASIC VALUE FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM LARGE CAP GROWTH FUND PROSPECTUS DATED JUNE 21, 2000, THE AIM MID CAP GROWTH FUND PROSPECTUS DATED JUNE 21, 2000, AND THE AIM WEINGARTEN FUND PROSPECTUS DATED JUNE 21, 2000 2 TABLE OF CONTENTS
PAGE INTRODUCTION......................................................................................................1 GENERAL INFORMATION ABOUT THE TRUST...............................................................................1 The Trust and Its Shares.................................................................................1 PERFORMANCE.......................................................................................................4 Total Return Calculations................................................................................5 Total Return Quotations..................................................................................5 Historical Portfolio Results.............................................................................5 Yield Quotations.........................................................................................9 PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................................10 General Brokerage Policy................................................................................10 Allocation of Portfolio Transactions....................................................................11 Allocation of IPO Securities Transactions...............................................................11 Section 28(e) Standards.................................................................................12 Transactions with Regular Brokers.......................................................................12 Brokerage Commissions Paid..............................................................................13 Portfolio Turnover......................................................................................14 INVESTMENT STRATEGIES AND RISKS..................................................................................14 Real Estate Investment Trusts...........................................................................17 Foreign Securities......................................................................................18 Foreign Exchange Transactions...........................................................................19 Illiquid Securities.....................................................................................20 Rule 144A Securities....................................................................................20 Repurchase Agreements...................................................................................20 Reverse Repurchase Agreements...........................................................................20 Special Situations......................................................................................21 Short Sales.............................................................................................21 Margin Transactions.....................................................................................22 Warrants................................................................................................22 Securities Issued on a When-Issued or Delayed Delivery Basis............................................22 Investment in Unseasoned Issuers........................................................................22 Lending of Portfolio Securities.........................................................................23 Interfund Loans.........................................................................................23 Borrowing...............................................................................................23 Equity-Linked Derivatives...............................................................................23 Investment in Other Investment Companies................................................................24 Temporary Defensive Investments.........................................................................24 OPTIONS, FUTURES AND CURRENCY STRATEGIES.........................................................................24 Introduction............................................................................................24 General Risks of Options, Futures and Currency Strategies...............................................24 Cover...................................................................................................25 Writing Call Options....................................................................................25
i 3 Writing Put Options.....................................................................................26 Purchasing Put Options..................................................................................26 Purchasing Call Options.................................................................................27 Over-the-Counter Options................................................................................27 Index Options...........................................................................................27 Limitations on Options..................................................................................28 Interest Rate, Currency and Stock Index Futures Contracts...............................................28 Options on Futures Contracts............................................................................29 Forward Contracts.......................................................................................29 Limitations on Use of Futures, Options on Futures and Certain Options on Currencies.....................30 INVESTMENT RESTRICTIONS..........................................................................................30 Fundamental Restrictions................................................................................30 Non-Fundamental Restrictions............................................................................31 MANAGEMENT.......................................................................................................32 Trustees and Officers...................................................................................32 ESTIMATED ANNUAL BENEFITS UPON RETIREMENT........................................................................37 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................37 THE DISTRIBUTION PLANS...........................................................................................41 The Class A and C Plan..................................................................................41 The Class B Plan........................................................................................42 Both Plans..............................................................................................42 THE DISTRIBUTOR..................................................................................................46 SALES CHARGES AND DEALER CONCESSIONS.............................................................................49 REDUCTIONS IN INITIAL SALES CHARGES..............................................................................52 CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS......................................................................55 HOW TO PURCHASE AND REDEEM SHARES................................................................................57 Backup Withholding......................................................................................58 NET ASSET VALUE DETERMINATION....................................................................................59 DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................60 Reinvestment of Dividends and Distributions.............................................................60 Tax Matters.............................................................................................60 Qualification as a Regulated Investment Company.........................................................61 Determination of Taxable Income of a Regulated Investment Company.......................................62 Excise Tax on Regulated Investment Companies............................................................63 Fund Distributions......................................................................................63 Sale or Redemption of Shares............................................................................65 Reinstatement Privilege.................................................................................65 Foreign Shareholders....................................................................................65 Effect of Future Legislation; Local Tax Considerations..................................................66 SHAREHOLDER INFORMATION..........................................................................................66
ii 4 MISCELLANEOUS INFORMATION........................................................................................69 Charges for Certain Account Information.................................................................69 Audit Reports...........................................................................................69 Legal Matters...........................................................................................69 Custodian and Transfer Agent............................................................................69 Principal Holders of Securities.........................................................................69 Other Information.......................................................................................78 APPENDIX........................................................................................................A-1 Description of Commercial Paper Ratings................................................................A-1 Description of Corporate Bond Ratings..................................................................A-1 FINANCIAL STATEMENTS.............................................................................................FS
iii 5 INTRODUCTION AIM Equity Funds (the "Trust") 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. The information for the Retail Classes of AIM Aggressive Growth Fund ("Aggressive Growth") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Blue Chip Fund ("Blue Chip") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Capital Development Fund ("Capital Development") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Charter Fund ("Charter") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Constellation Fund ("Constellation") is included in a Prospectus dated June 21, 2000. The information for the AIM Dent Demographic Trends Fund ("Demographic Trends") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Emerging Growth Fund ("Emerging Growth") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Large Cap Basic Value Fund ("Large Cap Basic Value") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Large Cap Growth Fund ("Large Cap Growth") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Mid Cap Growth Fund ("Mid Cap") is included in a Prospectus dated June 21, 2000. The information for the Retail Classes of AIM Weingarten Fund ("Weingarten") is included in a Prospectus dated June 21, 2000. Copies of the Prospectuses and additional copies of 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 Prospectuses; and, in order to avoid repetition, reference will be made to sections of the Prospectuses. Additionally, the Prospectuses and this Statement of Additional Information omit certain information contained in the Trust's Registration Statement filed with the SEC. Copies of the Registration Statement, including items omitted from the Prospectuses 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 TRUST THE TRUST AND ITS SHARES The Trust currently is organized as a Delaware business trust under an Agreement and Declaration of Trust, dated December 6, 1999 (the "Trust Agreement"). The Trust was previously organized as AIM Equity Funds, Inc. ("AEF"), a Maryland corporation. Pursuant to an Agreement and Plan of Reorganization, the AEF Funds (defined below) were reorganized on June 21, 2000 as portfolios of the Trust, which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end series management investment company. Under the Trust Agreement, the Board of Trustees is authorized to create new series of shares without the necessity of a vote of shareholders of the Trust. The Trust currently consists of eleven separate portfolios: Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth, Mid Cap, and Weingarten (each an "AEF Fund" and collectively, the "AEF Funds"). Charter, Weingarten and Constellation each have four separate classes: Class A, Class B and Class C and an Institutional Class. Aggressive Growth, Blue Chip, Capital Development, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth and Mid Cap each have three classes of shares: Class A, Class B and Class C 1 6 shares. Class A shares (sold with a front-end sales charge) and Class B and Class C shares (each sold with a contingent deferred sales charge) of the AEF 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 AEF, Aggressive Growth was redomesticated as a portfolio of AEF. 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. (the "BCD Fund"), a registered management investment company, on August 12, 1996 in a corporate reorganization. All historical financial information contained in this Statement of Additional Information for periods prior to August 12, 1996, relating to Capital Development is that of the BCD Fund. Pursuant to the Agreement and Plan of Reorganization, the Funds succeeded to the assets and assumed the liabilities of the series portfolios with corresponding names (the "Predecessor Funds") of AEF. All historical financial and other information contained in this Statement of Additional Information for periods prior to June 21, 2000 relating to the Funds (or a class thereof) is that of the Predecessor Funds (or the corresponding class thereof). Shares of beneficial interest of the Trust are redeemable at their net asset value (subject, in certain circumstances, to a contingent deferred sales charge) at the option of the shareholder or at the option of the Trust in certain circumstances. For information concerning the methods of redemption, investors should consult the Prospectuses under the caption "Redeeming Shares." This Statement of Additional Information relates solely to the Retail Classes of the Funds. The assets received by the Trust from the issue or sale of shares of each of its series of shares, and all income, earnings, profits and proceeds thereof, subject only to the rights of creditors, are specifically allocated to the appropriate Fund. They constitute the underlying assets of each Fund, are required to be segregated on the Trust's books of account, and are to be charged with the expenses with respect to such Fund and its respective classes. Any general expenses of the Trust not readily identifiable as belonging to a particular Fund are allocated by or under the direction of the Board of Trustees, primarily on the basis of relative net assets, or other relevant factors. Each share of each Fund represents an equal proportionate interest in that Fund with each other share and is entitled to such dividends and distributions out of the income belonging to such Fund as are declared by the Board. Each class represents interests in the same portfolio of investments but, as further described in the Prospectuses, each such class is subject to differing sales charges and expenses, which differences will result in differing net asset values and dividends and distributions. Upon any liquidation of the Trust, shareholders of each class are entitled to share pro rata in the net assets belonging to the applicable Fund allocable to such class available for distribution after satisfaction of outstanding liabilities of the Fund allocable to such class. The Trust is not required to hold annual or regular meetings of shareholders. Meetings of shareholders of a Fund will be held from time to time to consider matters requiring a vote of such shareholders in accordance with the requirements of the 1940 Act, state law or the provisions of the Trust Agreement. It is not expected that shareholder meetings will be held annually. Shares of the Retail Classes 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 Trust's Board of Trustees 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 2 7 such conversion and exchange rights as set forth in the Prospectuses and this Statement of Additional Information. Fractional shares have proportionately the same rights, including voting rights, as are provided for a full share. Class B shares automatically convert to Class A shares at the end of the month which is eight years after the date of purchase. A pro rata portion of shares from reinvested dividends and distributions convert at the same time. No other shares have conversion rights. Because Class B shares convert into Class A shares, the holders of Class B shares (as well as the holders of Class A shares) of each Fund must approve any material increase in fees payable with respect to that Fund under the Class A and C Plan or a new class of shares into which the Class B shares will convert must be created which will be identical in all material respects to the Class A shares prior to the material increase in fees. 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 Trust 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. 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 trustees may elect all of the members of the Board of Trustees of the Trust. In such event, the remaining holders cannot elect any trustees of the Trust. The Trust Agreement provides that the trustees of the Trust shall hold office during the existence of the Trust, except as follows: (a) any trustee may resign or retire; (b) any trustee may be removed by a vote of at least two-thirds of the outstanding shares of the Trust, or at any time by written instrument signed by at least two-thirds of the trustees and specifying when such removal becomes effective; or (c) any trustee who has died or become incapacitated and is unable to serve may be retired by a written instrument signed by a majority of the trustees and specifying the date of his or her retirement. Under Delaware law, shareholders of a Delaware business trust shall be entitled to the same limitations or liability extended to shareholders of private for-profit corporations, however, there is a remote possibility that shareholders could, under certain circumstances, be held liable for the obligations of the Trust to the extent the courts of another state which does not recognize such limited liability were to apply the laws of such state to a controversy involving such obligations. However, the Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees to all parties, and each party thereto must expressly waive all rights of action directly against shareholders of the Trust. The Trust Agreement provides for indemnification out of the property of a Fund for all losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss due to shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations and wherein the complaining party was held not to be bound by the disclaimer. The Trust Agreement further provides that the trustees and officers will not be liable for any act, omission or obligation of the Trust or any trustee or officer. However, nothing in the Trust Agreement protects a trustee or officer against any liability to the Trust or to the shareholders to which a trustee or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office with the Trust. The Trust Agreement provides for indemnification by the Trust of the trustees, officers, employees and agents of the Trust, if it is determined that such person acted in good faith and reasonably believed: (1) in the case of 3 8 conduct in his or her official capacity for the Trust, that his or her conduct was in the Trust's best interests, (2) in all other cases, that his or her conduct was at least not opposed to the Trust's best interests and (3) in a criminal proceeding, that he or she had no reason to believe that his or her conduct was unlawful. The Trust Agreement also authorizes the purchase of liability insurance on behalf of trustees and officers. PERFORMANCE Each Fund's performance may be quoted in advertising in terms of yield or total return. All advertisements of the Funds will disclose the maximum sales charge, if any (including deferred sales charge) to which investments in shares of the Funds may be subject. 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. Standardized total return for Class A shares of a Fund reflects the deduction of the maximum initial sales charge at the time of purchase. Standardized total return for Class B shares of a Fund reflects the deduction of the maximum applicable contingent deferred sales charge on a redemption of shares held for the period. Standardized total return for Class C shares of a Fund reflects the deduction of a 1% contingent deferred sales charge, if applicable, on a redemption of shares held for the period. A Fund's total return shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested and that all charges and expenses are deducted. A cumulative total return reflects a 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 A 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, a Fund may separate its cumulative and average annual returns into income results and capital gain or loss. A fund may participate in the initial public offering ("IPO") market, and a significant portion of the fund's returns may be attributable to its investment in IPOs. Investment in IPOs could have a magnified impact on a fund with a small asset base. There is no guarantee that as a fund's assets grow, it will continue to experience substantially similar performance by investing in IPOs. Yield is computed in accordance with the standardized formula described below 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 a Fund's investments, the Fund's maturity and the Fund's operating expense ratio. From time to time, A I M Advisors, Inc. ("AIM") or its affiliates may waive all or a portion of their fees and/or assume certain expenses of any Fund. Voluntary fee waivers or reductions or commitments to assume expenses may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions or commitments to assume expenses, AIM will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions or reimbursement of expenses set forth in the Fee Table in a Prospectus may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund. Fee waivers or reductions or commitments to reduce expenses will have the effect of increasing that Fund's yield and total return. The performance of each Fund will vary from time to time and past results are not necessarily indicative of future results. A Fund's 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 4 9 conditions. A shareholder's investment in a Fund is not insured or guaranteed. These factors should be carefully considered by the investor before making an investment in any Fund. Additional performance information is contained in a Fund's Annual Report to Shareholders, which is available upon request without charge. 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 or Class C contingent deferred sales charge into account. Excluding sales charges from a total return calculation produces a higher total return figure. TOTAL RETURN QUOTATIONS The standard formula for calculating total return is as follows: n P(1+T) =ERV Where P = a hypothetical initial payment of $1,000. T = average annual total return (assuming the applicable maximum sales load is deducted at the beginning of the 1, 5, or 10 year periods). n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment at the end of the 1, 5, or 10 year periods (or fractional portion of such period). HISTORICAL PORTFOLIO RESULTS Total returns for Class A shares of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth, Mid Cap and Weingarten, for the one-year, five-year, ten-year, fifteen-year and twenty-year (or since inception, if shorter) periods ended October 31, 1999 (which include the maximum sales charge of 5.50% and reinvestment of all dividends and distributions), were as follows: 5 10 CLASS A AVERAGE ANNUAL RETURNS
ONE FIVE TEN FIFTEEN TWENTY SINCE YEAR YEARS YEARS YEARS YEARS INCEPTION* ---- ----- ----- ------- ------- ---------- AGGRESSIVE GROWTH 32.03% 16.04% 19.99% 15.95% N/A 15.51% BLUE CHIP 21.92% 24.08% 16.94% N/A N/A 14.85% CAPITAL DEVELOPMENT 11.73% N/A N/A N/A N/A 11.43% CHARTER 26.63% 21.83% 16.37% 16.87% 16.79% 14.44% CONSTELLATION 27.41% 17.03% 17.91% 19.08% 18.83% 18.32% DEMOGRAPHIC TRENDS N/A N/A N/A N/A N/A N/A EMERGING GROWTH N/A N/A N/A N/A N/A N/A LARGE CAP BASIC VALUE N/A N/A N/A N/A N/A N/A LARGE CAP GROWTH N/A N/A N/A N/A N/A N/A MID CAP N/A N/A N/A N/A N/A N/A WEINGARTEN 31.07% 22.40% 16.22% 18.22% 19.56% 15.62%
CLASS A CUMULATIVE RETURNS
ONE FIVE TEN FIFTEEN TWENTY SINCE YEAR YEARS YEARS YEARS YEARS INCEPTION* ---- ----- ----- ----- ----- ---------- AGGRESSIVE GROWTH 32.03% 110.41% 518.68% 820.72% N/A 834.44% BLUE CHIP 21.92% 194.07% 378.07% N/A N/A 482.98% CAPITAL DEVELOPMENT 11.73% N/A N/A N/A N/A 44.05% CHARTER 26.63% 168.44% 355.29% 935.84% 2,128.15% 6,375.52% CONSTELLATION 27.41% 119.56% 419.33% 1,272.05% 3,052.71% 5,112.13% DEMOGRAPHIC TRENDS N/A N/A N/A N/A N/A 14.74% EMERGING GROWTH N/A N/A N/A N/A N/A N/A LARGE CAP BASIC VALUE N/A N/A N/A N/A N/A -11.15% LARGE CAP GROWTH N/A N/A N/A N/A N/A 7.42% MID CAP N/A N/A N/A N/A N/A N/A WEINGARTEN 31.07% 174.78% 349.70% 1,130.67% 3,462.17% 8,121.99%
* The inception dates for the Class A shares of the Funds are May 1, 1984, February 4, 1987, June 17, 1996, November 26, 1968, April 30, 1976, June 7, 1999, March 31, 2000, June 30, 1999, March 1, 1999, November 1, 1999 and June 17, 1969, respectively. During the 10-year period ended October 31, 1999, a hypothetical $1,000 investment at the beginning of such period in Class A shares of Aggressive Growth, Blue Chip, Charter, Constellation and Weingarten would have been worth $6,187, $4,781, $4,553, $5,193 and $4,497, respectively, assuming all distributions were reinvested. During the 15-year period ended October 31, 1999, a hypothetical $1,000 investment at the beginning of such period in Class A shares of Aggressive Growth, Charter, Constellation and Weingarten would have been worth $9,207, $10,358, $13,721 and $12,307, respectively, assuming all dividends were reinvested. During the 20-year period ended October 31, 1999, a hypothetical $1,000 investment at the beginning of such period in Class A shares of Charter, Constellation and Weingarten would have been worth $22,281, $31,527 and $35,622, respectively, assuming all distributions were reinvested. Total returns for each of the named Funds with respect to its Class B shares (which deduct the maximum contingent deferred sales charge of 5% and include reinvestment of all dividends and distributions), for the period ended October 31, 1999 (or since inception), were as follows: 6 11 CLASS B AVERAGE ANNUAL RETURNS
Since One Year Inception* -------- --------- AGGRESSIVE GROWTH N/A N/A BLUE CHIP 23.08% 24.38% CAPITAL DEVELOPMENT 12.32% 8.70% CHARTER 28.06% 21.52% CONSTELLATION 28.64% 10.41% DEMOGRAPHIC TRENDS N/A N/A EMERGING GROWTH N/A N/A LARGE CAP BASIC VALUE N/A N/A LARGE CAP GROWTH N/A N/A MID CAP N/A N/A WEINGARTEN 32.64% 22.10%
CLASS B CUMULATIVE RETURNS
Since One Year Inception* -------- --------- AGGRESSIVE GROWTH N/A 22.27% BLUE CHIP 23.08% 95.88% CAPITAL DEVELOPMENT 12.32% 29.33% CHARTER 28.06% 133.40% CONSTELLATION 28.64% 21.81% DEMOGRAPHIC TRENDS N/A 16.10% EMERGING GROWTH N/A N/A LARGE CAP BASIC VALUE N/A -10.70% LARGE CAP GROWTH N/A -2.91% MID CAP N/A N/A WEINGARTEN 32.64% 138.23%
* The inception dates for the Class B shares of the Funds are March 1, 1999, October 1, 1996, October 1, 1996, June 26, 1995, November 3, 1997, June 7, 1999, March 31, 2000, April 5, 1999, June 4, 1999, November 1, 1999 and June 26, 1995, respectively. Total returns for each of the named Funds with respect to its Class C shares for the period ended October 31, 1999 (or since inception), were as follows: 7 12 CLASS C AVERAGE ANNUAL RETURNS
Since One Year Inception* -------- --------- AGGRESSIVE GROWTH N/A N/A BLUE CHIP 27.09% 18.82% CAPITAL DEVELOPMENT 16.34% 4.54% CHARTER 32.06% 16.99% CONSTELLATION 32.65% 10.32% DEMOGRAPHIC TRENDS N/A N/A EMERGING GROWTH N/A N/A LARGE CAP BASIC VALUE N/A N/A LARGE CAP GROWTH N/A N/A MID CAP N/A N/A WEINGARTEN 36.61% 19.90%
CLASS C CUMULATIVE RETURNS
Since One Year Inception* -------- --------- AGGRESSIVE GROWTH N/A 26.27% BLUE CHIP 27.09% 47.17% CAPITAL DEVELOPMENT 16.34% 10.46% CHARTER 32.06% 42.13% CONSTELLATION 32.65% 24.62% DEMOGRAPHIC TRENDS N/A 20.10% EMERGING GROWTH N/A N/A LARGE CAP BASIC VALUE N/A -6.94% LARGE CAP GROWTH N/A 1.18% MID CAP N/A N/A WEINGARTEN 36.61% 50.19%
* The inception date for the Class C shares of the Funds is August 4, 1997, except the inception dates for the Class C shares of Aggressive Growth, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth and Mid Cap are March 1, 1999, June 7, 1999, March 31, 2000, June 4, 1999, April 5, 1999 and November 1, 1999, respectively. The performance data listed above is not necessarily indicative of the future performance of any of the Funds. Average annual returns and cumulative returns are not available for Class A, B and C shares of Emerging Growth and Mid Cap and Class B and C shares of Large Cap Basic Value because these classes had no operations prior to October 31, 1999. 8 13 YIELD QUOTATIONS The standard formula for calculating yield is as follows: 6 YIELD = 2[((a-b)/(c x d) + 1) -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. 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 Incorporated 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. 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 Russell--Registered Trademark-- indices, the Standard & Poor's 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. Standard & Poor'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. Each Fund's advertising may from time to time include discussions of general economic conditions and interest rates. In addition, each Fund's long-term performance may be described in advertising in relation to historical, political and/or economic events. 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, Demographic Trends sales literature and/or advertisements may quote (i) Harry S. Dent, Jr.'s theories on why the coming decade may offer unprecedented opportunities for investors, including his opinions on the stock market outlook and where growth may be strongest; (ii) Harry S. Dent, Jr.'s opinions and theories from his books and publications, including, but not limited to, Job Shock, The Great Boom Ahead and The Roaring 2000s, including his beliefs that (a) people's spending patterns may help predict the stock market, (b) the stock market has tended to perform best when a generation has reached its peak spending years from ages 45-50, and (c) as more and more baby boomers reach their peak spending age, they could propel stock prices up for the next decade; and (iii) Harry S. Dent, Jr.'s S-curve analysis, a forecasting tool used to analyze products that show remarkable growth. Large Cap Growth invests primarily in domestic "brand-name" companies that are domiciled in the U.S. and compete in the global marketplace. By investing in companies whose products and services are marketed around the world, Large Cap Growth attempts to capture potential growth in foreign markets, while benefiting from the growth opportunities and relative stability of the U.S. marketplace. 9 14 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 AIM makes decisions to buy and sell securities for each Fund, selects broker-dealers, effects the Funds' investment portfolio transactions, allocates brokerage fees in such transactions, and where applicable, negotiates commissions and spreads on transactions. AIM's primary consideration in effecting a security transaction is to obtain the most favorable execution of the order, which includes the best price on the security and a low commission rate. While AIM seeks reasonably competitive commission rates, the Funds may not pay the lowest commission or spread available. See "Section 28(e) Standards" below. Some of the securities in which the Funds invest are traded in over-the-counter markets. In such transactions, a Fund deals directly with dealers who make markets in the securities involved, except when better prices are available elsewhere. Portfolio transactions placed through dealers who are primary market makers are effected at net prices without commissions, but which include compensation in the form of a mark up or mark down. Traditionally, commission rates have not been negotiated on stock markets outside the United States. Although in recent years many overseas stock markets have adopted a system of negotiated rates, a number of markets maintain an established schedule of minimum commission rates. AIM may determine target levels of commission business with various brokers on behalf of its clients (including the Funds) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's 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") (collectively, the "AIM Funds") in particular, including sales of the Funds and of the other AIM Funds. In connection with (3) above, the Funds' trades may be executed directly by dealers that sell shares of the AIM Funds or by other broker-dealers with which such dealers have clearing arrangements. AIM will not use a specific formula in connection with any of these considerations to determine the target levels. The Funds may engage in certain principal and agency transactions with banks and their affiliates that own 5% or more of the outstanding voting securities of an AIM Fund, provided the conditions of an exemptive order received by the Funds from the SEC are met. In addition, a Fund may purchase or sell a security from or to another AIM Fund or account and may invest in affiliated money market funds, provided the Funds follow procedures adopted by the Board of Directors/Trustees of the various AIM Funds, including the Trust. These inter-fund transactions do not generate brokerage commissions but may result in custodial fees or taxes or other related expenses. 10 15 ALLOCATION OF PORTFOLIO TRANSACTIONS AIM and its affiliates manage numerous other investment accounts. Some of these accounts may have investment objectives similar to the Funds. Occasionally, identical securities will be appropriate for investment by one of the Funds and by another Fund or one or more of these investment accounts. However, the position of each account in the same securities and the length of time that each account may hold its investment in the same securities may vary. The timing and amount of purchase by each account will also be determined by its cash position. If the purchase or sale of securities is consistent with the investment policies of the Fund(s) and one or more of these accounts, and is considered at or about the same time, AIM will fairly allocate transactions in such securities among the Fund(s) and these accounts. AIM may combine such transactions, in accordance with applicable laws and regulations, to obtain the most favorable execution. Simultaneous transactions could, however, adversely affect a Fund's ability to obtain or dispose of the full amount of a security which it seeks to purchase or sell. Sometimes the procedure for allocating portfolio transactions among the various investment accounts advised by AIM could have an adverse effect on the price or amount of securities available to a Fund. In making such allocations, AIM considers the 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. ALLOCATION OF IPO SECURITIES TRANSACTIONS From time to time, certain of the AIM Funds or other accounts managed by AIM may become interested in participating in security distributions that are available in an IPO, and occasions may arise when purchases of such securities by one AIM Fund or account may also be considered for purchase by one or more other AIM Funds or accounts. In such cases, it shall be AIM's practice to combine or otherwise bunch indications of interest for IPO securities for all AIM Funds and accounts participating in purchase transactions for that security, and to allocate such transactions in accordance with the following procedures: AIM will determine the eligibility of each AIM Fund and account that seeks to participate in a particular IPO by reviewing a number of factors, including suitability of the investment with the AIM Fund's or account's investment objective, policies and strategies, the liquidity of the AIM Fund or account if such investment is purchased, and whether the portfolio manager intends to hold the security as a long-term investment. The allocation of limited supply securities issued in IPOs will be made to eligible AIM Funds and accounts in a manner designed to be fair and equitable for the eligible AIM Funds or accounts, and so that there is equal allocation of IPOs over the longer term. Where multiple funds or accounts are eligible, rotational participation may occur, based on the extent to which an AIM Fund or account has participated in previous IPOs as well as the size of the AIM Fund or account. Each eligible AIM Fund or account with an asset level of less than $500 million will be placed in one of three tiers, depending upon its asset level. The AIM Funds and accounts in the tier containing funds and accounts with the smallest asset levels will participate first, each receiving a 40 basis point allocation (rounded to the nearest share round lot that approximates 40 basis points) (the "Allocation"), based on that AIM Fund's or account's net assets. This process continues until all of the AIM Funds or accounts in the three tiers receive their Allocation, or until the shares are all allocated. Should securities remain after this process, eligible AIM Funds and accounts will receive their Allocation on a straight pro rata basis. For the tier of AIM Funds and accounts not receiving a full Allocation, the Allocation may be made only to certain AIM Funds or accounts so that each may receive close to or exactly 40 basis points. When AIM Funds and/or accounts with substantially identical investment objectives and policies will participate in syndicates in amounts that are substantially proportionate to each other. In these cases, the net assets of the largest AIM Fund will be used to determine in which tier, as described in the paragraph above, such group of AIM Funds or accounts will be placed. If no AIM Fund is participating, then the net assets of the largest account will be used to determine tier placement. The price per share of securities purchased in such syndicate transactions will be the same for each AIM Fund and account. 11 16 Due to their asset size, Charter, Constellation and Weingarten are unlikely to participate in IPOs to a material degree. SECTION 28(e) STANDARDS Section 28(e) of the Securities Exchange Act of 1934 provides that AIM, under certain circumstances, lawfully may cause an account to pay a higher commission than the lowest available. Under 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 [AIM's] overall responsibilities with respect to the accounts as to which it exercises investment discretion." The services provided by the broker also must lawfully and appropriately assist AIM in the performance of its investment decision-making responsibilities. Accordingly, in recognition of research services provided to it, a Fund may pay a broker higher commissions than those available from another broker. Research services received from broker-dealers supplement AIM's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; information concerning prices of securities; and information supplied by specialized services to AIM and to the Board of Trustees with respect to the performance, investment activities, and fees and expenses of other mutual funds. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of custody services, as well as the providing of equipment used to communicate research information, the providing of specialized consultations with AIM personnel with respect to computerized systems and data furnished to AIM as a component of other research services, 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 since the broker-dealers used by AIM tend to follow a broader universe of securities and other matters than AIM's staff can follow. In addition, the research provides AIM with a diverse perspective on financial markets. Research services provided to AIM by broker-dealers are available for the benefit of all accounts managed or advised by AIM or by its affiliates. 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 clients, including the Funds. However, the Funds are not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities. In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. AIM believes that the research services are beneficial in supplementing AIM's research and analysis and that they improve the quality of AIM's investment advice. The advisory fee paid by the Funds is not reduced because AIM receives such services. However, to the extent that AIM would have purchased research services had they not been provided by broker-dealers, the expenses to AIM could be considered to have been reduced accordingly. TRANSACTIONS WITH REGULAR BROKERS As of October 31, 1999, Blue Chip, Charter and Dent Demographics held an amount of common stock issued by Merrill Lynch & Co. having a market value of $25,512,500, $39,250,000 and $5,887,500, respectively, and common stock issued by Morgan Stanley, Dean Witter, Discover & Co. having a market value of $57,914,063, $137,890,650 and $12,134,375, respectively. As of October 31, 1999, Charter held an amount of common stock issued by Goldman Sachs Group, Inc. having a market value of $10,650,000. 12 17 BROKERAGE COMMISSIONS PAID For the fiscal years ended October 31, 1999, 1998 and 1997, Aggressive Growth paid brokerage commissions of $3,536,558, $5,098,276 and $4,026,523, respectively. For the fiscal year ended October 31, 1999, 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 $722,475,212 and the related brokerage commissions were $1,045,622. For the fiscal years ended October 31, 1999, 1998 and 1997, Blue Chip paid brokerage commissions of $2,695,856, $1,457,590 and $858,396, respectively. For the fiscal year ended October 31, 1999, 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 $221,450,070 and the related brokerage commissions were $195,523. For the fiscal years ended October 31, 1999, 1998 and 1997, Capital Development paid brokerage commissions of $3,324,179, $2,277,419 and $628,188, respectively. For the fiscal year ended October 31, 1999, AIM allocated certain of Capital Development's brokerage transactions to certain broker-dealers that provide AIM with certain research, statistical and other information. Such transactions amounted to $319,102,239 and the related brokerage commissions were $682,063. For the fiscal years ended October 31, 1999, 1998 and 1997, Charter paid brokerage commissions of $11,856,781, $15,567,811 and $12,073,633, respectively. For the fiscal year ended October 31, 1999, 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 $1,349,408,533 and the related brokerage commissions were $1,333,679. For the fiscal years ended October 31, 1999, 1998 and 1997, Constellation paid brokerage commissions of $20,108,956, $25,285,665 and $16,928,988, respectively. For the fiscal year ended October 31, 1999, 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 $2,153,357,263 and the related brokerage commissions were $2,610,073. For the period ended October 31, 1999, Demographic Trends paid brokerage commissions of $250,423. For the period ended October 31, 1999, AIM allocated certain of Demographic Trends' brokerage transactions to certain broker-dealers that provided AIM with certain research, statistical and other information. Such transactions amounted to $5,535,874 and the related brokerage commissions were $6,004. For the period ended October 31, 1999, Large Cap Basic Value paid brokerage commissions of $1,021. For the period ended October 31, 1999, AIM allocated certain of Large Cap Basic Value's brokerage transactions to certain broker-dealers that provide AIM with certain research, statistical and other information. Such transactions amounted to $14,324 and the related brokerage commissions were $16. For the period ended October 31, 1999, Large Cap Growth paid brokerage commissions of $6,178. For the period ended October 31, 1999, AIM allocated certain of Large Cap Growth's brokerage transactions to certain broker-dealers that provided AIM with certain research, statistical and other information. Such transactions amounted to $279,961 and the related brokerage commissions were $251. For the fiscal years ended October 31, 1999, 1998 and 1997, Weingarten paid brokerage commissions of $20,226,511, $19,810,852 and $17,413,682, respectively. For the fiscal year ended October 31, 1999, 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 $2,225,018,782 and the related brokerage commissions were $2,027,136. 13 18 PORTFOLIO TURNOVER The portfolio turnover rate of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Large Cap Basic Value, Large Cap Growth and Weingarten is shown under "Financial Highlights" in the applicable Prospectus. Higher portfolio turnover increases transaction costs to the Funds. INVESTMENT STRATEGIES AND RISKS Information concerning each Fund's non-fundamental investment objective(s) is set forth in the Prospectuses under the heading "Investment Objective and Strategies." There can be no assurance that any Fund will achieve its objective. The principal features of each Fund's investment program and the principal risks associated with that investment program are discussed in the Prospectuses under the heading "Investment Objective and Strategies" and "Principal Risks of Investing in the Fund." Set forth in this section is a description of each Fund's investment policies, strategies and practices. The investment objective(s) of each Fund are non-fundamental policies and may be changed by the Board of Trustees without shareholder approval. Each Fund's investment policies, strategies and practices are also non-fundamental. The Board of Trustees of the Trust reserves the right to change any of these non-fundamental investment policies, strategies or practices without shareholder approval. However, shareholders will be notified before any material change in the investment policies becomes effective. Each Fund has adopted certain investment restrictions, some of which are fundamental and cannot be changed without shareholder approval. See "Investment Restrictions" in this Statement of Additional Information. Individuals considering the purchase of shares of any Fund should recognize that there are risks in the ownership of any security. Any percentage limitations with respect to assets of a Fund will be applied at the time of purchase. A later change in percentage resulting from changes in asset values will not be considered a violation of the percentage limitations. The percentage limitations applicable to borrowings and reverse repurchase agreements (Charter only) will be applied in accordance with applicable provisions of the 1940 Act and the rules and regulations promulgated thereunder which specifically limit each Fund's abilities. The investment objective of Aggressive Growth is to achieve long-term growth of capital. The Fund will invest primarily in common stocks of companies whose earnings the Fund's portfolio managers expect to grow more than 15% per year. Many of these companies are in the small to medium-sized category. 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 Fund'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. Blue Chip's primary investment objective is long-term growth of capital with a secondary objective of current income. It is anticipated that the major portion of Blue Chip's portfolio will ordinarily be invested in common stocks, convertible securities and bonds of blue chip companies (i.e., companies with leading market positions and which possess strong financial characteristics, as described below). While current 14 19 income is a secondary objective, most of the stocks in the Fund's portfolio are expected to pay dividends. The Fund will generally invest in large and medium sized companies (i.e., companies which fall in the largest 85% of market capitalization of publicly traded companies listed in the United States) which possess the following characteristics: o MARKET CHARACTERISTICS -- Blue chip companies are those which occupy (or in AIM's judgment have the potential to occupy) leading market positions that are expected to be maintained or enhanced over time. Strong market positions, particularly in growing industries, can give a company pricing flexibility as well as the potential for strong unit sales. These factors can in turn lead to higher earnings growth and greater share price appreciation. Market leaders can be identified within an industry as those companies which have (i) superior growth prospects compared with other companies in the same industry; (ii) possession of proprietary technology with the potential to bring about major changes within an industry; and/or (iii) leading sales within an industry, or the potential to become a market leader. o FINANCIAL CHARACTERISTICS -- A blue chip company possesses at least one of the following attributes: (i) faster earnings growth than its competitors and the market in general; (ii) higher profit margins relative to its competitors; (iii) strong cash flow relative to its competitors; and/or (iv) a balance sheet with relatively low debt and a high return on equity relative to its competitors. The Fund will diversify among industries and therefore will not invest 25% or more of its total assets in any one industry. Under normal market conditions, Blue Chip's portfolio will be diversified among industries in a manner similar to the industry diversification of broad market indices. The investment objective of Capital Development is long-term growth of capital. Production of income is incidental to this objective. The Fund's principal investments are in common stocks, convertible securities and bonds. The Fund will invest primarily in securities of small and medium-sized companies (i.e., companies which fall in the smallest 85% by market capitalization of publicly traded companies in the United States). Among factors that AIM may consider when selecting investments in a company for the Fund are (i) the growth prospects for a company's products, (ii) the economic outlook for its industry, (iii) a company's new product development, (iv) its operating management capabilities, (v) the relationship between the price of the security and its estimated fundamental value, (vi) relevant market, economic and political environments and (vii) financial characteristics such as balance sheet analysis and return on assets. The primary investment objective of Charter is growth of capital with a secondary objective of current income. Although the amount of Charter's current income will vary from time to time, it is anticipated that the current income realized by Charter will generally be greater than that realized by mutual funds whose sole objective is growth of capital. The investment objective of Constellation is growth of capital. Constellation aggressively seeks to increase shareholders' capital by investing principally in common stocks of companies the portfolio managers believe are likely to benefit from new or innovative products, services or processes that should enhance such companies' prospects for future growth in earnings. Emerging Growth is a non-diversified portfolio (as defined in the 1940 Act), which means that it may invest a greater proportion of its assets in the securities of a smaller number of issuers and therefore may be subject to greater market and credit risk than a more broadly diversified portfolio. (A diversified portfolio may not, with respect to 75% of its total assets, invest more than 5% of its assets in securities of one issuer.) Emerging Growth intends to satisfy the diversification requirements of the Internal Revenue Code to qualify as a regulated investment company. See "Dividends, Distributions and Tax Matters" herein. 15 20 The investment objective of Weingarten is to seek growth of capital. The Fund will invest in common stocks of seasoned and better capitalized companies. Current income will not be an important criterion of investment selection, and any such income should be considered incidental. It is anticipated that common stocks will be the principal form of investment by the Fund. Management of Aggressive Growth and Constellation 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 a Fund may fluctuate widely. Any income received from securities held by a Fund will be incidental, and an investor should not consider a purchase of shares of a Fund as equivalent to a complete investment program. Aggressive Growth, Constellation and Weingarten's portfolios are 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. Each of the Funds may invest, for cash management, temporary or defensive purposes, all or substantially all of their assets in corporate bonds, shares of affiliated money market funds, commercial paper, or U.S. Government obligations. In addition, all or a portion of each Fund's assets may be held, from time to time, in cash, repurchase agreements, shares of affiliated money market funds, bonds 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 AIM considers to have adequate protection parameters, including an adequate capacity to pay interest and repay principal in a 16 21 timely manner, it invests without regard to corporate bond ratings. Blue Chip does not intend to invest more than 10% of its total 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 and Large Cap Growth will not invest in non-convertible corporate debt securities rated below investment grade by Standard and Poor's Ratings Services ("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. The values of such securities fluctuate inversely to interest rates. REAL ESTATE INVESTMENT TRUSTS To the extent consistent with their respective investment objectives and policies, the Funds may invest in equity and/or debt securities issued by Real Estate Investment Trusts ("REITs"). Such investments will not exceed 25% of the total assets of any of the Funds. 17 22 REITs are trusts which sell equity or debt securities to investors and use the proceeds to invest in real estate or interests therein. A REIT may focus on particular projects, such as apartment complexes, or geographic regions, such as the southeastern United States, or both. To the extent that a Fund has the ability to invest in REITs, such Fund could conceivably own real estate directly as a result of a default on the securities it owns. A Fund, therefore, may be subject to certain risks associated with the direct ownership of real estate including difficulties in valuing and trading real estate, declines in the value of real estate, risks related to general and local economic condition, adverse change in the climate for real estate, environmental liability risks, increases in property taxes and operating expense, changes in zoning laws, casualty or condemnation losses, limitations on rents, changes in neighborhood values, the appeal of properties to tenants, and increases in interest rates. In addition to the risks described above, equity REITs may be affected by any changes in the value of the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of any credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified, and are therefore subject to the risk of financing single or a limited number of projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to maintain exemption from the 1940 Act. Changes in interest rates may also affect the value of debt securities held by a Fund. By investing in REITs indirectly through a Fund, a shareholder will bear not only his/her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. FOREIGN SECURITIES To the extent consistent with their respective investment objectives, each of the Funds may invest in foreign securities. Each of Aggressive Growth, Blue Chip, Capital Development, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth and Mid Cap may invest up to 25% of its total assets in foreign securities. Each of Charter, Constellation and Weingarten may invest up to 20% of its total assets in foreign securities. For purposes of computing such limitation American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and other securities representing underlying securities of foreign 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. To the extent a Fund invests in securities denominated in foreign currencies, each 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 generally are listed on a recognized foreign securities exchange or traded in a foreign over-the-counter market. Each of the Funds 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. 18 23 Investments by a Fund in foreign securities, whether denominated in U.S. currencies or foreign currencies, may entail all of the risks set forth below. Investments by a Fund in ADRs, EDRs or similar securities also may entail some or all of the risks as set forth below. Currency Risk. The value of each 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. On January 1, 1999, certain members of the European Economic and Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a common European currency known as the "euro" and each member's local currency became a denomination of the euro. It is anticipated that each participating country will replace its local currency with the euro on July 1, 2002. Any other European country that is a member of the European Union and satisfies the criteria for participation in the EMU may elect to participate in the EMU and may supplement its existing currency with the euro. The anticipated replacement of existing currencies with the euro on July 1, 2002 could cause market disruptions before or after July 1, 2002 and could adversely affect the value of securities held by a Fund. Political and Economic Risk. The economies of many of the countries in which the Funds 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 each 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 standards, practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Funds may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Funds' shareholders. Market Risk. The securities markets in many of the countries in which the Funds invest 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. FOREIGN EXCHANGE TRANSACTIONS Each Fund has authority to deal in foreign exchange between currencies of the different countries in which it will invest either for the settlement of transactions or as a hedge against possible variations in the foreign exchange rates between those currencies. This may be accomplished through direct purchases or sales of foreign currency, purchases of futures contracts with respect to foreign currency (and options thereon), 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 Funds' dealings in foreign exchange may involve 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 19 24 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 (or underlying portfolio security positions, such as in an ADR) denominated or quoted in a foreign currency. The Fund will not speculate in foreign exchange, nor commit a larger percentage of its total assets to foreign exchange hedges than the percentage of its total assets that it could invest in foreign securities. Further information concerning futures contracts and related options is set forth under the heading "Options, Futures and Currency Strategies." ILLIQUID SECURITIES None of the Funds will invest more than 15% of their net assets in illiquid securities, including repurchase agreements with maturities in excess of seven days. RULE 144A SECURITIES The Funds may purchase privately placed securities that 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 securities that have not been registered under the 1933 Act. AIM, under the supervision of the Trust's Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to a 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. 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. Repurchase agreements are not included in each Fund's restrictions on lending. Repurchase agreements are considered to be loans by each Fund under the 1940 Act. 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. REVERSE REPURCHASE AGREEMENTS Consistent with Charter's, Demographic Trends', Emerging Growth's, Large Cap Basic Value's and Mid Cap's policies on borrowings, each of those Funds may invest in reverse repurchase agreements 20 25 with banks, which involve the sale of securities held by the Fund, with an agreement that the Fund will repurchase the securities at an agreed upon price and date. The Funds may employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements; or (iii) to take advantage of market situations where the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. At the time it enters into a reverse repurchase agreement, a Fund will segregate liquid securities having a dollar value equal to the repurchase price. Reverse repurchase agreements are considered borrowings by the Fund under the 1940 Act. 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. SHORT SALES Each of the Funds may from time to time make short sales of securities which it owns or which it has the right to acquire through the conversion of exchange of other securities it owns. In a short sale, a Fund does not immediately deliver the securities sold and does not receive the proceeds from the sale. A Fund is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. A Fund will neither 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, without payment of any further consideration, for 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." To secure its obligation to deliver the securities sold short, a Fund will deposit in escrow in a separate account with its custodian, an equal amount of the securities sold short or securities convertible into or exchangeable for such securities. In no event may more than 10% of a Fund's total assets be deposited or pledged as collateral for short sales at any one time. Since a Fund ordinarily will want to continue to receive interest and dividend payments on securities in its portfolio which are convertible into the securities sold short, the Fund will normally close out a short position by purchasing and delivering an equal amount of the securities sold short, rather than by delivering securities which it already holds. A Fund will make a short sale, as a hedge, when it believes that the price of a security may decline, causing a decline in the value of a security owned by the Fund or a security convertible into or exchangeable for such security, or when the Fund does not want to sell the security it owns, because among other reasons, it wishes to defer recognition of gain or loss for federal income tax purposes. In such case, any future losses in a Fund's long position should be reduced by a gain in the short position. Conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount a Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. In determining the number of shares to be sold short against a Fund's position in a convertible security, the anticipated fluctuation in the conversion premium is considered. A Fund may also make short sales to generate additional income from the investment of the cash proceeds of short sales. 21 26 MARGIN TRANSACTIONS None of Aggressive Growth, Blue Chip, Capital Development, Charter, Large Cap Growth or Weingarten will purchase any security on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. The payment by a Fund of initial or variation margin in connection with futures or related options transactions will not be considered the purchase of a security on margin. 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. SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Each 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). Each 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. A 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. 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 will segregate liquid assets in an amount equal to the when-issued commitment. If the market value of such segregated assets 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 liquid assets. INVESTMENT IN UNSEASONED ISSUERS Charter, Demographic Trends, Emerging Growth, Large Cap Basic Value and Mid Cap may purchase securities of unseasoned issuers. Securities in such issuers may provide opportunities for long term capital growth. Greater risks are associated with investments in securities of unseasoned issuers than in the securities of more established companies because unseasoned issuers have only a brief operating history and may have more limited markets and financial resources. As a result, securities of unseasoned issuers tend to be more volatile than securities of more established companies. 22 27 LENDING OF PORTFOLIO SECURITIES Consistent with applicable regulatory requirements, the Funds may lend their portfolio securities (principally to broker-dealers) to the extent of one-third of their respective total assets. Such loans would be callable at any time and would be continuously secured by collateral equal to no less than the market value, determined daily, of the loaned securities. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. The Funds would continue to receive the income on loaned securities and would, at the same time, earn interest on the loan collateral or on the investment of the loan collateral if it were cash. Any cash collateral pursuant to these loans would be invested in short-term money market instruments or affiliated money market funds. Where voting or consent rights with respect to loaned securities pass to the borrower, the Funds will follow the policy of calling the loan, in whole or in part as may be appropriate, to permit the exercise of such voting or consent rights if the matters involved are expected to have a material effect on the Funds' investment in the loaned securities. Lending securities entails a risk of loss to the Funds if and to the extent that the market value of the securities loaned were to increase and the lender did not increase the collateral accordingly. INTERFUND LOANS Each Fund may lend up to 33 1/3% of its total assets to another AIM Fund, on such terms and conditions as the SEC may require in an exemptive order. An application for exemptive relief has been filed with the SEC on behalf of the Funds and others. Each Fund may also borrow from another AIM Fund to satisfy redemption requests or to cover unanticipated cash shortfalls due to a delay in the delivery of cash to the Fund's custodian or improper delivery instructions by a broker effectuating a transaction. BORROWING In addition to the ability to borrow money for temporary or emergency purposes, Constellation may, but has no current intention to, borrow money from banks to purchase or carry securities. Constellation may borrow amounts to purchase or carry securities only if, immediately after such borrowing, the value of its assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. Any investment gains made by Constellation with the borrowed monies in excess of interest paid by the Fund will cause the net asset value of the Fund's shares to rise faster than would otherwise be the case. On the other hand, if the investment performance of the additional securities purchased with the proceeds of such borrowings fails to cover the interest paid on the money borrowed by the Fund, the net asset value of the Fund will decrease faster than would otherwise be the case. This speculative factor is known as "leveraging." EQUITY-LINKED DERIVATIVES Each of the Funds may invest in equity-linked derivative products designed to replicate the composition and performance of particular indices. Examples of such products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial Average Instruments ("DIAMONDS") and Optomised Portfolios as Listed Securities ("OPALS"). Investments in equity-linked derivatives involve the same risks associated with a direct investment in the types of securities included in the indices such products are designed to track. There can be no assurance that the trading price of the equity-linked derivatives will equal the underlying value of the basket of securities purchased to replicate a particular index or that such basket will replicate the index. Investments in equity-linked derivatives may constitute investment in other investment companies. See "Investment in Other Investment Companies." INVESTMENT IN OTHER INVESTMENT COMPANIES Each of the Funds may invest in other investment companies to the extent permitted by the 1940 Act, and rules and regulations thereunder, and if applicable, exemptive orders granted by the SEC. The 23 28 following restrictions apply to investments in other investment companies other than Affiliated Money Market Funds (defined below): (i) a Fund may not purchase more than 3% of the total outstanding voting stock of another investment company; (ii) a Fund may not invest more than 5% of its total assets in securities issued by another investment company; and (iii) a Fund may not invest more than 10% of its total assets in securities issued by other investment companies other than Affiliated Money Market Funds. With respect to a Fund's purchase of shares of another investment company, including Affiliated Money Market Funds, the Fund will indirectly bear its proportionate share of the advisory fees and other operating expenses of such investment company. The Funds have obtained an exemptive order from the SEC allowing them to invest uninvested cash balances and cash collateral received in connection with securities lending in money market funds that have AIM or an affiliate of AIM as an investment advisor (the "Affiliated Money Market Funds"), provided that, with respect to uninvested cash balances, investments in Affiliated Money Market Funds do not exceed 25% of the total assets of such Fund. TEMPORARY DEFENSIVE INVESTMENTS In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, each of the Funds may temporarily hold all or a portion of its assets in cash, money market instruments, bonds, or other debt securities. Each of the Funds may also invest up to 25% of its total assets in Affiliated Money Market Funds for these purposes. For a description of the various rating categories of corporate bonds and commercial paper in which the Funds may invest, see the Appendix to this Statement of Additional Information. OPTIONS, FUTURES AND CURRENCY STRATEGIES INTRODUCTION The Funds may each use forward contracts, futures contracts, options on securities, options on indices, options on currencies, and options on futures contracts to attempt to hedge against the overall level of investment and currency risk normally associated with each Fund's investments. These instruments are often referred to as "derivatives," which may be defined as financial instruments whose performance is derived, at least in part, from the performance of another asset (such as a security, currency or an index of securities). GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES The use by the Funds of options, futures contracts and forward currency contracts involves special considerations and risks, as described below. Risks pertaining to particular strategies are described in the sections that follow. (1) Successful use of hedging transactions depends upon AIM's ability to correctly predict the direction of changes in the value of the applicable markets and securities, contracts and/or currencies. While AIM is experienced in the use of these instruments, there can be no assurance that any particular hedging strategy will succeed. (2) There might be imperfect correlation, or even no correlation, between the price movements of an instrument (such as an option contract) and the price movements of the investments being hedged. For example, if a "protective put" is used to hedge a potential decline in a security and the security does decline in price, the put option's increased value may not completely offset the loss in the underlying security. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as changing interest rates, market liquidity, and speculative or other pressures on the markets in which the hedging instrument is traded. (3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging 24 29 strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments. (4) There is no assurance that a liquid secondary market will exist for any particular option, futures contract, forward contract or option thereon at any particular time. (5) As described below, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in instruments involving obligations to third parties. If a Fund were unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. The requirements might impair the Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. (6) There is no assurance that a Fund will use hedging transactions. For example, if a Fund determines that the cost of hedging will exceed the potential benefit to the Fund, the Fund will not enter into such transaction. COVER Transactions using forward contracts, futures contracts and options (other than options purchased by a Fund) expose a Fund to an obligation to another party. A Fund will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, currencies, or other options, forward contracts or futures contracts or (2) cash, liquid assets and/or short-term debt securities with a value sufficient at all times to cover its potential obligations not covered as provided in (1) above. Each Fund will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so require, set aside cash or liquid securities. To the extent that a futures contract, forward contract or option is deemed to be illiquid, the assets used to "cover" the Fund's obligation will also be treated as illiquid for purposes of determining the Fund's maximum allowable investment in illiquid securities. Even though options purchased by the Funds do not expose the Funds to an obligation to another party, but rather provide the Funds with a right to exercise, the Funds intend to "cover" the cost of any such exercise. To the extent that a purchased option is deemed illiquid, the Fund will treat the market value of the option (i.e., the amount at risk to the Fund) as illiquid, but will not treat the assets used as cover on such transactions as illiquid. Assets used as cover cannot be sold while the position in the corresponding forward contract, futures contract or option is open, unless they are replaced with other appropriate assets. If a large portion of a Fund's assets is used for cover or otherwise set aside, it could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations. WRITING CALL OPTIONS Each of the Funds may write (sell) covered call options on securities, futures contracts, forward contracts, indices and currencies. As the writer of a call option, a Fund would have the obligation to deliver the underlying security, cash or currency (depending on the type of derivative) to the holder (buyer) at a specified price (the exercise price) at any time until (American style) or on (European style) a certain date (the expiration date). So long as the obligation of a Fund continues, it may be assigned an exercise notice, requiring it to deliver the underlying security, cash or currency against payment of the exercise price. This obligation terminates upon the expiration of the call option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option identical to that previously sold. When writing a call option a Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security, contract or currency above the exercise price, and retains 25 30 the risk of loss should the price of the security, contract or currency decline. Unlike one who owns securities, contracts or currencies not subject to an option, a Fund has no control over when it may be required to sell the underlying securities, contracts or currencies, since most options may be exercised at any time prior to the option's expiration. If a call option that a Fund has written expires, it will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security, contract or currency during the option period. If the call option is exercised, a Fund will realize a gain or loss from the sale of the underlying security, contract or currency, which will be increased or offset by the premium received. Writing call options can serve as a limited hedge because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. Closing transactions may be effected in order to realize a profit on an outstanding call option, to prevent an underlying security, contract or currency from being called or to permit the sale of the underlying security, contract or currency. Furthermore, effecting a closing transaction will permit a Fund to write another call option on the underlying security, contract or currency with either a different exercise price or expiration date, or both. WRITING PUT OPTIONS Each of the Funds may write (sell) covered put options on securities, futures contracts, forward contracts, indices and currencies. As the writer of a put option, a Fund would have the obligation to buy the underlying security, contract or currency (depending on the type of derivative) at the exercise price at any time until (American style) or on (European style) the expiration date. This obligation terminates upon the expiration of the put option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option identical to that previously sold. A Fund would write a put option at an exercise price that, reduced by the premium received on the option, reflects the lower price it is willing to pay for the underlying security, contract or currency. The risk in such a transaction would be that the market price of the underlying security, contract or currency would decline below the exercise price less the premium received. PURCHASING PUT OPTIONS Each of the Funds may purchase covered put options on securities, futures contracts, forward contracts, indices and currencies. As the holder of a put option, a Fund would have the right to sell the underlying security, contract or currency at the exercise price at any time until (American style) or on (European style) the expiration date. A Fund may enter into closing sale transactions with respect to such options, exercise such option or permit such option to expire. A Fund may purchase a put option on an underlying security, contract or currency ("protective put") owned by the Fund in order to protect against an anticipated decline in the value of the security, contract or currency. Such hedge protection is provided only during the life of the put option. The premium paid for the put option and any transaction costs would reduce any profit realized when the security, contract or currency is delivered upon exercise of said option. Conversely, if the underlying security, contract or currency does not decline in value, the option may expire worthless and the premium paid for the protective put would be lost. A Fund may also purchase put options on underlying securities, contracts or currencies against which it has written other put options. For example, where a Fund has written a "put option" on an underlying security, rather than entering a closing transaction of the written option, it may purchase a put option with a different exercise price and/or expiration date that would eliminate some or all of the risk associated with the written put. Used in combinations, these strategies are commonly referred to as put spreads. Likewise, a Fund may write call options on underlying securities, contracts or currencies against which it has purchased protective put options. This strategy is commonly referred to as a "collar". 26 31 PURCHASING CALL OPTIONS Each of the Funds may purchase covered call options on securities, futures contracts, forward contracts, indices and currencies. As the holder of a call option, a Fund would have the right to purchase the underlying security, contract or currency at the exercise price at any time until (American style) or on (European style) the expiration date. A Fund may enter into closing sale transactions with respect to such options, exercise such options or permit such options to expire. Call options may be purchased by a Fund for the purpose of acquiring the underlying security, contract or currency for its portfolio. Utilized in this fashion, the purchase of call options would enable a Fund to acquire the security, contract or currency at the exercise price of the call option plus the premium paid. So long as it holds such a call option, rather than the underlying security or currency itself, the Fund is partially protected from any unexpected decline in the market price of the underlying security, contract or currency and, in such event, could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. Each of the Funds may also purchase call options on underlying securities, contracts or currencies against which it has written other call options. For example, where a Fund has written a call option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a call option with a different exercise price and/or expiration date that would eliminate some or all of the risk associated with the written call. Used in combinations, these strategies are commonly referred to as "call spreads." OVER-THE-COUNTER OPTIONS Options may be either listed on an exchange or traded in over-the-counter ("OTC") markets. Listed options are third-party contracts (i.e., performance of the obligations of the purchaser and seller is guaranteed by the exchange or clearing corporation) and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration dates. A Fund will not purchase an OTC option unless it believes that daily valuations for such options are readily obtainable. OTC options differ from exchange-traded options in that OTC options are transacted with dealers directly and not through a clearing corporation (which guarantees performance). Consequently, there is a risk of non-performance by the dealer. Since no exchange is involved, OTC options are valued on the basis of an average of the last bid prices obtained from dealers, unless a quotation from only one dealer is available, in which case only that dealer's price will be used. In the case of OTC options, there can be no assurance that a liquid secondary market will exist for any particular option at any specific time. Although a Fund will enter into OTC options only with dealers that are expected to be capable of entering into closing transactions with it, there is no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the dealer, a Fund might be unable to close out an OTC option position at any time prior to its expiration. The staff of the SEC considers purchased OTC options (i.e., the market value of the option) to be illiquid securities. A Fund may also sell OTC options and, in connection therewith, segregate assets or cover its obligations with respect to OTC options written by it. The assets used as cover for OTC options written by the Fund will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Fund may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option. INDEX OPTIONS Puts and calls on indices are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss depends on changes in the index in question (and thus on price movements in the securities market or a particular market sector generally) rather than on price movements in individual securities or futures contracts. The amount of cash is equal to the difference 27 32 between the closing price of the index and the exercise price of the call or put times a specified multiple (the "multiplier"), which determines the total dollar value for each point of such difference. The risks of investment in index options may be greater than options on securities. Because index options are settled in cash, when a Fund writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A Fund can offset some of the risk of writing a call index option position by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, a Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie the index and, as a result, bears a risk that the value of the securities held will not be perfectly correlated with the value of the index. LIMITATIONS ON OPTIONS A Fund will not write options if, immediately after such sale, the aggregate value of securities or obligations underlying the outstanding options exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at any time of the investment, the aggregate premiums paid for the options will exceed 5% of the Fund's total assets. INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS Each of the Funds may enter into interest rate, currency or stock index futures contracts (collectively, "Futures" or "Futures Contracts") as a hedge against changes in prevailing levels of interest rates, currency exchange rates or stock price levels, respectively, in order to establish more definitely the effective return on securities or currencies held or intended to be acquired by it. A Fund's hedging may include sales of Futures as an offset against the effect of expected increases in interest rates, and decreases in currency exchange rates and stock prices, and purchases of Futures as an offset against the effect of expected declines in interest rates, and increases in currency exchange rates or stock prices. A Futures Contract is a two party agreement to buy or sell a specified amount of a specified security or currency (or delivery of a cash settlement price, in the case of an index future) for a specified price at a designated date, time and place. A stock index future provides for the delivery, at a designated date, time and place, of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading on the contract and the price agreed upon in the Futures Contract; no physical delivery of stocks comprising the index is made. Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits must be maintained at all times the Future is outstanding. The Funds will only enter into Futures Contracts that are traded (either domestically or internationally) on futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading thereon in the United States are regulated under the Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same regulatory controls. For a further discussion of the risks associated with investments in foreign securities, see "Foreign Securities" in this Statement of Additional Information. Closing out an open Future is effected by entering into an offsetting Future for the same aggregate amount of the identical financial instrument or currency and the same delivery date. There can be no assurance, however, that a Fund will be able to enter into an offsetting transaction with respect to a particular Future at a particular time. If a Fund is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the Future. A Fund's Futures transactions will be entered into for hedging purposes only; that is, Futures will be sold to protect against a decline in the price of securities or currencies that the Fund owns, or Futures will be purchased to protect the Fund against an increase in the price of securities or currencies it has committed to purchase or expects to purchase. 28 33 "Margin" with respect to Futures is the amount of funds that must be deposited by a Fund in order to initiate Futures trading and maintain its open positions in Futures. A margin deposit made when the Futures Contract is entered ("initial margin") is intended to ensure the Fund's performance under the Futures Contract. The margin required for a particular Future is set by the exchange on which the Future is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract. Subsequent payments, called "variation margin," to and from the futures commission merchant through which a Fund entered into the Futures Contract will be made on a daily basis as the price of the underlying security, currency or index fluctuates making the Futures more or less valuable, a process known as marking-to-market. If a Fund were unable to liquidate a Future or an option on a Futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the Future or option or to maintain cash or securities in a segregated account. OPTIONS ON FUTURES CONTRACTS Options on Futures Contracts are similar to options on securities or currencies except that options on Futures Contracts give 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 period of the option. Upon exercise of the option, the delivery of the Futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's Futures margin account. FORWARD CONTRACTS A forward contract is an obligation, usually arranged with a commercial bank or other currency dealer, to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. A Fund either may accept or make delivery of the currency at the maturity of the forward contract. A Fund may also, if its contra party agrees prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Forward contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, it may be more difficult to value such contracts, and it may be difficult to enter into closing transactions. Each of the Funds may engage in forward currency transactions in anticipation of, or to protect itself against, fluctuations in exchange rates. A Fund may enter into forward contracts with respect to a specific purchase or sale of a security, or with respect to its portfolio positions generally. When a Fund purchases a security denominated in a foreign currency for settlement in the near future, it may immediately purchase in the forward market the currency needed to pay for and settle the purchase. By entering into a forward contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the Fund can secure an exchange rate between the trade and settlement dates for that purchase or sale transaction. This practice is sometimes referred to as "transaction hedging." Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency. The cost to a Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal basis, no fees or commissions are involved. The use of forward contracts does not eliminate fluctuations in the prices of the underlying securities a Fund owns or intends to acquire, but it does establish a rate of exchange in advance. In addition, while forward contract sales limit the risk of loss due to a decline in the value of the hedged currencies, they also limit any potential gain that might result should the value of the currencies increase. 29 34 LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON CURRENCIES To the extent that a Fund enters into Futures Contracts, options on Futures Contracts and options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money") will not exceed 5% of the total assets of the Fund, after taking into account unrealized profits and unrealized losses on any contracts it has entered into. This guideline may be modified by the Board, without a shareholder vote. This limitation does not limit the percentage of the Fund's assets at risk to 5%. INVESTMENT RESTRICTIONS Each Fund is subject to the following investment restrictions, which may be changed only by a vote of a majority of such Fund's outstanding shares, except that Emerging Growth is not subject to restriction (1). Fundamental restrictions may be changed only by a vote of the lesser of (i) 67% or more of the Fund's shares present at a meeting if the holders of more than 50% of the outstanding shares are present in person or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares. Any investment restriction that involves a maximum or minimum percentage of securities or assets shall not be considered to be violated unless an excess over or a deficiency under the percentage occurs immediately after, and is caused by, an acquisition or disposition of securities or utilization of assets by the Fund. FUNDAMENTAL RESTRICTIONS (1) The Fund is a "diversified company" as defined in the 1940 Act. The Fund will not purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within the meaning of the 1940 Act, and the rules and regulations promulgated thereunder, as such statute, rules and regulations are amended from time to time or are interpreted from time to time by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or except to the extent that the Fund may be permitted to do so by exemptive order or similar relief (collectively, with the 1940 Act Laws and Interpretations, the "1940 Act Laws, Interpretations and Exemptions"). In complying with this restriction, however, the Fund may purchase securities of other investment companies to the extent permitted by the 1940 Act Laws, Interpretations and Exemptions. (2) The Fund may not borrow money or issue senior securities, except as permitted by the 1940 Act Laws, Interpretations and Exemptions. (3) The Fund may not underwrite the securities of other issuers. This restriction does not prevent the Fund from engaging in transactions involving the acquisition, disposition or resale of its portfolio securities, regardless of whether the Fund may be considered to be an underwriter under the Securities Act of 1933. (4) The Fund will not make investments that will result in the concentration (as that term may be defined or interpreted by the 1940 Act Laws, Interpretations and Exemptions) of its investments in the securities of issuers primarily engaged in the same industry. This restriction does not limit the Fund's investments in (i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or (ii) tax-exempt obligations issued by governments or political subdivisions of governments. In complying with this restriction, the Fund will not consider a bank-issued guaranty or financial guaranty insurance as a separate security. (5) The Fund may not purchase real estate or sell real estate unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from 30 35 investing in issuers that invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. (6) The Fund may not purchase physical commodities or sell physical commodities unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities. (7) The Fund may not make personal loans or loans of its assets to persons who control or are under common control with the Fund, except to the extent permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction does not prevent the Fund from, among other things, purchasing debt obligations, entering into repurchase agreements, loaning its assets to broker-dealers or institutional investors, or investing in loans, including assignments and participation interests. (8) The Fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objectives, policies and restrictions as the Fund. The investment restrictions set forth above provide each of the Funds with the ability to operate under new interpretations of the 1940 Act or pursuant to exemptive relief from the SEC without receiving prior shareholder approval of the change. Even though each of the Funds has this flexibility, the Board of Trustees has adopted non-fundamental restrictions for each of the Funds relating to certain of these restrictions which the advisor must follow in managing the Funds. Any changes to these non-fundamental restrictions, which are set forth below, require the approval of the Board of Trustees. NON-FUNDAMENTAL RESTRICTIONS The following restrictions apply to each of the Funds, except Emerging Growth is not subject to restriction (1). They may be changed for any Fund without approval of that Fund's voting securities. (1) In complying with the fundamental restriction regarding issuer diversification, the Fund will not, with respect to 75% of its total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities), if, as a result, (i) more than 5% of the Fund's total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. The Fund may (i) purchase securities of other investment companies as permitted by Section 12(d)(1) of the 1940 Act and (ii) invest its assets in securities of other money market funds and lend money to other investment companies or their series portfolios that have AIM or an affiliate of AIM as an investment advisor (an "AIM Advised Fund"), subject to the terms and conditions of any exemptive orders issued by the SEC. (2) In complying with the fundamental restriction regarding borrowing money and issuing senior securities, the Fund may borrow money in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). The Fund may borrow from banks, broker-dealers or an AIM Advised Fund. Other than Constellation, the Fund may not borrow for leveraging, but may borrow for temporary or emergency purposes, in anticipation of or in response to adverse market conditions, or for cash management purposes. Other than Constellation, the Fund may not purchase additional securities when any borrowings from banks exceed 5% of the Fund's total assets. (3) In complying with the fundamental restriction regarding industry concentration, the Fund may invest up to 25% of its total assets in the securities of issuers whose principal business activities are in the same industry. 31 36 (4) In complying with the fundamental restriction with regard to making loans, the Fund may lend up to 33 1/3% of its total assets and may lend money to another AIM Advised Fund, on such terms and conditions as the SEC may require in an exemptive order. (5) Notwithstanding the fundamental restriction with regard to investing all assets in an open-end fund, the Fund may not invest all of its assets in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and restrictions as the Fund. The following non-fundamental policy applies only to Constellation: The amount the Fund may borrow will also be limited by the applicable margin limitations imposed by the Federal Reserve Board. If at any time the value of Constellation'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. Any investment gains made by the Fund with the borrowed monies in excess of interest paid by the Fund will cause the net asset value of the Fund's shares to rise faster than would otherwise be the case. On the other hand, if the investment performance of the additional securities purchased with the proceeds of such borrowings fails to cover the interest paid on the money borrowed by Constellation, the net asset value of the Fund will decrease faster than would otherwise be the case. This speculative factor is known as "leveraging." MANAGEMENT The overall management of the business and affairs of the Funds and the Trust is vested with the Trust's Board of Trustees. The Board of Trustees approves all significant agreements between the Trust, on behalf of the Funds, and persons or companies furnishing services to the Funds. The day-to-day operations of each Fund are delegated to the officers of the Trust and to AIM, subject always to the objectives, restrictions and policies of the applicable Fund and to the general supervision of the Trust's Board of Trustees. Certain trustees and officers of the Trust are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the parent corporation of AIM. TRUSTEES AND OFFICERS The trustees and officers of the Trust and their principal occupations during the last five years are set forth below. Unless otherwise indicated, the address of each trustee and officer is 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173.
======================================================================================================================== POSITIONS HELD NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ *ROBERT H. GRAHAM (54) Trustee, Chairman Director, President and Chief Executive Officer, A I M and President 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., and Fund Management Company; and Director and Vice Chairman, AMVESCAP PLC. ========================================================================================================================
* A trustee who is an "interested person" of A I M Advisors, Inc. and the Trust as defined in the 1940 Act. 32 37
======================================================================================================================== POSITIONS HELD NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------ BRUCE L. CROCKETT (56) Trustee Director, ACE Limited (insurance company). Formerly, 906 Frome Lane Director, President and Chief Executive Officer, COMSAT McLean, VA 22102 Corporation and Chairman, Board of Governors of INTELSAT (international communications company). - ------------------------------------------------------------------------------------------------------------------------ OWEN DALY II (75) Trustee Formerly, Director, Cortland Trust, Inc. (investment Six Blythewood Road company), CF & I Steel Corp., Monumental Life Insurance Baltimore, MD 21210 Company and Monumental General Insurance Company; and Chairman of the Board of Equitable Bancorporation. - ------------------------------------------------------------------------------------------------------------------------ ALBERT R. DOWDEN (59) Trustee Chairman of the Board of Directors, Cortland Trust, Inc. 1815 Central Park Drive (investment company) and DHJ Media, Inc.; and Director, P.O. Box 774000-PMB #222 Magellan Insurance Company. Formerly, Director, President Steamboat Springs, CO 80477 and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation and Annuity and Life Re (Holdings), Ltd. - ------------------------------------------------------------------------------------------------------------------------ EDWARD K. DUNN, JR. (65) Trustee Chairman of the Board of Directors, Mercantile Mortgage 2 Hopkins Plaza, 8th Floor Corp. Formerly, Vice Chairman of the Board of Directors, Suite 805 President and Chief Operating Officer, Mercantile - Safe Baltimore, MD 21201 Deposit & Trust Co.; and President, Mercantile Bankshares. - ------------------------------------------------------------------------------------------------------------------------ JACK FIELDS (48) Trustee Chief Executive Officer, Twenty-First Century Group, Inc. Jetero Plaza, Suite E (governmental affairs company). Formerly, Member of the 8810 Will Clayton Parkway U.S. House of Representatives. Humble, Texas 77338 - ------------------------------------------------------------------------------------------------------------------------ **CARL FRISCHLING (63) Trustee Partner, Kramer Levin Naftalis & Frankel LLP (law firm). 919 Third Avenue New York, NY 10022 - ------------------------------------------------------------------------------------------------------------------------ PREMA MATHAI-DAVIS (49) Trustee Chief Executive Officer, YWCA of the U.S.A. 350 Fifth Avenue, Suite 301 New York, NY 10118 - ------------------------------------------------------------------------------------------------------------------------ LEWIS F. PENNOCK (57) Trustee Partner, Pennock & Cooper (law firm). 6363 Woodway, Suite 825 Houston, TX 77057 - ------------------------------------------------------------------------------------------------------------------------ LOUIS S. SKLAR (60) Trustee Executive Vice President, Development and Operations, The Williams Tower, 50th Floor Hines Interests Limited Partnership (real estate 2800 Post Oak Blvd. development). Houston, TX 77056 ========================================================================================================================
- ------------------- ** A trustee who is an "interested person" of the Trust as defined in the 1940 Act. 33 38
======================================================================================================================== POSITIONS HELD NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------ GARY T. CRUM (52) Senior Vice Director and President, A I M Capital Management, Inc.; President Director and Executive Vice President, A I M Management Group Inc.; Director and Senior Vice President, A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC. - ------------------------------------------------------------------------------------------------------------------------ CAROL F. RELIHAN (45) Senior Vice Director, Senior Vice President, General Counsel and President Secretary, A I M Advisors, Inc.; Senior Vice President, and Secretary General Counsel and Secretary, A I M Management Group Inc.; Director, Vice President and General Counsel, Fund Management Company; General Counsel and Vice President, A I M Fund Services, Inc.; and Vice President, A I M Capital Management, Inc., and A I M Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------ MELVILLE B. COX (56) Vice President Vice President and Chief Compliance Officer, A I M Advisors, Inc., A I M Capital Management, Inc., [A I M Distributors, Inc., A I M Fund Services, Inc., and Fund Management Company.] - ------------------------------------------------------------------------------------------------------------------------ DANA R. SUTTON (41) Vice President and Vice President and Fund Controller, A I M Advisors, Inc.; Treasurer and Assistant Vice President and Assistant Treasurer, Fund Management Company. - ------------------------------------------------------------------------------------------------------------------------ EDGAR M. LARSEN (59) Vice President Vice President, A I M Capital Management, Inc. ========================================================================================================================
The standing committees of the Board of Trustees are the Audit Committee, the Investments Committee and the Nominating and Compensation Committee. The members of the Audit Committee are Messrs. Crockett, Daly, Dowden, Dunn (Chairman), Fields, Frischling, Pennock and Sklar and Dr. Mathai-Davis. The Audit Committee is responsible for: (i) considering management's recommendations of independent accountants for each Fund and evaluating such accountants' performance, costs and financial stability; (ii) with AIM, reviewing and coordinating audit plans prepared by the Funds' independent accountants and management's internal audit staff; and (iii) reviewing financial statements contained in periodic reports to shareholders with the Funds' independent accountants and management. The members of the Investments Committee are Messrs. Bauer, Crockett, Daly, Dowden, Dunn, Fields, Frischling, Pennock and Sklar (Chairman) and Dr. Mathai-Davis. The Investment Committee is responsible for: (i) overseeing AIM's investment-related compliance systems and procedures to ensure their continued adequacy; and (ii) considering and acting, on an interim basis, between meetings of the full Board, on investment-related matters requiring Board consideration, including dividends and distributions, brokerage policies and pricing matters. The members of the Nominating and Compensation Committee are Messrs. Crockett (Chairman), Daly, Dowden, Dunn, Fields, Pennock and Sklar and Dr. Mathai-Davis. The Nominating and Compensation Committee is responsible for: (i) considering and nominating individuals to stand for election as independent trustees as long as the Trust maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act; (ii) reviewing from time to time the compensation payable to the independent trustees; and (iii) making recommendations to the Board regarding matters related to compensation, including deferred compensation plans and retirement plans for the independent trustees. 34 39 The Nominating and Compensation Committee will consider nominees recommended by a shareholder to serve as trustees, provided (i) that such person is a shareholder of record at the time he or she submits such names and is entitled to vote at the meeting of shareholders at which trustees will be elected, and (ii) that the Nominating and Compensation Committee or the Board, as applicable, shall make the final determination of persons to be nominated. All of the Trust's trustees also serve as directors or trustees of some or all of the other investment companies managed or advised by AIM. All of the Trust's executive officers hold similar offices with some or all of the other investment companies managed or advised by AIM. Remuneration of Trustees Each trustee is reimbursed for expenses incurred in connection with each meeting of the Board of Trustees or any committee attended. Each trustee who is not also an officer of the Trust is compensated for his or her services according to a fee schedule which recognizes the fact that such trustee also serves as a director or trustee of other AIM Funds. Each such trustee 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 trustee of the Trust:
======================================================================================================= RETIREMENT TOTAL AGGREGATE COMPENSATION BENEFITS COMPENSATION FROM THE ACCRUED FROM ALL TRUSTEE TRUST(1) BY ALL AIM FUNDS(2) AIM FUNDS(3) ------- ---------------------- ------------------- ------------ Charles T. Bauer $ 0 $ 0 $ 0 ------- -------- -------- Bruce L. Crockett 24,660 37,485 103,500 ------- -------- -------- Owen Daly II 24,660 122,898 103,500 ------- -------- -------- Edward K. Dunn, Jr. 24,659 0 103,500 ------- -------- -------- Jack Fields 24,169 15,826 101,500 ------- -------- -------- Carl Frischling(4) 24,541 97,791 103,500 ------- -------- -------- Robert H. Graham 0 0 0 ------- -------- -------- John F. Kroeger(5) 0 107,896 0 ------- -------- -------- Prema Mathai-Davis 24,659 0 101,500 ------- -------- -------- Lewis F. Pennock 24,541 45,766 103,500 ------- -------- -------- Ian Robinson(6) 10,014 94,442 25,000 ------- -------- -------- Louis S. Sklar 24,541 90,232 101,500 ============================================================================================
35 40 (1) The total amount of compensation deferred by all directors of the Trust's predecessor during the fiscal year ended October 31, 1999, including earnings thereon, was $159,484. (2) During the fiscal year ended October 31, 1999, the total amount of expenses allocated to the Trust's predecessor in respect of such retirement benefits was $215,041. Data reflects compensation for the calendar year ended December 31, 1999. (3) Each trustee serves as director or trustee of at least 12 registered investment companies advised by AIM. Data reflects total compensation for the calendar year ended December 31, 1999. (4) During the fiscal year ended October 31, 1999, Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Large Cap Basic Value, Large Cap Growth and Weingarten, each paid $8,655, $9,059, $5,896, $15,483, $31,683, $988, $951, $2,211 and $20,003, respectively, in legal fees to Mr. Frischling's law firm, Kramer Levin Naftalis & Frankel LLP for services rendered. Mr. Frischling, a trustee of the Trust, is a partner in such firm. (5) Mr. Kroeger was a director of the Trust's predecessor until June 11, 1998, when he resigned. On that date he became a consultant to the Trust's predecessor. Mr. Kroeger passed away on November 26, 1998. Mr. Kroeger's widow will receive his pension as described below under "AIM Funds Retirement Plan for Eligible Directors/Trustees." (6) Mr. Robinson was a director of the Trust's predecessor until March 12, 1999, when he retired. AIM Funds Retirement Plan for Eligible Directors/Trustees Under the terms of the AIM Funds Retirement Plan for Eligible Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of the AIM Funds, AIM Management or any of their affiliates) may be entitled to certain benefits upon retirement from the Board of Trustees. Pursuant to the Plan, a trustee becomes eligible to retire and receive full benefits under the Plan when he or she 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 trustee 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 or her date of retirement equal to a maximum of 75% of the annual retainer paid or accrued by the Applicable AIM Funds for such trustee during the twelve-month period immediately preceding the trustee's retirement (including amounts deferred under a separate agreement between the Applicable AIM Funds and the trustee) and based on the number of such trustee's years of service (not in excess of 10 years of service) completed with respect to any of the Applicable AIM Funds. Such benefit is payable to each eligible trustee in quarterly installments. If an eligible trustee dies after attaining the normal retirement date but before receipt of all benefits under the Plan, the trustee's surviving spouse (if any) shall receive a quarterly survivor's benefit equal to 50% of the amount payable to the deceased trustee for no more than ten years beginning the first day of the calendar quarter following the date of the trustee's death. Payments under the Plan are not secured or funded by any Applicable AIM Fund. Set forth below is a table that shows the estimated annual benefits payable to an eligible trustee upon retirement assuming the retainer amount reflected below and various years of service. The estimated credited years of service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock, Robinson and Sklar and Dr. Mathai-Davis are 13, 13, 2, 3, 23, 20, 18, 11, 10 and 1 years, respectively. 36 41 ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
============== ============================ Number of Years of Annual Retirement Service With Compensation Paid By All the Applicable Applicable AIM Funds AIM Funds ============== ============================ 10 $67,500 -- ------- 9 $60,750 -- ------- 8 $54,000 -- ------- 7 $47,250 -- ------- 6 $40,500 -- ------- 5 $33,750 == =======
Deferred Compensation Agreements Messrs. Daly, Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (the "Deferring Trustees"), have each executed a Deferred Compensation Agreement (collectively, the "Compensation Agreements"). Pursuant to the Compensation Agreements, the Deferring Trustees may elect to defer receipt of up to 100% of their compensation payable by the Trust, and such amounts are placed into a deferral account. Currently, the Deferring Trustees may select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested. Distributions from the Deferring Trustees' deferral accounts will be paid in cash, generally in equal quarterly installments over a period of five (5) or ten (10) years (depending on the Compensation Agreement) beginning on the date the Deferring Trustee's retirement benefits commence under the Plan. The Trust's Board of Trustees, in its sole discretion, may accelerate or extend the distribution of such deferral accounts after the Deferring Trustee's termination of service as a trustee of the Trust. If a Deferring Trustee dies prior to the distribution of amounts in his or her deferral account, the balance of the deferral account will be distributed to his or her designated beneficiary in a single lump sum payment as soon as practicable after such Deferring Trustee's death. The Compensation Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the Deferring Trustees have the status of unsecured creditors of the Trust and of each other AIM Fund from which they are deferring compensation. INVESTMENT ADVISORY AND OTHER SERVICES AIM is a direct wholly owned subsidiary of AIM Management, a holding company that has been engaged in the financial services business since 1976. The address of AIM is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. AIM was organized in 1976, and, together with its subsidiaries, advises or manages over 120 investment portfolios encompassing a broad range of investment objectives. AIM Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire Square, London EC2M 4YR, United Kingdom. AMVESCAP PLC 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. Certain of the trustees and officers of AIM are also executive officers of the Trust and their affiliations are shown under "Trustees and Officers." AIM and the Trust 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; 37 42 (b) file reports regarding such transactions; (c) 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 (subject to a de minimis exception), and (iii) transactions involving securities being considered for investment by an AIM Fund (subject to the de minimis exception); and (d) abide by certain other provisions of the Code of Ethics. The de minimis exception under the Code of Ethics covers situations where there is no material conflict of interest because of the large market capitalization of a security and the relatively small number of shares involved in a personal transaction. The Code of Ethics also generally prohibits AIM employees who are registered with the NASD from purchasing securities in initial public offerings. Personal trading reports are periodically reviewed by AIM, and the Board of Trustees reviews quarterly and annual reports (which summarize any significant violations of the Code of Ethics). Sanctions for violating the Code of Ethics may include censure, monetary penalties, suspension or termination of employment. The Trust, on behalf of each Fund has entered into a Master Investment Advisory Agreement dated June 21, 2000 (the "Master Advisory Agreement") and a Master Administrative Services Agreement (the "Master Administrative Services Agreement") with AIM. In addition, AIM has entered into a Master Sub-Advisory Agreement (the "Master Sub-Advisory Agreement") with AIM Capital with respect to Charter, Weingarten and Constellation. A prior investment advisory agreement with substantially similar terms to the Master Advisory Agreement and a prior administrative services agreement with substantially similar terms to the Master Administrative Services Agreement were in effect prior to June 21, 2000. Under the terms of the Master Advisory Agreement, AIM supervises all aspects of the Funds' operations and provides investment advisory services to the Funds. AIM obtains and evaluates economic, statistical and financial information to formulate and implement investment programs for the Funds. AIM will not be liable to the Funds or their shareholders except in the case of AIM's willful misfeasance, bad faith, gross negligence or reckless disregard of duty. Pursuant to the Master Administrative Services Agreement, AIM has agreed to provide or arrange for the provision of certain accounting and other administrative services to the Funds, including the services of a principal financial officer of the Funds and related staff. As compensation to AIM for its services under the Master Administrative Service Agreements, the Funds reimburse AIM for expenses incurred by AIM or its subsidiaries in connection with such services. Under the terms of the Master Sub-Advisory Agreement, AIM has appointed AIM Capital to provide certain investment advisory services for each of Charter, Constellation and Weingarten, subject to overall supervision by AIM and the Trust's Board of Trustees. Certain of the trustees and officers of AIM Capital are also executive officers of the Trust. Under the terms of the Sub-Advisory Agreement, dated June 21, 2000 (the "Sub-Advisory Agreement"), AIM has appointed H.S. Dent Advisors, Inc. to provide certain investment advisory services for Demographic Trends, subject to overall supervision by AIM and the Trust's Board of Trustees. 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 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 trustees and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Trust 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. The Master Advisory Agreement, the Master Sub-Advisory Agreement and Sub-Advisory Agreement will continue in effect from year to year only if such continuance is specifically approved at least annually by (i) the Trust's Board of Trustees 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 38 43 trustees who are not parties to the agreements or "interested persons" of any such party (the "Non-Interested Trustees") 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. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions, AIM will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM and the Fund. Fee waivers or reductions set forth in the Master Advisory Agreement may not be terminated without shareholder approval. AIM has voluntarily agreed, effective July 1, 2000, to waive advisory fees payable by Blue Chip, Charter, Constellation and Weingarten in an amount equal to 0.025% for each $5 billion increment in net assets over $5 billion, up to a maximum waiver of 0.175% on net assets in excess of $35 billion, so that the effective fee schedules are as follows: BLUE CHIP NET ASSETS ANNUAL RATE ---------- ----------- First $350 million 0.75% Over $350 million to and including $5 billion 0.625% Over $5 billion to and including $10 billion 0.60% Over $10 billion to and including $15 billion 0.575% Over $15 billion to and including $20 billion 0.55% Over $20 billion to and including $25 billion 0.525% Over $25 billion to and including $30 billion 0.50% Over $30 billion to and including $35 billion 0.475% Over $35 billion 0.45% CHARTER AND CONSTELLATION NET ASSETS ANNUAL RATE ---------- ----------- First $30 million 1.00% Over $30 million to and including $150 million 0.75% Over $150 million to and including $5 billion 0.625% Over $5 billion to and including $10 billion 0.60% Over $10 billion to and including $15 billion 0.575% Over $15 billion to and including $20 billion 0.55% Over $20 billion to and including $25 billion 0.525% Over $25 billion to and including $30 billion 0.50% Over $30 billion to and including $35 billion 0.475% Over $35 billion 0.45% WEINGARTEN NET ASSETS ANNUAL RATE ---------- ----------- First $30 million 1.00% Over $30 million to and including $350 million 0.75% Over $350 million to and including $5 billion 0.625% Over $5 billion to and including $10 billion 0.60% Over $10 billion to and including $15 billion 0.575% Over $15 billion to and including $20 billion 0.55% Over $20 billion to and including $25 billion 0.525% Over $25 billion to and including $30 billion 0.50% Over $30 billion to and including $35 billion 0.475% Over $35 billion 0.45% In addition, pursuant to a prior fee waiver arrangement, AIM waived through June 30, 2000 a portion of its advisory fees payable by 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 received 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 to and including $2 billion, plus 0.60% of the Fund's average daily net assets in excess of $2 billion. With respect to Weingarten, AIM received a fee 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 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. 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 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. With respect to Demographic Trends, AIM is entitled to receive a fee calculated at an annual rate of 0.85% of the first $2 billion of average daily net assets plus 0.80% of the Fund's average daily net assets in excess of $2 billion. With respect to Emerging Growth, AIM is entitled to receive a fee calculated at an annual rate of 0.85% of the first $1 billion of average daily net assets plus 0.80% of the Fund's assets in excess of $1 billion. With respect to Large Cap Basic Value, AIM is entitled to receive a fee calculated at an annual rate of 0.60% of the first $1 billion of average daily net assets, plus 0.575% of the Fund's average daily net assets in excess of $1 billion to and including $2 billion of average daily net assets, plus 0.55% of the Fund's average daily net assets in excess of $2 billion. With respect to Large Cap Growth, AIM is entitled to receive a fee calculated at an annual rate of 0.75% of the first $1 billion of such Fund's average daily net assets, plus 0.70% of such Fund's average daily net assets in excess of $1 billion to and including $2 billion, plus 0.625% of such Fund's average daily net assets in excess of $2 billion. With respect to Mid Cap, AIM is entitled to receive a fee calculated at an annual rate of 0.80% of the first $1 billion of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $1 billion. As compensation for its services, AIM pays 50% of the advisory fees it receives pursuant to the Master Advisory Agreement with respect to Charter, Constellation and Weingarten to AIM Capital. As compensation for its services, AIM pays H. S. Dent Advisors, Inc. a fee, with respect to Demographic Trends, calculated at an annual rate of 0.13% of the first $1 billion of such Fund's average daily net assets, plus 0.10% of such Fund's average daily net assets in excess of $1 billion to and including $2 billion of the Fund's average daily net assets, plus 0.07% of the Fund's average daily net assets in excess of $2 billion. 39 44 Each Fund paid to AIM the following advisory fees net of any expense limitations (fee waivers) for the years ended October 31, 1999, 1998 and 1997:
1999 1998 1997 ---- ---- ---- Aggressive Growth ........... $17,085,022 $21,617,925 $19,244,957 Blue Chip ................... 21,592,076 8,680,763 3,154,473 Capital Development ......... 8,102,504 7,886,238 3,371,800 Charter ..................... 39,884,618 31,058,588 24,725,606 Constellation ............... 87,350,901 86,555,468 80,116,284 Demographic Trends .......... 646,554 N/A N/A Large Cap Basic Value ....... -0- N/A N/A Large Cap Growth ............ 10,176 N/A N/A Weingarten .................. 50,710,809 40,657,216 35,300,671
For the fiscal year ended October 31, 1999, 1998 and 1997, AIM waived advisory fees for each Fund as follows:
1999 1998 1997 ---- ---- ---- Aggressive Growth .............. $ 0 $ 0 $ 0 Blue Chip ...................... 0 0 100,380 Capital Development ............ 0 0 262,189 Charter ........................ 1,130,089 762,337 498,463 Constellation .................. 3,107,849 3,074,705 2,805,955 Demographic Trends ............. 43,724 N/A N/A Large Cap Basic Value .......... 2,279 N/A N/A Large Cap Growth ............... 32,079 N/A N/A Weingarten ..................... 4,288,405 2,917,461 2,187,021
AIM, in turn, paid the following sub-advisory fees to AIM Capital, as sub-advisor for Charter, Constellation and Weingarten, for the years ended October 31, 1999, 1998 and 1997:
1999 1998 1997 ---- ---- ---- Charter .................. $19,942,309 $15,529,294 $12,362,803 Constellation ............ 43,675,451 43,277,734 40,058,142 Weingarten ............... 25,355,405 20,328,608 17,650,335
AIM paid the following sub-advisory fees to H.S. Dent Advisors, Inc. for Demographic Trends for the period June 7, 1999 through October 31, 1999 as follows:
1999 ---- Demographic Trends........ $105,572
The payments set forth above were made pursuant to a substantially similar advisory agreement between AIM and the Trust's predecessor. In addition, if a Fund engages in securities lending, AIM will provide the Fund investment advisory services and related administrative services. The Master Investment Advisory Agreement describes the administrative services to be rendered by AIM if a Fund engages in securities lending activities, as well as the compensation AIM may receive for such administrative services. Services to be provided include: (a) overseeing participation in the securities lending program to ensure compliance with all applicable regulatory and investment guidelines; (b) assisting the securities lending agent or principal (the agent) in determining which specific securities are available for loan; (c) monitoring the agent to ensure that 40 45 securities loans are effected in accordance with AIM's instructions and with procedures adopted by the Board; (d) preparing appropriate periodic reports for, and seeking appropriate approvals from, the Board with respect to securities lending activities; (e) responding to agent inquiries; and (f) performing such other duties as may be necessary. AIM's compensation for advisory services rendered in connection with securities lending is included in the advisory fee schedule. As compensation for the related administrative services AIM will provide, a lending Fund will pay AIM a fee equal to 25% of the net monthly interest or fee income retained or paid to the Fund from such activities. AIM currently intends to waive such fee, and has agreed to seek Board approval prior to its receipt of all or a portion of such fee. The Master Administrative Services Agreement provides that AIM may perform or arrange for the performance of certain accounting and other administrative services to each Fund. For such services, AIM is entitled to receive from each Fund reimbursement of its costs or such reasonable compensation as may be approved by the Trust's Board of Trustees. The Master Administrative Services Agreement will continue in effect from year to year only if such continuance is specifically approved at least annually by (i) the Trust's Board of Trustees 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 Trustees 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 Funds paid AIM the following amounts as reimbursement of administrative services costs for the years ended October 31, 1999, 1998 and 1997:
1999 1998 1997 ---- ---- ---- Aggressive Growth ................. $126,956 $108,996 $ 97,609 Blue Chip ......................... 153,309 85,043 73,653 Capital Development ............... 111,632 85,252 74,810 Charter ........................... 235,274 152,008 127,908 Constellation ..................... 431,120 295,926 251,513 Demographic Trends ................ 16,849 N/A N/A Large Cap Basic Value ............. 16,849 N/A N/A Large Cap Growth .................. 29,197 N/A N/A Weingarten ........................ 281,500 179,633 163,243
The payments set forth in the table above were made pursuant to a substantially similar administrative services agreement between AIM and the Trust's predecessor. THE DISTRIBUTION PLANS THE CLASS A AND C PLAN The Trust has adopted a Master Distribution Plan pursuant to Rule 12b-1 under the 1940 Act relating to the Class A and Class C shares of the Funds (the "Class A and C Plan"). The Class A and C Plan provides that the Class A shares pay 0.35% per annum of their daily average net assets in the case of Blue Chip, Capital Development, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth and Mid Cap, 0.30% per annum of their average daily net assets in the case of 41 46 Charter, Constellation and Weingarten 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. Under the Class A and C Plan, Class C shares of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth and Mid Cap, and Weingarten pay compensation to AIM Distributors at an annual rate of 1.00% of the average daily net assets attributable to Class C shares. The Class A and C 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 Class A or Class C shares of a Fund. Payments can also be directed by AIM Distributors to selected institutions who have entered into service agreements with respect to Class A and Class C shares of each Fund and who provide continuing personal services to their customers who own Class A and Class C shares of the Fund. Activities appropriate for financing under the Class A and C 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 and C Plan. Of the aggregate amount payable under the Class A and C 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 daily net assets of the Fund attributable to the customers of such dealers or financial institutions are characterized as a service fee, and 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 and C Plan. THE CLASS B PLAN The Trust has also adopted a Master Distribution Plan pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth, Mid Cap and Weingarten (the "Class B Plan", and collectively with the Class A and C Plan, the "Plans"). Under the Class B Plan, Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth, Mid Cap 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, the Funds 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. Any amounts not paid as a service fee would constitute an asset-based sales charge. 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; 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. 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 42 47 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 Trust; 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 Trust may also enter into Variable Group Annuity Contractholder Service Agreements ("Variable Contract Agreements") on behalf of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth, Mid Cap and Weingarten 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 Code. Services provided pursuant to such Variable Contract Agreements may include some or all of the following: answering inquiries regarding the Fund and the Trust; 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. 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 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 may from time to time waive or reduce any portion of its 12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions. AIM Distributors will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Funds' detriment during the period stated in the agreement between AIM Distributors and the Fund. 43 48 Under the Plans, certain financial institutions which have entered into service agreements and which sell shares of the Funds on an agency basis, may receive payments from the Funds pursuant to the respective Plans. 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 fiscal year ended October 31, 1999, with respect to Class A shares, Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation and Weingarten paid AIM Distributors under the Class A and C Plan $6,704,485, $6,217,528, $2,355,478, $13,556,239, $40,983,445 and $22,561,363, respectively, or an amount equal to 0.25%, 0.35%, 0.35%, 0.30%, 0.30%, and 0.30%, respectively, of the Fund's Class A shares average daily net assets. For the period June 7, 1999 (date operations commenced) through October 31, 1999, with respect to Class A shares, Demographic Trends paid AIM Distributors under the Class A and C Plan $112,110, or an amount equal to 0.35% of the Fund's Class A shares average daily net assets. For the period June 30, 1999 (date operations commenced) through October 31, 1999, with respect to Class A shares, Large Cap Basic Value paid AIM Distributors under the Class A and C Plan $1,330, or an amount equal to 0.35% of the Fund's Class A shares average daily net assets. For the period March 1, 1999 (date operations commenced) through October 31, 1999, with respect to Class A shares, Large Cap Growth paid AIM Distributors under the Class A and C Plan $13,159, or an amount equal to 0.35% of the Fund's Class A shares average daily net assets. For the fiscal year ended October 31, 1999, with respect to Class B shares, Blue Chip, Capital Development, Charter, Constellation and Weingarten paid AIM Distributors under the Class B Plan $13,837,276, $4,981,777, $18,631,086, $4,365,731 and $10,382,904, respectively, or an amount equal to 1.00%, 1.00%, 1.00%, 1.00% and 1.00%, respectively, of the Fund's Class B shares average daily net assets. For the period June 7, 1999 (date operations commenced) through October 31, 1999, with respect to Class B shares, Demographic Trends paid AIM Distributors under the Class B Plan $79,099, or an amount equal to 1.00% of the Class B shares average daily net assets. For the period March 1, 1999 (date operations commenced) through October 31, 1999, with respect to Class B shares, Aggressive Growth paid AIM Distributors under the Class B Plan $79,099, or an amount equal to 1.00% of the Fund's Class B shares average daily net assets. For the period April 5, 1999 (date operations commenced) through October 31, 1999, with respect to Class B shares, Large Cap Growth paid AIM Distributors under the Class B Plan $16,134, or an amount equal to 1.00% of the Fund's Class B shares average daily net assets. For the fiscal year ended October 31, 1999, with respect to Class C shares, Blue Chip, Capital Development, Charter, Constellation and Weingarten paid AIM Distributors under the Class A and C Plan $2,245,680, $552,292, $809,235, $1,175,217 and $593,913, respectively, or an amount equal to 1.00%, 1.00%, 1.00%, 1.00% and 1.00%, respectively, of the Fund's Class C shares average daily net assets on an annualized basis. For the period March 1, 1999 (date operations commenced) through October 31, 1999, with respect to Class C shares, Aggressive Growth paid AIM Distributors under the Class A and C Plan $21,997, or an amount equal to 1.00% of the Fund's Class C shares average daily net assets. For the period June 7, 1999 (date operations commenced) through October 31, 1999, with respect to Class C shares, Demographic Trends paid AIM Distributors under the Class A and C Plan $104,204, or an amount equal to 1.00% of the Fund's Class C shares average daily net assets. For the period April 5, 1999 (date operations commenced) through October 31, 1999, with respect to Class C shares, Large Cap Growth paid AIM Distributors under the Class A and C Plan $2,610, or an amount equal to 1.00% of the Fund's Class C shares average daily net assets. The payments set forth in the prior three paragraphs were made pursuant to substantially similar distribution plans adopted by the Trust's predecessor. An estimate by category of actual fees paid by the following Funds under the Class A and C Plan during the year ended October 31, 1999, were allocated as follows: 44 49
CLASS A COMPENSATION COMPENSATION COMPENSATION PRINTING TO TO TO ADVERTISING AND MAILING SEMINARS UNDERWRITERS DEALERS SALES PERSONNEL ----------- ----------- -------- ------------ ------------- --------------- Aggressive Growth 95,349 9,772 30,057 -0- 6,569,306 -0- Blue Chip 671,274 65,487 199,512 -0- 5,281,254 -0- Capital Development 436,181 39,546 110,715 -0- 1,769,036 -0- Charter 1,218,066 116,743 349,090 -0- 11,872,339 -0- Constellation 3,563,197 338,897 996,262 -0- 36,085,089 -0- Demographic Trends 17,793 1,740 4,932 -0- 97,645 -0- Large Cap Basic Value -0- -0- -0- -0- -0- -0- Large Cap Growth 3,306 156 866 -0- 8,831 -0- Weingarten $2,249,745 $216,357 $648,786 -0- $19,446,474 -0-
An estimate by category of actual fees paid by the following Funds under the Class B Plan during the year ended October 31, 1999, were allocated as follows:
CLASS B COMPENSATION COMPENSATION COMPENSATION PRINTING TO TO TO ADVERTISING AND MAILING SEMINARS UNDERWRITERS DEALERS SALES PERSONNEL ----------- ----------- -------- ------------ ------------- --------------- Aggressive Growth 5,446 539 1,995 57,074 11,045 -0- Blue Chip 844,375 82,717 255,301 10,377,957 2,276,926 -0- Capital Development 261,463 23,437 65,746 3,736,332 894,797 -0- Charter 544,048 52,114 155,553 13,973,314 3,906,056 -0- Constellation 341,062 32,532 94,612 3,274,298 623,226 -0- Demographic Trends 28,034 2,724 7,690 269,251 51,302 -0- Large Cap Basic Value -0- -0- -0- -0- -0- -0- Large Cap Growth 941 -0- -0- 12,100 3,092 -0- Weingarten $339,789 $35,042 $113,321 $ 7,787,178 $2,107,574 -0-
An estimate by category of actual fees paid by the following Funds under the Class A and C Plan during the fiscal year ended October 31, 1999, were allocated as follows:
CLASS C COMPENSATION COMPENSATION COMPENSATION PRINTING TO TO TO ADVERTISING AND MAILING SEMINARS UNDERWRITERS DEALERS SALES PERSONNEL ----------- ----------- -------- ------------ ------------- --------------- Aggressive Growth 705 45 500 17,998 2,750 -0- Blue Chip 9,155 941 3,024 1,300,000 932,560 -0- Capital Development 5,473 567 1,576 311,000 233,676 -0- Charter 5,333 536 1,736 514,000 287,720 -0- Constellation 7,671 794 2,385 598,000 566,366 -0- Demographic Trends 6,091 583 1,716 85,000 10,813 -0- Large Cap Basic Value -0- -0- -0- -0- -0- -0- Large Cap Growth -0- -0- -0- -0- -0- -0- Weingarten 6,507 644 1,842 385,912 199,008 -0-
The Plans require AIM Distributors to provide the Board of Trustees 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 Trustees 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 Trustees, including a majority of the trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of the Plans or in any agreements related to the Plans ("Qualified Trustees"). In approving the Plans in accordance with the requirements of Rule 12b-1, the trustees 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. 45 50 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 Plans continue in effect from year to year as long as such continuance is specifically approved at least annually by the Board of Trustees, including a majority of the Qualified Trustees. The Plans may be terminated by the vote of a majority of the Qualified Trustees, or, with respect to a particular class, by the vote of a majority of the outstanding voting securities of that class. 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 trustees, including a majority of the Qualified Trustees, 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 Trustees is committed to the discretion of the Qualified Trustees. In the event the Class A and C Plan is amended in a manner which the Board of Trustees determines would materially increase the charges paid by holders of Class A shares under the Class A and C 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 Trustees 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 and C Plan and the Class B Plan are: (i) the Class A and C Plan allows payment to AIM Distributors or to dealers or financial institutions of up to 0.35% of average daily net assets of Blue Chip, Capital Development, Demographic Trends, Emerging Growth, Large Cap Basic Value and Large Cap Growth's Class A shares, 0.30% of average daily net assets of Charter, Constellation, Mid Cap and Weingarten's Class A shares and up to 0.25% of average daily net assets of Aggressive Growth's Class A shares as compared to 1.00% of such assets of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth, Mid Cap 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 The Trust has entered into distribution arrangements with AIM Distributors, P.O. Box 4739, Houston, TX 77210-4739, a registered broker-dealer and a wholly owned subsidiary of AIM, to act as the distributor in the continuous offering of Class A, Class B and Class C shares of the Funds. Certain trustees and officers of the Trust are affiliated with AIM Distributors. The Trust has entered into a Master Distribution Agreement with AIM Distributors relating to the Class A shares and Class C shares of the Funds and a Master Distribution Agreement with AIM Distributors relating to the Class B shares of the Funds. Both such Master Distribution Agreements are hereinafter collectively, referred to as the "Distribution Agreements." The Distribution Agreements provide AIM Distributors with the exclusive right to distribute shares of the Retail Classes of the Funds directly and through institutions with whom AIM Distributors has entered into selected dealer agreements. Under the Distribution Agreement for the Class B shares, AIM 46 51 Distributors sells Class B shares of the Funds at net asset value subject to a contingent deferred sales charge established by AIM Distributors. AIM Distributors is authorized to advance to institutions through whom Class B shares are sold a sales commission under schedules established by AIM Distributors. The Distribution Agreement for the Class B shares provides that AIM Distributors (or its assignee or transferee) will receive 0.75% (of the total 1.00% payable under the distribution plan applicable to Class B shares) of each Fund's average daily net assets attributable to Class B shares attributable to the sales efforts of AIM Distributors. 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 the Funds and Class C shares of the Funds at the time of such sales. Payments with respect to Class B shares will equal 4.00% 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. In the future, if multiple distributors serve Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Emerging Growth, Large Cap Basic Value, Large Cap Growth, Mid Cap or Weingarten, 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. AIM Distributors may pay sales commissions to dealers and institutions who sell Class C shares of the AIM Funds at the time of such sales. Payments with respect to Class C shares will equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution, and will consist of a sales commission of 0.75% of the purchase price of the Class C shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. AIM Distributors will retain all payments received by it relating to Class C shares for the first year after they are purchased. The portion of the payments to AIM Distributors under the Class A and C Plan attributable to Class C shares which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of on-going sales commissions to dealers plus financing costs, if any. After the first full year, AIM Distributors will make such payments quarterly to dealers and institutions based on the average net asset value of Class C shares which are attributable to shareholders for whom the dealers and institutions are designated as dealers of record. The Trust (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 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. 47 52 From time to time, AIM Distributors may transfer and sell its right to payments under the Distribution Agreement relating to Class B shares in order to finance distribution expenditures in respect of Class B shares. 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 or periods ended October 31, 1999, 1998 and 1997:
1999 1998 1997 SALES AMOUNT SALES AMOUNT SALES AMOUNT CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED ------- -------- ------- -------- ------- -------- Aggressive Growth $ 4,577,455 $ 11,447 $ 4,551,806 $ 763,601 $42,392,109 $ 5,850,410 Blue Chip 17,947,219 2,766,794 9,984,437 1,557,995 7,418,585 1,139,512 Capital Development 2,418,486 386,856 10,092,451 1,536,318 7,852,157 1,212,125 Charter 13,015,260 2 030,454 12,198,981 1,892,699 13,683,388 2,129,799 Constellation 20,107,015 3,182,696 34,242,618 5,261,392 68,714,717 10,566,898 Demographic Trends* 3,822,764 551,702 N/A N/A N/A N/A Large Cap Basic Value* -0- -0- N/A N/A N/A N/A Large Cap Growth *80,087 12,562 N/A N/A N/A N/A Weingarten 13,839,324 2,209,013 10,455,825 1,654,675 9,534,039 1,521,630
- ------------------- * Class A shares of Demographic Trends, Large Cap Basic Value and Large Cap Growth commenced operations on June 7, 1999, June 30, 1999 and March 1, 1999, respectively. The following chart reflects the contingent deferred sales charges paid by Class A, Class B and Class C shareholders for the fiscal years or periods ended October 31, 1999, 1998 and 1997:
1999 1998 1997 ---- ---- ---- Aggressive Growth* ........ $ 45,944 $ 86,211 N/A Blue Chip* ................ 177,813 61,498 $ 50,289 Capital Development* ...... 120,769 108,532 14,049 Charter* .................. 96,080 161,792 62,653 Constellation* ............ 605,519 510,316 253,473 Demographic Trends* ....... 3,886 N/A N/A Large Cap Basic Value ..... -0- N/A N/A Large Cap Growth* ......... 373 N/A N/A Weingarten ................ 156,642 55,685 38,015
- ---------------- * Class A shares of Demographic Trends, Large Cap Basic Value and Large Cap Growth commenced operations on June 7, 1999, June 30, 1999 and March 1, 1999, respectively. Class B shares of Aggressive Growth, Constellation, Demographic Trends and Large Cap Growth commenced operations on March 1, 1999, November 3, 1997, June 7, 1999 and April 5, 1999, respectively. Class C shares of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Large Cap Growth and Weingarten commenced operations on March 1, 1997, August 4, 1997, August 4, 1997, August 4, 1997, August 4, 1997, June 7, 1999, April 5, 1999 and August 4, 1997, respectively. 48 53 SALES CHARGES AND DEALER CONCESSIONS CATEGORY 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 Advisor Flex Fund, AIM Advisor International Value Fund, AIM Aggressive Growth Fund, AIM Asian Growth Fund, AIM Basic Value Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM Constellation Fund, AIM Dent Demographic Trends Fund, AIM Emerging Growth Fund, AIM European Development Fund, AIM Euroland Growth Fund, AIM Global Utilities Fund, AIM International Equity Fund, AIM Japan Growth Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund, AIM Large Cap Opportunities Fund, AIM Mid Cap Equity Fund, AIM Mid Cap Growth Fund, AIM Mid Cap Opportunities Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap Opportunities 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(1) 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
- ------------------ (1) AIM Small Cap Opportunities Fund will not accept any single purchase in excess of $250,000. CATEGORY 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: the Class A shares of each of AIM Advisor Real Estate Fund, AIM Balanced Fund, AIM Developing Markets Fund, AIM Global Aggressive Growth Fund, AIM Global Consumer Products and Services Fund, AIM Global Financial Services Fund, AIM Global Growth Fund, AIM Global Health Care Fund, AIM Global Income Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund, AIM Global Telecommunications and Technology Fund, AIM Global Trends Fund, AIM High Income Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund, AIM Latin American Growth Fund, AIM Municipal Bond Fund, AIM Strategic Income Fund and AIM Tax-Exempt Bond Fund of Connecticut. 49 54
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
CATEGORY 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 the Class A shares of each of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate 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 $ 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 of Category I, II or III funds; however, AIM Distributors may pay a dealer concession and/or advance a service fee on such transactions as set forth below. 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, or instead of, amounts paid to dealers as a sales commission, 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. 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 or of average daily net assets of the AIM Fund attributable to that particular dealer. 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. 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 50 55 sales charges), which are sold at net asset value and are subject to a contingent deferred sales charge, for all AIM Funds other than Class A shares of each of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund 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. 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), 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 Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to 0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund. 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 4.00% 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 may pay sales commissions to dealers and institutions who sell Class C shares of the AIM Funds at the time of such sales. Payments with respect to Class C shares will equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution, and will consist of a sales commission of 0.75% of the purchase price of the Class C shares sold plus an advance of the first year service fee of 0.25% with respect to such shares. AIM Distributors will retain all payments received by it relating to Class C shares for the first year after they are purchased. The portion of the payments to AIM Distributors under the Class A and C Plan attributable to Class C shares which constitutes an asset-based sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a portion of on-going sales commissions to dealers plus financing costs, if any. After the first full year, AIM Distributors will make such payments quarterly to dealers and institutions based on the average net asset value of Class C shares which are attributable to shareholders for whom the dealers and institutions are designated as dealers of record. These commissions are not paid on sales to investors exempt from the CDSC, including shareholders of record of AIM Advisor Funds, Inc. on April 30, 1995, who purchase additional shares in any of the Funds on or after May 1, 1995, and in circumstances where AIM Distributors grants an exemption on particular transactions. Exchanges of AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares or Class C shares are considered sales of such Class B shares or Class C shares for purposes of the sales charges and dealer concessions discussed above. AIM Distributors may pay investment dealers or other financial service firms for share purchases (measured on an annual basis) of Class A Shares of all AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit plan 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 and up to 0.10% of the net asset value of any Class A shares of AIM Limited Maturity Treasury Fund sold at net asset value to an employee benefit plan in accordance with this paragraph. 51 56 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 Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of the AIM Funds will not be taken into account in determining whether a purchase qualifies for a reduction in initial sales charges. The term "purchaser" means: o an individual and his or her spouse and 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, Roth 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"), if: 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 (SAR-SEP) or a Savings Incentive Match Plans for Employees IRA (SIMPLE IRA), where the employer has notified the distributor in writing that all of its related employee SEP, SAR-SEP or SIMPLE IRA accounts should be linked; or 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. 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) Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM 52 57 Money Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares of AIM Floating Rate Fund) 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 Transfer 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) Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund and (ii) Class B and Class C shares of the AIM Funds and (iii) shares of AIM Floating Rate Fund) 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) Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares of AIM Floating Rate Fund) owned by such purchaser, calculated at their then current public offering price. If a purchaser so qualifies 53 58 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; (b) exchanges of shares of certain funds; (c) use of the reinstatement privilege; or (d) a merger, consolidation or acquisition of assets of a fund. The following purchasers will not pay initial sales charges on purchases of Class A shares because there is a reduced sales effort involved in sales to these purchasers: o AIM Management and its affiliates, or their clients; o Any current or retired officer, director or employee (and members of their immediate family) of AIM Management, its affiliates or The AIM Family of Funds--Registered Trademark--, and any foundation, trust or employee benefit plan established exclusively for the benefit of, or by, such persons; o Any current or retired officer, director, or employee (and members of their immediate family), of CIGNA Corporation or its affiliates, or of First Data Investor Services Group; and any deferred compensation plan for trustees of investment companies sponsored by CIGNA Investments, Inc. or its affiliates; o Sales representatives and employees (and members of their immediate family) of selling group members or financial institutions that have arrangements with such selling group members; o Purchases through approved fee-based programs; o Employee benefit plans designated as purchasers as defined above, and non-qualified plans offered in conjunction therewith, provided the initial investment in the plan(s) is at least $1 million; the sponsor signs a $1 million LOI; the employer-sponsored plan(s) has at least 100 eligible employees; or all plan transactions are executed through a single omnibus account per Fund and the financial institution or service organization has entered into the appropriate agreements with the distributor. Section 403(b) plans sponsored by public educational institutions are not eligible for a sales charge exception based on the aggregate investment made by the plan or the number of eligible employees. Purchases of AIM Small Cap Opportunities Fund by such plans are subject to initial sales charges; o Shareholders of record or discretionary advised clients of any investment advisor holding shares of AIM Weingarten Fund or AIM Constellation Fund on September 8, 1986, or of AIM Charter Fund on November 17, 1986, who have continuously owned shares having a market value of at least $500 and who purchase additional shares of the same Fund; o Shareholders of record of Advisor Class shares of AIM International Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have continuously owned shares of the AIM Funds. 54 59 o Unitholders of G/SET series unit investment trusts investing proceeds from such trusts in shares of AIM Weingarten Fund or AIM Constellation Fund; provided, however, prior to the termination date of the trusts, a unitholder may invest proceeds from the redemption or repurchase of his units only when the investment in shares of AIM Weingarten Fund and AIM Constellation Fund is effected within 30 days of the redemption or repurchase; o A shareholder of a fund that merges or consolidates with an AIM Fund or that sells its assets to an AIM Fund in exchange for shares of an AIM Fund; o Shareholders of the GT Global funds as of April 30, 1987 who since that date continually have owned shares of one or more of these funds; o Certain former AMA Investment Advisers' shareholders who became shareholders of the AIM Global Health Care Fund in October 1989, and who have continuously held shares in the GT Global funds since that time; and o Shareholders of record of Advisor Class shares of an AIM Fund on February 11, 2000 who have continuously owned shares of that AIM Fund, and who purchase additional shares of that AIM Fund. o Qualified State Tuition Programs created and maintained in accordance with Section 529 of the U.S. Internal Revenue Code of 1986, as amended; or o Participants in select brokerage programs for defined contribution plans and rollover IRAs who purchase shares through an electronic brokerage platform offered by entities with which AIM Distributors has entered into a written agreement. As used above, immediate family includes an individual and his or her spouse, children, parents and parents of spouse. CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS Former GT Global funds Class A shares that are subject to a contingent deferred sales charge and that were purchased before June 1, 1998 are entitled to the following waivers from the contingent deferred sales charge otherwise due upon redemption: (1) minimum required distributions made in connection with an IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other retirement plan following attainment of age 70 1/2; (2) total or partial redemptions resulting from a distribution following retirement in the case of a tax-qualified employer-sponsored retirement plan; (3) when a redemption results from a tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5) of the Code or from the death or disability of the employee; (4) redemptions pursuant to a Fund's right to liquidate a shareholder's account involuntarily; (5) redemptions pursuant to distributions from a tax-qualified employer-sponsored retirement plan, which is invested in the former GT Global funds, which are permitted to be made without penalty pursuant to the Code, other than tax-free rollovers or transfers of assets, and the proceeds of which are reinvested in the former GT Global funds; (6) redemptions made in connection with participant-directed exchanges between options in an employer-sponsored benefit plan; (7) redemptions made for the purpose of providing cash to fund a loan to a participant in a tax-qualified retirement plan; (8) redemptions made in connection with a distribution from any retirement plan or account that is permitted in accordance with the provisions of Section 72(t)(2) of the Code, and the regulations promulgated thereunder; (9) redemptions made in connection with a distribution from any retirement plan or account that involves the return of an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of the Code; (10) redemptions made in connection with a distribution from a qualified profit-sharing or stock bonus plan described in Section 401(k) of the Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon hardship of the covered employee (determined pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the benefit of certain states, counties or cities, or any instrumentalities, departments or authorities thereof where such entities are prohibited or limited by applicable law from paying a sales charge or commission. Former GT Global funds Class B shares purchased before June 1, 1998 are subject to the following waivers from the contingent deferred sales charge otherwise due upon redemption: (1) total or partial redemptions resulting from a distribution following retirement in the case of a tax-qualified employer-sponsored retirement; (2) minimum required distributions made in connection with an IRA, 55 60 Keogh Plan or custodial account under Section 403(b) of the Code or other retirement plan following attainment of age 70 1/2; (3) redemptions pursuant to distributions from A tax-qualified employer-sponsored retirement plan, which is invested in the former GT Global funds, which are permitted to be made without penalty pursuant to the Code, other than tax-free rollovers or transfers of assets, and the proceeds of which are reinvested in the former GT Global funds; (4) redemptions made in connection with participant-directed exchanges between options in an employer-sponsored benefit plan; (5) redemptions made for the purpose of providing cash to fund a loan to a participant in a tax-qualified retirement plan; (6) redemptions made in connection with a distribution from any retirement plan or account that is permitted in accordance with the provisions of Section 72(t)(2) of the Code, and the regulations promulgated thereunder; (7) redemptions made in connection with a distribution from a qualified profit-sharing or stock bonus plan described in Section 401(k) of the Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon hardship of the covered employee (determined pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)); and (8) redemptions made by or for the benefit of certain states, counties or cities, or any instrumentalities, departments or authorities thereof where such entities are prohibited or limited by applicable law from paying a sales charge or commission. CDSCs will not apply to the following: o Additional purchases of Class C shares of AIM Advisor Flex Fund, AIM Advisor International Value Fund and AIM Advisor Real Estate Fund by shareholders of record on April 30, 1995, of these Funds, except that shareholders whose broker-dealers maintain a single omnibus account with AFS on behalf of those shareholders, perform sub-accounting functions with respect to those shareholders, and are unable to segregate shareholders of record prior to April 30, 1995, from shareholders whose accounts were opened after that date will be subject to a CDSC on all purchases made after March 1, 1996; o Redemptions following the death or post-purchase disability of (1) any registered shareholders on an account or (2) a settlor of a living trust, of shares held in the account at the time of death or initial determination of post-purchase disability; o Certain distributions from individual retirement accounts, Section 403(b) retirement plans, Section 457 deferred compensation plans and Section 401 qualified plans, where redemptions result 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 that does not exceed 12% annually of the participant's or beneficiary's account value in a particular AIM Fund; (ii) in kind transfers of assets where the participant or beneficiary notifies the distributor of the transfer no later than the time the transfer occurs; (iii) tax-free rollovers or transfers of assets to another plan of the type described above invested in Class B or Class C shares of one or more of the AIM Funds; (iv) tax-free returns of excess contributions or returns of excess deferral amounts; and (v) distributions on the death or disability (as defined in the Internal Revenue Code of 1986, as amended) of the participant or beneficiary; o Amounts from a Systematic Withdrawal Plan of up to an annual amount of 12% of the account value on a per fund basis, at the time the withdrawal plan is established, provided the investor reinvests his dividends; o Liquidation by the Fund when the account value falls below the minimum required account size of $500; o Investment account(s) of AIM; and o Class C shares where the investor's dealer of record notifies the distributor prior to the time of investment that the dealer waives the payment otherwise payable to him. 56 61 Upon the redemption of shares of funds in sales charge Categories I and II (see "Sales Charges and Dealer Concessions") purchased in amounts of $1 million or more, no CDSC will be applied in the following situations: o Shares held more than 18 months; o Redemptions from employee benefit plans designated as qualified purchasers, as defined above, where the redemptions are in connection with employee terminations or withdrawals, provided the total amount invested in the plan is at least $1,000,000; the sponsor signs a $1 million LOI; or the employer-sponsored plan has at least 100 eligible employees; provided, however, that 403(b) plans sponsored by public educational institutions shall qualify for the CDSC waiver 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; o Private foundations or endowment funds; o Redemption of shares by the investor where the investor's dealer waives the amounts otherwise payable to it by the distributor and notifies the distributor prior to the time of investment; and o Shares acquired by exchange from Class A shares of funds in sales charge Categories I and II unless the shares acquired by exchange are redeemed within 18 months of the original purchase of the Class A shares. HOW TO PURCHASE AND REDEEM SHARES A complete description of the manner by which shares of the Funds may be purchased appears in each Prospectus under the caption "Purchasing Shares - 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 listed under the caption "Reductions in Initial Sales Charges - Purchases at Net Asset Value." 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 each Prospectus under the caption "Exchanging Shares." Information concerning redemption of the Funds' shares is set forth in the Prospectuses under the caption "Redeeming Shares - 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 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 Funds at (800) 959-4246 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 AFS 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 57 62 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. AIM intends to redeem all shares of the Funds in cash. The right of redemption may be suspended or the date of payment postponed when (a) trading on the New York Stock Exchange ("NYSE") is restricted, as determined by applicable rules and regulations of the SEC, (b) the NYSE 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. BACKUP WITHHOLDING Accounts submitted without a correct, certified taxpayer identification number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for non-resident aliens) or Form W-9 (certifying exempt status) accompanying the registration information will generally be subject to backup withholding. Each AIM Fund, and other payers, must, according to IRS regulations, withhold 31% of redemption payments and reportable dividends (whether paid or accrued) in the case of any shareholder who fails to provide the Fund with a taxpayer identification number "TIN") and a certification that he is not subject to backup withholding. An investor is subject to backup withholding if: (1) the investor fails to furnish a correct TIN to the Fund, or (2) the IRS notifies the Fund that the investor furnished an incorrect TIN, or (3) the investor or the Fund is notified by the IRS that the investor is subject to backup withholding because the investor failed to report all of the interest and dividends on such investor's tax return (for reportable interest and dividends only), or (4) the investor fails to certify to the Fund that the investor is not subject to backup withholding under (3) above (for reportable interest and dividend accounts opened after 1983 only), or (5) the investor does not certify his TIN. This applies only to non-exempt mutual fund accounts opened after 1983. Interest and dividend payments are subject to backup withholding in all five situations discussed above. Redemption proceeds and long-term gain distributions are subject to backup withholding only if (1) (2) or (5) above applies. Certain payees and payments are exempt from backup withholding and information reporting. A complete listing of such exempt entities appears in the Instructions for the Requester of Form W-9 (which can be obtained from the IRS) and includes, among others, the following: o a corporation o an organization exempt from tax under Section 501(a), an individual retirement plan (IRA), or a custodial account under Section 403(b)(7) o the United States or any of its agencies or instrumentalities o a state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities o a foreign government or any of its political subdivisions, agencies or instrumentalities o an international organization or any of its agencies or instrumentalities o a foreign central bank of issue 58 63 o a dealer in securities or commodities required to register in the U.S. or a possession of the U.S. o a futures commission merchant registered with the Commodity Futures Trading Commission o a real estate investment trust o an entity registered at all times during the tax year under the 1940 Act o a common trust fund operated by a bank under Section 584(a) o a financial institution o a middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List o a trust exempt from tax under Section 664 or described in Section 4947 Investors should contact the IRS if they have any questions concerning entitlement to an exemption from backup withholding. NOTE: Section references are to sections of the Code. IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN will be subject to a $50 penalty imposed by the IRS unless such failure is due to reasonable cause and not willful neglect. If an investor falsifies information on this form or makes any other false statement resulting in no backup withholding on an account which should be subject to backup withholding, such investor may be subject to a $500 penalty imposed by the IRS and to certain criminal penalties including fines and/or imprisonment. NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are not subject to the backup withholding previously discussed, but must certify their foreign status by attaching IRS Form W-8 to their application. Form W-8 remains in effect for three calendar years beginning with the calendar year in which it is received by the Fund. Such shareholders may, however, be subject to federal income tax withholding at a 30% rate on ordinary income dividends and distributions 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. NET ASSET VALUE DETERMINATION The net asset value of a share of each Fund is determined once daily as of the close of the customary trading session of the 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 the customary trading session of 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 (except those listed below) 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. Distribution and service fees and transfer agency fees (to the extent different rates are charged to different classes) 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 59 64 dividing the result by the total number of shares outstanding of such class. Determination of each Fund's net asset value per share is made in accordance with generally accepted accounting principles. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, the security is valued at the closing bid price on that day, prior to the determination of net asset value. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market system) is valued on the basis of prices provided by independent pricing services. 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 closing bid price on that day; option contracts are valued at the mean between the closing bid and asked prices on the exchange where the contracts are principally traded; futures contracts are valued at final settlement price quotations from the primary exchange on which they are traded. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as dividend rate, yield, type of issue, coupon rate and maturity date. Securities for which market quotations are not readily available or for which market quotations are not reflective of fair value are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees of the Trust. Short-term obligations having sixty (60) days or less to maturity are valued at amortized cost, which approximates market value. (See also "Purchasing Shares"How to Purchase Shares," and "Redeeming Shares"How to Redeem Shares" and "Pricing of Shares" in each 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 customary trading session 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 Trustees. 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." 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 60 65 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. QUALIFICATION AS A REGULATED INVESTMENT COMPANY Each Fund has elected to be taxed as a regulated investment company under Subchapter M of 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. Each Fund may use "equalization accounting" in determining the portion of its net investment income and capital gain net income that has been distributed. A Fund that elects to use equalization accounting will allocate a portion of its realized investment income and capital gains to redemptions of Fund shares and will reduce the amount of such income and gains that it distributes in cash. However, each Fund intends to make cash distributions for each taxable year in an aggregate amount that is sufficient to satisfy the Distribution Requirement without taking into account its use of equalization accounting. The Internal Revenue Service has not published any guidance concerning the methods to be used in allocating investment income and capital gains to redemptions of shares. In the event that the Internal Revenue Service determines that a Fund is using an improper method of allocation and has underdistributed its net investment income and capital gain net income for any taxable year, such Fund may be liable for additional federal income tax. In addition to satisfying the Distribution Requirement, a regulated investment company must 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"). In addition to satisfying the requirements 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. 61 66 DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY 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 unless the Fund made an election to accrue market discount into income. 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. 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. 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 generally be treated as a short-term capital gain or loss. In the case of covered options, gain or loss may be long-term. Other hedging transactions that may be engaged in by certain of the Funds (such as short sales "against the box") may be subject to special tax treatment as "constructive sales" under Section 1259 of the Code if a Fund holds certain "appreciated financial positions" (defined generally as any interest (including a futures or forward contract, short sale or option) with respect to stock, certain debt instruments, or partnership interests if there would be a gain were such interest sold, assigned, or otherwise terminated at its fair market value). Upon entering into a constructive sales transaction with respect to an appreciated financial position, a Fund will be deemed to have constructively sold such appreciated financial position and will recognize gain as if such position were sold, assigned, or otherwise terminated at its fair market value on the date of such constructive sale (and will take into account any gain for the taxable year which includes such date) unless the closed transaction exception applies. Some of the forward foreign currency exchange contracts, options and futures contracts that certain of the Funds may enter into 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. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 contracts is combined with any other gain or loss that was previously recognized upon the termination of Section 1256 contracts during that taxable year. The net amount of such gain or loss for the entire taxable year (including gain or loss arising as a consequence of the year-end deemed sale of such contracts) is deemed to be 60% long-term (taxable at a maximum rate of 20% for non-corporate shareholders) and 40% short-term gain or loss. However, in the case of Section 1256 contracts that are forward foreign currency exchange contracts, the net gain or loss is separately determined and (as discussed above) generally treated as ordinary income or loss. Because application of the rules governing Section 1256 contracts and constructive sales may affect the character of gains or losses and/or accelerate the recognition of gains or losses from the affected investment positions, the amount which must be distributed to shareholders and which will be taxed to shareholders as ordinary income or long-term capital gain may be increased as compared to a fund that did not engage in transactions involving Section 1256 contracts or constructive sales. 62 67 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). 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, in the event that the Internal Revenue Service determines that a Fund is using an improper method of allocation for purposes of equalization accounting (as discussed above), such Fund may be liable for excise tax. Moreover, 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. A shareholder of a Fund electing to use equalization accounting, however, is likely to be taxed on less gain recognized prior to the date the shareholder acquires his shares since such gain will in many cases have been allocated to shares of the Fund that have previously been redeemed. 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 63 68 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 adjusted current earnings over its AMTI (determined without regard to this item and the AMTI net operating loss deduction)) that is includable in AMTI. For taxable years beginning after 1997, however, certain small corporations are wholly exempt from the AMT. 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 in accordance with the guidance that has been provided by the IRS. 64 69 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 IRS 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. Currently, any long-term capital gain recognized by a non-corporate shareholder will be subject to tax at a maximum rate of 20%. 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 that in some cases may be 19.6% 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. If a shareholder (a) incurs a sales load in acquiring shares of a Fund, (b) disposes of such shares less than 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. REINSTATEMENT PRIVILEGE For federal income tax purposes, exercise of your reinstatement privilege may increase the amount of gain or reduce the amount of loss recognized in the original redemption transaction, because the initial sales charge will not be taken into account in determining such gain or loss to the extent there has been a reduction in the initial sales charge. Loss may be deferred if you reinstate by purchasing shares of the same fund within 30 days of your original redemption (i.e., the wash sale rules will apply). 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 65 70 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 May 24, 2000. 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. SHAREHOLDER INFORMATION This information supplements the discussion in each Fund's Prospectus under the title "Shareholder Information." TIMING OF PURCHASE ORDERS. 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. If a check used to purchase shares does not clear, or if any investment order must be canceled due to nonpayment, the investor will be responsible for any resulting loss to an AIM Fund or to AIM Distributors. SHARE CERTIFICATES. Shareholders of the Funds do not have the right to demand or require the Trust to issue share certificates, although the Trust in its sole discretion may issue them. SYSTEMATIC WITHDRAWAL PLAN. 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 or Class C Shares of the AIM Funds and AIM Cash Reserve Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases while a Systematic Withdrawal Plan is in effect. Each AIM Fund bears its share of the cost of operating the Systematic Withdrawal Plan. 66 71 TERMS AND CONDITIONS OF EXCHANGES. 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, 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. EXCHANGES BY TELEPHONE. 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 the close of the customary trading session of the NYSE. The Transfer Agent and AIM Distributors 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. By signing an account application form, an investor appoints the Transfer Agent as his true and lawful attorney-in-fact to surrender for redemption any and all unissued shares held by the Transfer Agent in the designated account(s), or in any other account with any of the AIM Funds, present or future, which has the identical registration as the designated account(s), with full power of substitution in the premises. The Transfer Agent and AIM Distributors are thereby authorized and directed to accept and act upon any telephone redemptions of shares held in any of the account(s) listed, from any person who requests the redemption proceeds to be applied to purchase shares in any one or more of the AIM Funds, provided that such fund is available for sale and provided that the registration and mailing address of the shares to be purchased are identical to the registration of the shares being redeemed. An investor acknowledges by signing the form that he understands and agrees that the Transfer Agent and AIM Distributors may not be liable for any loss, expense or cost arising out of any telephone exchange requests effected in accordance with the authorization set forth in these instructions if they reasonably believe such request to be genuine, but may in certain cases be liable for losses due to unauthorized or fraudulent transactions. Procedures for verification of telephone transactions 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. The Transfer Agent reserves the right to modify or terminate the telephone exchange privilege at any time without notice. An investor may elect not to have this privilege by marking the appropriate box on the application. Then any exchanges must be effected in writing by the investor. REDEMPTIONS BY TELEPHONE. By signing an account application form, an investor appoints the Transfer Agent as his true and lawful attorney-in-fact to surrender for redemption any and all unissued shares held by the Transfer Agent in the designated account(s), present or future, with full power of substitution in the premises. The Transfer Agent and AIM Distributors are thereby authorized and directed to accept and act upon any telephone redemptions of shares held in any of the account(s) listed, from any person who requests the redemption. An investor acknowledges by signing the form that he understands and agrees that the Transfer Agent and AIM Distributors may not be liable for any loss, expense or cost arising out of any telephone redemption requests effected in accordance with the authorization set forth in these instructions if they reasonably believe such request to be genuine, but may in certain cases be liable for losses due to unauthorized or fraudulent transactions. Procedures for verification of telephone transactions may include recordings of telephone transactions (maintained for six 67 72 months), requests for confirmation of the shareholder's Social Security Number and current address, and mailings of confirmations promptly after the transaction. The Transfer Agent reserves the right to cease to act as attorney-in-fact subject to this appointment, and AIM Distributors reserves the right to modify or terminate the telephone redemption privilege at any time without notice. An investor may elect not to have this privilege by marking the appropriate box on the application. Then any redemptions must be effected in writing by the investor. SIGNATURE GUARANTEES. In addition to those circumstances listed in the "Shareholder Information" section of each Fund's prospectus, signature guarantees are required in the following situations: (1) requests to transfer the registration of shares to another owner; (2) telephone exchange and telephone redemption authorization forms; (3) changes in previously designated wiring or electronic funds transfer instructions; and (4) 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. AIM Funds may waive or modify any signature guarantee requirements at any time. 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 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. TRANSACTIONS BY INTERNET. An investor may effect transactions in his account through the Internet by selecting the AIM Internet Connect option on his completed account application form or completing an AIM Internet Connect Authorization Form. By signing either form the investor acknowledges and agrees that the Transfer Agent and AIM Distributors will not be liable for any loss, expense or cost arising out of any internet transaction effected in accordance with the instructions set forth in the forms if they reasonably believe such request to be genuine. Procedures for verification of internet transactions include requests for confirmation of the shareholder's personal identification number and mailing of confirmations promptly after the transactions. The investor also acknowledges that (1) if he no longer wants the AIM Internet Contract option, he will notify the Transfer Agent in writing, and (2) the AIM Internet Connect option may be terminated at any time by the AIM Funds. DIVIDENDS AND DISTRIBUTIONS. 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. 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. Dividends on Class B and Class C shares are expected to be lower than those for Class A shares or AIM Cash Reserve Shares because of higher distribution fees paid by Class B and Class C shares. Dividends on all shares may also be affected by other class-specific expenses. 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. 68 73 Any dividend or distribution paid by a fund which does not declare dividends daily has the effect of reducing the net assets 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. MISCELLANEOUS INFORMATION CHARGES FOR CERTAIN ACCOUNT INFORMATION 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 Trustees will issue to shareholders semi-annually the Fund's financial statements. Financial statements, audited by independent auditors, will be issued annually. Due to an investment in another AIM Fund, which KPMG LLP represented to the AIM Fund was inadvertent, and new SEC rules regarding auditor independence, KPMG LLP resigned as independent public accountants for the Trust. The Board of Trustees of the Trust has selected Ernst & Young LLP, 1221 McKinney, Suite 2400, Houston, Texas 77010-2007, as the independent public accountants to audit the financial statements of the Funds. LEGAL MATTERS Certain legal matters for the Trust have been passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103. 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., a wholly owned subsidiary of AIM, P. O. Box 4739, Houston, Texas 77210-4739, 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. Chase Bank of Texas, N.A., 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 Trust (and certain other AIM Funds), First Data Investor Service Group 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). PRINCIPAL HOLDERS OF SECURITIES AGGRESSIVE GROWTH To the best knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Aggressive Growth as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: 69 74
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 13.78% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 The Manufacturers Life Insurance Co. 6.54% - 0 - C/O Manulife Financial USA Attn: Rosie Chuck Srs. Acctg. 250 Bloor Street East 7th Floor Toronto, Ontario, Canada M4W 1E5 Retail Class B Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 7.72% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East 2nd Floor Jacksonville, FL 32246 Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 23.35% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East 2nd Floor Jacksonville, FL 32246
BLUE CHIP To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Blue Chip as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 8.20% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. 70 75
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 10.52% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 3rd Floor Jacksonville, FL 32246 Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 20.34% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Banc One Securities Corp. FBO 7.19% -0- The One Investment Solution 733 Greencrest Drive Westerville, OH 43081
CAPITAL DEVELOPMENT To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Capital Development as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 10.66% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Retail Class B Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 14.46% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. 71 76
Percent Percent Owned Name and Address Owned of of Record and of Record Owner Record only* Beneficially - --------------- ------------ ------------ Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 19.25% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Coastgear & Company 6.93% - 0 - State Street Bank & Trust Attn: Kevin Smith 125 Rosemont Avenue Westwood, MA 02090
CHARTER To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Charter as of May 18, 2000, and the Institutional Class of Charter as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 12.96% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Great-West Life and Annuity Insurance Co. 6.91% - 0 - 401(k) Unit Valuations Attn: Mutual Fund Trading 2T2 8515 E. Orchard Englewood, CO 80111 Retail Class B Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 8.48% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. 72 77
Percent Percent Owned Name and Address Owned of of Record and of Record Owner Record only* Beneficially - --------------- ------------ ------------ Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 19.04% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Institutional Class - ------------------- Commonwealth of Massachusetts 96.01% - 0 - One Ashburton Place 12th Floor Boston, MA 02108
CONSTELLATION To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Constellation as of May 18, 2000, and of the Institutional Class of Constellation as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 15.84% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Retail Class B Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 7.15% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 22.84% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. 73 78
Percent Percent Owned Name and Address Owned of of Record and of Record Owner Record only* Beneficially - --------------- ------------ ------------ Banc One Securities Corp. FBO 8.81% - 0 - The One Investment Solution 733 Greencrest Drive Westerville, OH 43081 Institutional Class - ------------------- Nationwide Ohio Variable Account 39.14% - 0 - P.O. Box 182029 C/O IPO Portfolio Accounting Columbus, Ohio 43218 Commonwealth of Massachusetts 34.16% - 0 - Deferred Compensation Plan Trust One Ashburton Place 12th Floor Boston, MA 02108 Frontier Trust FBO NDC's Retirement 7.22% - 0 - Plans - NR Attn: Reconciliation Dept. P. O. Box 20629 Columbus, OH 43220-0629
DEMOGRAPHIC TRENDS To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Demographic Trends as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 8.62% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Retail Class B Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 17.28% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. 74 79
Percent Percent Owned Name and Address Owned of of Record and of Record Owner Record only Beneficially - ---------------- ----------- ------------- Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 21.28% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
EMERGING GROWTH To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Emerging Growth as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 8.52% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Retail Class B Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 6.66% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 24.91% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. 75 80 LARGE CAP BASIC VALUE To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A shares of Large Cap Basic Value as of May 18, 2000, 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 - --------------------- A I M Advisors, Inc. 91.28%** - 0 - Attn: David Hessel 11 Greenway Plaza, Suite 100 Houston, TX 77046
LARGE CAP GROWTH To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Large Cap Growth as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 8.62% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
MID CAP To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Mid Cap as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 7.91%** - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * 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 fund may be presumed to be in "control" of such fund as defined in the 1940 Act. 76 81 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 26.16%** - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 24.91%** - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
WEINGARTEN To the best of the knowledge of the Trust, the names and addresses of the holders of 5% or more of the outstanding Class A, Class B and Class C shares of Weingarten as of May 18, 2000, and the Institutional Class of Weingarten as of May 18, 2000, and the amount of the outstanding shares held of record and beneficially owned by such holders, are set forth below: Retail Class A Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 16.30% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Great-West Life and Annuity 5.61% - 0 - Insurance Co. 401(K) Unit Valuations Attn: Mutual Fund Trading 2T2 8515 E. Orchard Englewood, CO 80111 Retail Class B Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 9.41% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246
- -------------------------------------- * 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 fund may be presumed to be in "control" of such fund as defined in the 1940 Act. 77 82
Percent Percent Owned Name and Address Owned of of Record and of Record Owner Record only* Beneficially - --------------- ------------ ------------ Retail Class C Shares - --------------------- Merrill Lynch Pierce Fenner & Smith 19.99% - 0 - FBO The Sole Benefit of Customers Attn: Fund Administration 4800 Deer Lake Dr. East, 2nd Floor Jacksonville, FL 32246 Institutional Class - ------------------- Commonwealth of Massachusetts 85.53% - 0 - Deferred Compensation Plan Trust One Ashburton Place 12th Floor Boston, MA 02108 Frontier Trust PBO NDC's 7.83% - 0 - Retirement Plans - NR Attn: Reconciliation Dept. P.O. Box 20629 Columbus, OH 432220-0629
As of May 18, 2000, the trustees and officers of the Trust as a group owned beneficially less than 1% of the outstanding shares of each class of Aggressive Growth, Blue Chip, Capital Development, Charter, Constellation, Demographic Trends, Large Cap Basic Value, Large Cap Growth, Mid Cap and Weingarten. As of May 18, 2000, the trustees and officers of the Trust as a group owned 1.54% of the outstanding Class A shares of Emerging Growth. OTHER INFORMATION Each Prospectus and this Statement of Additional Information omit certain information contained in the Registration Statement which the Trust 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. - -------------------------------------- * The Funds have no knowledge as to whether all or any portion of the shares owned of record only are also owned beneficially. 78 83 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. A-1 84 FINANCIAL STATEMENTS FS 85 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of AIM Aggressive Growth Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Aggressive Growth Fund as of October 31, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-1 86 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-97.03% AIR FREIGHT-0.39% Expeditors International of Washington, Inc. 300,000 $ 11,212,500 - --------------------------------------------------------------- AIRLINES-0.58% Alaska Air Group, Inc.(a) 100,000 3,975,000 - --------------------------------------------------------------- Ryanair Holdings PLC-ADR (Ireland)(a) 300,000 12,375,000 - --------------------------------------------------------------- 16,350,000 - --------------------------------------------------------------- AUTO PARTS & EQUIPMENT-0.65% Gentex Corp.(a) 350,000 6,015,625 - --------------------------------------------------------------- Meritor Automotive, Inc. 403,300 6,830,894 - --------------------------------------------------------------- Tower Automotive, Inc.(a) 350,000 5,709,375 - --------------------------------------------------------------- 18,555,894 - --------------------------------------------------------------- BANKS (REGIONAL)-1.57% Bank United Corp.-Class A 325,000 12,675,000 - --------------------------------------------------------------- First Republic Bank(a) 300,000 7,500,000 - --------------------------------------------------------------- Southwest Bancorp. of Texas, Inc.(a) 750,000 13,031,250 - --------------------------------------------------------------- Trustmark Corp. 500,000 11,437,500 - --------------------------------------------------------------- 44,643,750 - --------------------------------------------------------------- BEVERAGES (ALCOHOLIC)-0.32% Canandaigua Brands, Inc.-Class A(a) 150,000 9,075,000 - --------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-1.10% Hispanic Broadcasting Corp.(a) 225,000 18,225,000 - --------------------------------------------------------------- Radio One, Inc.(a) 260,000 12,967,500 - --------------------------------------------------------------- 31,192,500 - --------------------------------------------------------------- BUILDING MATERIALS-0.68% Elcor Corp. 450,000 11,081,250 - --------------------------------------------------------------- Simpson Manufacturing Co., Inc.(a) 200,000 8,112,500 - --------------------------------------------------------------- 19,193,750 - --------------------------------------------------------------- CHEMICALS (SPECIALTY)-1.71% Cambrex Corp. 190,200 5,753,550 - --------------------------------------------------------------- OM Group, Inc. 500,000 18,750,000 - --------------------------------------------------------------- Optical Coating Laboratory, Inc. 225,000 24,046,875 - --------------------------------------------------------------- 48,550,425 - --------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-6.99% ADTRAN, Inc.(a) 1,000,000 37,125,000 - --------------------------------------------------------------- ANTEC Corp.(a) 200,000 9,700,000 - --------------------------------------------------------------- Comverse Technology, Inc.(a) 275,000 31,212,500 - --------------------------------------------------------------- Dycom Industries, Inc.(a) 311,700 10,149,731 - --------------------------------------------------------------- Harmonic, Inc.(a) 700,000 41,562,500 - --------------------------------------------------------------- MasTec, Inc.(a) 500,000 16,375,000 - ---------------------------------------------------------------
MARKET SHARES VALUE COMMUNICATIONS EQUIPMENT-(CONTINUED) Polycom, Inc.(a) 600,000 $ 30,000,000 - --------------------------------------------------------------- Proxim, Inc.(a) 250,000 11,703,125 - --------------------------------------------------------------- Sycamore Networks, Inc.(a) 50,000 10,750,000 - --------------------------------------------------------------- 198,577,856 - --------------------------------------------------------------- COMPUTERS (HARDWARE)-1.64% National Instruments Corp.(a) 1,000,000 30,062,500 - --------------------------------------------------------------- Visual Networks, Inc.(a) 400,000 16,650,000 - --------------------------------------------------------------- 46,712,500 - --------------------------------------------------------------- COMPUTERS (NETWORKING)-2.98% Emulex Corp.(a) 400,000 62,375,000 - --------------------------------------------------------------- Foundry Networks, Inc.(a) 50,100 9,493,950 - --------------------------------------------------------------- Gadzoox Networks, Inc. 6,300 299,407 - --------------------------------------------------------------- VeriSign, Inc.(a) 100,000 12,350,000 - --------------------------------------------------------------- 84,518,357 - --------------------------------------------------------------- COMPUTERS (PERIPHERALS)-4.33% Actel Corp.(a) 439,500 8,295,562 - --------------------------------------------------------------- Cybex Computer Products Corp.(a) 350,000 13,671,875 - --------------------------------------------------------------- DSP Communications, Inc.(a) 650,000 22,871,875 - --------------------------------------------------------------- Network Appliance, Inc.(a) 125,000 9,250,000 - --------------------------------------------------------------- QLogic Corp.(a) 300,000 31,237,500 - --------------------------------------------------------------- SanDisk Corp.(a) 400,000 24,250,000 - --------------------------------------------------------------- Xircom, Inc.(a) 264,400 13,335,675 - --------------------------------------------------------------- 122,912,487 - --------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-10.35% Business Objects S.A.-ADR (France)(a) 250,000 18,000,000 - --------------------------------------------------------------- Check Point Software Technologies Ltd. (Israel)(a) 300,000 34,706,250 - --------------------------------------------------------------- Citrix Systems, Inc.(a) 250,000 16,031,250 - --------------------------------------------------------------- Concord Communications, Inc.(a) 150,000 7,790,625 - --------------------------------------------------------------- Electronics for Imaging, Inc.(a) 400,000 16,125,000 - --------------------------------------------------------------- Gemstar International Group Ltd.(a) 200,000 17,375,000 - --------------------------------------------------------------- ISS Group, Inc.(a) 200,000 7,625,000 - --------------------------------------------------------------- Macromedia, Inc.(a) 225,000 14,498,437 - --------------------------------------------------------------- Mercury Interactive Corp.(a) 300,000 24,337,500 - --------------------------------------------------------------- Micromuse, Inc.(a) 125,000 13,359,375 - --------------------------------------------------------------- Mission Critical Software, Inc.(a) 238,900 14,065,237 - --------------------------------------------------------------- Peregrine Systems, Inc.(a) 250,000 10,968,750 - --------------------------------------------------------------- QRS Corp.(a) 152,550 8,485,594 - --------------------------------------------------------------- Rational Software Corp.(a) 550,000 23,512,500 - --------------------------------------------------------------- ScanSource, Inc.(a) 200,000 6,775,000 - --------------------------------------------------------------- Symantec Corp.(a) 250,000 11,937,500 - ---------------------------------------------------------------
FS-2 87
MARKET SHARES VALUE COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED) Transaction Systems Architects, Inc.- Class A(a) 200,000 $ 6,150,000 - --------------------------------------------------------------- VERITAS Software Corp.(a) 200,000 21,575,000 - --------------------------------------------------------------- Verity, Inc.(a) 300,000 20,662,500 - --------------------------------------------------------------- 293,980,518 - --------------------------------------------------------------- CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.44% Fossil, Inc.(a) 450,000 12,431,250 - --------------------------------------------------------------- CONSUMER FINANCE-0.27% AmeriCredit Corp.(a) 250,000 4,343,750 - --------------------------------------------------------------- Doral Financial Corp. 251,200 3,218,500 - --------------------------------------------------------------- 7,562,250 - --------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH)-0.53% Patterson Dental Co.(a) 335,900 15,136,494 - --------------------------------------------------------------- ELECTRICAL EQUIPMENT-4.79% Black Box Corp.(a) 300,000 15,225,000 - --------------------------------------------------------------- CommScope, Inc.(a) 500,000 19,937,500 - --------------------------------------------------------------- Cree Research, Inc.(a) 600,000 25,612,500 - --------------------------------------------------------------- DII Group, Inc.(a) 350,000 12,600,000 - --------------------------------------------------------------- Pinnacle Systems, Inc.(a) 400,000 11,100,000 - --------------------------------------------------------------- Sanmina Corp.(a) 200,000 18,012,500 - --------------------------------------------------------------- Sawtek, Inc.(a) 400,000 16,400,000 - --------------------------------------------------------------- Vishay Intertechnology, Inc.(a) 700,000 17,106,250 - --------------------------------------------------------------- 135,993,750 - --------------------------------------------------------------- ELECTRONICS (COMPONENT DISTRIBUTORS)-0.56% C-COR.net Corp.(a) 150,000 5,887,500 - --------------------------------------------------------------- Power-One, Inc.(a) 500,000 10,000,000 - --------------------------------------------------------------- 15,887,500 - --------------------------------------------------------------- ELECTRONICS (DEFENSE)-0.14% Aeroflex, Inc.(a) 700,000 3,893,750 - --------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION)-2.50% Alpha Industries, Inc.(a) 899,950 49,722,237 - --------------------------------------------------------------- Waters Corp.(a) 400,000 21,250,000 - --------------------------------------------------------------- 70,972,237 - --------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-9.92% ANADIGICS, Inc.(a) 400,000 15,400,000 - --------------------------------------------------------------- Applied Micro Circuits Corp.(a) 500,000 38,906,250 - --------------------------------------------------------------- ATMI, Inc.(a) 500,000 13,468,750 - --------------------------------------------------------------- Burr-Brown Corp.(a) 300,000 11,793,750 - --------------------------------------------------------------- Dallas Semiconductor Corp. 350,000 20,606,250 - --------------------------------------------------------------- Micrel, Inc.(a) 300,000 16,312,500 - --------------------------------------------------------------- Microchip Technology, Inc.(a) 750,000 49,968,750 - --------------------------------------------------------------- PMC-Sierra, Inc.(a) 200,000 18,850,000 - --------------------------------------------------------------- SDL, Inc.(a) 300,000 36,993,750 - ---------------------------------------------------------------
MARKET SHARES VALUE ELECTRONICS (SEMICONDUCTORS)-(CONTINUED) Semtech Corp.(a) 600,000 $ 22,987,500 - --------------------------------------------------------------- Texas Instruments, Inc. 251,150 22,540,712 - --------------------------------------------------------------- TranSwitch Corp.(a) 100,000 4,706,250 - --------------------------------------------------------------- Vitesse Semiconductor Corp.(a) 200,000 9,175,000 - --------------------------------------------------------------- 281,709,462 - --------------------------------------------------------------- ENTERTAINMENT-0.18% Cinar Films, Inc.-Class B (Canada)(a) 300,000 5,212,500 - --------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR)-2.54% Advanced Energy Industries, Inc.(a) 400,000 16,450,000 - --------------------------------------------------------------- Asyst Technologies, Inc.(a) 500,000 19,375,000 - --------------------------------------------------------------- Brooks Automation, Inc.(a) 200,000 3,800,000 - --------------------------------------------------------------- Credence Systems Corp.(a) 300,000 13,687,500 - --------------------------------------------------------------- Cymer, Inc.(a) 200,000 7,387,500 - --------------------------------------------------------------- Etec Systems, Inc.(a) 300,000 11,456,250 - --------------------------------------------------------------- 72,156,250 - --------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-0.73% NCO Group, Inc.(a) 200,000 8,475,000 - --------------------------------------------------------------- SEI Investments Co. 125,000 12,183,594 - --------------------------------------------------------------- 20,658,594 - --------------------------------------------------------------- FOODS-0.44% Hain Food Group, Inc. (The)(a) 500,000 12,531,250 - --------------------------------------------------------------- FOOTWEAR-0.50% Steven Madden, Ltd.(a) 500,000 6,125,000 - --------------------------------------------------------------- Vans, Inc.(a)(b) 718,400 8,082,000 - --------------------------------------------------------------- 14,207,000 - --------------------------------------------------------------- GAMING, LOTTERY & PARIMUTUEL COMPANIES-0.43% Station Casinos, Inc.(a) 500,000 12,093,750 - --------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER)-1.22% Alpharma, Inc.-Class A 495,834 17,447,159 - --------------------------------------------------------------- Biovail Corporation International (Canada)(a) 175,000 9,657,813 - --------------------------------------------------------------- Medicis Pharmaceutical Corp.-Class A(a) 243,000 7,411,500 - --------------------------------------------------------------- 34,516,472 - --------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT)-0.30% Health Management Associates, Inc.-Class A(a) 500,000 4,437,500 - --------------------------------------------------------------- Province Healthcare Co.(a) 250,000 4,031,250 - --------------------------------------------------------------- 8,468,750 - --------------------------------------------------------------- HEALTH CARE (MANAGED CARE)-0.56% Express Scripts, Inc.-Class A(a) 325,000 15,965,625 - ---------------------------------------------------------------
FS-3 88
MARKET SHARES VALUE HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.77% ResMed, Inc.(a) 250,000 $ 8,656,250 - --------------------------------------------------------------- Sybron International Corp.(a) 250,000 5,953,125 - --------------------------------------------------------------- Syncor International Corp.(a) 132,000 4,834,500 - --------------------------------------------------------------- VISX, Inc.(a) 250,000 15,640,625 - --------------------------------------------------------------- Xomed Surgical Products, Inc.(a) 250,000 15,203,125 - --------------------------------------------------------------- 50,287,625 - --------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES)-1.51% Advance Paradigm, Inc.(a) 100,000 4,262,500 - --------------------------------------------------------------- Hooper Holmes, Inc. 600,000 16,125,000 - --------------------------------------------------------------- OEC Medical Systems, Inc.(a) 350,000 12,468,750 - --------------------------------------------------------------- Res-Care, Inc.(a) 150,000 2,184,375 - --------------------------------------------------------------- Techne Corp.(a) 200,000 7,875,000 - --------------------------------------------------------------- 42,915,625 - --------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE-0.52% Hambrecht & Quist Group(a) 300,000 14,812,500 - --------------------------------------------------------------- INVESTMENT MANAGEMENT-0.47% Affiliated Managers Group, Inc.(a) 100,000 2,675,000 - --------------------------------------------------------------- Eaton Vance Corp. 316,100 10,806,669 - --------------------------------------------------------------- 13,481,669 - --------------------------------------------------------------- LEISURE TIME (PRODUCTS)-0.66% International Speedway Corp.-Class A 195,100 10,072,038 - --------------------------------------------------------------- Speedway Motorsports, Inc.(a) 200,000 8,725,000 - --------------------------------------------------------------- 18,797,038 - --------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-0.92% Kopin Corp.(a) 248,900 10,453,800 - --------------------------------------------------------------- Pentair, Inc. 150,000 5,643,750 - --------------------------------------------------------------- Spartech Corp. 350,000 10,018,750 - --------------------------------------------------------------- 26,116,300 - --------------------------------------------------------------- MANUFACTURING (SPECIALIZED)-0.45% Astec Industries, Inc.(a) 300,000 7,031,250 - --------------------------------------------------------------- Jore Corp.(a) 500,000 5,812,500 - --------------------------------------------------------------- 12,843,750 - --------------------------------------------------------------- NATURAL GAS-0.46% Kinder Morgan, Inc. 650,000 13,081,250 - --------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT)-2.41% Cal Dive International, Inc.(a) 200,000 6,725,000 - --------------------------------------------------------------- Core Laboratories N.V. (Netherlands)(a) 750,000 13,781,250 - --------------------------------------------------------------- Global Industries Ltd.(a) 400,000 3,200,000 - --------------------------------------------------------------- Marine Drilling Companies, Inc.(a) 600,000 9,712,500 - --------------------------------------------------------------- Maverick Tube Corp.(a)(b) 1,000,000 18,500,000 - --------------------------------------------------------------- National-Oilwell, Inc.(a) 250,000 3,390,625 - ---------------------------------------------------------------
MARKET SHARES VALUE OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED) Patterson Energy, Inc.(a) 1,000,000 $ 12,812,500 - --------------------------------------------------------------- Varco International, Inc.(a) 28,300 298,919 - --------------------------------------------------------------- 68,420,794 - --------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION)-1.20% Cabot Oil & Gas Corp.-Class A 250,000 4,031,250 - --------------------------------------------------------------- Evergreen Resources, Inc.(a) 375,000 8,109,375 - --------------------------------------------------------------- Newfield Exploration Co.(a) 500,000 14,718,750 - --------------------------------------------------------------- Stone Energy Corp.(a) 150,000 7,293,750 - --------------------------------------------------------------- 34,153,125 - --------------------------------------------------------------- PERSONAL CARE-0.11% Steiner Leisure Ltd.(a) 162,500 3,077,344 - --------------------------------------------------------------- PUBLISHING-0.38% IDG Books Worldwide, Inc.-Class A(a) 400,000 7,150,000 - --------------------------------------------------------------- Meredith Corp. 100,000 3,568,750 - --------------------------------------------------------------- 10,718,750 - --------------------------------------------------------------- RAILROADS-0.21% MotivePower Industries, Inc.(a) 500,000 5,968,750 - --------------------------------------------------------------- RESTAURANTS-2.28% CEC Entertainment, Inc.(a) 800,000 25,650,000 - --------------------------------------------------------------- Jack in the Box, Inc.(a) 600,000 14,437,500 - --------------------------------------------------------------- Papa John's International, Inc.(a) 100,000 3,737,500 - --------------------------------------------------------------- Sonic Corp.(a) 750,000 21,000,000 - --------------------------------------------------------------- 64,825,000 - --------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS)-1.63% CDW Computer Centers, Inc.(a) 750,000 46,312,500 - --------------------------------------------------------------- RETAIL (DISCOUNTERS)-0.43% 99 Cents Only Stores(a) 411,381 12,290,007 - --------------------------------------------------------------- RETAIL (FOOD CHAINS)-0.62% Wild Oats Markets, Inc.(a) 500,000 17,625,000 - --------------------------------------------------------------- RETAIL (SPECIALTY)-4.12% BOWLIN Outdoor Advertising & Travel Centers Inc.(a) 179,200 851,200 - --------------------------------------------------------------- Cost Plus, Inc.(a) 375,000 13,687,500 - --------------------------------------------------------------- Footstar, Inc.(a) 150,000 5,250,000 - --------------------------------------------------------------- Hibbett Sporting Goods, Inc.(a) 200,000 3,187,500 - --------------------------------------------------------------- Linens 'n Things, Inc.(a) 450,000 17,887,500 - --------------------------------------------------------------- Michaels Stores, Inc.(a) 600,000 20,137,500 - --------------------------------------------------------------- O'Reilly Automotive, Inc.(a) 750,000 32,718,750 - --------------------------------------------------------------- Sunglass Hut International, Inc.(a) 353,200 4,260,475 - --------------------------------------------------------------- Tuesday Morning Corp.(a) 150,000 3,450,000 - ---------------------------------------------------------------
FS-4 89
MARKET SHARES VALUE RETAIL (SPECIALTY)-(CONTINUED) Zale Corp.(a) 375,000 $ 15,703,125 - --------------------------------------------------------------- 117,133,550 - --------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL)-5.56% American Eagle Outfitters, Inc.(a) 749,350 32,081,547 - --------------------------------------------------------------- AnnTaylor Stores Corp.(a) 450,000 19,153,125 - --------------------------------------------------------------- Buckle, Inc. (The)(a) 750,000 12,375,000 - --------------------------------------------------------------- Children's Place Retail Stores, Inc. (The)(a) 500,000 13,031,250 - --------------------------------------------------------------- Men's Wearhouse, Inc. (The)(a) 1,500,000 32,906,250 - --------------------------------------------------------------- Pacific Sunwear of California(a) 600,000 18,112,500 - --------------------------------------------------------------- Talbots, Inc. (The) 350,000 16,471,875 - --------------------------------------------------------------- Too Inc.(a) 870,400 13,926,400 - --------------------------------------------------------------- 158,057,947 - --------------------------------------------------------------- SAVINGS & LOAN COMPANIES-0.33% Queens County Bancorp, Inc. 300,000 9,431,250 - --------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING)-0.30% Metris Companies, Inc. 250,000 8,609,375 - --------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER)-1.61% Championship Auto Racing Teams, Inc.(a) 100,000 2,293,750 - --------------------------------------------------------------- Copart, Inc.(a) 300,000 6,900,000 - --------------------------------------------------------------- G & K Services, Inc.-Class A 250,000 9,390,625 - --------------------------------------------------------------- Iron Mountain, Inc.(a) 200,000 6,050,000 - --------------------------------------------------------------- Provant, Inc.(a) 250,000 4,406,250 - --------------------------------------------------------------- Regis Corp. 595,000 11,044,688 - --------------------------------------------------------------- Ritchie Bros. Auctioneers, Inc. (Canada)(a) 155,100 5,564,213 - --------------------------------------------------------------- 45,649,526 - --------------------------------------------------------------- SERVICES (COMPUTER SYSTEMS)-1.67% Insight Enterprises, Inc.(a) 1,000,000 37,375,000 - --------------------------------------------------------------- Sykes Enterprises, Inc.(a) 322,400 9,954,100 - --------------------------------------------------------------- 47,329,100 - --------------------------------------------------------------- SERVICES (DATA PROCESSING)-4.65% Affiliated Computer Services, Inc.-Class A(a) 500,000 19,000,000 - --------------------------------------------------------------- CheckFree Holdings Corp.(a) 250,000 9,343,750 - --------------------------------------------------------------- Concord EFS, Inc.(a) 2,000,000 54,125,000 - ---------------------------------------------------------------
MARKET SHARES VALUE SERVICES (DATA PROCESSING)-(CONTINUED) FactSet Research Systems, Inc. 87,250 $ 5,796,672 - --------------------------------------------------------------- MedQuist, Inc.(a) 300,000 9,600,000 - --------------------------------------------------------------- National Computer Systems, Inc. 550,000 20,796,875 - --------------------------------------------------------------- NOVA Corp.(a) 514,500 13,377,000 - --------------------------------------------------------------- 132,039,297 - --------------------------------------------------------------- SERVICES (EMPLOYMENT)-0.30% Select Appointments Holdings PLC-ADR (United Kingdom)(a) 250,000 8,500,000 - --------------------------------------------------------------- SERVICES (FACILITIES & ENVIRONMENTAL)-0.08% Tetra Tech, Inc.(a) 150,000 2,381,250 - --------------------------------------------------------------- SPECIALTY PRINTING-0.23% Valassis Communications, Inc.(a) 150,000 6,450,000 - --------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/ WIRELESS)-1.86% Powerwave Technologies, Inc.(a) 650,000 42,290,625 - --------------------------------------------------------------- Western Wireless Corp.-Class A(a) 200,000 10,575,000 - --------------------------------------------------------------- 52,865,625 - --------------------------------------------------------------- TEXTILES (APPAREL)-0.50% Quicksilver, Inc.(a) 1,000,000 14,125,000 - --------------------------------------------------------------- TRUCKERS-0.45% M.S. Carriers, Inc.(a) 100,000 2,825,000 - --------------------------------------------------------------- Swift Transportation Co., Inc.(a) 565,050 9,853,059 - --------------------------------------------------------------- 12,678,059 - --------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $1,689,695,716) 2,755,849,427 - ---------------------------------------------------------------
MONEY MARKET FUNDS-3.06% STIC Liquid Assets Portfolio(c) 43,505,394 43,505,394 - --------------------------------------------------------------- STIC Prime Portfolio(c) 43,505,394 43,505,394 - --------------------------------------------------------------- Total Money Market Funds (Cost $87,010,788) 87,010,788 - --------------------------------------------------------------- TOTAL INVESTMENTS-100.09% 2,842,860,215 - --------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS-(0.09%) (2,688,333) - --------------------------------------------------------------- NET ASSETS-100.00% $2,840,171,882 ===============================================================
Investment Abbreviations: ADR - American Depositary Receipt Notes to Schedule of Investments: (a) Non-income producing security. (b) Affiliated issuers are those in which the Funds's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. The Fund has not owned enough of the outstanding voting securities of any issuer to have control (as defined in the Investment Co. Act of 1940) of that issuer. The aggregate market value of affiliated issuers as of 10/31/99 was $26,582,000 which represented 0.94% of the Fund's net assets. (c) The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-5 90 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1999 ASSETS: Investments, at market value (cost $1,776,706,504) $2,842,860,215 - -------------------------------------------------------- Receivables for: Investments sold 17,937,284 - -------------------------------------------------------- Capital stock sold 2,011,926 - -------------------------------------------------------- Dividends and interest 830,933 - -------------------------------------------------------- Investment for deferred compensation plan 59,470 - -------------------------------------------------------- Other assets 10,582 - -------------------------------------------------------- Total assets 2,863,710,410 - -------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 14,775,635 - -------------------------------------------------------- Capital stock reacquired 5,415,822 - -------------------------------------------------------- Deferred compensation 59,470 - -------------------------------------------------------- Accrued advisory fees 1,481,082 - -------------------------------------------------------- Accrued administrative services fees 15,920 - -------------------------------------------------------- Accrued distribution fees 857,774 - -------------------------------------------------------- Accrued directors' fees 2,918 - -------------------------------------------------------- Accrued transfer agent fees 398,490 - -------------------------------------------------------- Accrued operating expenses 531,417 - -------------------------------------------------------- Total liabilities 23,538,528 - -------------------------------------------------------- Net assets applicable to shares outstanding $2,840,171,882 ======================================================== NET ASSETS: Class A $2,808,450,928 - -------------------------------------------------------- Class B $ 24,913,645 - -------------------------------------------------------- Class C $ 6,807,309 - -------------------------------------------------------- CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 50,506,475 ======================================================== Class B: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 450,958 ======================================================== Class C: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 123,217 ======================================================== Class A: Net asset value and redemption price per share $ 55.61 - -------------------------------------------------------- Offering price per share: (Net asset value of $55.61 divided by 94.50%) $ 58.85 ======================================================== Class B: Net asset value and offering price per share $ 55.25 ======================================================== Class C: Net asset value and offering price per share $ 55.25 ========================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999 INVESTMENT INCOME: Dividends (net of $6,700 foreign withholding tax) $ 3,562,554 - ------------------------------------------------------- Interest 7,254,618 - ------------------------------------------------------- Total investment income 10,817,172 - ------------------------------------------------------- EXPENSES: Advisory fees 17,085,022 - ------------------------------------------------------- Administrative services fees 126,956 - ------------------------------------------------------- Custodian fees 254,206 - ------------------------------------------------------- Directors' fees 25,194 - ------------------------------------------------------- Distribution fees-Class A 6,704,485 - ------------------------------------------------------- Distribution fees-Class B 79,099 - ------------------------------------------------------- Distribution fees-Class C 21,997 - ------------------------------------------------------- Transfer agent fees-Class A 4,294,353 - ------------------------------------------------------- Transfer agent fees-Class B 26,683 - ------------------------------------------------------- Transfer agent fees-Class C 6,528 - ------------------------------------------------------- Other 931,386 - ------------------------------------------------------- Total expenses 29,555,909 - ------------------------------------------------------- Less: Expenses paid indirectly (57,022) - ------------------------------------------------------- Net expenses 29,498,887 - ------------------------------------------------------- Net investment income (loss) (18,681,715) - ------------------------------------------------------- REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES: Net realized gain from investment securities 401,315,614 - ------------------------------------------------------- Change in net unrealized appreciation of investment securities 514,158,866 - ------------------------------------------------------- Net gain from investment securities 915,474,480 - ------------------------------------------------------- Net increase in net assets resulting from operations $896,792,765 =======================================================
See Notes to Financial Statements. FS-6 91 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998
1999 1998 -------------- -------------- OPERATIONS: Net investment (loss) $ (18,681,715) $ (21,818,881) - --------------------------------------------------------------------------------------------- Net realized gain from investment securities, futures and option contracts 401,315,614 22,492,829 - --------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities, futures and option contracts 514,158,866 (542,787,104) - --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 896,792,765 (542,113,156) - --------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains-Class A (25,067,232) (135,730,479) - --------------------------------------------------------------------------------------------- Share transactions--net: Class A (697,955,629) (548,376,018) - --------------------------------------------------------------------------------------------- Class B 22,307,605 -- - --------------------------------------------------------------------------------------------- Class C 6,056,717 -- - --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 202,134,226 (1,226,219,653) - --------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 2,638,037,656 3,864,257,309 - --------------------------------------------------------------------------------------------- End of period $2,840,171,882 $2,638,037,656 ============================================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $1,384,638,292 $2,060,980,954 - --------------------------------------------------------------------------------------------- Undistributed net investment (loss) (148,328) (117,968) - --------------------------------------------------------------------------------------------- Undistributed net realized gain from investment securities, futures and option contracts 389,528,207 25,179,825 - --------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, futures and option contracts 1,066,153,711 551,994,845 - --------------------------------------------------------------------------------------------- $2,840,171,882 $2,638,037,656 =============================================================================================
See Notes to Financial Statements. FS-7 92 NOTES TO FINANCIAL STATEMENTS October 31, 1999 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 ten separate portfolios. The Fund currently offers three different classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to achieve long-term growth of capital by investing primarily in common stocks of companies whose earnings the Fund's portfolio managers expect to grow more than 15% per year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income increased by $18,651,355, undistributed net realized gains decreased by $11,900,000 and paid in capital decreased $6,751,355 as a result of equalization credits and net operating loss reclassifications in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Expenses -- Distribution expenses and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.80% 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. FS-8 93 The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the year ended October 31, 1999, AIM was paid $126,956 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 1999, AFS was paid $2,216,555 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund , pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the year ended October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $6,704,485, $79,099 and $21,997, respectively, as compensation under the Plans. AIM Distributors received commissions of $711,447 from sales of the Class A shares of the Fund during the year ended October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the year ended October 31, 1999, AIM Distributors received $45,944 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the year ended October 31, 1999, the Fund paid legal fees of $8,655 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the year ended October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $32,326 and $24,696, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $57,022 during the year ended October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. Prior to May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended October 31, 1999 was $1,887,305,705 and $2,452,977,749, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $1,126,699,833 - ---------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (62,026,958) - ---------------------------------------------------------- Net unrealized appreciation of investment securities $1,064,672,875 ==========================================================
Cost of investments for tax purposes is $1,778,187,340. FS-9 94 NOTE 7-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 1999 and 1998 were as follows:
1999 1998 ----------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ----------- --------------- ----------- -------------- Sold: Class A 20,202,014 $ 945,046,848 40,244,020 $1,856,544,416 - -------------------------------------------------------------------------------------------------------------------------- Class B* 515,321 25,493,142 -- -- - -------------------------------------------------------------------------------------------------------------------------- Class C* 137,866 6,796,692 -- -- - -------------------------------------------------------------------------------------------------------------------------- Issued as reinvestment of dividends: Class A 522,585 23,265,335 2,928,346 126,973,169 - -------------------------------------------------------------------------------------------------------------------------- Reacquired: Class A (35,925,286) (1,666,267,812) (54,802,587) (2,531,893,603) - -------------------------------------------------------------------------------------------------------------------------- Class B* (64,363) (3,185,537) -- -- - -------------------------------------------------------------------------------------------------------------------------- Class C* (14,649) (739,975) -- -- - -------------------------------------------------------------------------------------------------------------------------- (14,626,512) $ (669,591,307) (11,630,221) $ (548,376,018) ==========================================================================================================================
* Class B shares and Class C shares commenced sales on March 1, 1999. NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during each of the years in the five-year period ended October 31, 1999 and for a share of Class B and Class C capital stock outstanding during the period March 1, 1999 (date sales commenced) through October 31, 1999.
CLASS A -------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 40.15 $ 49.97 $ 44.93 $ 40.13 $ 28.37 - ----------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) (0.37) (0.33) (0.26) (0.32) (0.04) - ----------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Net gains (losses) on securities (both realized and unrealized) 16.22 (7.71) 7.60 6.09 11.80 - ----------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations 15.85 (8.04) 7.34 5.77 11.76 - ----------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Distributions from net realized gains (0.39) (1.78) (2.30) (0.97) -- - ----------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 55.61 $ 40.15 $ 49.97 $ 44.93 $ 40.13 =========================================================== ========== ========== ========== ========== ========== Total return(a) 39.73% (16.36)% 17.35% 14.77% 41.45% =========================================================== ========== ========== ========== ========== ========== Ratios/supplemental data: Net assets, end of period (000s omitted) $2,808,451 $2,638,038 $3,864,257 $2,750,564 $2,245,554 =========================================================== ========== ========== ========== ========== ========== Ratio of expenses to average net assets(b) 1.09%(c) 1.06% 1.06% 1.11% 1.08% =========================================================== ========== ========== ========== ========== ========== Ratio of net investment income (loss) to average net assets(d) (0.69)%(c) (0.64)% (0.65)% (0.76)% (0.19)% =========================================================== ========== ========== ========== ========== ========== Portfolio turnover rate 75% 69% 73% 79% 52% =========================================================== ========== ========== ========== ========== ==========
(a) Does not deduct sales charges. (b) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.15% for 1995. (c) Ratios are based on average net assets of $2,681,793,909. (d) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements was (0.26)% for 1995.
CLASS B CLASS C ------- ------- 1999 1999 ------- ------- Net asset value, beginning of period $ 43.41 $ 43.41 - ------------------------------------------------------------ ------- ------- Income from investment operations: Net investment income (loss) (0.28) (0.28) - ------------------------------------------------------------ ------- ------- Net gains (losses) on securities (both realized and unrealized) 12.12 12.12 - ------------------------------------------------------------ ------- ------- Total from investment operations 11.84 11.84 - ------------------------------------------------------------ ------- ------- Net asset value, end of period $ 55.25 $ 55.25 ============================================================ ======= ======= Total return(a) 27.27% 27.27% ============================================================ ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $24,914 $ 6,807 ============================================================ ======= ======= Ratio of expenses to average net assets 2.08%(b) 2.08%(b) ============================================================ ======= ======= Ratio of net investment income (loss) to average net assets (1.68)%(b) (1.68)%(b) ============================================================ ======= ======= Portfolio turnover rate 75% 75% ============================================================ ======= =======
(a) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (b) Ratios are annualized and based on average net assets of $11,337,167 and $3,277,217 for Class B and Class C, respectively. FS-10 95 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statements of assets and liabilities of AIM Blue Chip Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended and financial highlights for each of the years in the three-year period then ended, 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 two-year period ended September 30, 1995 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, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Blue Chip Fund as of October 31, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and financial highlights for each of the years in the three-year period then ended, the one-month ended October 31, 1996, and the year ended September 30, 1996 in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-11 96 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-91.18% AIRLINES-0.27% Delta Air Lines, Inc. 225,000 $ 12,248,437 - --------------------------------------------------------------- AUTO PARTS & EQUIPMENT-0.41% Lear Corp.(a) 550,000 18,562,500 - --------------------------------------------------------------- BANKS (MAJOR REGIONAL)-1.83% Fifth Third Bancorp 450,000 33,215,625 - --------------------------------------------------------------- State Street Corp. 275,000 20,934,375 - --------------------------------------------------------------- Wells Fargo Co. 600,000 28,725,000 - --------------------------------------------------------------- 82,875,000 - --------------------------------------------------------------- BANKS (MONEY CENTER)-2.05% Bank of America Corp. 325,000 20,921,875 - --------------------------------------------------------------- Chase Manhattan Corp. (The) 825,000 72,084,375 - --------------------------------------------------------------- 93,006,250 - --------------------------------------------------------------- BEVERAGES (NON-ALCOHOLIC)-0.59% Coca-Cola Co. (The) 450,000 26,550,000 - --------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-4.83% AT&T Corp.-Liberty Media Group-Class A(a) 975,000 38,695,312 - --------------------------------------------------------------- CBS Corp.(a) 750,000 36,609,375 - --------------------------------------------------------------- Clear Channel Communications, Inc.(a) 450,000 36,168,750 - --------------------------------------------------------------- Comcast Corp.-Class A 1,550,000 65,293,750 - --------------------------------------------------------------- MediaOne Group, Inc.(a) 600,000 42,637,500 - --------------------------------------------------------------- 219,404,687 - --------------------------------------------------------------- CHEMICALS-0.53% Du Pont (E.I.) de Nemours & Co. 375,000 24,164,062 - --------------------------------------------------------------- CHEMICALS (DIVERSIFIED)-0.49% Monsanto Co. 575,000 22,137,500 - --------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-4.24% Lucent Technologies Inc. 1,200,000 77,100,000 - --------------------------------------------------------------- Nokia Oyj (Finland) 40,000 4,578,942 - --------------------------------------------------------------- Nokia Oyj-ADR (Finland) 425,000 49,114,062 - --------------------------------------------------------------- Nortel Networks Corp. (Canada) 1,000,000 61,937,500 - --------------------------------------------------------------- 192,730,504 - --------------------------------------------------------------- COMPUTERS (HARDWARE)-4.25% Dell Computer Corp.(a) 1,050,000 42,131,250 - --------------------------------------------------------------- International Business Machines Corp. 725,000 71,321,875 - --------------------------------------------------------------- Sun Microsystems, Inc.(a) 750,000 79,359,375 - --------------------------------------------------------------- 192,812,500 - ---------------------------------------------------------------
MARKET SHARES VALUE COMPUTERS (NETWORKING)-2.65% Cisco Systems, Inc.(a) 1,625,000 $ 120,250,000 - --------------------------------------------------------------- COMPUTERS (PERIPHERALS)-1.45% EMC Corp.(a) 900,000 65,700,000 - --------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-7.74% America Online, Inc.(a)(b) 492,900 63,922,969 - --------------------------------------------------------------- Microsoft Corp.(a) 1,900,000 175,868,750 - --------------------------------------------------------------- Oracle Corp.(a) 850,000 40,428,125 - --------------------------------------------------------------- VERITAS Software Corp.(a) 435,000 46,925,625 - --------------------------------------------------------------- Yahoo! Inc.(a) 135,000 24,173,437 - --------------------------------------------------------------- 351,318,906 - --------------------------------------------------------------- CONSUMER FINANCE-0.54% Providian Financial Corp. 225,000 24,525,000 - --------------------------------------------------------------- ELECTRIC COMPANIES-1.17% Duke Power Co. 265,000 14,972,500 - --------------------------------------------------------------- Edison International 800,000 23,700,000 - --------------------------------------------------------------- Texas Utilities Co. 375,000 14,531,250 - --------------------------------------------------------------- 53,203,750 - --------------------------------------------------------------- ELECTRICAL EQUIPMENT-2.99% General Electric Co. 1,000,000 135,562,500 - --------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-3.44% Intel Corp. 900,000 69,693,750 - --------------------------------------------------------------- Texas Instruments, Inc. 550,000 49,362,500 - --------------------------------------------------------------- Xilinx, Inc.(a) 475,000 37,346,875 - --------------------------------------------------------------- 156,403,125 - --------------------------------------------------------------- ENTERTAINMENT-1.38% Time Warner Inc. 900,000 62,718,750 - --------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR)-0.69% Applied Materials, Inc.(a) 350,000 31,434,375 - --------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-5.31% American Express Co. 350,000 53,900,000 - --------------------------------------------------------------- Citigroup Inc. 1,100,000 59,537,500 - --------------------------------------------------------------- Fannie Mae 800,000 56,600,000 - --------------------------------------------------------------- Freddie Mac 1,000,000 54,062,500 - --------------------------------------------------------------- MBIA, Inc. 300,000 17,118,750 - --------------------------------------------------------------- 241,218,750 - --------------------------------------------------------------- FOOTWEAR-0.40% Nike, Inc.-Class B 325,000 18,342,188 - ---------------------------------------------------------------
FS-12 97
MARKET SHARES VALUE HEALTH CARE (DIVERSIFIED)-6.19% American Home Products Corp. 700,000 $ 36,575,000 - --------------------------------------------------------------- Bristol-Myers Squibb Co. 1,125,000 86,414,063 - --------------------------------------------------------------- Johnson & Johnson 900,000 94,275,000 - --------------------------------------------------------------- Warner-Lambert Co. 800,000 63,850,000 - --------------------------------------------------------------- 281,114,063 - --------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-4.15% Lilly (Eli) & Co. 350,000 24,106,250 - --------------------------------------------------------------- Merck & Co., Inc. 425,000 33,814,063 - --------------------------------------------------------------- Pfizer, Inc. 1,615,600 63,816,200 - --------------------------------------------------------------- Schering-Plough Corp. 1,350,000 66,825,000 - --------------------------------------------------------------- 188,561,513 - --------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.11% Guidant Corp. 1,100,000 54,312,500 - --------------------------------------------------------------- Medtronic, Inc. 1,200,000 41,550,000 - --------------------------------------------------------------- 95,862,500 - --------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES)-1.67% Colgate-Palmolive Co. 600,000 36,300,000 - --------------------------------------------------------------- Procter & Gamble, Co. (The) 375,000 39,328,125 - --------------------------------------------------------------- 75,628,125 - --------------------------------------------------------------- INSURANCE (MULTI-LINE)-2.27% American International Group, Inc. 1,000,000 102,937,500 - --------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE-1.84% Merrill Lynch & Co., Inc. 325,000 25,512,500 - --------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 525,000 57,914,063 - --------------------------------------------------------------- 83,426,563 - --------------------------------------------------------------- LODGING-HOTELS-1.15% Carnival Corp. 1,175,000 52,287,500 - --------------------------------------------------------------- MACHINERY (DIVERSIFIED)-0.58% Ingersoll-Rand Co. 500,000 26,125,000 - --------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-2.91% Tyco International Ltd. 2,400,000 95,850,000 - --------------------------------------------------------------- United Technologies Corp. 600,000 36,300,000 - --------------------------------------------------------------- 132,150,000 - --------------------------------------------------------------- NATURAL GAS-1.09% El Paso Energy Corp. 475,000 19,475,000 - --------------------------------------------------------------- Enron Corp. 750,000 29,953,125 - --------------------------------------------------------------- 49,428,125 - ---------------------------------------------------------------
MARKET SHARES VALUE OIL & GAS (DRILLING & EQUIPMENT)-1.09% Halliburton Co. 750,000 $ 28,265,625 - --------------------------------------------------------------- Schlumberger Ltd. 350,000 21,196,875 - --------------------------------------------------------------- 49,462,500 - --------------------------------------------------------------- OIL (DOMESTIC INTEGRATED)-0.28% Conoco Inc.-Class B 460,657 12,495,321 - --------------------------------------------------------------- OIL (INTERNATIONAL INTEGRATED)-1.74% Exxon Corp. 450,000 33,328,125 - --------------------------------------------------------------- Mobil Corp. 225,000 21,712,500 - --------------------------------------------------------------- Royal Dutch Petroleum Co.-New York Shares-ADR (Netherlands) 400,000 23,975,000 - --------------------------------------------------------------- 79,015,625 - --------------------------------------------------------------- PAPER & FOREST PRODUCTS-0.93% Bowater, Inc. 300,000 15,750,000 - --------------------------------------------------------------- International Paper Co. 500,000 26,312,500 - --------------------------------------------------------------- 42,062,500 - --------------------------------------------------------------- RAILROADS-0.30% Canadian National Railway Co. (Canada) 450,000 13,725,000 - --------------------------------------------------------------- RETAIL (BUILDING SUPPLIES)-1.83% Home Depot, Inc. (The) 1,100,000 83,050,000 - --------------------------------------------------------------- RETAIL (FOOD CHAINS)-1.12% Kroger Co. (The)(a) 1,000,000 20,812,500 - --------------------------------------------------------------- Safeway, Inc.(a) 850,000 30,015,625 - --------------------------------------------------------------- 50,828,125 - --------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE)-3.95% Costco Wholesale Corp.(a) 500,000 40,156,250 - --------------------------------------------------------------- Dayton Hudson Corp. 750,000 48,468,750 - --------------------------------------------------------------- Wal-Mart Stores, Inc. 1,600,000 90,700,000 - --------------------------------------------------------------- 179,325,000 - --------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL)-0.85% Gap, Inc. (The) 750,000 27,843,750 - --------------------------------------------------------------- TJX Companies, Inc. (The) 400,000 10,850,000 - --------------------------------------------------------------- 38,693,750 - --------------------------------------------------------------- SERVICES (ADVERTISING/ MARKETING)-0.39% Interpublic Group of Companies, Inc. 440,000 17,875,000 - --------------------------------------------------------------- SERVICES (DATA PROCESSING)-1.31% First Data Corp. 900,000 41,118,750 - --------------------------------------------------------------- Fiserv, Inc.(a) 577,500 18,480,000 - --------------------------------------------------------------- 59,598,750 - ---------------------------------------------------------------
FS-13 98
MARKET SHARES VALUE TELECOMMUNICATIONS (CELLULAR/ WIRELESS)-0.79% Vodafone AirTouch PLC-ADR (United Kingdom) 750,000 $ 35,953,125 - --------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE)-2.92% AT&T Corp. 500,000 23,375,000 - --------------------------------------------------------------- MCI WorldCom, Inc.(a) 1,275,000 109,410,938 - --------------------------------------------------------------- 132,785,938 - --------------------------------------------------------------- TELEPHONE-2.47% BellSouth Corp. 950,000 42,750,000 - --------------------------------------------------------------- GTE Corp. 350,000 26,250,000 - --------------------------------------------------------------- SBC Communications, Inc. 850,000 43,296,875 - --------------------------------------------------------------- 112,296,875 - --------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $3,096,180,214) 4,139,857,182 - ---------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE U.S. TREASURY SECURITIES-0.09% U.S. TREASURY BILLS-0.09%(c)(d) 4.748%, 12/23/99 (Cost $4,181,906) $ 4,210,000 $ 4,180,825 - --------------------------------------------------------------- MONEY MARKET FUNDS-8.57% STIC Liquid Assets Portfolio(e) 194,612,715 194,612,715 - --------------------------------------------------------------- STIC Prime Portfolio(e) 194,612,715 194,612,715 - --------------------------------------------------------------- Total Money Market Funds (Cost $389,225,430) 389,225,430 - --------------------------------------------------------------- TOTAL INVESTMENTS-99.84% 4,533,263,437 - --------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-0.16% 7,409,742 - --------------------------------------------------------------- NET ASSETS-100.00% $4,540,673,179 ===============================================================
Investment Abbreviations: ADR - American Depositary Receipt Notes to Schedule of Investments: (a) Non-income producing security. (b) A portion of this security is subject to call options written. See Note 7. (c) U.S. Treasury bills are traded on a discount basis. In such cases the interest rate shown represents the rate of discount paid or received at the time of purchase by the Fund. (d) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contracts. See Note 8. (e) The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-14 99 STATEMENTS OF ASSETS AND LIABILITIES October 31, 1999 ASSETS: Investments, at market value (cost $3,489,587,550) $4,533,263,437 - --------------------------------------------------------- Receivables for: Investments sold 36,197,016 - --------------------------------------------------------- Capital stock sold 17,637,457 - --------------------------------------------------------- Dividends and interest 2,956,130 - --------------------------------------------------------- Variation margin 1,300,000 - --------------------------------------------------------- Investment for deferred compensation plan 25,701 - --------------------------------------------------------- Other assets 146,973 - --------------------------------------------------------- Total assets 4,591,526,714 - --------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 29,463,474 - --------------------------------------------------------- Capital stock reacquired 7,446,032 - --------------------------------------------------------- Deferred compensation 25,701 - --------------------------------------------------------- Options written (Premiums received $5,063,081) 8,228,238 - --------------------------------------------------------- Accrued advisory fees 2,312,383 - --------------------------------------------------------- Accrued administrative services fees 18,976 - --------------------------------------------------------- Accrued directors' fees 4,732 - --------------------------------------------------------- Accrued distribution fees 2,712,527 - --------------------------------------------------------- Accrued transfer agent fees 618,108 - --------------------------------------------------------- Accrued operating expenses 23,364 - --------------------------------------------------------- Total liabilities 50,853,535 - --------------------------------------------------------- Net assets applicable to shares outstanding $4,540,673,179 =========================================================
NET ASSETS: Class A $2,299,550,866 - --------------------------------------------------------- Class B $1,891,170,839 - --------------------------------------------------------- Class C $ 349,951,474 - --------------------------------------------------------- CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 49,473,559 - --------------------------------------------------------- Class B: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 41,426,916 - --------------------------------------------------------- Class C: Authorized 750,000,000 - --------------------------------------------------------- Outstanding 7,668,239 - --------------------------------------------------------- Class A: Net asset value and redemption price per share $ 46.48 - --------------------------------------------------------- Offering price per share: (Net asset value of $46.48/ 94.50%) $ 49.19 - --------------------------------------------------------- Class B: Net asset value and offering price per share $ 45.65 - --------------------------------------------------------- Class C: Net asset value and offering price per share $ 45.64 =========================================================
STATEMENT OF OPERATIONS For the year ended October 31, 1999 INVESTMENT INCOME: Dividends (net of $160,836 foreign withholding tax) $ 24,286,072 - -------------------------------------------------------- Interest 17,149,758 - -------------------------------------------------------- Total investment income 41,435,830 - -------------------------------------------------------- EXPENSES: Advisory fees 21,592,076 - -------------------------------------------------------- Administrative services fees 153,309 - -------------------------------------------------------- Custodian fees 181,652 - -------------------------------------------------------- Directors' fees 25,214 - -------------------------------------------------------- Distribution fees -- Class A 6,217,528 - -------------------------------------------------------- Distribution fees -- Class B 13,837,276 - -------------------------------------------------------- Distribution fees -- Class C 2,245,680 - -------------------------------------------------------- Transfer agent fees -- Class A 2,899,316 - -------------------------------------------------------- Transfer agent fees -- Class B 3,281,701 - -------------------------------------------------------- Transfer agent fees -- Class C 464,980 - -------------------------------------------------------- Other 960,439 - -------------------------------------------------------- Total expenses 51,859,171 - -------------------------------------------------------- Less: Expenses paid indirectly (43,470) - -------------------------------------------------------- Net expenses 51,815,701 - -------------------------------------------------------- Net investment income (loss) (10,379,871) - -------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities (53,258,921) - -------------------------------------------------------- Foreign currencies (480,726) - -------------------------------------------------------- Futures contracts 20,856,520 - -------------------------------------------------------- Option contracts written (2,951,257) - -------------------------------------------------------- (35,834,384) - -------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 763,733,398 - -------------------------------------------------------- Foreign currencies (9,454) - -------------------------------------------------------- Futures contracts (4,034,067) - -------------------------------------------------------- Option contracts written (3,165,157) - -------------------------------------------------------- 756,524,720 - -------------------------------------------------------- Net gain from investment securities, foreign currencies, futures and option contracts 720,690,336 - -------------------------------------------------------- Net increase in net assets resulting from operations $710,310,465 ========================================================
See Notes to Financial Statements. FS-15 100 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1999 and 1998
1999 1998 -------------- -------------- OPERATIONS: Net investment income (loss) $ (10,379,871) $ 664,009 - ---------------------------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies, futures and option contracts (35,834,384) 1,200,650 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies, futures and option contracts 756,524,720 175,782,639 - ---------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 710,310,465 177,647,298 - ---------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income: Class A (776,772) (1,249,305) - ---------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains: Class A (3,128,249) (10,987,892) - ---------------------------------------------------------------------------------------------- Class B (2,256,383) (6,118,620) - ---------------------------------------------------------------------------------------------- Class C (293,473) (150,526) - ---------------------------------------------------------------------------------------------- Share transactions-net: Class A 830,315,460 486,282,009 - ---------------------------------------------------------------------------------------------- Class B 866,521,395 425,444,112 - ---------------------------------------------------------------------------------------------- Class C 220,917,321 81,733,726 - ---------------------------------------------------------------------------------------------- Net increase in net assets 2,621,609,764 1,152,600,802 - ---------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 1,919,063,415 766,462,613 - ---------------------------------------------------------------------------------------------- End of period $4,540,673,179 $1,919,063,415 ============================================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $3,540,120,284 $1,631,900,085 - ---------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (97,169) 706,247 - ---------------------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies, futures and option contracts (41,676,121) 655,618 - ---------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, futures and option contracts 1,042,326,185 285,801,465 - ---------------------------------------------------------------------------------------------- $4,540,673,179 $1,919,063,415 ==============================================================================================
See Notes to Financial Statements. FS-16 101 NOTES TO FINANCIAL STATEMENTS October 31, 1999 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 ten separate portfolios. The Fund currently offers three different classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital with a secondary objective of current income. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, $10,353,227 was reclassified to undistributed net investment income (loss), $819,250 was reclassified from undistributed gains and $9,533,977 from paid in capital as a result of equalization credits and net operating loss reclassifications in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund has a capital loss carryforward of $38,614,682 as of October 31, 1999 which may be carried forward to offset future taxable gains, if any, which expires, if not previously utilized, in the year 2007. D. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in FS-17 102 foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. E. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. F. Futures Contracts -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in value of the contracts may not correlate with changes in the value of the securities being hedged. G. Covered Call Options -- The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. H. Expenses -- Distribution expenses and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $350 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $350 million. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the year ended October 31, 1999, AIM was paid $153,309 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 1999, AFS was paid $3,853,483 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans FS-18 103 would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the year ended October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $6,217,528, $13,837,276 and $2,245,680, respectively, as compensation under the Plans. AIM Distributors received commissions of $2,766,799 from sales of the Class A shares of the Fund during the year ended October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the year ended October 31, 1999, AIM Distributors received $177,813 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the year ended October 31, 1999, the Fund paid legal fees of $9,059 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the year ended October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $37,203 and $6,267, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $43,470 during the year ended October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. Prior to May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended October 31, 1999 was $2,389,864,659 and $651,658,838, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $1,077,403,176 - ---------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (34,962,485) - ---------------------------------------------------------- Net unrealized appreciation of investment securities $1,042,440,691 ========================================================== Cost of investments for tax purposes is $3,490,822,746.
FS-19 104 NOTE 7-CALL OPTION CONTRACTS Transactions in call options written during the year ended October 31, 1999 are summarized as follows:
CALL OPTION CONTRACTS ----------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED ------ ----------- Beginning of year -- $ -- - ------------------------------------------------------------------------------------- Written 5,929 8,218,226 - ------------------------------------------------------------------------------------- Closed (3,429) (3,099,518) - ------------------------------------------------------------------------------------- Exercised (71) (55,627) - ------------------------------------------------------------------------------------- End of year 2,429 $ 5,063,081 - -------------------------------------------------------------------------------------
Open call option contracts written at October 31, 1999 were as follows:
OCTOBER 31, CONTRACT STRIKE NUMBER OF PREMIUMS 1999 UNREALIZED ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE DEPRECIATION ----- -------- ------ --------- ---------- ------------ ------------ America Online, Inc. Jan. 00 $100 2,429 $5,063,081 $8,228,238 $(3,165,157) - ------------------------------------------------------------------------------------------------------------------------
NOTE 8-FUTURES CONTRACTS On October 31, 1999, $4,167,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts were as follows:
NO. OF MONTH/ UNREALIZED CONTRACT CONTRACTS COMMITMENT APPRECIATION - -------- --------- ---------- ------------ S&P 500 Index 200 Dec. 99 $1,817,528 - ---------------------------------------------------------------------------------------------------
NOTE 9-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 1999 and 1998 were as follows:
1999 1998 ---------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ----------- -------------- ----------- ------------- Sold: Class A 31,555,257 $1,348,329,456 26,179,983 $ 915,652,812 - ----------------------------------------------------------------------------------------------------------------------- Class B 24,939,694 1,053,306,393 14,239,927 492,929,849 - ----------------------------------------------------------------------------------------------------------------------- Class C 6,902,119 292,602,692 2,711,151 95,200,193 - ----------------------------------------------------------------------------------------------------------------------- Issued as reinvestment of dividends: Class A 93,903 3,711,997 371,504 11,699,310 - ----------------------------------------------------------------------------------------------------------------------- Class B 54,813 2,141,056 184,940 5,805,443 - ----------------------------------------------------------------------------------------------------------------------- Class C 7,197 281,069 3,949 128,203 - ----------------------------------------------------------------------------------------------------------------------- Reacquired: Class A (12,216,671) (521,725,993) (12,601,919) (441,070,113) - ----------------------------------------------------------------------------------------------------------------------- Class B (4,443,246) (188,926,054) (2,143,627) (73,291,180) - ----------------------------------------------------------------------------------------------------------------------- Class C (1,692,129) (71,966,440) (392,399) (13,594,670) - ----------------------------------------------------------------------------------------------------------------------- 45,200,937 $1,917,754,176 28,553,509 $ 993,459,847 =======================================================================================================================
FS-20 105 NOTE 10-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during each of the years in the three-year period ended October 31, 1999, the one month ended October 31, 1996 and each of the years in the two year period ended September 30, 1996, for a share of Class B capital stock outstanding during each of the years in the three-year period ended October 31, 1999 and the period October 1, 1996 (date sales commenced) through October 31, 1996, and for a share of Class C capital stock outstanding during each of the years in the two year period ended October 31, 1999 and the period August 4, 1997 (date sales commenced) through October 31, 1997.
CLASS A ------------------------------------------------------------------------- OCTOBER 31, SEPTEMBER 30, ------------------------------------------------- ------------------- 1999 1998 1997 1996 1996(a) 1995 ---------- ---------- -------- -------- -------- ------- Net asset value, beginning of period $ 36.14 $ 30.96 $ 26.08 $ 25.56 $ 23.83 $ 19.22 - ------------------------------------------------------ ---------- ---------- -------- -------- -------- ------- Income from investment operations: Net investment income 0.02 0.13(b) 0.17(b) -- 0.33 0.14 - ------------------------------------------------------ ---------- ---------- -------- -------- -------- ------- Net gains on securities (both realized and unrealized) 10.44 5.75 6.93 0.52 4.61 5.05 - ------------------------------------------------------ ---------- ---------- -------- -------- -------- ------- Total from investment operations 10.46 5.88 7.10 0.52 4.94 5.19 - ------------------------------------------------------ ---------- ---------- -------- -------- -------- ------- Less distributions: Dividends from net investment income (0.02) (0.07) (0.05) -- (0.21) (0.12) - ------------------------------------------------------ ---------- ---------- -------- -------- -------- ------- Distributions from net realized gains (0.10) (0.63) (2.17) -- (3.00) (0.46) - ------------------------------------------------------ ---------- ---------- -------- -------- -------- ------- Total distributions (0.12) (0.70) (2.22) -- (3.21) (0.58) - ------------------------------------------------------ ---------- ---------- -------- -------- -------- ------- Net asset value, end of period $ 46.48 $ 36.14 $ 30.96 $ 26.08 $ 25.56 $ 23.83 ====================================================== ========== ========== ======== ======== ======== ======= Total return(c) 29.01% 19.36% 29.68% 2.04% 22.39% 27.84% ====================================================== ========== ========== ======== ======== ======== ======= Ratios/supplement data: Net assets, end of period (000s omitted) $2,299,551 $1,085,648 $498,178 $120,448 $106,415 $71,324 ====================================================== ========== ========== ======== ======== ======== ======= Ratio of expenses to average net assets(d) 1.19%(e) 1.22%() 1.31% 1.30%(f) 1.26% 1.3% ====================================================== ========== ========== ======== ======== ======== ======= Ratio of net investment income to average net assets(g) 0.03%(e) 0.33%() 0.50% 0.12%(f) 0.53% 0.7% ====================================================== ========== ========== ======== ======== ======== ======= Portfolio turnover rate 22% 27% 43% 10% 58% 17% ====================================================== ========== ========== ======== ======== ======== =======
(a) The Fund changed investment advisors on June 3, 1996. (b) Calculated using average shares outstanding. (c) Does not deduct sales charges and is not annualized for periods less than one year. (d) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.32%, 1.37% (annualized) and 1.28% for the periods 1997-1996 and September 30, 1996. (e) Ratios are based on average net assets of $1,776,436,482. (f) Annualized. (g) After fee waivers and/or expense reimbursements. Ratios of net investment income to average net assets prior to fee waivers and/or expense reimbursements were 0.49%, 0.05% (annualized) and 0.51% for the periods 1997-1996 and September 30, 1996.
CLASS B CLASS C -------------------------------------------------- --------------------------------- 1999 1998 1997 1996 1999 1998 1997 ---------- -------- -------- -------- --------- ------- ------- Net asset value, beginning of period $ 35.73 $ 30.76 $ 26.07 $ 25.56 $ 35.72 $ 30.75 $ 31.72 - ------------------------------------- ---------- -------- -------- -------- -------- ------- ------- Income from investment operations: Net investment income (loss) (0.29)(a) (0.12) (0.03)(a) (0.01) (0.29)(a) (0.12)(a) (0.01)(a) - ------------------------------------- ---------- -------- -------- -------- -------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 10.31 5.72 6.92 0.52 10.31 5.72 (0.96) - ------------------------------------- ---------- -------- -------- -------- -------- ------- ------- Total from investment operations 10.02 5.60 6.89 0.51 10.02 5.60 (0.97) - ------------------------------------- ---------- -------- -------- -------- -------- ------- ------- Less distributions: Dividends from net investment income -- -- (0.03) -- -- -- -- - ------------------------------------- ---------- -------- -------- -------- -------- ------- ------- Distributions from net realized gains (0.10) (0.63) (2.17) -- (0.10) (0.63) -- - ------------------------------------- ---------- -------- -------- -------- -------- ------- ------- Total distributions (0.10) (0.63) (2.20) -- (0.10) (0.63) -- - ------------------------------------- ---------- -------- -------- -------- -------- ------- ------- Net asset value, end of period $ 45.65 $ 35.73 $ 30.76 $ 26.07 $ 45.64 $ 35.72 $ 30.75 ===================================== ========== ======== ======== ======== ======== ======= ======= Total return(b) 28.08% 18.52% 28.81% 2.00% 28.09% 18.52% (3.06)% ===================================== ========== ======== ======== ======== ======== ======= ======= Ratios/supplement data: Net assets, end of period (000s omitted) $1,891,171 $745,862 $264,337 $ 8,101 $349,951 $87,554 $ 3,947 ===================================== ========== ======== ======== ======== ======== ======= ======= Ratio of expenses to average net assets(c) 1.91%(d) 1.94% 2.10% 2.01%(e) 1.90%(d) 1.94% 2.10%(e) ===================================== ========== ======== ======== ======== ======== ======= ======= Ratio of net investment income (loss) to average net assets(f) (0.68)%(d) (0.38)% (0.28)% (0.58)%(e) (0.68)%(d) (0.38)% (0.28)%(e) ===================================== ========== ======== ======== ======== ======== ======= ======= Portfolio turnover rate 22% 27% 43% 10% 22% 27% 43% ===================================== ========== ======== ======== ======== ======== ======= =======
(a) Calculated using average shares outstanding. (b) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursement. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 2.12% and 2.08% (annualized) for 1997-1996 for Class B and 2.12% (annualized) for 1997 for Class C. (d) Ratios are based on average net assets of $1,383,727,625 and $224,568,052 for Class B and Class C, respectively. (e) Annualized. (f) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (0.31)% and (0.65)% (annualized) for 1997-1996 for Class B and (0.31)% (annualized) for 1997 for Class C. FS-21 106 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of AIM Capital Development Fund (a series portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the three-year period then ended and the period June 17, 1996 (date operations commenced) through October 31, 1996. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AIM Capital Development Fund as of October 31, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended and the period June 17, 1996 (date operations commenced) through October 31, 1996, in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-22 107 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-95.70% AEROSPACE/DEFENSE-0.44% HEICO Corp. 200,000 $ 3,037,500 - --------------------------------------------------------------- Kroll-O'Gara Co. (The)(a) 110,000 1,746,250 - --------------------------------------------------------------- 4,783,750 - --------------------------------------------------------------- AIRLINES-0.46% Ryanair Holdings PLC-ADR (Ireland)(a) 121,000 4,991,250 - --------------------------------------------------------------- AUTO PARTS & EQUIPMENT-0.56% Dura Automotive Systems, Inc.(a) 160,000 3,000,000 - --------------------------------------------------------------- Stoneridge, Inc.(a) 200,000 3,100,000 - --------------------------------------------------------------- 6,100,000 - --------------------------------------------------------------- BANKS (REGIONAL)-2.31% Bank United Corp.-Class A 119,000 4,641,000 - --------------------------------------------------------------- Colonial BancGroup, Inc. (The) 499,600 5,963,975 - --------------------------------------------------------------- Independence Community Bank Corp. 452,000 5,395,750 - --------------------------------------------------------------- North Fork Bancorporation, Inc. 349,500 7,230,281 - --------------------------------------------------------------- UCBH Holdings, Inc.(a) 100,000 1,881,250 - --------------------------------------------------------------- 25,112,256 - --------------------------------------------------------------- BEVERAGES (ALCOHOLIC)-0.68% Canandaigua Brands, Inc.-Class A(a) 121,800 7,368,900 - --------------------------------------------------------------- BIOTECHNOLOGY-0.22% IDEXX Laboratories, Inc.(a) 160,000 2,420,000 - --------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-5.59% Citadel Communications Corp.(a) 149,400 7,217,887 - --------------------------------------------------------------- Cox Radio, Inc.-Class A(a) 115,000 8,050,000 - --------------------------------------------------------------- Emmis Broadcasting Corp.-Class A(a) 100,000 7,212,500 - --------------------------------------------------------------- Entercom Communications Corp.(a) 191,500 9,539,094 - --------------------------------------------------------------- Hispanic Broadcasting Corp.(a) 60,000 4,860,000 - --------------------------------------------------------------- Insight Communications Company, Inc.(a) 316,300 7,472,587 - --------------------------------------------------------------- Radio Unica Corp.(a) 25,000 715,625 - --------------------------------------------------------------- Sinclair Broadcast Group, Inc.(a) 373,700 3,737,000 - --------------------------------------------------------------- Univision Communications, Inc.-Class A(a) 54,000 4,593,375 - --------------------------------------------------------------- Westwood One, Inc.(a) 157,500 7,264,687 - --------------------------------------------------------------- 60,662,755 - --------------------------------------------------------------- BUILDING MATERIALS-0.69% TJ International, Inc. 160,000 4,960,000 - --------------------------------------------------------------- White Cap Industries, Inc.(a) 180,000 2,542,500 - --------------------------------------------------------------- 7,502,500 - --------------------------------------------------------------- CHEMICALS (SPECIALTY)-0.41% W.R. Grace & Co.(a) 295,400 4,412,537 - --------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-3.54% Adtran, Inc.(a) 139,600 5,182,650 - ---------------------------------------------------------------
MARKET SHARES VALUE COMMUNICATIONS EQUIPMENT-(CONTINUED) Comverse Technology, Inc.(a)(b) 59,700 $ 6,775,950 - --------------------------------------------------------------- Davox Corp.(a) 300,000 3,862,500 - --------------------------------------------------------------- Digital Microwave Corp.(a) 300,000 4,462,500 - --------------------------------------------------------------- Gilat Satellite Networks Ltd. (Israel)(a) 82,400 4,295,100 - --------------------------------------------------------------- NorthEast Optic Network, Inc.(a) 101,100 3,677,512 - --------------------------------------------------------------- PairGain Technologies, Inc.(a) 100,000 1,225,000 - --------------------------------------------------------------- REMEC, Inc.(a) 160,700 1,677,306 - --------------------------------------------------------------- Scientific-Atlanta, Inc. 126,000 7,213,500 - --------------------------------------------------------------- 38,372,018 - --------------------------------------------------------------- COMPUTERS (PERIPHERALS)-1.30% DSP Communications, Inc.(a) 215,000 7,565,312 - --------------------------------------------------------------- QLogic Corp.(a) 63,000 6,559,875 - --------------------------------------------------------------- 14,125,187 - --------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-11.10% AppNet Systems, Inc.(a) 100,400 4,373,675 - --------------------------------------------------------------- Check Point Software Technologies Ltd. (Israel)(a) 105,000 12,147,187 - --------------------------------------------------------------- Dendrite International, Inc.(a) 122,700 3,849,712 - --------------------------------------------------------------- Digital Insight Corp.(a) 70,000 2,773,750 - --------------------------------------------------------------- Documentum, Inc.(a) 82,900 2,352,287 - --------------------------------------------------------------- Eclipsys Corp.(a) 260,000 4,127,500 - --------------------------------------------------------------- HNC Software, Inc.(a) 100,000 3,993,750 - --------------------------------------------------------------- Hyperion Solutions Corp.(a) 195,000 4,753,125 - --------------------------------------------------------------- InfoCure Corp.(a) 376,200 5,925,150 - --------------------------------------------------------------- Interleaf, Inc.(a) 100,000 2,456,250 - --------------------------------------------------------------- Keynote Systems, Inc.(a) 89,300 4,051,987 - --------------------------------------------------------------- Mercury Interactive Corp.(a) 74,500 6,043,812 - --------------------------------------------------------------- Navidec, Inc.(a) 250,000 2,546,875 - --------------------------------------------------------------- PC-Tel, Inc.(a) 55,700 1,671,000 - --------------------------------------------------------------- Peregrine Systems, Inc.(a) 115,500 5,067,562 - --------------------------------------------------------------- Rational Software Corp.(a) 240,000 10,260,000 - --------------------------------------------------------------- Sterling Software, Inc.(a) 340,000 7,458,750 - --------------------------------------------------------------- Symantec Corp.(a) 300,000 14,325,000 - --------------------------------------------------------------- Tanning Technology Corp.(a) 194,900 6,845,862 - --------------------------------------------------------------- Titan Corp. (The)(a) 300,000 5,025,000 - --------------------------------------------------------------- Transaction Systems Architects, Inc.- Class A(a) 174,000 5,350,500 - --------------------------------------------------------------- Trizetto Group, Inc. (The)(a) 335,400 3,354,000 - --------------------------------------------------------------- Unigraphics Solutions, Inc.(a) 80,000 1,725,000 - --------------------------------------------------------------- 120,477,734 - --------------------------------------------------------------- CONSUMER FINANCE-1.90% American Capital Strategies, Ltd. 403,100 8,439,906 - ---------------------------------------------------------------
FS-23 108
MARKET SHARES VALUE CONSUMER FINANCE-(CONTINUED) AmeriCredit Corp.(a) 559,500 $ 9,721,312 - --------------------------------------------------------------- Cash America International, Inc. 255,000 2,406,562 - --------------------------------------------------------------- 20,567,780 - --------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH)-0.44% Performance Food Group Co.(a) 175,000 4,746,875 - --------------------------------------------------------------- ELECTRIC COMPANIES-0.66% Avista Corp. 365,000 6,570,000 - --------------------------------------------------------------- Plug Power, Inc.(a) 38,200 611,200 - --------------------------------------------------------------- 7,181,200 - --------------------------------------------------------------- ELECTRICAL EQUIPMENT-4.09% American Power Conversion Corp.(a) 285,000 6,394,687 - --------------------------------------------------------------- Conexant Systems, Inc.(a) 85,000 7,936,875 - --------------------------------------------------------------- Cree Research, Inc.(a) 246,000 10,501,125 - --------------------------------------------------------------- DII Group, Inc.(a) 214,900 7,736,400 - --------------------------------------------------------------- Pinnacle Systems, Inc.(a) 145,000 4,023,750 - --------------------------------------------------------------- Sawtek, Inc.(a) 150,000 6,150,000 - --------------------------------------------------------------- SLI, Inc.(a) 150,200 1,614,650 - --------------------------------------------------------------- 44,357,487 - --------------------------------------------------------------- ELECTRONICS (COMPONENT DISTRIBUTORS)-0.51% Power-One, Inc.(a) 275,000 5,500,000 - --------------------------------------------------------------- ELECTRONICS (DEFENSE)-0.19% Aeroflex, Inc.(a) 371,700 2,067,581 - --------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION)-2.29% Alpha Industries, Inc.(a) 152,800 8,442,200 - --------------------------------------------------------------- Methode Electronics, Inc.-Class A 304,500 4,872,000 - --------------------------------------------------------------- Varian Inc.(a) 500,000 9,437,500 - --------------------------------------------------------------- Varian Medical Systems, Inc. 100,000 2,106,250 - --------------------------------------------------------------- 24,857,950 - --------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-4.18% Amkor Technology, Inc.(a) 332,900 6,720,419 - --------------------------------------------------------------- Celestica Inc. (Canada)(a) 95,000 5,284,375 - --------------------------------------------------------------- Fairchild Semiconductor Corp.(a) 200,000 5,050,000 - --------------------------------------------------------------- Micrel, Inc.(a) 140,000 7,612,500 - --------------------------------------------------------------- Microchip Technology, Inc.(a) 175,100 11,666,037 - --------------------------------------------------------------- QuickLogic Corp.(a) 178,100 3,272,587 - --------------------------------------------------------------- Sipex Corp.(a) 100,000 1,150,000 - --------------------------------------------------------------- Zoran Corp.(a) 159,900 4,617,112 - --------------------------------------------------------------- 45,373,030 - --------------------------------------------------------------- ENTERTAINMENT-1.39% LodgeNet Entertainment Corp.(a) 85,200 1,565,550 - --------------------------------------------------------------- SFX Entertainment, Inc.(a) 198,400 6,931,600 - --------------------------------------------------------------- ValueVision International, Inc.(a) 200,000 6,537,500 - --------------------------------------------------------------- 15,034,650 - ---------------------------------------------------------------
MARKET SHARES VALUE EQUIPMENT (SEMICONDUCTOR)-0.94% Etec Systems, Inc.(a) 134,000 $ 5,117,125 - --------------------------------------------------------------- Novellus Systems, Inc.(a) 65,000 5,037,500 - --------------------------------------------------------------- 10,154,625 - --------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-0.44% MicroFinancial, Inc. 170,000 1,859,375 - --------------------------------------------------------------- SEI Investments Co. 30,000 2,924,062 - --------------------------------------------------------------- 4,783,437 - --------------------------------------------------------------- FOODS-0.82% American Italian Pasta Co.-Class A(a) 177,700 4,464,713 - --------------------------------------------------------------- Keebler Foods Co.(a) 140,500 4,487,219 - --------------------------------------------------------------- 8,951,932 - --------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER)-1.35% Alpharma, Inc.-Class A 180,000 6,333,750 - --------------------------------------------------------------- Jones Pharma, Inc. 268,000 8,308,000 - --------------------------------------------------------------- 14,641,750 - --------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT)-0.71% LifePoint Hospitals, Inc.(a) 650,100 7,679,306 - --------------------------------------------------------------- HEALTH CARE (MANAGED CARE)-0.44% Express Scripts, Inc.-Class A(a) 60,000 2,947,500 - --------------------------------------------------------------- Trigon Healthcare, Inc.(a) 63,100 1,790,463 - --------------------------------------------------------------- 4,737,963 - --------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.75% Cyberonics, Inc.(a) 130,000 1,828,125 - --------------------------------------------------------------- Lifecore Biomedical, Inc.(a) 200,000 2,500,000 - --------------------------------------------------------------- Sybron International Corp.(a) 160,100 3,812,381 - --------------------------------------------------------------- 8,140,506 - --------------------------------------------------------------- HEALTH CARE (SPECIALIZED SERVICES)-2.12% Advance Paradigm, Inc.(a) 92,000 3,921,500 - --------------------------------------------------------------- MAXIMUS, Inc.(a) 201,800 4,679,238 - --------------------------------------------------------------- Orthodontic Centers of America, Inc.(a) 349,900 4,811,125 - --------------------------------------------------------------- United Payors & United Providers, Inc.(a) 270,000 4,539,375 - --------------------------------------------------------------- Veterinary Centers of America, Inc.(a) 430,000 5,052,500 - --------------------------------------------------------------- 23,003,738 - --------------------------------------------------------------- INSURANCE (LIFE/HEALTH)-2.12% Annuity and Life Reassurance, Ltd. (Bermuda) 254,300 5,976,050 - --------------------------------------------------------------- Clarica Life Insurance Co. (Canada)(a) 337,900 5,462,216 - --------------------------------------------------------------- Nationwide Financial Services, Inc.-Class A 117,400 4,446,525 - --------------------------------------------------------------- UICI(a) 269,200 7,133,800 - --------------------------------------------------------------- 23,018,591 - --------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY)-0.78% CNA Surety Corp. 249,700 2,871,550 - ---------------------------------------------------------------
FS-24 109
MARKET SHARES VALUE INSURANCE (PROPERTY-CASUALTY)-(CONTINUED) Radian Group, Inc. 106,660 $ 5,632,981 - --------------------------------------------------------------- 8,504,531 - --------------------------------------------------------------- INVESTMENT MANAGEMENT-0.46% Affiliated Managers Group, Inc.(a) 185,000 4,948,750 - --------------------------------------------------------------- MACHINERY (DIVERSIFIED)-0.62% Applied Power, Inc.-Class A 231,700 6,733,781 - --------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-0.40% Spartech Corp. 150,000 4,293,750 - --------------------------------------------------------------- MANUFACTURING (SPECIALIZED)-1.62% Alpine Group, Inc. (The)(a) 530,000 6,989,375 - --------------------------------------------------------------- Armor Holdings, Inc.(a) 399,500 3,870,156 - --------------------------------------------------------------- Mettler-Toledo International, Inc.(a) 227,000 6,767,438 - --------------------------------------------------------------- 17,626,969 - --------------------------------------------------------------- NATURAL GAS-0.39% Kinder Morgan, Inc. 210,000 4,226,250 - --------------------------------------------------------------- OFFICE EQUIPMENT & SUPPLIES-0.54% School Specialty, Inc.(a) 393,000 5,821,313 - --------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT)-3.21% BJ Services Co.(a) 198,000 6,793,875 - --------------------------------------------------------------- Cooper Cameron Corp.(a) 173,800 6,723,888 - --------------------------------------------------------------- Key Energy Services, Inc.(a)(b) 1,978,800 8,904,600 - --------------------------------------------------------------- Newpark Resources, Inc.(a) 325,000 2,092,188 - --------------------------------------------------------------- Pride International, Inc.(a) 145,900 2,006,125 - --------------------------------------------------------------- Tidewater, Inc. 219,000 6,570,000 - --------------------------------------------------------------- Transocean Offshore, Inc. 62,600 1,701,938 - --------------------------------------------------------------- 34,792,614 - --------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION)-3.68% Apache Corp. 100,100 3,903,900 - --------------------------------------------------------------- Basin Exploration, Inc.(a) 250,000 4,109,375 - --------------------------------------------------------------- Devon Energy Corp. 158,700 6,169,463 - --------------------------------------------------------------- Kerr-McGee Corp.-5.50% Pfd. DECS 180,000 6,772,500 - --------------------------------------------------------------- Newfield Exploration Co.(a) 140,000 4,121,250 - --------------------------------------------------------------- Nuevo Energy Co.(a) 348,000 4,937,250 - --------------------------------------------------------------- Santa Fe Snyder Corp.(a) 295,000 2,544,375 - --------------------------------------------------------------- Spinnaker Exploration Co.(a) 500,000 7,375,000 - --------------------------------------------------------------- 39,933,113 - --------------------------------------------------------------- PAPER & FOREST PRODUCTS-0.22% Potlatch Corp. 56,600 2,387,813 - --------------------------------------------------------------- PUBLISHING-0.18% IDG Books Worldwide, Inc.-Class A(a) 107,100 1,914,413 - --------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS-1.10% AMRESCO Capital Trust, Inc. 215,500 1,885,625 - ---------------------------------------------------------------
MARKET SHARES VALUE REAL ESTATE INVESTMENT TRUSTS-(CONTINUED) Apartment Investment & Management Co. 111,790 $ 4,206,099 - --------------------------------------------------------------- Colonial Properties Trust 105,100 2,680,050 - --------------------------------------------------------------- Correctional Properties Trust 237,400 3,130,713 - --------------------------------------------------------------- 11,902,487 - --------------------------------------------------------------- RESTAURANTS-1.15% CEC Entertainment, Inc.(a) 302,500 9,698,906 - --------------------------------------------------------------- Dave & Buster's, Inc.(a) 129,800 1,257,438 - --------------------------------------------------------------- Rainforest Cafe, Inc.(a) 350,000 1,575,000 - --------------------------------------------------------------- 12,531,344 - --------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS)-1.15% CDW Computer Centers, Inc.(a) 137,700 8,502,975 - --------------------------------------------------------------- InterTAN, Inc.(a) 175,000 3,937,500 - --------------------------------------------------------------- 12,440,475 - --------------------------------------------------------------- RETAIL (DISCOUNTERS)-0.81% Ames Department Stores, Inc.(a) 170,000 5,386,875 - --------------------------------------------------------------- Family Dollar Stores, Inc. 163,600 3,374,250 - --------------------------------------------------------------- 8,761,125 - --------------------------------------------------------------- RETAIL (FOOD CHAINS)-1.47% BJ's Wholesale Club, Inc.(a) 195,000 6,008,438 - --------------------------------------------------------------- Grand Union Co. (The)(a) 400,000 5,000,000 - --------------------------------------------------------------- Wild Oats Markets, Inc.(a)(b) 140,000 4,935,000 - --------------------------------------------------------------- 15,943,438 - --------------------------------------------------------------- RETAIL (SPECIALTY)-3.87% CSK Auto Corp.(a) 282,400 5,047,900 - --------------------------------------------------------------- Linens 'n Things, Inc.(a) 170,300 6,769,425 - --------------------------------------------------------------- Lithia Motors, Inc.-Class A(a) 110,000 2,193,125 - --------------------------------------------------------------- Michaels Stores, Inc.(a) 247,000 8,289,938 - --------------------------------------------------------------- Rainbow Rentals, Inc.(a) 110,200 978,025 - --------------------------------------------------------------- Rent-A-Center, Inc.(a) 262,000 4,797,875 - --------------------------------------------------------------- Rent-Way, Inc.(a) 287,190 4,774,534 - --------------------------------------------------------------- Sunglass Hut International, Inc.(a) 183,700 2,215,881 - --------------------------------------------------------------- Zale Corp.(a) 165,000 6,909,375 - --------------------------------------------------------------- 41,976,078 - --------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL)-1.82% American Eagle Outfitters, Inc.(a) 130,000 5,565,625 - --------------------------------------------------------------- Men's Wearhouse, Inc. (The)(a) 246,200 5,401,013 - --------------------------------------------------------------- Too Inc.(a) 373,700 5,979,200 - --------------------------------------------------------------- Wet Seal, Inc.-Class A(a) 200,000 2,800,000 - --------------------------------------------------------------- 19,745,838 - --------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING)-2.10% Circle.com(a) 43,750 634,375 - --------------------------------------------------------------- Lamar Advertising Co.(a) 145,000 7,830,000 - --------------------------------------------------------------- Snyder Communications, Inc.(a) 175,000 2,231,250 - --------------------------------------------------------------- TeleTech Holdings, Inc.(a) 360,000 5,107,500 - ---------------------------------------------------------------
FS-25 110
MARKET SHARES VALUE SERVICES (ADVERTISING/MARKETING)-(CONTINUED) Young & Rubicam, Inc. 153,500 $ 7,022,625 - --------------------------------------------------------------- 22,825,750 - --------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER)-3.77% Central Parking Corp. 160,000 4,290,000 - --------------------------------------------------------------- Copart, Inc.(a) 200,000 4,600,000 - --------------------------------------------------------------- F.Y.I., Inc.(a) 134,800 4,448,400 - --------------------------------------------------------------- Iron Mountain, Inc.(a) 250,000 7,562,500 - --------------------------------------------------------------- Pegasus Systems, Inc.(a) 100,000 4,275,000 - --------------------------------------------------------------- Pre-Paid Legal Services, Inc.(a) 100,000 2,425,000 - --------------------------------------------------------------- Quanta Services, Inc.(a) 270,000 7,526,250 - --------------------------------------------------------------- Regis Corp. 312,700 5,804,494 - --------------------------------------------------------------- 40,931,644 - --------------------------------------------------------------- SERVICES (COMPUTER SYSTEMS)-2.43% E-Stamp Corp.(a) 125,600 2,920,200 - --------------------------------------------------------------- Insight Enterprises, Inc.(a) 200,000 7,475,000 - --------------------------------------------------------------- Safeguard Scientifics, Inc.(a) 76,200 6,410,325 - --------------------------------------------------------------- SunGard Data Systems, Inc.(a) 185,000 4,520,938 - --------------------------------------------------------------- Sykes Enterprises, Inc.(a)(b) 161,900 4,998,663 - --------------------------------------------------------------- 26,325,126 - --------------------------------------------------------------- SERVICES (DATA PROCESSING)-3.40% 4Front Technologies, Inc.(a) 230,000 3,133,750 - --------------------------------------------------------------- BISYS Group, Inc. (The)(a) 135,000 6,885,000 - --------------------------------------------------------------- Concord EFS, Inc.(a) 219,000 5,926,688 - --------------------------------------------------------------- CSG Systems International, Inc.(a) 340,800 11,693,700 - --------------------------------------------------------------- Lason Holdings, Inc.(a) 141,400 5,253,894 - --------------------------------------------------------------- MedQuist, Inc.(a) 125,000 4,000,000 - --------------------------------------------------------------- 36,893,032 - --------------------------------------------------------------- SERVICES (EMPLOYMENT)-1.52% Heidrick & Struggles International, Inc.(a) 425,000 9,775,000 - --------------------------------------------------------------- Korn/Ferry International(a) 300,000 6,675,000 - --------------------------------------------------------------- 16,450,000 - --------------------------------------------------------------- SERVICES (FACILITIES & ENVIRONMENTAL)-1.01% Cornell Corrections, Inc.(a) 274,600 3,552,638 - ---------------------------------------------------------------
MARKET SHARES VALUE SERVICES (FACILITIES & ENVIRONMENTAL)-(CONTINUED) Tetra Tech, Inc.(a) 244,375 $ 3,879,453 - --------------------------------------------------------------- Wackenhut Corrections Corp.(a) 279,700 3,583,656 - --------------------------------------------------------------- 11,015,747 - --------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/ WIRELESS)-2.41% Arch Communications, Inc.(a) 1,368,200 6,841,000 - --------------------------------------------------------------- Powerwave Technologies, Inc.(a) 210,000 13,663,125 - --------------------------------------------------------------- Western Wireless Corp.-Class A(a) 105,900 5,599,463 - --------------------------------------------------------------- 26,103,588 - --------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE)-1.74% CapRock Communications Corp.(a) 160,100 4,612,881 - --------------------------------------------------------------- ITC DeltaCom, Inc.(a) 225,000 5,400,000 - --------------------------------------------------------------- IXC Communications, Inc.(a) 125,000 5,398,438 - --------------------------------------------------------------- Network Plus Corp.(a) 281,900 3,488,513 - --------------------------------------------------------------- 18,899,832 - --------------------------------------------------------------- TEXTILES (SPECIALTY)-0.45% Polymer Group, Inc.(a) 250,000 4,890,625 - --------------------------------------------------------------- WASTE MANAGEMENT-0.76% Catalytica, Inc.(a) 383,600 4,818,975 - --------------------------------------------------------------- Safety-Kleen Corp.(a) 300,000 3,431,250 - --------------------------------------------------------------- 8,250,225 - --------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $817,213,729) 1,038,196,939 - --------------------------------------------------------------- MONEY MARKET FUNDS-5.01% STIC Liquid Assets Portfolio(c) 27,206,331 27,206,331 - --------------------------------------------------------------- STIC Prime Portfolio(c) 27,206,331 27,206,331 - --------------------------------------------------------------- Total Money Market Funds (Cost $54,412,662) 54,412,662 - --------------------------------------------------------------- TOTAL INVESTMENTS-100.71% 1,092,609,601 - --------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS-(0.71%) (7,755,403) - --------------------------------------------------------------- NET ASSETS-100.00% $1,084,854,198 ===============================================================
Investment Abbreviations: ADR - American Depositary Receipt DECS - Dividend Enhanced Convertible Stock Pfd. - Preferred Notes to Schedule of Investments: (a) Non-income producing security. (b) A portion of these securities are subject to call options written. See note 7. (c) The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-26 111 STATEMENT OF ASSETS AND LIABILITIES October 31, 1999 ASSETS: Investments, at market value (cost $871,626,391) $1,092,609,601 - ------------------------------------------------------------ Receivables for: Investments sold 6,415,287 - ------------------------------------------------------------ Capital stock sold 840,723 - ------------------------------------------------------------ Dividends and interest 628,709 - ------------------------------------------------------------ Investment for deferred compensation plan 20,604 - ------------------------------------------------------------ Other assets 50,800 - ------------------------------------------------------------ Total assets 1,100,565,724 - ------------------------------------------------------------ LIABILITIES: Payables for: Investments purchased 7,829,939 - ------------------------------------------------------------ Capital stock reacquired 4,662,280 - ------------------------------------------------------------ Deferred compensation 20,604 - ------------------------------------------------------------ Options written (Premiums received $1,725,877) 1,358,566 - ------------------------------------------------------------ Accrued advisory fees 598,454 - ------------------------------------------------------------ Accrued administrative services fees 11,335 - ------------------------------------------------------------ Accrued directors' fees 7,298 - ------------------------------------------------------------ Accrued distribution fees 777,268 - ------------------------------------------------------------ Accrued transfer agent fees 298,326 - ------------------------------------------------------------ Accrued operating expenses 147,456 - ------------------------------------------------------------ Total liabilities 15,711,526 - ------------------------------------------------------------ NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,084,854,198 ============================================================ NET ASSETS: Class A $ 579,513,715 ============================================================ Class B $ 451,508,436 ============================================================ Class C $ 53,832,047 ============================================================ CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 38,038,314 ============================================================ Class B: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 30,307,455 ============================================================ Class C: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 3,615,539 ============================================================ Class A: Net asset value and redemption price per share $ 15.24 - ------------------------------------------------------------ Offering price per share: (Net assets value of $15.24 / 94.50%) $ 16.13 ============================================================ Class B: Net asset value and offering price per share $ 14.90 ============================================================ Class C: Net asset value and offering price per share $ 14.89 ============================================================
STATEMENT OF OPERATIONS For the year ended October 31, 1999 INVESTMENT INCOME: Dividends (net of $7,896 foreign withholding tax) $ 5,122,516 - ------------------------------------------------------------ Interest 3,156,458 - ------------------------------------------------------------ Total investment income 8,278,974 - ------------------------------------------------------------ EXPENSES: Advisory fees 8,102,504 - ------------------------------------------------------------ Administrative services fees 111,632 - ------------------------------------------------------------ Custodian fees 142,592 - ------------------------------------------------------------ Directors' fees 23,177 - ------------------------------------------------------------ Distribution fees-Class A 2,355,478 - ------------------------------------------------------------ Distribution fees-Class B 4,981,777 - ------------------------------------------------------------ Distribution fees-Class C 552,292 - ------------------------------------------------------------ Transfer agent fees-Class A 1,906,743 - ------------------------------------------------------------ Transfer agent fees-Class B 1,868,026 - ------------------------------------------------------------ Transfer agent fees-Class C 209,129 - ------------------------------------------------------------ Other 738,152 - ------------------------------------------------------------ Total expenses 20,991,502 - ------------------------------------------------------------ Less: Expenses paid indirectly (40,231) - ------------------------------------------------------------ Net expenses 20,951,271 - ------------------------------------------------------------ Net investment income (loss) (12,672,297) - ------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities 68,479,789 - ------------------------------------------------------------ Foreign currencies (317) - ------------------------------------------------------------ Option contracts written (158,316) - ------------------------------------------------------------ 68,321,156 - ------------------------------------------------------------ Change in net unrealized appreciation of: Investment securities 142,652,463 - ------------------------------------------------------------ Option contracts written 367,311 - ------------------------------------------------------------ 143,019,774 - ------------------------------------------------------------ Net gain from investment securities and option contracts 211,340,930 - ------------------------------------------------------------ Net increase in net assets resulting from operations $198,668,633 ============================================================
See Notes to Financial Statements. FS-27 112 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1999 and 1998
1999 1998 -------------- -------------- OPERATIONS: Net investment income (loss) $ (12,672,297) $ (8,332,574) - --------------------------------------------------------------------------------------------- Net realized gain (loss) on sales of investment securities, foreign currencies, futures and option contracts 68,321,156 (67,636,533) - --------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies, futures and option contracts 143,019,774 (114,227,472) - --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 198,668,633 (190,196,579) - --------------------------------------------------------------------------------------------- Share transactions-net: Class A (251,714,847) 242,830,301 - --------------------------------------------------------------------------------------------- Class B (119,088,321) 274,584,791 - --------------------------------------------------------------------------------------------- Class C (2,560,814) 44,827,215 - --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets (174,695,349) 372,045,728 - --------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 1,259,549,547 887,503,819 - --------------------------------------------------------------------------------------------- End of period $1,084,854,198 $1,259,549,547 ============================================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 874,112,818 $1,260,398,710 - --------------------------------------------------------------------------------------------- Undistributed net investment income (loss) 170,513 (21,335) - --------------------------------------------------------------------------------------------- Undistributed net realized gain (loss) on sales of investment securities, foreign currencies, futures and option contracts (10,779,655) (79,158,576) - --------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, futures and option contracts 221,350,522 78,330,748 - --------------------------------------------------------------------------------------------- $1,084,854,198 $1,259,549,547 =============================================================================================
See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS October 31, 1999 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of ten separate portfolios. The Fund currently offers three different classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value FS-28 113 as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income was increased by $12,864,145, undistributed net realized gains increased by $57,765 and paid-in capital decreased by $12,921,910 as a result of differing book/tax treatment of foreign currency transactions and net operating loss reclassifications in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund has a capital loss carryforward of $8,826,774 as of October 31, 1999 which may be carried forward to offset future taxable gains, if any, which expires, if not previously utilized, in the year 2006. D. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. E. Futures Contracts -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in value of the contracts may not correlate with changes in the value of the securities being hedged. F. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Covered Call Options -- The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying FS-29 114 security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. H. Expenses -- Distribution expenses and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $350 million of the Fund's average daily net assets, plus 0.625% of the Fund's average daily net assets in excess of $350 million. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the year ended October 31, 1999, AIM was paid $111,632 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 1999, AFS was paid $2,293,295 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund , pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the year ended October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $2,355,478, $4,981,777 and $552,292, respectively, as compensation under the Plans. AIM Distributors received commissions of $386,856 from sales of the Class A shares of the Fund during the year ended October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the year ended October 31, 1999, AIM Distributors received $120,769 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the year ended October 31, 1999, the Fund paid legal fees of $5,896 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the year ended October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $14,979 and $25,252, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $40,231 during the year ended October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. Prior to May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated among the funds based on their respective average net assets for the period. FS-30 115 NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended October 31, 1999 was $1,362,900,625 and $1,707,625,394, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $273,125,832 - --------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (54,095,503) - --------------------------------------------------------------------------- Net unrealized appreciation of investment securities $219,030,329 ===========================================================================
Cost of investments for tax purposes is $873,579,272. NOTE 7-CALL OPTION CONTRACTS Transactions in call options written during the year ended October 31, 1999 are summarized as follows:
CALL OPTION CONTRACTS ---------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ---------- Beginning of period -- -- - ------------------------------------------------------------------------------------ Written 11,878 $3,353,921 - ------------------------------------------------------------------------------------ Closed (3,698) (468,477) - ------------------------------------------------------------------------------------ Exercised (2,198) (401,105) - ------------------------------------------------------------------------------------ Expired (1,000) (758,462) - ------------------------------------------------------------------------------------ End of period 4,982 $1,725,877 ====================================================================================
Open call option contracts written at October 31, 1999 were as follows:
NUMBER OCTOBER 31, UNREALIZED CONTRACT STRIKE OF PREMIUMS 1999 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) - ----- -------- ------ --------- ---------- ------------ -------------- Comverse Technology, Inc. Nov. 99 $105 597 $ 381,917 $ 597,000 $(215,083) - --------------------------------------------------------------------------------------------------------------------------------- Key Energy Group, Inc. Jan. 00 5 1,991 170,225 93,328 76,897 - --------------------------------------------------------------------------------------------------------------------------------- Sykes Enterprises, Inc. Dec. 99 30 994 269,365 291,988 (22,623) - --------------------------------------------------------------------------------------------------------------------------------- Wild Oats Markets, Inc. Dec. 99 35 1,400 904,370 376,250 528,120 - --------------------------------------------------------------------------------------------------------------------------------- 4,982 $1,725,877 $1,358,566 $ 367,311 =================================================================================================================================
NOTE 8-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 1999 and 1998 were as follows:
1999 1998 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------- ----------- -------------- Sold: Class A 25,404,762 $ 358,048,933 101,121,530 $1,487,557,560 - ------------------------------------------------------------------------------------------------------------------------ Class B 7,763,785 107,015,784 25,176,788 370,811,453 - ------------------------------------------------------------------------------------------------------------------------ Class C 2,461,885 34,429,174 4,336,475 62,530,399 - ------------------------------------------------------------------------------------------------------------------------ Issued as reinvestment of dividends: Reacquired: Class A (43,024,621) (609,763,780) (85,122,675) (1,244,727,259) - ------------------------------------------------------------------------------------------------------------------------ Class B (16,362,323) (226,104,105) (6,860,398) (96,226,662) - ------------------------------------------------------------------------------------------------------------------------ Class C (2,650,984) (36,989,988) (1,375,616) (17,703,184) - ------------------------------------------------------------------------------------------------------------------------ (26,407,496) $(373,363,982) 37,276,104 $ 562,242,307 ========================================================================================================================
FS-31 116 NOTE 9-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during each of the years in the three-year period ended October 31, 1999 and the period June 17, 1996 (date operations commenced) through October 31, 1996, for a share of Class B capital stock outstanding during each of the years in the three-year period ended October 31, 1999 and the period October 1, 1996 (date sales commenced) through October 31, 1996 and for a share of Class C capital stock outstanding during each of the two years in the period ended October 31, 1999 and the period August 4, 1997 (date sales commenced) through October 31, 1997.
CLASS A CLASS B ------------------------------------------ ------------------------------------------ 1999 1998 1997 1996 1999 1998 1997 1996 -------- -------- -------- -------- -------- -------- -------- ------- Net asset value, beginning of period $ 12.89 $14.57 $11.09 $10.00 $ 12.70 $14.46 $11.08 $11.26 - ---------------------------- -------- -------- -------- -------- -------- -------- -------- ------- Income from investment operations: Net investment income (loss) (0.10)(a) (0.06)(a) (0.10)(a) (0.01)(a) (0.20)(a) (0.16)(a) (0.20)(a) (0.01)(a) - ---------------------------- -------- -------- -------- -------- -------- -------- -------- ------- Net gains (losses) on securities (both realized and unrealized) 2.45 (1.62) 3.58 1.10 2.40 (1.60) 3.58 (0.17) - ---------------------------- -------- -------- -------- -------- -------- -------- -------- ------- Total from investment operations 2.35 (1.68) 3.48 1.09 2.20 (1.76) 3.38 (0.18) - ---------------------------- -------- -------- -------- -------- -------- -------- -------- ------- Net asset value, end of period $ 15.24 $12.89 $14.57 $11.09 $ 14.90 $12.70 $14.46 $11.08 ============================ ======== ======== ======== ======== ======== ======== ======== ======= Total return(b) 18.23% (11.53)% 31.38% 10.90% 17.32% (12.17)% 30.51% (1.60)% ============================ ======== ======== ======== ======== ======== ======== ======== ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $579,514 $717,263 $577,685 $251,253 $451,508 $493,993 $297,623 $22,435 - ---------------------------- -------- -------- -------- -------- -------- -------- -------- ------- Ratio of expenses to average net assets(c) 1.38%(d) 1.28% 1.33% 1.35%(e) 2.12%(d) 2.02% 2.09% 1.89%(e) ============================ ======== ======== ======== ======== ======== ======== ======== ======= Ratio of net investment income (loss) to average net assets(f) (0.70)%(d) (0.40)% (0.83)% (0.29)%(e) (1.44)%(d) (1.14)%(d) (1.59)% (0.83)%(e) ============================ ======== ======== ======== ======== ======== ======== ======== ======= Portfolio turnover rate 117% 78% 41% 13% 117% 78% 41% 13% ============================ ======== ======== ======== ======== ======== ======== ======== ======= CLASS C -------------------------------- 1999 1998 1997 ------- ------- ------- Net asset value, beginning of period $ 12.69 $14.45 $13.48 - ---------------------------- ------- ------- ------- Income from investment operations: Net investment income (loss) (0.20)(a) (0.16) (0.06)(a) - ---------------------------- ------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 2.40 (1.60) 1.03 - ---------------------------- ------- ------- ------- Total from investment operations 2.20 (1.76) 0.97 - ---------------------------- ------- ------- ------- Net asset value, end of period $ 14.89 $12.69 $14.45 ============================ ======= ======= ======= Total return(b) 17.34% (12.18)% 7.20% ============================ ======= ======= ======= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000s omitted) $53,832 $48,293 $12,195 - ---------------------------- ------- ------- ------- Ratio of expenses to average net assets(c) 2.12%(d) 2.02% 2.14%(e) ============================ ======= ======= ======= Ratio of net investment income (loss) to average net assets(f) (1.44)%(d) (1.14)% (1.64)%(e) ============================ ======= ======= ======= Portfolio turnover rate 117% 78% 41% ============================ ======= ======= =======
(a) Calculated using average shares outstanding. (b) Does not deduct sales charges and is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.38% and 1.60% (annualized) for 1997-1996 for Class A, 2.14% and 2.28% (annualized) for 1997-1996 for Class B and 2.19% (annualized) for 1997 for Class C. (d) Ratios are based on average net assets of $672,993,650, $498,177,719 and $55,229,231 for Class A, Class B and Class C, respectively. (e) Annualized. (f) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (0.88)% and (0.54)% (annualized) for 1997-1996 for Class A, (1.64)% and (1.22)% (annualized) for 1997-1996 for Class B and (1.69)% (annualized) for 1997 for Class C. FS-32 117 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of the AIM Charter Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Charter Fund as of October 31, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-33 118 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-92.27% BANKS (MONEY CENTER)-2.97% Chase Manhattan Corp. (The) 2,500,000 $ 218,437,500 - --------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-4.67% AT&T Corp.-Liberty Media Group-Class A(a) 1,000,000 39,687,500 - --------------------------------------------------------------- Comcast Corp.-Class A 3,000,000 126,375,000 - --------------------------------------------------------------- MediaOne Group, Inc.(a) 2,500,000 177,656,250 - --------------------------------------------------------------- 343,718,750 - --------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-4.90% Corning, Inc. 500,000 39,312,500 - --------------------------------------------------------------- Lucent Technologies Inc. 1,755,000 112,758,750 - --------------------------------------------------------------- Motorola, Inc. 850,000 82,821,875 - --------------------------------------------------------------- Nokia Oyj-ADR (Finland) 800,000 92,450,000 - --------------------------------------------------------------- QUALCOMM, Inc.(a) 150,000 33,412,500 - --------------------------------------------------------------- 360,755,625 - --------------------------------------------------------------- COMPUTERS (HARDWARE)-6.27% Dell Computer Corp.(a) 1,500,000 60,187,500 - --------------------------------------------------------------- International Business Machines Corp.(b) 2,250,000 221,343,750 - --------------------------------------------------------------- Sun Microsystems, Inc.(a) 1,700,000 179,881,250 - --------------------------------------------------------------- 461,412,500 - --------------------------------------------------------------- COMPUTERS (NETWORKING)-2.51% Cisco Systems, Inc.(a) 2,500,000 185,000,000 - --------------------------------------------------------------- COMPUTERS (PERIPHERALS)-2.33% EMC Corp.(a) 1,250,000 91,250,000 - --------------------------------------------------------------- Lexmark International Group, Inc.-Class A(a) 1,024,500 79,975,031 - --------------------------------------------------------------- 171,225,031 - --------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-10.27% America Online, Inc.(a) 600,000 77,812,500 - --------------------------------------------------------------- Microsoft Corp.(a) 3,800,000 351,737,500 - --------------------------------------------------------------- Novell, Inc.(a) 11,000,000 220,687,500 - --------------------------------------------------------------- VERITAS Software Corp.(a) 650,000 70,118,750 - --------------------------------------------------------------- Yahoo! Inc.(a) 200,000 35,812,500 - --------------------------------------------------------------- 756,168,750 - ---------------------------------------------------------------
MARKET SHARES VALUE CONSUMER FINANCE-0.74% Providian Financial Corp. 500,000 $ 54,500,000 - --------------------------------------------------------------- ELECTRICAL EQUIPMENT-2.76% General Electric Co. 1,500,000 203,343,750 - --------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-1.55% Linear Technology Corp. 600,000 41,962,500 - --------------------------------------------------------------- Texas Instruments, Inc. 800,000 71,800,000 - --------------------------------------------------------------- 113,762,500 - --------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR)-0.82% Applied Materials, Inc.(a) 500,000 44,906,250 - --------------------------------------------------------------- Teradyne, Inc.(a) 400,000 15,400,000 - --------------------------------------------------------------- 60,306,250 - --------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-7.81% American Express Co. 1,500,000 231,000,000 - --------------------------------------------------------------- Citigroup, Inc. 2,300,000 124,487,500 - --------------------------------------------------------------- Fannie Mae 1,000,000 70,750,000 - --------------------------------------------------------------- Freddie Mac 2,750,000 148,671,875 - --------------------------------------------------------------- 574,909,375 - --------------------------------------------------------------- HEALTH CARE (DIVERSIFIED)-7.55% American Home Products Corp. 1,400,000 73,150,000 - --------------------------------------------------------------- Bristol-Myers Squibb Co. 2,000,000 153,625,000 - --------------------------------------------------------------- Johnson & Johnson 1,500,001 157,125,084 - --------------------------------------------------------------- Warner-Lambert Co. 2,150,000 171,596,875 - --------------------------------------------------------------- 555,496,959 - --------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-4.05% Pfizer, Inc. 3,750,000 148,125,000 - --------------------------------------------------------------- Pharmacia & Upjohn, Inc. 950,000 51,240,625 - --------------------------------------------------------------- Schering-Plough Corp. 2,000,000 99,000,000 - --------------------------------------------------------------- 298,365,625 - --------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.64% Guidant Corp. 1,750,000 86,406,250 - --------------------------------------------------------------- Medtronic, Inc. 1,000,000 34,625,000 - --------------------------------------------------------------- 121,031,250 - ---------------------------------------------------------------
FS-34 119
MARKET SHARES VALUE INSURANCE (MULTI-LINE)-2.80% American International Group, Inc. 2,000,000 $ 205,875,000 - --------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE-3.74% Goldman Sachs Group, Inc. (The) 150,000 10,650,000 - --------------------------------------------------------------- Merrill Lynch & Co., Inc. 500,000 39,250,000 - --------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 1,250,000 137,890,625 - --------------------------------------------------------------- Schwab (Charles) Corp. (The) 2,250,000 87,609,375 - --------------------------------------------------------------- 275,400,000 - --------------------------------------------------------------- LODGING-HOTELS-0.76% Carnival Corp. 1,250,000 55,625,000 - --------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-5.19% Tyco International Ltd.(b) 8,650,000 345,459,375 - --------------------------------------------------------------- United Technologies Corp. 600,000 36,300,000 - --------------------------------------------------------------- 381,759,375 - --------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT)-1.50% Baker Hughes, Inc. 1,250,000 34,921,875 - --------------------------------------------------------------- Halliburton Co. 800,000 30,150,000 - --------------------------------------------------------------- Schlumberger Ltd. 750,000 45,421,875 - --------------------------------------------------------------- 110,493,750 - --------------------------------------------------------------- OIL (DOMESTIC INTEGRATED)-0.33% Conoco, Inc.-Class B 900,000 24,412,500 - --------------------------------------------------------------- OIL (INTERNATIONAL INTEGRATED)-1.18% Mobil Corp. 900,000 86,850,000 - --------------------------------------------------------------- RAILROADS-0.48% Kansas City Southern Industries, Inc. 750,000 35,578,125 - --------------------------------------------------------------- RETAIL (BUILDING SUPPLIES)-1.89% Home Depot, Inc. (The) 749,993 56,624,472 - --------------------------------------------------------------- Lowe's Companies, Inc. 1,500,000 82,500,000 - --------------------------------------------------------------- 139,124,472 - --------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS)-2.13% Best Buy Co., Inc.(a) 1,400,000 77,787,500 - --------------------------------------------------------------- Tandy Corp. 1,250,000 78,671,875 - --------------------------------------------------------------- 156,459,375 - --------------------------------------------------------------- RETAIL (FOOD CHAINS)-0.54% Kroger Co. (The)(a) 1,916,900 39,895,481 - ---------------------------------------------------------------
MARKET SHARES VALUE RETAIL (GENERAL MERCHANDISE)-5.38% Costco Wholesale Corp.(a) 400,000 $ 32,125,000 - --------------------------------------------------------------- Dayton Hudson Corp. 3,000,000 193,875,000 - --------------------------------------------------------------- Wal-Mart Stores, Inc. 3,000,000 170,062,500 - --------------------------------------------------------------- 396,062,500 - --------------------------------------------------------------- RETAIL (SPECIALTY)-0.48% Amazon.com, Inc.(a) 500,000 35,312,500 - --------------------------------------------------------------- SERVICES (DATA PROCESSING)-1.33% Concord EFS, Inc.(a) 1,500,000 40,593,750 - --------------------------------------------------------------- First Data Corp. 1,250,000 57,109,375 - --------------------------------------------------------------- 97,703,125 - --------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE)-2.33% MCI WorldCom, Inc.(a) 2,000,000 171,625,000 - --------------------------------------------------------------- TELEPHONE-1.37% GTE Corp. 500,000 37,500,000 - --------------------------------------------------------------- SBC Communications, Inc. 1,250,000 63,671,875 - --------------------------------------------------------------- 101,171,875 - --------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $4,615,196,054) 6,791,781,943 - --------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS-2.32% BROADCASTING (TELEVISION, RADIO & CABLE)-0.76% Mediaone Group, Inc.-$2.25 Series D Conv. Pfd. 400,000 56,200,000 - --------------------------------------------------------------- ELECTRIC COMPANIES-1.56% Houston Industries, Inc.-$3.29 Conv. Pfd. 1,000,000 114,750,000 - --------------------------------------------------------------- Total Convertible Preferred Stocks (Cost $123,420,376) 170,950,000 - ---------------------------------------------------------------
PRINCIPAL AMOUNT CONVERTIBLE BONDS & NOTES-2.09% COMPUTERS (HARDWARE)-0.30% Candescent Technology Corp., Conv. Sr. Sub. Deb., 7.00%, 05/01/03 (Acquired 04/17/98-11/30/98; Cost $27,943,750)(c) $ 28,300,000 22,074,000 - --------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-0.94% VERITAS Software Corp., Conv. Notes, 5.25%, 11/01/04 13,500,000 69,001,875 - ---------------------------------------------------------------
FS-35 120
PRINCIPAL MARKET AMOUNT VALUE RETAIL (SPECIALTY)-0.51% Amazon.com, Inc., Conv. Sub. Deb., 4.75%, 02/01/09 $ 35,000,000 $ 37,275,000 - --------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE)-0.34% Global Telesystems Group, Inc., Conv. Sr. Unsec. Sub. Notes, 8.75%, 06/30/00 (Acquired 02/05/98; Cost $13,002,080)(c) 10,000,000 25,025,000 - --------------------------------------------------------------- Total Convertible Bonds & Notes (Cost $95,916,763) 153,375,875 - ---------------------------------------------------------------
MARKET SHARES VALUE MONEY MARKET FUNDS-4.93% STIC Liquid Assets Portfolio(d) 181,461,397 $ 181,461,397 - --------------------------------------------------------------- STIC Prime Portfolio(d) 181,461,397 181,461,397 - --------------------------------------------------------------- Total Money Market Funds (Cost $362,922,794) 362,922,794 - --------------------------------------------------------------- TOTAL INVESTMENTS-101.61% 7,479,030,612 - --------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS-(1.61%) (118,345,314) - --------------------------------------------------------------- NET ASSETS-100.00% $7,360,685,298 ===============================================================
Investment Abbreviations: ADR - American Depositary Receipt Conv. - Convertible Deb. - Debentures Pfd. - Preferred Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Notes to Schedule of Investments: (a) Non-income producing security. (b) A portion of this security is subject to call options written. See Note 7. (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 these securities has been determined in accordance with the procedures established by the Board of Directors. The aggregate market value of these securities at 10/31/99 was $47,099,000 which represented 0.64% of the Fund's net assets. (d) The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-36 121 STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1999 ASSETS: Investments, at market value (cost $5,197,455,987) $7,479,030,612 - ------------------------------------------------------------ Receivables for: Investments sold 11,818,345 - ------------------------------------------------------------ Capital stock sold 10,408,480 - ------------------------------------------------------------ Dividends and interest 7,301,796 - ------------------------------------------------------------ Investment for deferred compensation plan 83,490 - ------------------------------------------------------------ Other assets 140,597 - ------------------------------------------------------------ Total assets 7,508,783,320 - ------------------------------------------------------------ LIABILITIES: Payables for: Investments purchased 105,957,126 - ------------------------------------------------------------ Capital stock reacquired 8,011,254 - ------------------------------------------------------------ Deferred compensation 83,490 - ------------------------------------------------------------ Options written (Premiums received $25,481,560) 25,656,250 - ------------------------------------------------------------ Accrued advisory fees 3,634,922 - ------------------------------------------------------------ Accrued administrative services fees 27,618 - ------------------------------------------------------------ Accrued directors' fees 3,913 - ------------------------------------------------------------ Accrued distribution fees 3,681,163 - ------------------------------------------------------------ Accrued transfer agent fees 637,952 - ------------------------------------------------------------ Accrued operating expenses 404,334 - ------------------------------------------------------------ Total liabilities 148,098,022 - ------------------------------------------------------------ Net assets applicable to shares outstanding $7,360,685,298 ============================================================ NET ASSETS: Class A $4,948,665,737 ============================================================ Class B $2,206,751,605 ============================================================ Class C $ 138,467,127 ============================================================ Institutional Class $ 66,800,829 ============================================================ CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 288,328,877 ============================================================ Class B: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 130,030,549 ============================================================ Class C: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 8,139,220 ============================================================ Institutional Class: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 3,855,460 ============================================================ Class A: Net asset value and redemption price per share $ 17.16 - ------------------------------------------------------------ Offering price per share: (Net asset value of $17.16 / 94.50%) $ 18.16 ============================================================ Class B: Net asset value and offering price per share $ 16.97 ============================================================ Class C: Net asset value and offering price per share $ 17.01 ============================================================ Institutional Class: Net asset value, offering and redemption price per share $ 17.33 ============================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999 INVESTMENT INCOME: Dividends (net of $157,812 foreign withholding tax) $ 49,869,261 - ------------------------------------------------------------ Interest 25,693,052 - ------------------------------------------------------------ Total investment income 75,562,313 - ------------------------------------------------------------ EXPENSES: Advisory fees 41,014,707 - ------------------------------------------------------------ Administrative services fees 235,274 - ------------------------------------------------------------ Custodian fees 364,030 - ------------------------------------------------------------ Directors' fees 50,623 - ------------------------------------------------------------ Distribution fees-Class A 13,556,239 - ------------------------------------------------------------ Distribution fees-Class B 18,631,086 - ------------------------------------------------------------ Distribution fees-Class C 809,325 - ------------------------------------------------------------ Transfer agent fees-Class A 4,930,725 - ------------------------------------------------------------ Transfer agent fees-Class B 3,087,342 - ------------------------------------------------------------ Transfer agent fees-Class C 149,576 - ------------------------------------------------------------ Transfer agent fees-Institutional Class 6,136 - ------------------------------------------------------------ Other 1,214,166 - ------------------------------------------------------------ Total expenses 84,049,229 - ------------------------------------------------------------ Less: Fees waived by advisor (1,130,089) - ------------------------------------------------------------ Expenses paid indirectly (149,110) - ------------------------------------------------------------ Net expenses 82,770,030 - ------------------------------------------------------------ Net investment income (loss) (7,207,717) - ------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities 668,004,945 - ------------------------------------------------------------ Foreign currencies (1,105,968) - ------------------------------------------------------------ Option contracts written (9,533,983) - ------------------------------------------------------------ 657,364,994 - ------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of: Investment securities 1,116,385,588 - ------------------------------------------------------------ Foreign currencies (47,768) - ------------------------------------------------------------ Option contracts written 214,221 - ------------------------------------------------------------ 1,116,552,041 - ------------------------------------------------------------ Net gain from investment securities, foreign currencies and option contracts 1,773,917,035 - ------------------------------------------------------------ Net increase in net assets resulting from operations $1,766,709,318 ============================================================
See Notes to Financial Statements. FS-37 122 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998
1999 1998 --------------- -------------- OPERATIONS: Net investment income (loss) $ (7,207,717) $ 37,825,223 - ----------------------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, futures and option contracts 657,364,994 206,268,933 - ----------------------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities, foreign currencies, futures and option contracts 1,116,552,041 254,914,824 - ----------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 1,766,709,318 499,008,980 - ----------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A (9,134,542) (28,039,987) - ----------------------------------------------------------------------------------------------- Class B -- (3,013,337) - ----------------------------------------------------------------------------------------------- Class C -- (47,378) - ----------------------------------------------------------------------------------------------- Institutional Class (216,682) (445,449) - ----------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS: Class A (149,620,112) (346,531,949) - ----------------------------------------------------------------------------------------------- Class B (57,712,333) (108,856,197) - ----------------------------------------------------------------------------------------------- Class C (1,614,093) (819,962) - ----------------------------------------------------------------------------------------------- Institutional Class (1,761,967) (3,989,466) - ----------------------------------------------------------------------------------------------- SHARE TRANSACTIONS-NET: Class A 151,495,357 235,195,827 - ----------------------------------------------------------------------------------------------- Class B 370,892,559 350,425,592 - ----------------------------------------------------------------------------------------------- Class C 84,930,162 32,069,085 - ----------------------------------------------------------------------------------------------- Institutional Class 9,431,197 3,464,509 - ----------------------------------------------------------------------------------------------- Net increase in net assets 2,163,398,864 628,420,268 - ----------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 5,197,286,434 4,568,866,166 - ----------------------------------------------------------------------------------------------- End of period $ 7,360,685,298 $5,197,286,434 =============================================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 4,466,453,244 $3,821,903,969 - ----------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (217,108) 9,291,857 - ----------------------------------------------------------------------------------------------- Undistributed net realized gain from investment securities, foreign currencies, futures and option contracts 613,057,085 201,250,572 - ----------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, futures and option contracts 2,281,392,077 1,164,840,036 - ----------------------------------------------------------------------------------------------- $ 7,360,685,298 $5,197,286,434 ===============================================================================================
See Notes to Financial Statements. FS-38 123 NOTES TO FINANCIAL STATEMENTS October 31, 1999 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 ten separate portfolios. The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C shares and the Institutional Class. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is growth of capital with a secondary objective of current income. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income was increased by $7,049,976, undistributed net realized gains decreased by $34,849,976 and paid-in capital increased by $27,800,000 in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Futures Contracts -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin FS-39 124 payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in value of the contracts may not correlate with changes in the value of the securities being hedged. E. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Covered Call Options -- The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. H. Put Options -- The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option's underlying instrument may be a security or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. I. Bond Premiums -- It is the policy of the Fund not to amortize market premiums on bonds for financial reporting purposes. J. Expenses -- Distribution and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. 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 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 contractually agreed to 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 contractual waiver, AIM will receive a fee calculated at the annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $150 million, plus 0.625% of the Fund's average daily net assets in excess of $150 million to and including $2 billion, plus 0.60% of the Fund's average daily net assets in excess of $2 billion. The waiver is contractual and may not be terminated without approval FS-40 125 of the Board of Directors. During the year ended October 31, 1999, AIM waived fees of $1,130,089. 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 pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the year ended October 31, 1999, AIM was paid $235,274 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 1999, AFS was paid $4,807,681 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares and a master distribution agreement with Fund Management Company ("FMC) to serve as the distributor for the Institutional Class shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund , pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.30% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the year ended October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $13,556,239, $18,631,086 and $809,325, respectively, as compensation under the Plans. AIM Distributors received commissions of $2,030,454 from sales of the Class A shares of the Fund during the year ended October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the year ended October 31, 1999, AIM Distributors received $96,080 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS, FMC and AIM Distributors. During the year ended October 31, 1999, the Fund paid legal fees of $15,483 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the year ended October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $76,809 and $72,301, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $149,110 during the year ended October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. Prior to May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended October 31, 1999 was $7,032,932,257 and $6,722,183,283, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $2,293,837,834 - ---------------------------------------------------------- Aggregate unrealized appreciation (depreciation) of investment securities (24,022,713) - ---------------------------------------------------------- Net unrealized appreciation of investment securities $2,269,815,121 ========================================================== Cost of investments for tax purposes is $5,209,215,491.
FS-41 126 NOTE 7-CALL OPTION CONTRACTS Transactions in call options written during the year ended October 31, 1999 are summarized as follows:
CALL OPTION CONTRACTS ------------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ------------ Beginning of year 31,202 $ 8,091,351 - -------------------------------------------------------------------------------------- Written 62,592 40,059,097 - -------------------------------------------------------------------------------------- Closed (54,607) (18,452,621) - -------------------------------------------------------------------------------------- Exercised (14,921) (4,076,636) - -------------------------------------------------------------------------------------- Expired (1,766) (139,631) - -------------------------------------------------------------------------------------- End of year 22,500 $ 25,481,560 ======================================================================================
Open call option contracts written at October 31, 1999 were as follows:
OCTOBER 31, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUMS 1999 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) - --------------------------------------- -------- ------ --------- ----------- ------------ -------------- International Business Machines Corp. Jan-00 $80 12,500 $20,804,105 $25,156,250 $(4,352,145) - -------------------------------------------------------------------------------------------------------------------- Tyco International Ltd. Nov-99 50 10,000 4,677,455 500,000 4,177,455 - -------------------------------------------------------------------------------------------------------------------- 22,500 $25,481,560 $25,656,250 $ (174,690) ====================================================================================================================
NOTE 8-PUT OPTION CONTRACTS Transactions in put options during the year ended October 31, 1999 are summarized as follows:
PUT OPTION CONTRACTS ----------------------- NUMBER OF PREMIUMS CONTRACTS PAID --------- ----------- Beginning of year -- $ -- - ------------------------------------------------------------------------------------- Purchased 24,165 6,379,447 - ------------------------------------------------------------------------------------- Closed (20,165) (4,215,217) - ------------------------------------------------------------------------------------- Exercised -- -- - ------------------------------------------------------------------------------------- Expired (4,000) (2,164,230) - ------------------------------------------------------------------------------------- End of year -- $ -- =====================================================================================
NOTE 9-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 1999 and 1998 were as follows:
1999 1998 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------- ----------- ------------- Sold: Class A 51,272,783 $ 809,088,837 65,753,775 $ 868,543,898 - -------------------------------------------------------------------------------------------------------------------- Class B 36,310,602 576,056,633 32,991,364 431,938,545 - -------------------------------------------------------------------------------------------------------------------- Class C 6,968,661 111,866,437 2,736,777 36,139,093 - -------------------------------------------------------------------------------------------------------------------- Institutional Class 828,138 13,421,969 568,334 7,594,968 - -------------------------------------------------------------------------------------------------------------------- Issued as reinvestment of dividends: Class A 10,532,077 149,384,623 29,328,588 355,378,824 - -------------------------------------------------------------------------------------------------------------------- Class B 3,894,826 54,866,091 8,807,895 105,930,618 - -------------------------------------------------------------------------------------------------------------------- Class C 107,859 1,525,822 67,166 810,828 - -------------------------------------------------------------------------------------------------------------------- Institutional Class 134,608 1,929,704 351,483 4,295,496 - -------------------------------------------------------------------------------------------------------------------- Reacquired: Class A (51,731,503) (806,978,103) (75,327,509) (988,726,895) - -------------------------------------------------------------------------------------------------------------------- Class B (16,551,587) (260,030,165) (14,417,738) (187,443,571) - -------------------------------------------------------------------------------------------------------------------- Class C (1,788,368) (28,462,097) (376,288) (4,880,836) - -------------------------------------------------------------------------------------------------------------------- Institutional Class (372,429) (5,920,476) (636,014) (8,425,955) - -------------------------------------------------------------------------------------------------------------------- 39,605,667 $ 616,749,275 49,847,833 $ 621,155,013 ====================================================================================================================
FS-42 127 NOTE 10-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during each of the years in the five-year period ended October 31, 1999, for a share of Class B capital stock outstanding during each of the years in the four-year period ended October 31, 1999 and the period June 26, 1995 (date sales commenced) through October 31, 1995, and for a share of Class C capital stock outstanding during each of the two years in the period ended October 31, 1999 and the period August 4, 1997 (date sales commenced) through October 31, 1997.
CLASS A ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 13.32 $ 13.41 $ 11.19 $ 10.63 $ 8.90 - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income 0.02 0.12 0.10 0.19 0.15 - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Net gains (losses) on securities (both realized and unrealized) 4.39 1.23 2.91 1.43 2.11 - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Total from investment operations 4.41 1.35 3.01 1.62 2.26 - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (0.03) (0.10) (0.12) (0.16) (0.20) - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Distributions from net realized gains (0.54) (1.34) (0.67) (0.90) (0.33) - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Total distributions (0.57) (1.44) (0.79) (1.06) (0.53) - ------------------------------------------------------------ ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.16 $ 13.32 $ 13.41 $ 11.19 $ 10.63 ============================================================ ========== ========== ========== ========== ========== Total return(a) 34.05% 11.20% 28.57% 16.70% 27.03% ============================================================ ========== ========== ========== ========== ========== Ratios/supplemental data: Net assets, end of period (000s omitted) $4,948,666 $3,706,938 $3,466,912 $2,647,208 $1,974,417 ============================================================ ========== ========== ========== ========== ========== Ratio of expenses (exclusive of interest) to average net assets(b) 1.05%(c) 1.08% 1.09% 1.12% 1.17% ============================================================ ========== ========== ========== ========== ========== Ratio of net investment income to average net assets(d) 0.11%(c) 0.95% 0.79% 1.81% 1.55% ============================================================ ========== ========== ========== ========== ========== Portfolio turnover rate 107% 154% 170% 164% 161% ============================================================ ========== ========== ========== ========== ==========
(a) Does not deduct sales charges. (b) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.07%, 1.10%, 1.10% for 1999-1997. (c) Ratios are based on average net assets of $4,518,746,255. (d) After fee waivers and/or expense reimbursements. Ratios of net investment income to average net assets prior to fee waivers and/or expense reimbursements were 0.09%, 0.93%, 0.78% for 1999-1997.
CLASS B CLASS C ----------------------------------------------------------- ----------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 ---------- ---------- ---------- -------- ------- -------- ------- ------- Net asset value, beginning of period $ 13.24 $ 13.37 $ 11.18 $ 10.62 $ 9.81 $ 13.27 $ 13.39 $ 13.86 - ----------------------------------- ---------- ---------- ---------- -------- ------- -------- ------- ------- Income from investment operations: Net investment income (loss) (0.10) 0.02 0.01 0.10 0.03 (0.09) 0.02(a) -- - ----------------------------------- ---------- ---------- ---------- -------- ------- -------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 4.37 1.22 2.89 1.45 0.80 4.37 1.23 (0.45) - ----------------------------------- ---------- ---------- ---------- -------- ------- -------- ------- ------- Total from investment operations 4.27 1.24 2.90 1.55 0.83 4.28 1.25 (0.45) - ----------------------------------- ---------- ---------- ---------- -------- ------- -------- ------- ------- Less distributions: Dividends from net investment income -- (0.03) (0.04) (0.09) (0.02) -- (0.03) -- - ----------------------------------- ---------- ---------- ---------- -------- ------- -------- ------- ------- Distributions from net realized gains (0.54) (1.34) (0.67) (0.90) -- (0.54) (1.34) (0.02) - ----------------------------------- ---------- ---------- ---------- -------- ------- -------- ------- ------- Total distributions (0.54) (1.37) (0.71) (0.99) (0.02) (0.54) (1.37) (0.02) - ----------------------------------- ---------- ---------- ---------- -------- ------- -------- ------- ------- Net asset value, end of period $ 16.97 $ 13.24 $ 13.37 $ 11.18 $ 10.62 $ 17.01 $ 13.27 $ 13.39 =================================== ========== ========== ========== ======== ======= ======== ======= ======= Total return(b) 33.06% 10.33% 27.54% 15.90% 8.48% 33.06% 10.39% (3.24)% =================================== ========== ========== ========== ======== ======= ======== ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $2,206,752 $1,408,687 $1,056,094 $515,672 $67,592 $138,467 $37,846 $ 5,669 =================================== ========== ========== ========== ======== ======= ======== ======= ======= Ratio of expenses (exclusive of interest) to average net assets(c) 1.80%(d) 1.84%(d) 1.85% 1.94% 1.98%(f) 1.80%(d) 1.84% 1.82%(f) =================================== ========== ========== ========== ======== ======= ======== ======= ======= Ratio of net investment income (loss) to average net assets(e) (0.64)%(d) 0.19%(d) 0.03% 0.99% 0.74%(f) (0.64)%(d) 0.19% 0.06%(f) =================================== ========== ========== ========== ======== ======= ======== ======= ======= Portfolio turnover rate 107% 154% 170% 164% 161% 107% 154% 170% =================================== ========== ========== ========== ======== ======= ======== ======= =======
(a) Calculated using average shares outstanding. (b) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.82%, 1.86%, 1.86% for 1999-1997 for Class B and 1.82%, 1.86%, 1.83% (annualized) for 1999-1997 for Class C. (d) Ratios are based on average net assets of $1,863,108,558 and $80,932,531 for Class B and Class C, respectively. (e) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (0.66)%, 0.17%, 0.02% for 1999-1997 for Class B and (0.66)%, 0.17%, 0.04% (annualized) for 1999-1997 for Class C. (f) Annualized. FS-43 128 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of the AIM Constellation Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Constellation Fund as of October 31, 1999, 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 five-year period then ended, in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-44 129 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-95.54% AIRLINES-0.25% Southwest Airlines Co. 2,250,000 $ 37,828,125 - --------------------------------------------------------------- AUTO PARTS & EQUIPMENT-0.67% Danaher Corp. 1,250,000 60,390,625 - --------------------------------------------------------------- SPX Corp.(a) 500,000 42,375,000 - --------------------------------------------------------------- 102,765,625 - --------------------------------------------------------------- BANKS (MAJOR REGIONAL)-0.58% Northern Trust Corp. 925,000 89,320,312 - --------------------------------------------------------------- BANKS (REGIONAL)-1.01% Bank United Corp.-Class A 1,000,000 39,000,000 - --------------------------------------------------------------- Compass Bancshares, Inc. 1,000,000 26,687,500 - --------------------------------------------------------------- Old Kent Financial Corp. 817,425 33,310,069 - --------------------------------------------------------------- TCF Financial Corp. 700,000 20,650,000 - --------------------------------------------------------------- Zions Bancorp 600,000 35,362,500 - --------------------------------------------------------------- 155,010,069 - --------------------------------------------------------------- BIOTECHNOLOGY-1.53% Biogen, Inc.(a) 2,500,000 185,312,500 - --------------------------------------------------------------- Chiron Corp.(a) 1,000,000 28,562,500 - --------------------------------------------------------------- Genzyme Corp.(a) 527,300 20,169,225 - --------------------------------------------------------------- 234,044,225 - --------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-4.64% Adelphia Communications Corp.(a) 1,000,000 54,625,000 - --------------------------------------------------------------- AMFM Inc.(a) 2,250,000 157,500,000 - --------------------------------------------------------------- AT&T Corp.-Liberty Media Group-Class A(a) 3,000,000 119,062,500 - --------------------------------------------------------------- Cox Communications, Inc.-Class A(a) 1,500,000 68,156,250 - --------------------------------------------------------------- Hispanic Broadcasting Corp.(a) 1,050,000 85,050,000 - --------------------------------------------------------------- Univision Communications, Inc.-Class A(a) 1,465,400 124,650,587 - --------------------------------------------------------------- USA Networks, Inc.(a) 1,317,800 59,383,362 - --------------------------------------------------------------- Westwood One, Inc.(a) 887,400 40,931,325 - --------------------------------------------------------------- 709,359,024 - --------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-9.95% ADC Telecommunications, Inc.(a) 1,750,000 83,453,125 - --------------------------------------------------------------- Comverse Technology, Inc.(a) 1,500,000 170,250,000 - --------------------------------------------------------------- Corning, Inc. 3,186,600 250,546,425 - --------------------------------------------------------------- General Instrument Corp.(a) 1,900,000 102,243,750 - --------------------------------------------------------------- JDS Uniphase Corp.(a) 1,500,000 250,312,500 - --------------------------------------------------------------- Lucent Technologies Inc.(b) 3,849,120 247,305,960 - --------------------------------------------------------------- Motorola, Inc. 750,000 73,078,125 - --------------------------------------------------------------- Nokia Oyj-ADR (Finland) 1,500,000 173,343,750 - --------------------------------------------------------------- QUALCOMM, Inc.(a) 250,000 55,687,500 - --------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-(CONTINUED) Scientific-Atlanta, Inc. 2,000,000 $ 114,500,000 - --------------------------------------------------------------- 1,520,721,135 - --------------------------------------------------------------- COMPUTERS (HARDWARE)-1.39% Apple Computer, Inc.(a) 1,000,000 80,125,000 - --------------------------------------------------------------- Gateway, Inc.(a) 2,000,000 132,125,000 - --------------------------------------------------------------- 212,250,000 - --------------------------------------------------------------- COMPUTERS (NETWORKING)-0.87% Exodus Communications, Inc.(a) 341,700 29,386,200 - --------------------------------------------------------------- VeriSign, Inc.(a) 835,000 103,122,500 - --------------------------------------------------------------- 132,508,700 - --------------------------------------------------------------- COMPUTERS (PERIPHERALS)-3.06% Adaptec, Inc.(a) 3,000,000 135,000,000 - --------------------------------------------------------------- EMC Corp.(a)(b)(c) 3,500,000 255,500,000 - --------------------------------------------------------------- Lexmark International Group, Inc.- Class A(a) 1,000,000 78,062,500 - --------------------------------------------------------------- 468,562,500 - --------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-15.30% America Online, Inc.(a) 2,625,000 340,429,687 - --------------------------------------------------------------- At Home Corp.(a) 1,150,000 42,981,250 - --------------------------------------------------------------- BMC Software, Inc.(a) 2,500,000 160,468,750 - --------------------------------------------------------------- Business Objects S.A.-ADR (France)(a) 675,000 48,600,000 - --------------------------------------------------------------- Check Point Software Technologies Ltd. (Israel)(a) 750,000 86,765,625 - --------------------------------------------------------------- Citrix Systems, Inc.(a) 2,800,000 179,550,000 - --------------------------------------------------------------- Compuware Corp.(a) 1,250,000 34,765,625 - --------------------------------------------------------------- Electronic Arts, Inc.(a) 1,250,000 101,015,625 - --------------------------------------------------------------- Electronics for Imaging, Inc.(a) 2,000,000 80,625,000 - --------------------------------------------------------------- Inktomi Corp.(a) 750,000 76,078,125 - --------------------------------------------------------------- Intuit, Inc.(a) 3,750,000 109,218,750 - --------------------------------------------------------------- J.D. Edwards & Co.(a) 1,050,000 25,134,375 - --------------------------------------------------------------- Lycos, Inc.(a) 3,000,000 160,500,000 - --------------------------------------------------------------- Microsoft Corp.(a) 1,150,000 106,446,875 - --------------------------------------------------------------- Novell, Inc.(a) 1,000,000 20,062,500 - --------------------------------------------------------------- RealNetworks, Inc.(a) 1,000,000 109,687,500 - --------------------------------------------------------------- Siebel Systems, Inc.(a) 600,000 65,887,500 - --------------------------------------------------------------- Synopsys, Inc.(a) 1,000,000 62,312,500 - --------------------------------------------------------------- Verio, Inc.(a) 2,125,000 79,289,063 - --------------------------------------------------------------- VERITAS Software Corp.(a) 2,500,000 269,687,500 - --------------------------------------------------------------- Yahoo! Inc.(a) 1,000,000 179,062,500 - --------------------------------------------------------------- 2,338,568,750 - ---------------------------------------------------------------
FS-45 130
MARKET SHARES VALUE CONSUMER FINANCE-2.41% Capital One Financial Corp. 2,323,700 $ 123,156,100 - --------------------------------------------------------------- Providian Financial Corp. 1,800,000 196,200,000 - --------------------------------------------------------------- SLM Holding Corp. 1,000,000 48,937,500 - --------------------------------------------------------------- 368,293,600 - --------------------------------------------------------------- ELECTRICAL EQUIPMENT-5.18% American Power Conversion Corp.(a) 5,250,000 117,796,875 - --------------------------------------------------------------- Conexant Systems, Inc.(a) 2,000,000 186,750,000 - --------------------------------------------------------------- Sanmina Corp.(a) 1,000,000 90,062,500 - --------------------------------------------------------------- Solectron Corp.(a) 3,000,000 225,750,000 - --------------------------------------------------------------- Symbol Technologies, Inc. 2,625,000 104,343,750 - --------------------------------------------------------------- Vishay Intertechnology, Inc.(a) 2,750,000 67,203,125 - --------------------------------------------------------------- 791,906,250 - --------------------------------------------------------------- ELECTRONICS (COMPONENT DISTRIBUTORS)-0.11% AVX Corp. 428,100 17,124,000 - --------------------------------------------------------------- ELECTRONICS (DEFENSE)-0.29% General Motors Corp.-Class H(a) 600,000 43,687,500 - --------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION)-0.88% PE Corp-PE Biosystems Group 1,550,000 100,556,250 - --------------------------------------------------------------- Waters Corp.(a) 650,000 34,531,250 - --------------------------------------------------------------- 135,087,500 - --------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-9.30% Altera Corp.(a) 2,875,000 139,796,875 - --------------------------------------------------------------- Analog Devices, Inc.(a) 3,000,000 159,375,000 - --------------------------------------------------------------- ASM Lithography Holding N.V. (Netherlands)(a) 650,000 47,206,250 - --------------------------------------------------------------- Atmel Corp.(a) 916,800 35,411,400 - --------------------------------------------------------------- Cypress Semiconductor Corp.(a) 4,000,000 102,250,000 - --------------------------------------------------------------- Linear Technology Corp. 2,000,000 139,875,000 - --------------------------------------------------------------- LSI Logic Corp.(a) 2,000,000 106,375,000 - --------------------------------------------------------------- Maxim Integrated Products, Inc.(a) 1,500,000 118,406,250 - --------------------------------------------------------------- Microchip Technology, Inc.(a) 1,338,375 89,169,234 - --------------------------------------------------------------- PMC-Sierra, Inc.(a) 2,499,700 235,596,725 - --------------------------------------------------------------- Vitesse Semiconductor Corp.(a) 2,000,000 91,750,000 - --------------------------------------------------------------- Xilinx, Inc.(a) 2,000,000 157,250,000 - --------------------------------------------------------------- 1,422,461,734 - --------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR)-1.67% Applied Materials, Inc.(a) 500,000 44,906,250 - --------------------------------------------------------------- KLA-Tencor Corp.(a) 1,200,000 95,025,000 - --------------------------------------------------------------- Novellus Systems, Inc.(a) 500,000 38,750,000 - --------------------------------------------------------------- Teradyne, Inc.(a) 2,000,000 77,000,000 - --------------------------------------------------------------- 255,681,250 - --------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-1.36% American Express Co. 575,000 88,550,000 - --------------------------------------------------------------- Citigroup, Inc. 1,100,000 59,537,500 - ---------------------------------------------------------------
MARKET SHARES VALUE FINANCIAL (DIVERSIFIED)-(CONTINUED) MGIC Investment Corp. 1,000,000 $ 59,750,000 - --------------------------------------------------------------- 207,837,500 - --------------------------------------------------------------- GAMING, LOTTERY & PARIMUTUEL COMPANIES-0.46% Park Place Entertainment(a) 5,304,000 69,615,000 - --------------------------------------------------------------- HEALTH CARE (DRUGS-GENERIC & OTHER)-1.80% Forest Laboratories, Inc.(a) 1,500,000 68,812,500 - --------------------------------------------------------------- Jones Pharma, Inc.(d) 3,691,275 114,429,525 - --------------------------------------------------------------- Medicis Pharmaceutical Corp.-Class A(a) 1,200,000 36,600,000 - --------------------------------------------------------------- MedImmune, Inc.(a) 500,000 56,000,000 - --------------------------------------------------------------- 275,842,025 - --------------------------------------------------------------- HEALTH CARE (MANAGED CARE)-0.32% Express Scripts, Inc.-Class A(a) 1,000,000 49,125,000 - --------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.38% Bausch & Lomb, Inc. 1,000,000 54,000,000 - --------------------------------------------------------------- Biomet, Inc. 2,500,000 75,312,500 - --------------------------------------------------------------- Medtronic, Inc. 1,500,000 51,937,500 - --------------------------------------------------------------- Sybron International Corp.(a) 1,250,000 29,765,625 - --------------------------------------------------------------- 211,015,625 - --------------------------------------------------------------- INSURANCE (LIFE/HEALTH)-0.33% AFLAC, Inc. 1,000,000 51,125,000 - --------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE-1.02% Schwab (Charles) Corp. (The) 4,000,000 155,750,000 - --------------------------------------------------------------- INVESTMENT MANAGEMENT-0.53% Federated Investors, Inc.-Class B 2,064,000 35,604,000 - --------------------------------------------------------------- Knight/Trimark Group, Inc.-Class A(a) 1,750,000 45,609,375 - --------------------------------------------------------------- 81,213,375 - --------------------------------------------------------------- LEISURE TIME (PRODUCTS)-0.91% Harley-Davidson, Inc. 2,350,000 139,384,375 - --------------------------------------------------------------- NATURAL GAS-0.40% El Paso Energy Corp. 1,500,000 61,500,000 - --------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT)-3.60% Baker Hughes, Inc. 2,000,000 55,875,000 - --------------------------------------------------------------- BJ Services Co.(a) 2,000,000 68,625,000 - --------------------------------------------------------------- Cooper Cameron Corp.(a)(d) 2,750,000 106,390,625 - --------------------------------------------------------------- Diamond Offshore Drilling, Inc. 1,000,000 31,750,000 - --------------------------------------------------------------- Global Industries Ltd.(a) 3,000,000 24,000,000 - --------------------------------------------------------------- R&B Falcon Corporation(a) 3,716,600 46,225,213 - --------------------------------------------------------------- Rowan Companies, Inc.(a) 2,250,000 35,015,625 - --------------------------------------------------------------- Smith International, Inc.(a) 1,750,000 60,484,375 - ---------------------------------------------------------------
FS-46 131
MARKET SHARES VALUE OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED) Transocean Offshore, Inc. 1,500,000 $ 40,781,250 - --------------------------------------------------------------- Varco International, Inc.(a) 2,499,400 26,399,913 - --------------------------------------------------------------- Weatherford International, Inc.(a) 1,600,000 54,200,000 - --------------------------------------------------------------- 549,747,001 - --------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION)-0.99% Apache Corp. 1,790,000 69,810,000 - --------------------------------------------------------------- EOG Resources, Inc. 3,200,000 66,600,000 - --------------------------------------------------------------- Santa Fe Snyder Corp.(a) 1,750,000 15,093,750 - --------------------------------------------------------------- 151,503,750 - --------------------------------------------------------------- PERSONAL CARE-0.23% Estee Lauder Cos. Inc.-Class A 750,000 34,968,750 - --------------------------------------------------------------- PUBLISHING-0.43% McGraw-Hill Cos., Inc. (The) 1,100,000 65,587,500 - --------------------------------------------------------------- RAILROADS-0.70% Kansas City Southern Industries, Inc. 2,250,000 106,734,375 - --------------------------------------------------------------- RESTAURANTS-0.78% Brinker International, Inc.(a) 2,000,000 46,625,000 - --------------------------------------------------------------- Outback Steakhouse, Inc.(a) 1,750,000 40,250,000 - --------------------------------------------------------------- Papa John's International, Inc.(a) 851,500 31,824,813 - --------------------------------------------------------------- 118,699,813 - --------------------------------------------------------------- RETAIL (BUILDING SUPPLIES)-0.58% Lowe's Companies, Inc. 1,600,000 88,000,000 - --------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS)-2.95% Best Buy Co., Inc.(a) 1,750,000 97,234,375 - --------------------------------------------------------------- CDW Computer Centers, Inc.(a) 1,954,600 120,696,550 - --------------------------------------------------------------- Circuit City Stores-Circuit City Group 2,500,000 106,718,750 - --------------------------------------------------------------- Tandy Corp. 2,000,000 125,875,000 - --------------------------------------------------------------- 450,524,675 - --------------------------------------------------------------- RETAIL (DEPARTMENT STORES)-0.98% Kohl's Corp.(a) 2,000,000 149,625,000 - --------------------------------------------------------------- RETAIL (DISCOUNTERS)-1.17% Dollar Tree Stores, Inc.(a) 1,810,600 78,874,263 - --------------------------------------------------------------- Family Dollar Stores, Inc. 2,850,000 58,781,250 - --------------------------------------------------------------- Ross Stores, Inc. 2,000,000 41,250,000 - --------------------------------------------------------------- 178,905,513 - --------------------------------------------------------------- RETAIL (FOOD CHAINS)-0.27% Kroger Co. (The)(a) 2,000,000 41,625,000 - --------------------------------------------------------------- RETAIL (SPECIALTY)-2.80% Barnes & Noble, Inc.(a) 1,153,000 23,996,813 - --------------------------------------------------------------- Bed Bath & Beyond, Inc.(a) 2,750,100 91,612,706 - --------------------------------------------------------------- eToys, Inc.(a) 1,169,000 69,847,750 - ---------------------------------------------------------------
MARKET SHARES VALUE RETAIL (SPECIALTY)-(CONTINUED) Linens 'n Things, Inc.(a) 1,285,300 $ 51,090,675 - --------------------------------------------------------------- Staples, Inc.(a) 6,000,000 133,125,000 - --------------------------------------------------------------- Williams-Sonoma, Inc.(a) 1,077,500 57,915,625 - --------------------------------------------------------------- 427,588,569 - --------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL)-1.76% American Eagle Outfitters, Inc.(a) 808,300 34,605,344 - --------------------------------------------------------------- Intimate Brands, Inc. 1,000,000 41,000,000 - --------------------------------------------------------------- Men's Wearhouse, Inc. (The)(d) 2,310,075 50,677,270 - --------------------------------------------------------------- Talbots, Inc. (The) 1,302,100 61,280,081 - --------------------------------------------------------------- TJX Companies, Inc. (The) 3,000,000 81,375,000 - --------------------------------------------------------------- 268,937,695 - --------------------------------------------------------------- SERVICES (ADVERTISING/ MARKETING)-3.31% CMGI, Inc.(a) 500,000 54,718,750 - --------------------------------------------------------------- Interpublic Group of Companies, Inc. 1,000,000 40,625,000 - --------------------------------------------------------------- Lamar Advertising Co.(a)(d) 3,025,000 163,350,000 - --------------------------------------------------------------- Omnicom Group, Inc. 2,500,000 220,000,000 - --------------------------------------------------------------- TMP Worldwide, Inc.(a) 450,000 28,096,875 - --------------------------------------------------------------- 506,790,625 - --------------------------------------------------------------- SERVICES (COMMERCIAL & CONSUMER)-0.91% ChoicePoint, Inc.(a) 617,300 38,156,856 - --------------------------------------------------------------- Cintas Corp. 1,500,000 90,375,000 - --------------------------------------------------------------- Viad Corp. 400,500 9,837,281 - --------------------------------------------------------------- 138,369,137 - --------------------------------------------------------------- SERVICES (DATA PROCESSING)-3.02% Affiliated Computer Services, Inc.-Class A(a) 1,000,000 38,000,000 - --------------------------------------------------------------- Concord EFS, Inc.(a) 6,750,000 182,671,875 - --------------------------------------------------------------- DST Systems, Inc.(a) 750,000 47,765,625 - --------------------------------------------------------------- Fiserv, Inc.(a) 3,750,000 120,000,000 - --------------------------------------------------------------- Paychex, Inc. 1,875,000 73,828,125 - --------------------------------------------------------------- 462,265,625 - --------------------------------------------------------------- SPECIALTY PRINTING-0.32% Valassis Communications, Inc.(a) 1,125,000 48,375,000 - --------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/ WIRELESS)-0.63% Crown Castle International Corp.(a) 2,750,000 52,937,500 - --------------------------------------------------------------- Metromedia Fiber Network, Inc.-Class A(a) 1,290,000 42,650,625 - --------------------------------------------------------------- 95,588,125 - --------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE)-0.23% Global TeleSystems Group, Inc.(a) 1,500,000 35,906,250 - --------------------------------------------------------------- TELEPHONE-1.38% CenturyTel, Inc. 2,249,925 90,981,342 - ---------------------------------------------------------------
FS-47 132
MARKET SHARES VALUE TELEPHONE-(CONTINUED) Cincinnati Bell, Inc.(a) 1,000,000 $ 20,812,500 - --------------------------------------------------------------- NTL, Inc.(a) 687,500 51,820,313 - --------------------------------------------------------------- RCN Corp.(a) 1,000,000 47,875,000 - --------------------------------------------------------------- 211,489,155 - --------------------------------------------------------------- TEXTILES (APPAREL)-0.90% Jones Apparel Group, Inc.(a) 2,563,800 81,080,175 - --------------------------------------------------------------- Tommy Hilfiger Corp.(a) 2,000,000 56,500,000 - --------------------------------------------------------------- 137,580,175 - --------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $8,597,266,374) 14,606,399,932 - ---------------------------------------------------------------
NUMBER OF EXERCISE EXPIRATION MARKET CONTRACTS PRICE DATE VALUE OPTIONS PURCHASED-0.00% COMPUTERS (PERIPHERALS)-0.00% EMC Corp. (Cost $1,338,808) 5,691 $60 Dec-99 $604,669 - --------------------------------------------------------------------
MARKET SHARES VALUE MONEY MARKET FUNDS-4.63% STIC Liquid Assets Portfolio(e) 353,486,756 353,486,756 - ---------------------------------------------------------------- STIC Prime Portfolio(e) 353,486,756 353,486,756 - ---------------------------------------------------------------- Total Money Market Funds (Cost $706,973,512) 706,973,512 - ---------------------------------------------------------------- TOTAL INVESTMENTS-100.17% 15,313,978,113 - ---------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS-(0.17%) (25,496,319) - ---------------------------------------------------------------- NET ASSETS-100.00% $15,288,481,794 ================================================================
Investment Abbreviation: ADR - American Depositary Receipt Notes to Schedule of Investments: (a)Non-income producing security. (b)A portion of this security is subject to call options. (c)A portion of this security is subject to put options. (d)Affiliated issuers are those in which the Fund's holdings of an issuer represents 5% or more of the outstanding voting securities of the issuer. The Fund has not owned enough of the outstanding voting securities of any issuer to have control (as defined in the Investment Company Act of 1940) of that issuer. The aggregate market value of these securities as of 10/31/99 was $434,847,420 which represented 2.84% of the Fund's net assets. (e)The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-48 133 STATEMENT OF ASSETS AND LIABILITIES October 31, 1999 ASSETS: Investments, at market value (cost $9,305,578,694) $15,313,978,113 - ------------------------------------------------------------ Receivables for: Investments sold 71,399,488 - ------------------------------------------------------------ Capital stock sold 10,526,738 - ------------------------------------------------------------ Dividends and interest 2,290,468 - ------------------------------------------------------------ Investment for deferred compensation plan 183,244 - ------------------------------------------------------------ Other assets 52,373 ============================================================ Total assets 15,398,430,424 ============================================================ LIABILITIES: Payables for: Investments purchased 56,379,176 - ------------------------------------------------------------ Capital stock reacquired 30,978,770 - ------------------------------------------------------------ Deferred compensation 183,244 - ------------------------------------------------------------ Options written (premiums received $3,848,894) 5,097,494 - ------------------------------------------------------------ Accrued advisory fees 7,461,612 - ------------------------------------------------------------ Accrued administrative services fees 70,930 - ------------------------------------------------------------ Accrued directors' fees 9,103 - ------------------------------------------------------------ Accrued distribution fees 5,519,204 - ------------------------------------------------------------ Accrued transfer agent fees 3,222,924 - ------------------------------------------------------------ Accrued operating expenses 1,026,173 - ------------------------------------------------------------ Total liabilities 109,948,630 - ------------------------------------------------------------ Net assets applicable to shares outstanding $15,288,481,794 ============================================================ NET ASSETS: Class A $14,292,905,417 ============================================================ Class B $ 589,717,520 ============================================================ Class C $ 161,489,815 ============================================================ Institutional Class $ 244,369,042 ============================================================ CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 1,000,000,000 - ------------------------------------------------------------ Outstanding 412,537,590 ============================================================ Class B: Authorized 1,000,000,000 - ------------------------------------------------------------ Outstanding 17,344,531 ============================================================ Class C: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 4,751,201 ============================================================ Institutional Class: Authorized 200,000,000 - ------------------------------------------------------------ Outstanding 6,787,086 ============================================================ Class A: Net asset value and redemption price per share $ 34.65 - ------------------------------------------------------------ Offering price per share: (Net asset value of $34.65 / 94.50%) $ 36.67 ============================================================ Class B: Net asset value and offering price per share $ 34.00 - ------------------------------------------------------------ Class C: Net asset value and offering price per share $ 33.99 - ------------------------------------------------------------ Institutional Class: Net asset value, offering and redemption price per share $ 36.01 ============================================================
STATEMENT OF OPERATIONS For the year ended October 31, 1999 INVESTMENT INCOME: Dividends (net of $242,135 foreign withholding tax) $ 43,615,002 - ------------------------------------------------------------ Interest 42,276,941 ============================================================ Total investment income 85,891,943 - ------------------------------------------------------------ EXPENSES: Advisory fees 90,458,750 - ------------------------------------------------------------ Administrative services fees 431,120 - ------------------------------------------------------------ Custodian fees 801,999 - ------------------------------------------------------------ Directors' fees 93,740 - ------------------------------------------------------------ Distribution fees-Class A 40,983,445 - ------------------------------------------------------------ Distribution fees-Class B 4,365,731 - ------------------------------------------------------------ Distribution fees-Class C 1,175,217 - ------------------------------------------------------------ Transfer agent fees-Class A 23,308,682 - ------------------------------------------------------------ Transfer agent fees-Class B 1,540,074 - ------------------------------------------------------------ Transfer agent fees-Class C 368,612 - ------------------------------------------------------------ Transfer agent fees-Institutional Class 22,937 - ------------------------------------------------------------ Other 2,563,084 ============================================================ Total expenses 166,113,391 - ------------------------------------------------------------ Less: Fees waived by advisor (3,107,849) - ------------------------------------------------------------ Expenses paid indirectly (238,341) ============================================================ Net expenses 162,767,201 ============================================================ Net investment income (loss) (76,875,258) - ------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, AND OPTION CONTRACTS: Net realized gain from: Investment securities 1,641,321,263 - ------------------------------------------------------------ Option contracts written 2,695,940 ============================================================ 1,644,017,203 ============================================================ Change in net unrealized appreciation (depreciation) of: Investment securities 2,670,530,284 - ------------------------------------------------------------ Foreign currencies (1,219) - ------------------------------------------------------------ Option contracts written (1,395,306) ============================================================ 2,669,133,759 ============================================================ Net gain from investment securities, foreign currencies, and option contracts 4,313,150,962 ============================================================ Net increase in net assets resulting from operations $4,236,275,704 ============================================================
See Notes to Financial Statements. FS-49 134 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1999 and 1998
1999 1998 --------------- --------------- OPERATIONS: Net investment income (loss) $ (76,875,258) $ (68,697,946) - ------------------------------------------------------------------------------------------------- Net realized gain from investment securities, foreign currencies, and option contracts 1,644,017,203 459,324,772 - ------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies, and option contracts 2,669,133,759 (647,916,119) - ------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 4,236,275,704 (257,289,293) ================================================================================================= Distributions to shareholders from net realized gains: Class A (337,206,115) (1,023,550,465) - ------------------------------------------------------------------------------------------------- Class B (8,290,207) (2,750,431) - ------------------------------------------------------------------------------------------------- Class C (2,229,567) (2,040,204) - ------------------------------------------------------------------------------------------------- Institutional Class (5,075,580) (13,510,099) - ------------------------------------------------------------------------------------------------- Share transactions-net: Class A (1,783,881,252) (667,156,467) - ------------------------------------------------------------------------------------------------- Class B 205,093,817 292,437,630 - ------------------------------------------------------------------------------------------------- Class C 55,508,352 60,444,760 - ------------------------------------------------------------------------------------------------- Institutional Class (4,793,973) 17,436,212 - ------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 2,355,401,179 (1,595,978,357) - ------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 12,933,080,615 14,529,058,972 - ------------------------------------------------------------------------------------------------- End of period $15,288,481,794 $12,933,080,615 ================================================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 7,663,956,851 $ 9,156,848,152 - ------------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (551,737) (994,714) - ------------------------------------------------------------------------------------------------- Undistributed net realized gain from investment securities, foreign currencies, and option contracts 1,617,926,281 439,210,537 - ------------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, and option contracts 6,007,150,399 3,338,016,640 - ------------------------------------------------------------------------------------------------- $15,288,481,794 $12,933,080,615 =================================================================================================
See Notes to Financial Statements. FS-50 135 NOTES TO FINANCIAL STATEMENTS October 31, 1999 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 ten separate portfolios. The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C shares and the Institutional Class. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is growth of capital. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income increased by $77,318,235, undistributed net realized gains decreased by $112,499,990 and paid in capital increased $35,181,755 as a result of net operating tax loss in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such FS-51 136 fluctuations are included with the net realized and unrealized gain or loss from investments. E. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. F. Covered Call Options -- The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. G. Put Options -- The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option's underlying instrument may be a security or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. H. Expenses -- Distribution and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. 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 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 contractually agreed to 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 contractual waiver, AIM will receive a fee calculated at the annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $150 million, plus 0.625% of the Fund's average daily net assets in excess of $150 million to and including $2 billion, plus 0.60% of the Fund's average daily net assets in excess of $2 billion. The waiver is contractual and may not be terminated without approval of the Board of Directors. During the year ended October 31, 1999, AIM waived fees of $3,107,849. 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 pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the year ended October 31, 1999, AIM was paid $431,120 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 1999, AFS was paid $11,438,795 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares and a master distribution agreement with Fund Management Company ("FMC) to serve as the distributor for the Institutional Class shares of the FS-52 137 Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.30% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the year ended October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $40,983,445, $4,365,731 and $1,175,217, respectively, as compensation under the Plans. AIM Distributors received commissions of $3,182,696 from sales of the Class A shares of the Fund during the year ended October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the year ended October 31, 1999, AIM Distributors received $605,519 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS, FMC and AIM Distributors. During the year ended October 31, 1999, the Fund paid legal fees of $31,683 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the year ended October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $170,495 and $67,846, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $238,341 during the year ended October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. Prior to May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended October 31, 1999 was $8,369,125,551 and $10,276,104,460, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $6,146,948,281 - ---------------------------------------------------------- Aggregate unrealized appreciation (depreciation) of investment securities (161,712,109) - ---------------------------------------------------------- Net unrealized appreciation of investment securities $5,985,236,172 ========================================================== Cost of investments for tax purposes is $9,328,741,941.
FS-53 138 NOTE 7-CALL OPTION CONTRACTS Transactions in call options written during the year ended October 31, 1999 are summarized as follows:
CALL OPTION CONTRACTS ----------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ----------- Beginning of period 1,875 $ 357,644 - ------------------------------------------------------------------------------------- Written 41,226 7,516,095 - ------------------------------------------------------------------------------------- Closed (17,190) (3,487,198) - ------------------------------------------------------------------------------------- Expired (3,820) (537,647) - ------------------------------------------------------------------------------------- End of period 22,091 $ 3,848,894 =====================================================================================
Open call option contracts written at October 31, 1999 were as follows:
OCTOBER 31, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUMS 1999 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) - --------------------------------------- -------- ------ --------- ---------- ------------ -------------- EMC Corp. Jan. 00 $75 2,846 $1,162,552 $1,849,900 $ (687,348) - ------------------------------------------------------------------------------------------------------------------- Lucent Technologies Inc. Nov. 99 65 19,245 2,686,342 3,247,594 (561,252) - ------------------------------------------------------------------------------------------------------------------- 22,091 $3,848,894 $5,097,494 $(1,248,600) ===================================================================================================================
NOTE 8-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 1999 and 1998 were as follows:
1999 1998 ------------------------------ ------------------------------ SHARES AMOUNT SHARES AMOUNT ------------ --------------- ------------ --------------- Sold: Class A 98,564,141 $ 2,981,238,092 271,511,337 $ 7,555,171,888 - ------------------------------------------------------------------------------------------------------------------------ Class B 10,942,571 332,728,027 12,877,388 356,713,527 - ------------------------------------------------------------------------------------------------------------------------ Class C 5,133,893 156,450,704 2,960,570 81,123,332 - ------------------------------------------------------------------------------------------------------------------------ Institutional Class 1,596,295 51,100,608 2,149,830 60,442,629 - ------------------------------------------------------------------------------------------------------------------------ Issued as reinvestment of dividends: Class A 11,320,463 318,895,308 38,633,795 977,878,833 - ------------------------------------------------------------------------------------------------------------------------ Class B 286,888 7,992,642 104,498 2,643,686 - ------------------------------------------------------------------------------------------------------------------------ Class C 75,962 2,115,494 76,723 1,938,518 - ------------------------------------------------------------------------------------------------------------------------ Institutional Class 170,003 4,957,282 494,582 12,886,955 - ------------------------------------------------------------------------------------------------------------------------ Reacquired: Class A (167,354,090) (5,084,014,652) (330,045,727) (9,200,207,188) - ------------------------------------------------------------------------------------------------------------------------ Class B (4,443,036) (135,626,852) (2,423,778) (66,919,583) - ------------------------------------------------------------------------------------------------------------------------ Class C (3,390,263) (103,057,846) (842,846) (22,617,090) - ------------------------------------------------------------------------------------------------------------------------ Institutional Class (1,915,980) (60,851,863) (1,977,243) (55,893,372) - ------------------------------------------------------------------------------------------------------------------------ (49,013,153) $(1,528,073,056) (6,480,871) $ (296,837,865) ========================================================================================================================
FS-54 139 NOTE 9-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during each of the years in the five-year period ended October 31, 1999, for a share of Class B capital stock outstanding during the year ended October 31, 1999 and the period November 3, 1997 (date sales commenced) through October 31, 1998 and for a share of Class C capital stock outstanding during each of the years in the two year period ended October 31, 1999 and the period August 4, 1997 (dates sales commenced) through October 31, 1997.
CLASS A --------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ---------- Net asset value, beginning of period $ 26.37 $ 29.23 $ 25.48 $ 23.69 $ 18.31 - ---------------------------------------------------------- ----------- ----------- ----------- ----------- ---------- Income from investment operations: Net investment income (loss) (0.17) (0.14) (0.11) (0.06) (0.05) - ---------------------------------------------------------- ----------- ----------- ----------- ----------- ---------- Net gains (losses) on securities (both realized and unrealized) 9.18 (0.62) 4.75 2.60 5.95 - ---------------------------------------------------------- ----------- ----------- ----------- ----------- ---------- Total from investment operations 9.01 (0.76) 4.64 2.54 5.90 - ---------------------------------------------------------- ----------- ----------- ----------- ----------- ---------- Distributions from net realized gains (0.73) (2.10) (0.89) (0.75) (0.52) - ---------------------------------------------------------- ----------- ----------- ----------- ----------- ---------- Net asset value, end of period $ 34.65 $ 26.37 $ 29.23 $ 25.48 $ 23.69 ========================================================== =========== =========== =========== =========== ========== Total return(a) 34.81% (2.30)% 18.86% 11.26% 33.43% ========================================================== =========== =========== =========== =========== ========== Ratios/supplemental data: Net assets, end of period (000s omitted) $14,292,905 $12,391,844 $14,319,441 $11,255,506 $7,000,350 ========================================================== =========== =========== =========== =========== ========== Ratio of expenses to average net assets(b) 1.10%(c) 1.10% 1.11%() 1.14% 1.16% ========================================================== =========== =========== =========== =========== ========== Ratio of net investment income (loss) to average net assets(d) (0.50)%(c) (0.47)% (0.40)%() (0.27)% (0.32)% ========================================================== =========== =========== =========== =========== ========== Portfolio turnover rate 62% 76% 67% 58% 45% ========================================================== =========== =========== =========== =========== ==========
(a) Does not deduct sales charges. (b) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.12%, 1.12%, 1.13%, 1.16% and 1.18% for 1999-1995. (c) Ratios are based on average net assets of $13,661,148,228. (d) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursement were (0.52)%, (0.50)%, (0.42)%, (0.29)% and (0.34)% for 1999-1995.
CLASS B CLASS C --------------------- ------------------------------- 1999 1998 1999 1998 1997 --------- -------- --------- ------- ------- Net asset value, beginning of period $ 26.11 $ 30.04 $ 26.10 $ 29.18 $ 30.32 - ------------------------------------------------------------ -------- -------- -------- ------- ------- Income from investment operations: Net investment income (loss) (0.42) (0.37)(a) (0.42) (0.37)(a) (0.04) - ------------------------------------------------------------ -------- -------- -------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 9.04 (1.46) 9.04 (0.61) (1.10) - ------------------------------------------------------------ -------- -------- -------- ------- ------- Total from investment operations 8.62 (1.83) 8.62 (0.98) (1.14) - ------------------------------------------------------------ -------- -------- -------- ------- ------- Distributions from net realized gains (0.73) (2.10) (0.73) (2.10) -- - ------------------------------------------------------------ -------- -------- -------- ------- ------- Net asset value, end of period $ 34.00 $ 26.11 $ 33.99 $ 26.10 $ 29.18 ============================================================ ======== ======== ======== ======= ======= Total return(b) 33.64% (5.86)% 33.65% (3.12)% (3.76)% ============================================================ ======== ======== ======== ======= ======= Ratios/supplement data: Net assets, end of period (000s omitted) $589,718 $275,676 $161,490 $76,522 $21,508 ============================================================ ======== ======== ======== ======= ======= Ratio of expenses to average net assets(c) 1.98%(d) 1.98%(e) 1.98%(d) 1.97% 1.84%(e) ============================================================ ======== ======== ======== ======= ======= Ratio of net investment income (loss) to average net assets(f) (1.38)%(d) (1.36)%(e) (1.38)%(d) (1.35)% (1.12)%(e) ============================================================ ======== ======== ======== ======= ======= Portfolio turnover rate 62% 76% 62% 76% 67% ============================================================ ======== ======== ======== ======= ======= (a) Calculated using average shares outstanding. (b) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 2.00%, and 2.00% (annualized) for 1999-1998 for Class B and 2.00%, 1.99% and 1.86% (annualized) for 1999-1997 for Class C. (d) Ratios are based on average net assets of $436,573,129 and $117,521,680 for Class B and Class C, respectively. (e) Annualized. (f) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (1.40)% and (1.38)% (annualized) for 1999-1998 for Class B and (1.40)%, (1.37)% and (1.15)% (annualized) for 1999-1997 for Class C.
FS-55 140 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of AIM Dent Demographics Trends Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations, the statement of changes in net assets, and financial highlights for the period June 7, 1999 (date operations commenced) through October 31, 1999. 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, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 AIM Dent Demographics Trends Fund as of October 31, 1999, the results of its operations, the changes in its net assets and the financial highlights for the period June 7, 1999 (date operations commenced) through October 31, 1999 in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-56 141 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-93.70% BANKS (MONEY CENTER)-1.56% Chase Manhattan Corp. (The) 70,000 $ 6,116,250 - -------------------------------------------------------------- BANKS (REGIONAL)-0.30% Dah Sing Financial Group (Hong Kong) 300,000 1,197,204 - -------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-7.22% AT&T Corp. - Liberty Media Group-Class A(a) 40,000 1,587,500 - -------------------------------------------------------------- Cablevision Systems Corp.-Class A(a) 55,000 3,715,937 - -------------------------------------------------------------- Comcast Corp.-Class A 250,000 10,531,250 - -------------------------------------------------------------- Cox Communications, Inc.-Class A(a) 75,000 3,407,812 - -------------------------------------------------------------- Insight Communications Company, Inc.(a) 160,000 3,780,000 - -------------------------------------------------------------- MediaOne Group, Inc.(a) 75,000 5,329,687 - -------------------------------------------------------------- 28,352,186 - -------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-7.19% Comverse Technology, Inc.(a) 50,000 5,675,000 - -------------------------------------------------------------- General Instrument Corp.(a) 100,000 5,381,250 - -------------------------------------------------------------- Harmonic, Inc.(a) 30,000 1,781,250 - -------------------------------------------------------------- JDS Uniphase Corp.(a) 25,000 4,171,875 - -------------------------------------------------------------- Lucent Technologies Inc. 20,000 1,285,000 - -------------------------------------------------------------- Nokia Oyj-ADR (Finland) 35,000 4,044,687 - -------------------------------------------------------------- Nortel Networks Corp. (Canada) 40,000 2,477,500 - -------------------------------------------------------------- QUALCOMM, Inc.(a) 12,500 2,784,375 - -------------------------------------------------------------- Sycamore Networks, Inc.(a) 3,000 645,000 - -------------------------------------------------------------- 28,245,937 - -------------------------------------------------------------- COMPUTERS (HARDWARE)-4.92% Apple Computer, Inc.(a) 75,000 6,009,375 - -------------------------------------------------------------- Dell Computer Corp.(a) 75,000 3,009,375 - -------------------------------------------------------------- Gateway, Inc.(a) 100,000 6,606,250 - -------------------------------------------------------------- Sun Microsystems, Inc.(a) 35,000 3,703,437 - -------------------------------------------------------------- 19,328,437 - -------------------------------------------------------------- COMPUTERS (NETWORKING)-1.88% Cisco Systems, Inc.(a) 100,000 7,400,000 - -------------------------------------------------------------- COMPUTERS (PERIPHERALS)-1.60% EMC Corp.(a) 45,000 3,285,000 - -------------------------------------------------------------- Lexmark International Group, Inc.-Class A(a) 38,700 3,021,019 - -------------------------------------------------------------- 6,306,019 - -------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-16.28% Agile Software Corp.(a) 25,000 2,450,000 - -------------------------------------------------------------- Alteon Websystems, Inc.(a) 10,200 731,850 - -------------------------------------------------------------- America Online, Inc.(a) 50,000 6,484,375 - --------------------------------------------------------------
MARKET SHARES VALUE COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED) Clarify, Inc.(a) 40,000 $ 3,090,000 - -------------------------------------------------------------- E.piphany, Inc.(a) 17,400 1,496,400 - -------------------------------------------------------------- Intuit, Inc.(a) 200,000 5,825,000 - -------------------------------------------------------------- Microsoft Corp.(a) 130,000 12,033,125 - -------------------------------------------------------------- Novell, Inc.(a) 600,000 12,037,500 - -------------------------------------------------------------- Oracle Corp.(a) 25,000 1,189,062 - -------------------------------------------------------------- VERITAS Software Corp.(a) 100,000 10,787,500 - -------------------------------------------------------------- Visio Corp.(a) 75,000 2,969,531 - -------------------------------------------------------------- Vixel Corp.(a) 40,000 1,280,000 - -------------------------------------------------------------- Yahoo! Inc.(a) 20,000 3,581,250 - -------------------------------------------------------------- 63,955,593 - -------------------------------------------------------------- CONSUMER FINANCE-1.39% Providian Financial Corp. 50,000 5,450,000 - -------------------------------------------------------------- ELECTRICAL EQUIPMENT-0.95% Conexant Systems, Inc.(a) 40,000 3,735,000 - -------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-3.12% Cypress Semiconductor Corp.(a) 150,000 3,834,375 - -------------------------------------------------------------- Intel Corp. 50,000 3,871,875 - -------------------------------------------------------------- SDL, Inc.(a) 15,000 1,849,687 - -------------------------------------------------------------- Texas Instruments, Inc. 30,000 2,692,500 - -------------------------------------------------------------- 12,248,437 - -------------------------------------------------------------- ENTERTAINMENT-1.70% Time Warner Inc. 75,000 5,226,563 - -------------------------------------------------------------- World Wrestling Federation Entertainment, Inc.(a) 60,000 1,447,500 - -------------------------------------------------------------- 6,674,063 - -------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR)-1.53% Applied Materials, Inc.(a) 35,000 3,143,438 - -------------------------------------------------------------- Teradyne, Inc.(a) 75,000 2,887,500 - -------------------------------------------------------------- 6,030,938 - -------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-4.90% American Express Co. 90,000 13,860,000 - -------------------------------------------------------------- Citigroup Inc. 100,000 5,412,500 - -------------------------------------------------------------- 19,272,500 - -------------------------------------------------------------- HEALTH CARE (DIVERSIFIED)-6.87% Bristol-Myers Squibb Co. 100,000 7,681,250 - -------------------------------------------------------------- Johnson & Johnson 70,000 7,332,500 - -------------------------------------------------------------- Warner-Lambert Co. 150,000 11,971,875 - -------------------------------------------------------------- 26,985,625 - --------------------------------------------------------------
FS-57 142
MARKET SHARES VALUE HEALTH CARE (DRUGS-GENERIC & OTHER)-0.64% Genetech, Inc.(a) 10,000 $ 1,457,500 - -------------------------------------------------------------- Medicis Pharmaceutical Corp.-Class A(a) 35,000 1,067,500 - -------------------------------------------------------------- 2,525,000 - -------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-3.90% Pfizer, Inc. 200,000 7,900,000 - -------------------------------------------------------------- Schering-Plough Corp. 150,000 7,425,000 - -------------------------------------------------------------- 15,325,000 - -------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.26% Guidant Corp. 100,000 4,937,500 - -------------------------------------------------------------- INSURANCE (MULTI-LINE)-2.10% American International Group, Inc. 80,000 8,235,000 - -------------------------------------------------------------- INVESTMENT BANKING/BROKERAGE-6.82% Merrill Lynch & Co., Inc. 75,000 5,887,500 - -------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 110,000 12,134,375 - -------------------------------------------------------------- Schwab (Charles) Corp. (The) 225,000 8,760,938 - -------------------------------------------------------------- 26,782,813 - -------------------------------------------------------------- LODGING-HOTELS-1.13% Carnival Corp. 100,000 4,450,000 - -------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-3.71% Tyco International Ltd. 365,000 14,577,188 - -------------------------------------------------------------- RAILROADS-0.72% Kansas City Southern Industries, Inc. 60,000 2,846,250 - -------------------------------------------------------------- RETAIL (BUILDING SUPPLIES)-2.31% Home Depot, Inc. (The) 40,000 3,020,000 - -------------------------------------------------------------- Lowe's Companies, Inc. 110,000 6,050,000 - -------------------------------------------------------------- 9,070,000
MARKET SHARES VALUE RETAIL (BUILDING SUPPLIES)-(CONTINUED) - -------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS)-4.69% Best Buy Co., Inc.(a) 140,000 $ 7,778,750 - -------------------------------------------------------------- Circuit City Stores-Circuit City Group 80,000 3,415,000 - -------------------------------------------------------------- Tandy Corp. 115,000 7,237,813 - -------------------------------------------------------------- 18,431,563 - -------------------------------------------------------------- RETAIL (SPECIALTY)-0.90% Amazon.com, Inc.(a) 50,000 3,531,250 - -------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL)-0.82% American Eagle Outfitters, Inc.(a) 75,000 3,210,938 - -------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/ WIRELESS)-3.29% Nextel Communications, Inc.-Class A(a) 150,000 12,928,125 - -------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $328,287,739) 368,148,816 - -------------------------------------------------------------- MONEY MARKET FUNDS-6.23% STIC Liquid Assets Portfolio(b) 12,250,775 12,250,775 - -------------------------------------------------------------- STIC Prime Portfolio(b) 12,250,775 12,250,775 - -------------------------------------------------------------- Total Money Market Funds (Cost $24,501,550) 24,501,550 - -------------------------------------------------------------- TOTAL INVESTMENTS-99.93% 392,650,366 - -------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-0.07% 258,135 - -------------------------------------------------------------- NET ASSETS-100.00% $392,908,501 ==============================================================
Investment Abbreviations: ADR - American Depositary Receipt Notes to Schedule of Investments: (a) Non-income producing security. (b) The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-58 143 STATEMENTS OF ASSETS AND LIABILITIES October 31, 1999 ASSETS: Investments, at market value (cost $352,789,289) $392,650,366 - -------------------------------------------------------- Receivables for: Capital stock sold 7,895,024 - -------------------------------------------------------- Dividends and interest 116,171 - -------------------------------------------------------- Investment for deferred compensation plan 2,653 - -------------------------------------------------------- Other assets 99,883 - -------------------------------------------------------- Total assets 400,764,097 - -------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 6,597,126 - -------------------------------------------------------- Deferred compensation plan 2,653 - -------------------------------------------------------- Capital stock reacquired 550,419 - -------------------------------------------------------- Accrued advisory fees 352,181 - -------------------------------------------------------- Accrued administrative services fees 4,247 - -------------------------------------------------------- Accrued directors' fees 1,900 - -------------------------------------------------------- Accrued distribution fees 231,529 - -------------------------------------------------------- Accrued transfer agent fees 44,956 - -------------------------------------------------------- Accrued operating expenses 70,585 - -------------------------------------------------------- Total liabilities 7,855,596 - -------------------------------------------------------- Net assets applicable to shares outstanding $392,908,501 ======================================================== NET ASSETS: Class A $163,872,289 ======================================================== Class B $177,430,877 ======================================================== Class C $ 51,605,335 ======================================================== CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 13,495,267 ======================================================== Class B: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 14,649,049 ======================================================== Class C: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 4,260,828 ======================================================== Class A: Net asset value and redemption price per share $ 12.14 - -------------------------------------------------------- Offering price per share: (Net asset value of $12.14 divided by 94.50%) $ 12.85 ======================================================== Class B: Net asset value and offering price per share $ 12.11 ======================================================== Class C: Net asset value and offering price per share $ 12.11 ========================================================
STATEMENT OF OPERATIONS For the period June 7, 1999 (date operations commenced) through October 31, 1999 INVESTMENT INCOME: Dividends (net of $225 foreign withholding tax) $ 270,152 - -------------------------------------------------------- Interest 213,727 - -------------------------------------------------------- Total investment income 483,879 - -------------------------------------------------------- EXPENSES: Advisory fees 690,278 - -------------------------------------------------------- Administrative services fees 16,849 - -------------------------------------------------------- Custodian fees 19,414 - -------------------------------------------------------- Directors' fees 5,408 - -------------------------------------------------------- Distribution fees -- Class A 112,110 - -------------------------------------------------------- Distribution fees -- Class B 359,002 - -------------------------------------------------------- Distribution fees -- Class C 104,204 - -------------------------------------------------------- Transfer agent fees -- Class A 82,475 - -------------------------------------------------------- Transfer agent fees -- Class B 80,937 - -------------------------------------------------------- Transfer agent fees -- Class C 24,361 - -------------------------------------------------------- Registration and filing fees 77,325 - -------------------------------------------------------- Other 69,236 - -------------------------------------------------------- Total expenses 1,641,599 - -------------------------------------------------------- Less: Fee waivers (43,724) - -------------------------------------------------------- Expenses paid indirectly (1,853) - -------------------------------------------------------- Net expenses 1,596,022 - -------------------------------------------------------- Net investment income (loss) (1,112,143) - -------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain (loss) from: Investment securities (3,389,752) - -------------------------------------------------------- Foreign currencies (46) - -------------------------------------------------------- (3,389,798) - -------------------------------------------------------- Change in net unrealized appreciation of: Investment securities 39,861,077 - -------------------------------------------------------- Net gain from investment securities and foreign currencies 36,471,279 - -------------------------------------------------------- Net increase in net assets resulting from operations $35,359,136 ========================================================
See Notes to Financial Statements. FS-59 144 STATEMENT OF CHANGES IN NET ASSETS For the period June 7, 1999 (date operations commenced) through October 31, 1999
OCTOBER 31, 1999 ------------ OPERATIONS: Net investment income (loss) $ (1,112,143) - -------------------------------------------------------------------------- Net realized gain (loss) from investment securities and foreign currencies (3,389,798) - -------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities 39,861,077 - -------------------------------------------------------------------------- Net increase in net assets resulting from operations 35,359,136 - -------------------------------------------------------------------------- Share transactions-net: Class A 148,625,216 - -------------------------------------------------------------------------- Class B 161,925,702 - -------------------------------------------------------------------------- Class C 46,998,447 - -------------------------------------------------------------------------- Net increase in net assets 392,908,501 - -------------------------------------------------------------------------- NET ASSETS: Beginning of period -- - -------------------------------------------------------------------------- End of period $392,908,501 ========================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $356,470,945 - -------------------------------------------------------------------------- Undistributed net investment income (loss) (33,769) - -------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (3,389,752) - -------------------------------------------------------------------------- Unrealized appreciation of investment securities 39,861,077 - -------------------------------------------------------------------------- $392,908,501 ==========================================================================
See Notes to Financial Statements. FS-60 145 NOTES TO FINANCIAL STATEMENTS October 31, 1999 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Dent Demographic Trends Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of ten separate portfolios. The Fund currently offers three different classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income (loss) increased $1,078,374, undistributed net realized gain (loss) increased $46 and paid in capital decreased $1,078,420 as a result of net operating tax loss in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund has a capital loss carryforward of $3,389,675 as of October 31, 1999 which may be carried forward to offset future taxable gains, if any, which expires, if not previously utilized, in the year 2007. D. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations FS-61 146 arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. E. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. F. Expenses -- Distribution expenses and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). H.S. Dent Advisors, Inc. is the Fund's subadvisor. Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $2 billion of the Fund's average daily net assets, plus 0.80% of the Fund's average daily net assets exceeding $2 billion. During the period June 7, 1999 (date operations commenced) through October 31, 1999, AIM waived fees of $43,724. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the period June 7, 1999 (date operations commenced) through October 31, 1999, AIM was paid $16,849 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the period June 7, 1999 (date operations commenced) through October 31, 1999, AFS was paid $82,863 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund , pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the period June 7, 1999 (date operations commenced) through October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $112,110, $359,002 and $104,204, respectively, as compensation under the Plans. AIM Distributors received commissions of $551,702 from sales of the Class A shares of the Fund during the period June 7, 1999 (date operations commenced) through October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the period June 7, 1999 (date operations commenced) through October 31, 1999, AIM Distributors received $3,886 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the period June 7, 1999 (date operations commenced) through October 31, 1999, the Fund paid legal fees of $988 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the period June 7, 1999 (date operations commenced) through October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $638 and $1,215, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $1,853 during the period June 7, 1999 (date operations commenced) through October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the period June 7, 1999 (date operations commenced) through October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. FS-62 147 NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the period June 7, 1999 (date operations commenced) through October 31, 1999 was $395,499,125 and $63,821,633, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $47,072,441 - ------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (7,211,441) - ------------------------------------------------------------------------- Net unrealized appreciation of investment securities $39,861,000 =========================================================================
Cost of investments for tax purposes is $352,789,366. NOTE 7-CAPITAL STOCK Changes in capital stock outstanding during the period June 7, 1999 (date operations commenced) through October 31, 1999 were as follows:
OCTOBER 31, 1999 ------------------------- SHARES AMOUNT ---------- ------------ Sold: Class A 14,146,708 $155,933,583 - --------------------------------------------------------------------------------------- Class B 14,828,511 163,946,584 - --------------------------------------------------------------------------------------- Class C 4,372,731 48,262,483 - --------------------------------------------------------------------------------------- Issued as reinvestment of dividends: Reacquired: Class A (651,441) (7,308,367) - --------------------------------------------------------------------------------------- Class B (179,461) (2,020,882) - --------------------------------------------------------------------------------------- Class C (111,903) (1,264,036) - --------------------------------------------------------------------------------------- 32,405,145 $357,549,365 =======================================================================================
FS-63 148 NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A, Class B and Class C capital stock outstanding during the period June 7, 1999 (date operations commenced) through October 31, 1999.
CLASS A ----------- OCTOBER 31, 1999 ----------- Net asset value, beginning of period $ 10.00 - ------------------------------------------------------------ -------- Income from investment operations: Net investment income (loss) (0.03) - ------------------------------------------------------------ -------- Net gains on securities (both realized and unrealized) 2.17 - ------------------------------------------------------------ -------- Total from investment operations 2.14 - ------------------------------------------------------------ -------- Net asset value, end of period $ 12.14 ============================================================ ======== Total return(a) 21.40% ============================================================ ======== Ratios/supplement data: Net assets, end of period (000s omitted) $163,872 ============================================================ ======== Ratio of expenses to average net assets(b) 1.60% ============================================================ ======== Ratio of net investment income (loss) to average net assets(d) (1.00)% ============================================================ ======== Portfolio turnover rate 29% ============================================================ ========
(a) Does not deduct sales charges and is not annualized for periods less than one year. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.65% (annualized). (c) Ratios are annualized and based on average net assets of $86,627,852. (d) After fee waivers and/or expense reimbursements. Ratio of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements was (1.05)% (annualized).
CLASS B CLASS C ----------- ----------- OCTOBER 31, OCTOBER 31, 1999 1999 ----------- ----------- Net asset value, beginning of period $ 10.00 $ 10.00 - ------------------------------------------------------------ -------- ------- Income from investment operations: Net investment income (loss) (0.04) (0.04) - ------------------------------------------------------------ -------- ------- Net gains on securities (both realized and unrealized) 2.15 2.15 - ------------------------------------------------------------ -------- ------- Total from investment operations 2.11 2.11 - ------------------------------------------------------------ -------- ------- Net asset value, end of period $ 12.11 $ 12.11 ============================================================ ======== ======= Total return(a) 21.10% 21.10% ============================================================ ======== ======= Ratios/supplement data: Net assets, end of period (000s omitted) $177,430 $51,605 ============================================================ ======== ======= Ratio of expenses to average net assets(b) 2.24% 2.24% ============================================================ ======== ======= Ratio of net investment income (loss) to average net assets(d) (1.64)% (1.64)% ============================================================ ======== ======= Portfolio turnover rate 29% 29% ============================================================ ======== =======
(a) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (b) After fee waivers and/or expense reimbursement. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 2.29% (annualized) for Class B and 2.29% (annualized) for Class C. (c) Ratios are annualized and based on average net assets of $89,140,054 and $25,873,790 for Class B and Class C, respectively. (d) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (1.69)% (annualized) for Class B and (1.69)% (annualized) for Class C.
FS-64 149 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of AIM Large Cap Basic Value Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations, the statement of changes in net assets, and financial highlights for the period June 30, 1999 (date operations commenced) through October 31, 1999. 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, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 AIM Large Cap Basic Value Fund as of October 31, 1999, the results of its operations, the changes in its net assets and the financial highlights for the period June 30, 1999 (date operations commenced) through October 31, 1999 in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-65 150 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-90.30% AUTOMOBILES-1.43% Ford Motor Co. 300 $ 16,462 - ------------------------------------------------------------- BANKS (MAJOR REGIONAL)-1.89% Fleet Boston Corp. 500 21,812 - ------------------------------------------------------------- BANKS (MONEY CENTER)-2.79% Bank of America Corp. 500 32,187 - ------------------------------------------------------------- COMPUTERS (HARDWARE)-2.56% International Business Machines Corp. 300 29,512 - ------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-7.13% Akamai Technologies, Inc.(a) 200 29,038 - ------------------------------------------------------------- BMC Software, Inc.(a) 300 19,256 - ------------------------------------------------------------- Computer Associates International, Inc. 600 33,900 - ------------------------------------------------------------- 82,194 - ------------------------------------------------------------- DISTRIBUTORS (FOOD & HEALTH)-1.74% McKesson HBOC, Inc. 1,000 20,063 - ------------------------------------------------------------- ELECTRIC COMPANIES-6.86% Central and South West Corp. 800 17,750 - ------------------------------------------------------------- Illinova Corp. 500 15,906 - ------------------------------------------------------------- Niagara Mohawk Holdings, Inc.(a) 1,400 22,225 - ------------------------------------------------------------- Texas Utilities Co. 600 23,250 - ------------------------------------------------------------- 79,131 - ------------------------------------------------------------- ELECTRICAL EQUIPMENT-2.70% Koninklijke (Royal) Phillips Electronics N.V.-ADR (Netherlands) 300 31,181 - ------------------------------------------------------------- ENGINEERING & CONSTRUCTION-0.79% McDermott International, Inc. 500 9,063 - ------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-9.45% Associates First Capital Corp.-Class A 400 14,600 - ------------------------------------------------------------- Citigroup Inc. 800 43,300 - ------------------------------------------------------------- Fannie Mae 300 21,225 - ------------------------------------------------------------- MGIC Investment Corp. 500 29,875 - ------------------------------------------------------------- 109,000 - ------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-1.40% Pharmacia & Upjohn, Inc. 300 16,181 - ------------------------------------------------------------- HEALTH CARE (HOSPITAL MANAGEMENT)-3.44% Columbia/HCA Healthcare Corp. 800 19,300 - ------------------------------------------------------------- Health Management Associates, Inc.-Class A(a) 2,300 20,413 - ------------------------------------------------------------- 39,713 - -------------------------------------------------------------
MARKET SHARES VALUE HEALTH CARE (LONG TERM CARE)-0.96% Manor Care, Inc.(a) 700 $ 11,025 - ------------------------------------------------------------- HEALTH CARE (MANAGED CARE)-3.14% United Healthcare Corp. 700 36,181 - ------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.60% Beckman Coulter, Inc. 400 18,400 - ------------------------------------------------------------- INSURANCE (LIFE/HEALTH)-0.86% UnumProvident Corp. 300 9,881 - ------------------------------------------------------------- INSURANCE (MULTI-LINE)-1.12% American International Group, Inc. 125 12,867 - ------------------------------------------------------------- INSURANCE (PROPERTY-CASUALTY)-2.96% Travelers Property Casualty Corp.-Class A 500 18,000 - ------------------------------------------------------------- XL Capital Ltd.-Class A 300 16,106 - ------------------------------------------------------------- 34,106 - ------------------------------------------------------------- INVESTMENT MANAGEMENT-1.82% Franklin Resources, Inc. 600 21,000 - ------------------------------------------------------------- LEISURE TIME (PRODUCTS)-2.20% Mattel, Inc. 1,900 25,413 - ------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-2.34% Minnesota Mining and Manufacturing Co. 200 19,013 - ------------------------------------------------------------- Tyco International Ltd. 200 7,988 - ------------------------------------------------------------- 27,001 - ------------------------------------------------------------- MANUFACTURING (SPECIALIZED)-1.59% Parker Hannifin Corp. 400 18,325 - ------------------------------------------------------------- OIL & GAS (DRILLING & EQUIPMENT)-6.00% Diamond Offshore Drilling, Inc. 500 15,875 - ------------------------------------------------------------- ENSCO International, Inc. 800 15,500 - ------------------------------------------------------------- Schlumberger Ltd. 400 24,225 - ------------------------------------------------------------- Transocean Offshore, Inc. 500 13,594 - ------------------------------------------------------------- 69,194 - ------------------------------------------------------------- OIL (DOMESTIC INTEGRATED)-2.42% Atlantic Richfield Co. 300 27,956 - ------------------------------------------------------------- OIL (INTERNATIONAL INTEGRATED)-2.51% Mobil Corp. 300 28,950 - ------------------------------------------------------------- PAPER & FOREST PRODUCTS-2.28% International Paper Co. 500 26,313 - ------------------------------------------------------------- PERSONAL CARE-0.84% Avon Products, Inc. 300 9,675 - -------------------------------------------------------------
FS-66 151
MARKET SHARES VALUE RETAIL (DEPARTMENT STORES)-1.86% Federated Department Stores, Inc.(a) 300 $ 12,806 - ------------------------------------------------------------- Saks, Inc.(a) 500 8,594 - ------------------------------------------------------------- 21,400 - ------------------------------------------------------------- RETAIL (FOOD CHAINS)-1.57% Albertson's, Inc. 500 18,156 - ------------------------------------------------------------- SERVICES (DATA PROCESSING)-1.98% First Data Corp. 500 22,844 - ------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE)-2.03% AT&T Corp. 500 23,375 - ------------------------------------------------------------- TELEPHONE-4.46% Bell Atlantic Corp. 400 25,975 - ------------------------------------------------------------- SBC Communications, Inc. 500 25,469 - ------------------------------------------------------------- 51,444 - -------------------------------------------------------------
MARKET SHARES VALUE TOBACCO-1.75% Philip Morris Companies, Inc. 800 $ 20,150 - ------------------------------------------------------------- WASTE MANAGEMENT-1.83% Waste Management, Inc. 1,150 21,131 - ------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $1,126,359) 1,041,286 - -------------------------------------------------------------
PRINCIPAL AMOUNT U.S. GOVERNMENT AGENCY SECURITIES-10.06% FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC")-10.06% Discount Notes 5.16%, 11/01/99 (Cost $116,000) $116,000 116,000 ============================================================== TOTAL INVESTMENTS-100.36% 1,157,286 ============================================================== LIABILITIES LESS OTHER ASSETS-(0.36%) (4,179) ============================================================== NET ASSETS-100.00% $1,153,107 ==============================================================
Investment Abbreviation: ADR - American Depositary Receipt Notes to Schedule of Investments: (a) Non-income producing security. See Notes to Financial Statements. FS-67 152 STATEMENTS OF ASSETS AND LIABILITIES October 31, 1999 ASSETS: Investments, at market value (cost $1,242,359) $ 1,157,286 - -------------------------------------------------------- Cash 656 - -------------------------------------------------------- Receivables for: - -------------------------------------------------------- Dividends and interest 1,441 - -------------------------------------------------------- Investment for deferred compensation plan 1,207 - -------------------------------------------------------- Due from advisor 10,800 - -------------------------------------------------------- Other assets 6,374 - -------------------------------------------------------- Total assets 1,177,764 - -------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 14,373 - -------------------------------------------------------- Deferred compensation 1,207 - -------------------------------------------------------- Accrued administrative services fees 4,247 - -------------------------------------------------------- Accrued distribution fees 322 - -------------------------------------------------------- Accrued transfer agent fees 32 - -------------------------------------------------------- Accrued operating expenses 4,476 - -------------------------------------------------------- Total liabilities 24,657 - -------------------------------------------------------- NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 1,153,107 ======================================================== NET ASSETS: Class A $ 1,153,107 ======================================================== CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 122,735 ======================================================== Class A: Net asset value and redemption price per share $ 9.40 - -------------------------------------------------------- Offering price per share: (Net asset value of $9.40 divided by 94.50%) $ 9.95 ========================================================
STATEMENT OF OPERATIONS For the period June 30, 1999 (date operations commenced) through October 31, 1999 INVESTMENT INCOME: Dividends $ 5,355 - ------------------------------------------------------- Interest 2,565 - ------------------------------------------------------- Total investment income 7,920 - ------------------------------------------------------- EXPENSES: Advisory fees 2,279 - ------------------------------------------------------- Administrative services fees 16,849 - ------------------------------------------------------- Custodian fees 2,387 - ------------------------------------------------------- Directors' fees 1,608 - ------------------------------------------------------- Distribution fees -- Class A 1,330 - ------------------------------------------------------- Transfer agent fees -- Class A 155 - ------------------------------------------------------- Registration and filing fees 2,577 - ------------------------------------------------------- Printing fees 5,752 - ------------------------------------------------------- Professional fees 5,004 - ------------------------------------------------------- Other 115 - ------------------------------------------------------- Total expenses 38,056 - ------------------------------------------------------- Less: Fee waivers and reimbursement (33,310) - ------------------------------------------------------- Expenses paid indirectly (134) - ------------------------------------------------------- Net expenses 4,612 - ------------------------------------------------------- Net investment income 3,308 - ------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities 10,947 - ------------------------------------------------------- Futures contracts (2,451) - ------------------------------------------------------- 8,496 - ------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities (85,073) - ------------------------------------------------------- Net gain (loss) from investment securities and futures contracts (76,577) - ------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(73,269) =======================================================
See Notes to Financial Statements. FS-68 153 STATEMENT OF CHANGES IN NET ASSETS For the period June 30, 1999 (date operations commenced) through October 31, 1999
OCTOBER 31, 1999 ----------- OPERATIONS: Net investment income $ 3,308 - ------------------------------------------------------------------------- Net realized gain from investment securities and futures contracts 8,496 - ------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities and futures contracts (85,073) - ------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (73,269) - ------------------------------------------------------------------------- Share transactions-net: Class A 1,226,376 - ------------------------------------------------------------------------- Net increase in net assets 1,153,107 - ------------------------------------------------------------------------- NET ASSETS: Beginning of period -- - ------------------------------------------------------------------------- End of period $1,153,107 ========================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $1,222,360 - ------------------------------------------------------------------------- Undistributed net investment income 7,324 - ------------------------------------------------------------------------- Undistributed net realized gain from investment securities and futures contracts 8,496 - ------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities and futures contracts (85,073) - ------------------------------------------------------------------------- $1,153,107 =========================================================================
See Notes to Financial Statements. FS-69 154 NOTES TO FINANCIAL STATEMENTS October 31, 1999 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Large Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of ten separate portfolios. The Fund currently consists of three different classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge and are currently available only to employees of A I M Management Group, Inc., AMVESCAP PLC and their affiliates, to any current or retired officer, director or trustee of The AIM Family of Funds and to residents of Texas. Class B shares and Class C shares will be sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital with a secondary objective of current income. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income was increased by $4,016 and paid-in capital decreased by $4,016 as a result of nondeductible expense reclassifications in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Futures Contracts -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to FS-70 155 market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in value of the contracts may not correlate with changes in the value of the securities being hedged. E. Expenses -- Distribution expenses and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.60% of the first $1 billion of the Fund's average daily net assets, plus 0.575% over $1 billion to and including $2 billion of the Fund's average daily net assets and 0.55% of the Fund's average daily net assets over $2 billion. During the period June 30, 1999 (date operations commenced) through October 31, 1999, AIM waived fees of $2,279 and reimbursed expenses of $31,031. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the period June 30, 1999 (date operations commenced) through October 31, 1999, AIM was paid $16,849 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the period June 30, 1999 (date operations commenced) through October 31, 1999, AFS was paid $76 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the period June 30, 1999 (date operations commenced) through October 31, 1999, the Class A shares paid AIM Distributors $1,330 as compensation under the Plans. During the period June 30, 1999 (date operations commenced) through October 31, 1999, the Fund paid legal fees of $951 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the period June 30, 1999 (date operations commenced) through October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $3 and $131, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $134 during the period June 30, 1999 (date operations commenced) through October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the period June 30, 1999 (date operations commenced) through October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the period June 30, 1999 (date operations commenced) through October 31, 1999 was $1,209,659 and $94,251, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $ 49,862 - -------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (138,464) - -------------------------------------------------------- Net unrealized depreciation of investment securities $ (88,602) ========================================================
Cost of investments for tax purposes is $1,245,888. FS-71 156 NOTE 7-CAPITAL STOCK Changes in capital stock outstanding during the period June 30, 1999 (date operations commenced) through October 31, 1999 were as follows:
OCTOBER 31, 1999 -------------------- SHARES AMOUNT ------- ---------- Sold: Class A 125,927 $1,256,078 - ---------------------------------------------------------------------------------- Reacquired: Class A (3,192) (29,702) - ---------------------------------------------------------------------------------- 122,735 $1,226,376 ==================================================================================
NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during the period June 30, 1999 (date operations commenced) through October 31, 1999.
CLASS A ----------- OCTOBER 31, 1999 ----------- Net asset value, beginning of period $10.00 - ------------------------------------------------------------ ------ Income from investment operations: Net investment income 0.03 - ------------------------------------------------------------ ------ Net gains (losses) on securities (both realized and unrealized) (0.63) - ------------------------------------------------------------ ------ Total from investment operations (0.60) - ------------------------------------------------------------ ------ Net asset value, end of period $ 9.40 ============================================================ ====== Total return(a) (6.00)% ============================================================ ====== Ratios/supplemental data: Net assets, end of period (000s omitted) $1,153 ============================================================ ====== Ratio of expenses to average net assets(b) 1.25% ============================================================ ====== Ratio of net investment income to average net assets(d) 0.87% ============================================================ ====== Portfolio turnover rate 10% ============================================================ ======
(a) Does not deduct sales charges and is not annualized for periods less than one year. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 10.02% (annualized). (c) Ratios are annualized and based on average net assets of $1,127,371. (d) After fee waivers and/or expense reimbursements. Ratio of net investment income to average net assets prior to fee waivers and/or expense reimbursements was (7.90)% (annualized). FS-72 157 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of AIM Large Cap Growth Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations, the statement of changes in net assets, and financial highlights for the period March 1, 1999 (date operations commenced) through October 31, 1999. 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, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 AIM Large Cap Growth Fund as of October 31, 1999, the results of its operations, the changes in its net assets and the financial highlights for the period March 1, 1999 (date operations commenced) through October 31, 1999 in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-73 158 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE COMMON STOCKS & OTHER EQUITY INTERESTS-84.06% BEVERAGES (NON-ALCOHOLIC)-0.52% Coca-Cola Co. (The) 1,230 $ 72,570 - ------------------------------------------------------------- BIOTECHNOLOGY-0.92% Amgen, Inc.(a) 1,600 127,600 - ------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-6.76% AT&T Corp.-Liberty Media Group-Class A(a) 2,600 103,187 - ------------------------------------------------------------- Cablevision Systems Corp.-Class A(a) 5,000 337,812 - ------------------------------------------------------------- Clear Channel Communications, Inc.(a) 1,980 159,142 - ------------------------------------------------------------- Comcast Corp.-Class A 5,300 223,262 - ------------------------------------------------------------- Infinity Broadcasting Corp.-Class A(a) 3,300 114,056 - ------------------------------------------------------------- 937,459 - ------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-3.90% JDS Uniphase Corp.(a) 400 66,750 - ------------------------------------------------------------- Lucent Technologies Inc. 1,960 125,930 - ------------------------------------------------------------- Motorola, Inc. 2,200 214,362 - ------------------------------------------------------------- QUALCOMM, Inc.(a) 600 133,650 - ------------------------------------------------------------- 540,692 - ------------------------------------------------------------- COMPUTERS (HARDWARE)-4.71% Dell Computer Corp.(a) 3,600 144,450 - ------------------------------------------------------------- Gateway, Inc.(a) 2,100 138,731 - ------------------------------------------------------------- International Business Machines Corp. 1,500 147,562 - ------------------------------------------------------------- Sun Microsystems, Inc.(a) 2,100 222,206 - ------------------------------------------------------------- 652,949 - ------------------------------------------------------------- COMPUTERS (NETWORKING)-2.78% Cisco Systems, Inc.(a) 5,200 384,800 - ------------------------------------------------------------- COMPUTERS (PERIPHERALS)-1.50% EMC Corp.(a) 2,000 146,000 - ------------------------------------------------------------- Lexmark International Group, Inc.-Class A(a) 800 62,450 - ------------------------------------------------------------- 208,450 - ------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-13.30% America Online, Inc.(a) 2,000 259,375 - ------------------------------------------------------------- Intuit, Inc.(a) 2,100 61,163 - ------------------------------------------------------------- Microsoft Corp.(a) 8,400 777,525 - ------------------------------------------------------------- Oracle Corp.(a) 4,000 190,250 - ------------------------------------------------------------- Siebel Systems, Inc.(a) 1,500 164,719 - ------------------------------------------------------------- Unisys Corp.(a) 2,800 67,900 - ------------------------------------------------------------- VERITAS Software Corp.(a) 2,000 215,750 - ------------------------------------------------------------- Yahoo! Inc.(a) 600 107,438 - ------------------------------------------------------------- 1,844,120 - -------------------------------------------------------------
MARKET SHARES VALUE CONSUMER FINANCE-1.02% Providian Financial Corp. 1,300 $ 141,700 - ------------------------------------------------------------- ELECTRICAL EQUIPMENT-3.91% General Electric Co. 4,000 542,250 - ------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-4.26% Intel Corp. 2,300 178,106 - ------------------------------------------------------------- Linear Technology Corp. 1,100 76,931 - ------------------------------------------------------------- LSI Logic Corp.(a) 1,000 53,188 - ------------------------------------------------------------- Texas Instruments, Inc. 2,100 188,475 - ------------------------------------------------------------- Xilinx, Inc.(a) 1,200 94,350 - ------------------------------------------------------------- 591,050 - ------------------------------------------------------------- EQUIPMENT (SEMICONDUCTOR)-0.76% Applied Materials, Inc.(a) 550 49,397 - ------------------------------------------------------------- Teradyne, Inc.(a) 1,470 56,595 - ------------------------------------------------------------- 105,992 - ------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-4.03% American Express Co. 1,000 154,000 - ------------------------------------------------------------- Freddie Mac 7,500 405,469 - ------------------------------------------------------------- 559,469 - ------------------------------------------------------------- FOOTWEAR-0.41% Nike, Inc.-Class B 1,000 56,438 - ------------------------------------------------------------- HEALTH CARE (DIVERSIFIED)-8.34% American Home Products Corp. 2,000 104,500 - ------------------------------------------------------------- Bristol-Myers Squibb Co. 4,500 345,656 - ------------------------------------------------------------- Johnson & Johnson 4,000 419,000 - ------------------------------------------------------------- Warner-Lambert Co. 3,600 287,325 - ------------------------------------------------------------- 1,156,481 - ------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-3.83% Merck & Co., Inc. 900 71,606 - ------------------------------------------------------------- Pfizer, Inc. 7,400 292,300 - ------------------------------------------------------------- Pharmacia & Upjohn, Inc. 1,000 53,938 - ------------------------------------------------------------- Schering-Plough Corp. 2,300 113,850 - ------------------------------------------------------------- 531,694 - ------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-4.38% Guidant Corp. 8,800 434,500 - ------------------------------------------------------------- Medtronic, Inc. 5,000 173,125 - ------------------------------------------------------------- 607,625 - ------------------------------------------------------------- HOUSEHOLD PRODUCTS (NON-DURABLES)-1.29% Procter & Gamble, Co. (The) 1,700 178,288 - -------------------------------------------------------------
FS-74 159
MARKET SHARES VALUE INSURANCE (MULTI-LINE)-3.19% American International Group, Inc. 4,300 $ 442,631 - ------------------------------------------------------------- LODGING (HOTELS)-0.80% Carnival Corp. 2,500 111,250 - ------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-2.65% AlliedSignal, Inc. 1,100 62,631 - ------------------------------------------------------------- Tyco International Ltd. 4,600 183,713 - ------------------------------------------------------------- United Technologies Corp. 2,000 121,000 - ------------------------------------------------------------- 367,344 - ------------------------------------------------------------- NATURAL GAS-0.66% Enron Corp. 2,300 91,856 - ------------------------------------------------------------- POWER PRODUCERS (INDEPENDENT)-0.37% AES Corp.(a) 900 50,794 - ------------------------------------------------------------- RETAIL (BUILDING SUPPLIES)-2.41% Home Depot, Inc. (The) 2,675 201,963 - ------------------------------------------------------------- Lowe's Companies, Inc. 2,400 132,000 - ------------------------------------------------------------- 333,963 - ------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS)-0.56% Best Buy Co., Inc.(a) 1,400 77,788 - ------------------------------------------------------------- RETAIL (GENERAL MERCHANDISE)-3.00% Dayton Hudson Corp. 3,200 206,800 - ------------------------------------------------------------- Wal-Mart Stores, Inc. 3,700 209,744 - ------------------------------------------------------------- 416,544 - ------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL)-0.43% Gap, Inc. (The) 1,600 59,400 - -------------------------------------------------------------
MARKET SHARES VALUE SERVICES (ADVERTISING/MARKETING)-1.08% Omnicom Group, Inc. 1,700 $ 149,600 - ------------------------------------------------------------- TELECOMMUNICATIONS (LONG DISTANCE)-2.29% MCI WorldCom, Inc.(a) 3,700 317,506 - ------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $10,450,007) 11,658,303 - ------------------------------------------------------------- FOREIGN STOCKS-5.21% CANADA-0.63% Nortel Networks Corp. (Communications Equipment) 1,400 86,712 - ------------------------------------------------------------- FINLAND-4.58% Nokia Oyj-ADR (Communications Equipment) 5,500 635,594 - ------------------------------------------------------------- Total Foreign Stocks (Cost $481,940) 722,306 - -------------------------------------------------------------
PRINCIPAL AMOUNT U.S. TREASURY SECURITIES-0.11% U.S. TREASURY BILLS-0.11%(B) 4.748%, 12/23/99 (Cost $14,896) $ 15,000(c) 14,896 - --------------------------------------------------------------
SHARES MONEY MARKET FUNDS-11.88% STIC Liquid Assets Portfolio(d) 824,288 824,288 - ------------------------------------------------------------- STIC Prime Portfolio(d) 824,288 824,288 - ------------------------------------------------------------- Total Money Market Funds (Cost $1,648,576) 1,648,576 - ------------------------------------------------------------- TOTAL INVESTMENTS-101.26% 14,044,081 - ------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS-(1.26%) (174,655) - ------------------------------------------------------------- NET ASSETS-100.00% $13,869,426 =============================================================
Investment Abbreviation: ADR - American Depositary Receipt Notes to Schedule of Investments: (a) Non-income producing security. (b) 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. (c) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contract. See Note 7. (d) The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-75 160 STATEMENTS OF ASSETS AND LIABILITIES October 31, 1999 ASSETS: Investments, at market value (cost $12,595,419) $14,044,081 - -------------------------------------------------------- Receivables for: Capital stock sold 92,779 - -------------------------------------------------------- Dividends and interest 4,890 - -------------------------------------------------------- Investments sold 68,958 - -------------------------------------------------------- Variation margin 3,900 - -------------------------------------------------------- Investment for deferred compensation plan 4,098 - -------------------------------------------------------- Other assets 30,258 - -------------------------------------------------------- Total assets 14,248,964 - -------------------------------------------------------- LIABILITIES: Payables for: Capital stock acquired 160,389 - -------------------------------------------------------- Investments purchased 160,022 - -------------------------------------------------------- Deferred compensation plan 4,098 - -------------------------------------------------------- Accrued advisory fees 10,176 - -------------------------------------------------------- Accrued administrative services fees 4,247 - -------------------------------------------------------- Accrued directors' fees 580 - -------------------------------------------------------- Accrued distribution fees 7,598 - -------------------------------------------------------- Accrued transfer agent fees 2,232 - -------------------------------------------------------- Accrued operating expenses 30,196 - -------------------------------------------------------- Total liabilities 379,538 - -------------------------------------------------------- Net assets applicable to shares outstanding $13,869,426 ======================================================== NET ASSETS: Class A $ 7,785,199 ======================================================== Class B $ 5,183,176 ======================================================== Class C $ 901,051 ======================================================== CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 689,363 ======================================================== Class B: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 460,761 ======================================================== Class C: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 80,064 ======================================================== Class A: Net asset value and redemption price per share $ 11.29 - -------------------------------------------------------- Offering price per share: (Net asset value of $11.29 / 94.50%) $ 11.95 ======================================================== Class B: Net asset value and offering price per share $ 11.25 ======================================================== Class C: Net asset value and offering price per share $ 11.25 ========================================================
STATEMENT OF OPERATIONS For the period March 1, 1999 (date operations commenced) through October 31, 1999 INVESTMENT INCOME: Dividends (net of $116 foreign withholding tax) $ 23,063 - -------------------------------------------------------- Interest 29,637 - -------------------------------------------------------- Total investment income 52,700 - -------------------------------------------------------- EXPENSES: Advisory fees 42,255 - -------------------------------------------------------- Administrative services fees 29,197 - -------------------------------------------------------- Custodian fees 7,781 - -------------------------------------------------------- Directors' fees 6,085 - -------------------------------------------------------- Distribution fees -- Class A 13,159 - -------------------------------------------------------- Distribution fees -- Class B 16,134 - -------------------------------------------------------- Distribution fees -- Class C 2,610 - -------------------------------------------------------- Transfer agent fees -- Class A 5,220 - -------------------------------------------------------- Transfer agent fees -- Class B 2,113 - -------------------------------------------------------- Transfer agent fees -- Class C 342 - -------------------------------------------------------- Registration and filing fees 45,848 - -------------------------------------------------------- Professional fees 24,335 - -------------------------------------------------------- Other 23,014 - -------------------------------------------------------- Total expenses 218,093 - -------------------------------------------------------- Less: Fee waivers and reimbursement (118,380) - -------------------------------------------------------- Expenses paid indirectly (203) - -------------------------------------------------------- Net expenses 99,510 - -------------------------------------------------------- Net investment income (loss) (46,810) - -------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FUTURES CONTRACTS: Net realized gain (loss) from: Investment securities (425,297) - -------------------------------------------------------- Futures contracts (4,655) - -------------------------------------------------------- (429,952) - -------------------------------------------------------- Change in net unrealized appreciation of: Investment securities 1,448,662 - -------------------------------------------------------- Futures contracts 5,475 - -------------------------------------------------------- 1,454,137 - -------------------------------------------------------- Net gain from investment securities and futures contracts 1,024,185 - -------------------------------------------------------- Net increase in net assets resulting from operations $ 977,375 ========================================================
See Notes to Financial Statements. FS-76 161 STATEMENT OF CHANGES IN NET ASSETS For the period March 1, 1999 (date operations commenced) through October 31, 1999
OCTOBER 31, 1999 ----------- OPERATIONS: Net investment income (loss) $ (46,810) - ------------------------------------------------------------------------- Net realized gain (loss) from investment securities and futures contracts (429,952) - ------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities and futures contracts 1,454,137 - ------------------------------------------------------------------------- Net increase in net assets resulting from operations 977,375 - ------------------------------------------------------------------------- Share transactions-net: Class A 7,163,788 - ------------------------------------------------------------------------- Class B 4,882,266 - ------------------------------------------------------------------------- Class C 845,997 - ------------------------------------------------------------------------- Net increase in net assets 13,869,426 - ------------------------------------------------------------------------- NET ASSETS: Beginning of period -- - ------------------------------------------------------------------------- End of period $13,869,426 ========================================================================= NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $12,880,971 - ------------------------------------------------------------------------- Undistributed net investment income (loss) (35,730) - ------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and futures contracts (429,952) - ------------------------------------------------------------------------- Unrealized appreciation of investment securities and futures contracts 1,454,137 - ------------------------------------------------------------------------- $13,869,426 =========================================================================
See Notes to Financial Statements. FS-77 162 NOTES TO FINANCIAL STATEMENTS October 31, 1999 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Large Cap 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 ten separate portfolios. The Fund currently offers three different classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income was increased by $11,080 and paid-in capital decreased by $11,080 as a result of nondeductible expense reclassifications in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. The Fund has a capital loss carryforward of $380,100 as of October 31, 1999 which may be carried forward to offset future taxable gains, if any, which expires, if not previously utilized, in the year 2007. D. Futures Contracts -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the FS-78 163 contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in value of the contracts may not correlate with changes in the value of the securities being hedged. E. Expenses -- Distribution expenses and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1 billion of the Fund's average daily net assets, plus 0.70% over $1 billion to and including $2 billion of the Fund's average daily net assets and 0.625% of the Fund's average daily net assets over $2 billion. During the period March 1, 1999 (date operations commenced) through October 31, 1999, AIM waived fees of $32,079 and reimbursed expenses of $86,301. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the period March 1, 1999 (date operations commenced) through October 31, 1999, AIM was paid $29,197 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the period March 1, 1999 (date operations commenced) through October 31, 1999, AFS was paid $2,310 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund , pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the period March 1, 1999 (date operations commenced) through October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $13,159, $16,134 and 2,610, respectively, as compensation under the Plans. AIM Distributors received commissions of $12,562 from sales of the Class A shares of the Fund during the period March 1, 1999 (date operations commenced) through October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the period March 1, 1999 (date operations commenced) through October 31, 1999, AIM Distributors received $373 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the period March 1, 1999 (date operations commenced) through October 31, 1999, the Fund paid legal fees of $2,211 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the period March 1, 1999 (date operations commenced) through October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $55 and $148, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $203 during the period March 1, 1999 (date operations commenced) through October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the period March 1, 1999 (date operations commenced) through October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. FS-79 164 NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the period March 1, 1999 (date operations commenced) through October 31, 1999 was $12,918,797 and $1,561,062, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $1,703,186 - ------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (298,900) - ------------------------------------------------------------------------ Net unrealized appreciation of investment securities $1,404,286 ========================================================================
Cost of investments for tax purposes is $12,639,795 NOTE 7-FUTURES CONTRACTS On October 31, 1999, $15,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts were as follows:
NO. OF MONTH/ UNREALIZED CONTRACT CONTRACTS COMMITMENT APPRECIATION - ------------------------------------------------------------ --------- ---------- ------------ E-mini S & P 500 Index 3 Dec. 99 $5,475 ============================================================ ========= ========== ============
NOTE 8-CAPITAL STOCK Changes in capital stock outstanding during the period March 1, 1999 (date operations commenced) through October 31, 1999 were as follows:
1999 ----------------------- SHARES AMOUNT --------- ----------- Sold: Class A 788,751 $ 8,217,840 - ------------------------------------------------------------------------------------- Class B 577,653 6,130,128 - ------------------------------------------------------------------------------------- Class C 85,761 907,295 - ------------------------------------------------------------------------------------- Issued as reinvestment of dividends: Reacquired: Class A (99,388) (1,054,052) - ------------------------------------------------------------------------------------- Class B (116,892) (1,247,862) - ------------------------------------------------------------------------------------- Class C (5,697) (61,298) - ------------------------------------------------------------------------------------- 1,230,188 $12,892,051 =====================================================================================
FS-80 165 NOTE 9-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during the period March 1, 1999 (date operations commenced) through October 31, 1999, and for a share of Class B and Class C outstanding during the period April 5, 1999 (date sales commenced) through October 31, 1999.
CLASS A ------- 1999 ------- Net asset value, beginning of period $10.00 - ------------------------------------------------------------ ------ Income from investment operations: Net investment income (loss) (0.04) - ------------------------------------------------------------ ------ Net gains on securities (both realized and unrealized) 1.33 - ------------------------------------------------------------ ------ Total from investment operations 1.29 - ------------------------------------------------------------ ------ Net asset value, end of period $11.29 ============================================================ ====== Total return(a) 13.70% ============================================================ ====== Ratios/supplement data: Net assets, end of period (000s omitted) $7,785 ============================================================ ====== Ratio of expenses to average net assets(b) 1.53%(c) ============================================================ ====== Ratio of net investment income to average net assets(d) (0.59)%(c) ============================================================ ====== Portfolio turnover rate 21% ============================================================ ======
(a) Does not deduct sales charges and is not annualized for periods less than one year. (b) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 3.63% (annualized). (c) Ratios are annualized and based on average net assets of $5,601,043. (d) After fee waivers and/or expense reimbursements. Ratio of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements was (2.69)% (annualized).
CLASS B CLASS C ------- ------- 1999 1999 ------- ------- Net asset value, beginning of period $11.02 $11.02 - ------------------------------------------------------------ ------ ------ Income from investment operations: Net investment income (loss)(a) (0.08) (0.08) - ------------------------------------------------------------ ------ ------ Net gains (losses) on securities (both realized and unrealized) 0.31 0.31 - ------------------------------------------------------------ ------ ------ Total from investment operations 0.23 0.23 - ------------------------------------------------------------ ------ ------ Net asset value, end of period $11.25 $11.25 ============================================================ ====== ====== Total return(b) 2.09% 2.09% ============================================================ ====== ====== Ratios/supplement data: Net assets, end of period (000s omitted) $5,183 $ 901 ============================================================ ====== ====== Ratio of expenses to average net assets(c) 2.23%(d) 2.23%(d) ============================================================ ====== ====== Ratio of net investment income (loss) to average net assets(e) (1.29)%(d) (1.29)%(d) ============================================================ ====== ====== Portfolio turnover rate 21% 21% ============================================================ ====== ======
(a) Calculated based upon the average shares outstanding during the period. (b) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursement. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 4.33% (annualized) for Class B and 4.33% (annualized) for Class C. (d) Ratios are annualized and based on average net assets of $2,804,277 and $453,655 for Class B and Class C, respectively. (e) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (3.39)% (annualized) for Class B and (3.39)% (annualized) for Class C. FS-81 166 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors AIM Equity Funds, Inc.: We have audited the accompanying statement of assets and liabilities of AIM Weingarten Fund (a portfolio of AIM Equity Funds, Inc.), including the schedule of investments, as of October 31, 1999, the related statement of operations for the year then ended, the statement of changes in net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM Weingarten Fund as of October 31, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended in conformity with generally accepted accounting principles. KPMG LLP December 3, 1999 Houston, Texas FS-82 167 SCHEDULE OF INVESTMENTS October 31, 1999
MARKET SHARES VALUE DOMESTIC COMMON STOCKS & OTHER EQUITY INTERESTS-94.51% BIOTECHNOLOGY-0.32% Amgen, Inc.(a) 386,300 $ 30,807,425 - --------------------------------------------------------------- BROADCASTING (TELEVISION, RADIO & CABLE)-7.88% AT&T Corp. - Liberty Media Group-Class A(a) 3,300,000 130,968,750 - --------------------------------------------------------------- Cablevision Systems Corp.-Class A(a) 579,700 39,165,981 - --------------------------------------------------------------- Clear Channel Communications, Inc.(a) 2,000,000 160,750,000 - --------------------------------------------------------------- Comcast Corp.-Class A 6,554,600 276,112,525 - --------------------------------------------------------------- Cox Communications, Inc.-Class A(a) 2,330,900 105,910,269 - --------------------------------------------------------------- Infinity Broadcasting Corp.-Class A(a) 1,274,500 44,049,906 - --------------------------------------------------------------- 756,957,431 - --------------------------------------------------------------- COMMUNICATIONS EQUIPMENT-9.33% General Instrument Corp.(a) 2,822,200 151,869,637 - --------------------------------------------------------------- JDS Uniphase Corp.(a) 250,000 41,718,750 - --------------------------------------------------------------- Lucent Technologies Inc. 2,500,000 160,625,000 - --------------------------------------------------------------- Motorola, Inc. 1,100,000 107,181,250 - --------------------------------------------------------------- Nokia Oyj-ADR (Finland) 1,000,000 115,562,500 - --------------------------------------------------------------- Nortel Networks Corp. (Canada) 3,250,000 201,296,875 - --------------------------------------------------------------- QUALCOMM, Inc.(a) 247,700 55,175,175 - --------------------------------------------------------------- Tellabs, Inc.(a) 988,000 62,491,000 - --------------------------------------------------------------- 895,920,187 - --------------------------------------------------------------- COMPUTERS (HARDWARE)-6.54% Apple Computer, Inc.(a) 1,000,000 80,125,000 - --------------------------------------------------------------- Gateway, Inc.(a) 3,600,000 237,825,000 - --------------------------------------------------------------- International Business Machines Corp. 1,000,000 98,375,000 - --------------------------------------------------------------- Sun Microsystems, Inc.(a)(b) 2,000,000 211,625,000 - --------------------------------------------------------------- 627,950,000 - --------------------------------------------------------------- COMPUTERS (NETWORKING)-2.22% Cisco Systems, Inc.(a)(b) 2,879,800 213,105,200 - --------------------------------------------------------------- COMPUTERS (PERIPHERALS)-1.66% EMC Corp.(a)(b) 900,000 65,700,000 - --------------------------------------------------------------- Lexmark International Group, Inc.-Class A(a) 1,204,400 94,018,475 - --------------------------------------------------------------- 159,718,475 - --------------------------------------------------------------- COMPUTERS (SOFTWARE & SERVICES)-13.02% America Online, Inc.(a)(b) 2,000,000 259,375,000 - --------------------------------------------------------------- BMC Software, Inc.(a) 634,800 40,746,225 - --------------------------------------------------------------- Citrix Systems, Inc.(a) 1,581,700 101,426,512 - --------------------------------------------------------------- Compuware Corp.(a)(b) 421,400 11,720,187 - --------------------------------------------------------------- Intuit, Inc.(a) 1,198,200 34,897,575 - --------------------------------------------------------------- Microsoft Corp.(a) 4,750,000 439,671,875 - ---------------------------------------------------------------
MARKET SHARES VALUE COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED) Oracle Corp.(a) 248,600 $ 11,824,037 - --------------------------------------------------------------- Rational Software Corp.(a) 528,600 22,597,650 - --------------------------------------------------------------- Unisys Corp.(a) 2,977,600 72,206,800 - --------------------------------------------------------------- VERITAS Software Corp.(a)(b) 1,250,000 134,843,750 - --------------------------------------------------------------- Yahoo! Inc.(a)(b) 675,000 120,867,188 - --------------------------------------------------------------- 1,250,176,799 - --------------------------------------------------------------- ELECTRICAL EQUIPMENT-4.42% General Electric Co. 1,000,000 135,562,500 - --------------------------------------------------------------- Koninklijke (Royal) Philips Electronics N.V.-ADR (Netherlands) 506,000 52,592,375 - --------------------------------------------------------------- Koninklijke (Royal) Philips Electronics N.V. (Netherlands) 948,520 97,294,320 - --------------------------------------------------------------- Sanmina Corp.(a)(b) 1,023,000 92,133,938 - --------------------------------------------------------------- Symbol Technologies, Inc. 1,188,000 47,223,000 - --------------------------------------------------------------- 424,806,133 - --------------------------------------------------------------- ELECTRONICS (INSTRUMENTATION)-0.44% Waters Corp.(a) 800,000 42,500,000 - --------------------------------------------------------------- ELECTRONICS (SEMICONDUCTORS)-5.88% Analog Devices, Inc.(a) 1,300,000 69,062,500 - --------------------------------------------------------------- Cypress Semiconductor Corp.(a) 2,500,000 63,906,250 - --------------------------------------------------------------- Intel Corp.(b) 720,000 55,755,000 - --------------------------------------------------------------- LSI Logic Corp.(a) 1,250,000 66,484,375 - --------------------------------------------------------------- Texas Instruments, Inc. 1,700,000 152,575,000 - --------------------------------------------------------------- Xilinx, Inc.(a) 2,000,000 157,250,000 - --------------------------------------------------------------- 565,033,125 - --------------------------------------------------------------- ENTERTAINMENT-1.38% Time Warner, Inc. 1,900,000 132,406,250 - --------------------------------------------------------------- FINANCIAL (DIVERSIFIED)-4.96% American Express Co. 700,000 107,800,000 - --------------------------------------------------------------- Fannie Mae 2,263,900 160,170,925 - --------------------------------------------------------------- Freddie Mac 3,859,600 208,659,625 - --------------------------------------------------------------- 476,630,550 - --------------------------------------------------------------- HEALTH CARE (DIVERSIFIED)-7.95% Bristol-Myers Squibb Co. 2,500,000 192,031,250 - --------------------------------------------------------------- Johnson & Johnson 2,785,947 291,827,948 - --------------------------------------------------------------- Warner-Lambert Co. 3,500,000 279,343,750 - --------------------------------------------------------------- 763,202,948 - --------------------------------------------------------------- HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-2.73% Pfizer, Inc. 1,076,200 42,509,900 - ---------------------------------------------------------------
FS-83 168
MARKET SHARES VALUE HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-(CONTINUED) Pharmacia & Upjohn, Inc. 1,500,000 $ 80,906,250 - --------------------------------------------------------------- Schering-Plough Corp. 2,795,700 138,387,150 - --------------------------------------------------------------- 261,803,300 - --------------------------------------------------------------- HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.44% Bausch & Lomb, Inc. 412,200 22,258,800 - --------------------------------------------------------------- Guidant Corp. 4,297,100 212,169,313 - --------------------------------------------------------------- 234,428,113 - --------------------------------------------------------------- INSURANCE (MULTI-LINE)-2.18% American International Group, Inc. 2,030,500 209,014,594 - --------------------------------------------------------------- LODGING-HOTELS-2.05% Carnival Corp. 2,318,800 103,186,600 - --------------------------------------------------------------- Royal Caribbean Cruises Ltd. 1,762,300 93,512,044 - --------------------------------------------------------------- 196,698,644 - --------------------------------------------------------------- MANUFACTURING (DIVERSIFIED)-2.50% Tyco International Ltd. 6,000,000 239,625,000 - --------------------------------------------------------------- NATURAL GAS-0.48% Enron Corp. 1,150,000 45,928,125 - --------------------------------------------------------------- RETAIL (BUILDING SUPPLIES)-4.10% Home Depot, Inc. (The) 3,275,000 247,262,500 - --------------------------------------------------------------- Lowe's Companies, Inc. 2,660,000 146,300,000 - --------------------------------------------------------------- 393,562,500 - --------------------------------------------------------------- RETAIL (COMPUTERS & ELECTRONICS)-2.51% Best Buy Co., Inc.(a) 1,340,000 74,453,750 - --------------------------------------------------------------- Circuit City Stores-Circuit City Group 1,700,000 72,568,750 - --------------------------------------------------------------- Tandy Corp. 1,500,000 94,406,250 - --------------------------------------------------------------- 241,428,750 - --------------------------------------------------------------- RETAIL (DISCOUNTERS)-0.15% Dollar Tree Stores, Inc.(a) 324,600 14,140,388 - --------------------------------------------------------------- RETAIL (FOOD CHAINS)-0.42% Kroger Co. (The)(a) 1,950,000 40,584,375 - ---------------------------------------------------------------
MARKET SHARES VALUE RETAIL (GENERAL MERCHANDISE)-3.01% Costco Wholesale Corp.(a) 700,000 $ 56,218,750 - --------------------------------------------------------------- Dayton Hudson Corp. 1,405,300 90,817,513 - --------------------------------------------------------------- Wal-Mart Stores, Inc. 2,500,000 141,718,750 - --------------------------------------------------------------- 288,755,013 - --------------------------------------------------------------- RETAIL (SPECIALTY)-0.38% Tiffany & Co. 609,000 36,235,500 - --------------------------------------------------------------- RETAIL (SPECIALTY-APPAREL)-0.65% Gap, Inc. (The) 670,000 24,873,750 - --------------------------------------------------------------- Intimate Brands, Inc.(c) 909,100 37,273,100 - --------------------------------------------------------------- 62,146,850 - --------------------------------------------------------------- SERVICES (ADVERTISING/MARKETING)-2.43% Outdoor Systems, Inc.(a) 5,500,000 233,062,500 - --------------------------------------------------------------- SERVICES (DATA PROCESSING)-0.94% Concord EFS, Inc.(a) 323,700 8,760,131 - --------------------------------------------------------------- First Data Corp. 1,440,000 65,790,000 - --------------------------------------------------------------- Fiserv, Inc.(a) 477,175 15,269,600 - --------------------------------------------------------------- 89,819,731 - --------------------------------------------------------------- TELECOMMUNICATIONS (CELLULAR/ WIRELESS)-1.54% Nextel Communications, Inc.-Class A(a) 1,300,000 112,043,750 - --------------------------------------------------------------- Western Wireless Corp.-Class A(a) 672,900 35,579,588 - --------------------------------------------------------------- 147,623,338 - --------------------------------------------------------------- Total Domestic Common Stocks & Other Equity Interests (Cost $5,900,438,167) 9,074,071,244 - --------------------------------------------------------------- MONEY MARKET FUNDS-6.05% STIC Liquid Assets Portfolio(d) 290,412,117 290,412,117 - --------------------------------------------------------------- STIC Prime Portfolio(d) 290,412,117 290,412,117 - --------------------------------------------------------------- Total Money Market Funds (Cost $580,824,234) 580,824,234 - --------------------------------------------------------------- TOTAL INVESTMENTS-100.56% 9,654,895,478 - --------------------------------------------------------------- LIABILITIES LESS OTHER ASSETS-(0.56%) (54,205,007) - --------------------------------------------------------------- NET ASSETS-100.00% $9,600,690,471 ===============================================================
Investment Abbreviations: ADR - American Depositary Receipt Notes to Schedule of Investments: (a) Non-income producing security. (b) A portion of this security is subject to call options written. See Note 7. (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 not owned enough of the outstanding voting securities of the issuer to have control (as defined in the Investment Company Act of 1940) of that issuer. The market value as of 10/31/99 represented 0.39% of the Fund's net assets. (d) The security shares the same investment advisor as the Fund. See Notes to Financial Statements. FS-84 169 STATEMENT OF ASSETS AND LIABILITIES October 31, 1999 ASSETS: Investments, at market value (cost $6,481,262,401) $9,654,895,478 - -------------------------------------------------------- Receivables for: Investments sold 292,802,227 - -------------------------------------------------------- Capital stock sold 9,059,459 - -------------------------------------------------------- Dividends and interest 3,724,856 - -------------------------------------------------------- Investment for deferred compensation plan 132,089 - -------------------------------------------------------- Other assets 170,438 - -------------------------------------------------------- Total assets 9,960,784,547 - -------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 200,543,565 - -------------------------------------------------------- Capital stock reacquired 11,182,096 - -------------------------------------------------------- Deferred compensation 132,089 - -------------------------------------------------------- Options written (premiums received $116,996,621) 137,381,137 - -------------------------------------------------------- Accrued advisory fees 4,560,939 - -------------------------------------------------------- Accrued administrative services fees 33,365 - -------------------------------------------------------- Accrued directors' fees 3,745 - -------------------------------------------------------- Accrued distribution fees 4,061,117 - -------------------------------------------------------- Accrued transfer agent fees 1,100,647 - -------------------------------------------------------- Accrued operating expenses 1,095,376 - -------------------------------------------------------- Total liabilities 360,094,076 - -------------------------------------------------------- Net assets applicable to shares outstanding $9,600,690,471 ======================================================== NET ASSETS: Class A $8,089,739,193 ======================================================== Class B $1,291,455,555 ======================================================== Class C $ 105,419,980 ======================================================== Institutional Class $ 114,075,743 ======================================================== CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 285,748,483 ======================================================== Class B: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 47,327,507 ======================================================== Class C: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 3,860,919 ======================================================== Institutional Class: Authorized 200,000,000 - -------------------------------------------------------- Outstanding 3,938,787 ======================================================== Class A: Net asset value and redemption price per share $ 28.31 - -------------------------------------------------------- Offering price per share: (Net asset value of $28.31 / 94.50%) $ 29.96 ======================================================== Class B: Net asset value and offering price per share $ 27.29 ======================================================== Class C: Net asset value and offering price per share $ 27.30 ======================================================== Institutional Class: Net asset value, offering and redemption price per share $ 28.96 ========================================================
See Notes to Financial Statements. STATEMENT OF OPERATIONS For the year ended October 31, 1999 INVESTMENT INCOME: Dividends (net of $491,673 foreign withholding tax) $ 35,922,859 - ---------------------------------------------------------- Interest 20,631,177 - ---------------------------------------------------------- Total investment income 56,554,036 - ---------------------------------------------------------- EXPENSES: Advisory fees 54,999,214 - ---------------------------------------------------------- Administrative services fees 281,500 - ---------------------------------------------------------- Custodian fees 560,875 - ---------------------------------------------------------- Directors' fees 63,384 - ---------------------------------------------------------- Distribution fees-Class A 22,561,363 - ---------------------------------------------------------- Distribution fees-Class B 10,382,904 - ---------------------------------------------------------- Distribution fees-Class C 593,913 - ---------------------------------------------------------- Transfer agent fees-Class A 8,377,262 - ---------------------------------------------------------- Transfer agent fees-Class B 2,106,122 - ---------------------------------------------------------- Transfer agent fees-Class C 144,793 - ---------------------------------------------------------- Transfer agent fees-Institutional Class 11,831 - ---------------------------------------------------------- Other 2,155,285 - ---------------------------------------------------------- Total expenses 102,238,446 - ---------------------------------------------------------- Less: Fees waived by advisor (4,288,405) - ---------------------------------------------------------- Expenses paid indirectly (164,622) - ---------------------------------------------------------- Net expenses 97,785,419 - ---------------------------------------------------------- Net investment income (loss) (41,231,383) - ---------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities 1,362,280,575 - ---------------------------------------------------------- Foreign currencies (5,296,267) - ---------------------------------------------------------- Futures contracts 10,089,965 - ---------------------------------------------------------- Option contracts purchased (4,655,890) - ---------------------------------------------------------- Option contracts written (109,805,107) - ---------------------------------------------------------- 1,252,613,276 - ---------------------------------------------------------- Change in net unrealized appreciation (depreciation) of: Investment securities 1,465,393,764 - ---------------------------------------------------------- Foreign currencies 25,402 - ---------------------------------------------------------- Futures contracts (6,756,866) - ---------------------------------------------------------- Option contracts purchased (3,182,585) - ---------------------------------------------------------- Option contracts written (27,511,086) - ---------------------------------------------------------- 1,427,968,629 - ---------------------------------------------------------- Net gain from investment securities, foreign currencies, futures and option contracts 2,680,581,905 - ---------------------------------------------------------- Net increase in net assets resulting from operations $2,639,350,522 ==========================================================
FS-85 170 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 1999 and 1998
1999 1998 -------------- -------------- OPERATIONS: Net investment income (loss) $ (41,231,383) $ 89,216 - ----------------------------------------------------------- ---------------- -------------- Net realized gain from investment securities, foreign currencies, futures and option contracts 1,252,613,276 514,276,104 - ----------------------------------------------------------- ---------------- -------------- Change in net unrealized appreciation of investment securities, foreign currencies, futures and option contracts 1,427,968,629 255,708,695 - ----------------------------------------------------------- ---------------- -------------- Net increase in net assets resulting from operations 2,639,350,522 770,074,015 - ----------------------------------------------------------- ---------------- -------------- Distributions to shareholders from net investment income: Class A (3,691,627) -- - ----------------------------------------------------------- ---------------- -------------- Institutional Class (343,112) -- - ----------------------------------------------------------- ---------------- -------------- Distribution in excess of net investment income: Class A (377,640) - ----------------------------------------------------------- ---------------- -------------- Institutional Class (5,008) - ----------------------------------------------------------- ---------------- -------------- Distributions to shareholders from net realized gains: Class A (404,965,108) (864,947,763) - ----------------------------------------------------------- ---------------- -------------- Class B (49,731,739) (76,736,323) - ----------------------------------------------------------- ---------------- -------------- Class C (1,700,816) (626,936) - ----------------------------------------------------------- ---------------- -------------- Institutional Class (4,837,664) (9,231,714) - ----------------------------------------------------------- ---------------- -------------- Share transactions-net: Class A 95,538,920 442,079,076 - ----------------------------------------------------------- ---------------- -------------- Class B 347,953,526 240,674,117 - ----------------------------------------------------------- ---------------- -------------- Class C 70,937,422 21,194,188 - ----------------------------------------------------------- ---------------- -------------- Institutional Class 16,644,022 12,302,794 - ----------------------------------------------------------- ---------------- -------------- Net increase in net assets 2,704,771,698 534,781,454 - ----------------------------------------------------------- ---------------- -------------- NET ASSETS: Beginning of period 6,895,918,773 6,361,137,319 - ----------------------------------------------------------- ---------------- -------------- End of period $9,600,690,471 $6,895,918,773 =========================================================== ================ ============== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $5,279,351,381 $4,682,377,491 - ----------------------------------------------------------- ---------------- -------------- Undistributed net investment income (loss) (317,554) 4,034,739 - ----------------------------------------------------------- ---------------- -------------- Undistributed net realized gain from investment securities, foreign currencies, futures and option contracts 1,168,419,727 484,238,255 - ----------------------------------------------------------- ---------------- -------------- Unrealized appreciation of investment securities, foreign currencies, futures and option contracts 3,153,236,917 1,725,268,288 - ----------------------------------------------------------- ---------------- -------------- $9,600,690,471 $6,895,918,773 =========================================================== ================ ==============
See Notes to Financial Statements. FS-86 171 NOTES TO FINANCIAL STATEMENTS October 31, 1999 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Weingarten Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of ten separate portfolios. The Fund currently offers four different classes of shares: Class A shares, Class B shares, Class C shares and the Institutional Class. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is growth of capital primarily by investing in common stocks of seasoned and better-capitalized companies. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and options contracts generally will be valued 15 minutes after the close of trading of the New York Stock Exchange ("NYSE"). Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The Fund may elect to use a portion of the proceeds of capital stock redemptions as distributions for Federal income tax purposes. Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. On October 31, 1999, undistributed net investment income was increased by $41,296,477, undistributed net realized gains decreased by $107,196,477 and paid-in capital increased by $65,900,000 as a result of differing book/tax treatment of foreign currency transactions, equalization credits and net operating loss reclassifications in order to comply with the requirements of the American Institute of Certified Public Accountants Statement of Position 93-2. Net assets of the Fund were unaffected by the reclassification discussed above. C. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in FS-87 172 foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. E. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. F. Futures Contracts -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in value of the contracts may not correlate with changes in the value of the securities being hedged. G. Covered Call Options -- The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. H. Put Options -- The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option's underlying instrument may be a security or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. I. Expenses -- Distribution and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated among the classes. 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 $350 million, plus 0.625% of the Fund's average daily net assets in excess of $350 million. AIM has contractually agreed to waive 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 FS-88 173 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 is contractual and may not be terminated without approval of the Board of Directors. During the year ended October 31, 1999, AIM waived fees of $4,288,405. 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 pay AIM for certain administrative costs incurred in providing accounting services to the Fund. During the year ended October 31, 1999, AIM was paid $281,500 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 1999, AFS was paid $5,776,859 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares and a master distribution agreement with Fund Management Company ("FMC) to serve as the distributor for the Institutional Class shares of the Fund. The Company has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.30% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. During the year ended October 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors $22,561,363, $10,382,904 and $593,913, respectively, as compensation under the Plans. AIM Distributors received commissions of $2,209,013 from sales of the Class A shares of the Fund during the year ended October 31, 1999. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the year ended October 31, 1999, AIM Distributors received $156,642 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS, FMC and AIM Distributors. During the year ended October 31, 1999, the Fund paid legal fees of $20,003 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES During the year ended October 31, 1999, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of $102,746 and $61,876, respectively, under expense offset arrangements. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $164,622 during the year ended October 31, 1999. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended October 31, 1999, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. Prior to May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended October 31, 1999 was $10,278,536,302 and $10,386,655,927, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 1999 is as follows: Aggregate unrealized appreciation of investment securities $3,184,683,541 - ---------------------------------------------------------- Aggregate unrealized appreciation (depreciation) of investment securities (14,585,229) - ---------------------------------------------------------- Net unrealized appreciation of investment securities $3,170,098,312 ========================================================== Cost of investments for tax purposes is $6,484,797,166.
FS-89 174 NOTE 7-CALL OPTION CONTRACTS Transactions in call options written during the year ended October 31, 1999 are summarized as follows:
CALL OPTION CONTRACTS ------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ------------- Beginning of period 76,233 $ 44,508,416 - -------------------- --------- ------------- Written 341,015 393,780,650 - -------------------- --------- ------------- Closed (271,232) (293,502,772) - -------------------- --------- ------------- Exercised (46,212) (3,522,927) - -------------------- --------- ------------- Expired (7,902) (24,266,746) - -------------------- --------- ------------- End of period 91,902 $ 116,996,621 ==================== ========= =============
Open call option contracts written at October 31, 1999 were as follows:
OCTOBER 31, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUMS 1999 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) - ----------------------------- -------- ------ --------- ------------ ------------ -------------- America Online, Inc. Apr-00 $120 20,000 $ 44,712,107 $51,500,000 $ (6,787,893) - ----------------------------- --------- ------ --------- ------------ ------------ -------------- Cisco Systems, Inc. Jan-00 70 28,798 22,892,140 24,118,325 (1,226,185) - ----------------------------- --------- ------ --------- ------------ ------------ -------------- Compuware Corp. Jan-00 30 4,214 1,409,536 1,211,525 198,011 - ----------------------------- --------- ------ --------- ------------ ------------ -------------- EMC Corp. Apr-00 70 9,000 8,164,527 11,306,250 (3,141,723) - ----------------------------- --------- ------ --------- ------------ ------------ -------------- Intel Corp. Apr-00 75 7,200 6,278,190 7,875,000 (1,596,810) - ----------------------------- --------- ------ --------- ------------ ------------ -------------- Sanmina Corp. Jan-00 85 6,230 5,665,996 7,281,312 (1,615,316) - ----------------------------- --------- ------ --------- ------------ ------------ -------------- Sun Microsystems, Inc. Apr-00 90 5,609 7,835,511 13,636,881 (5,801,370) - ----------------------------- --------- ------ --------- ------------ ------------ -------------- VERITAS Software Corp. Dec-99 95 7,530 6,471,819 13,083,375 (6,611,556) - ----------------------------- --------- ------ --------- ------------ ------------ -------------- Yahoo! Inc. Jan-00 175 3,321 13,566,795 7,368,469 6,198,326 - ----------------------------- --------- ------ --------- ------------ ------------ -------------- 91,902 $116,996,621 137,381,137 (20,384,516) ============================= ========= ====== ========= ============ ============ ==============
NOTE 8-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 1999 and 1998 were as follows:
1999 1998 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT ----------- --------------- ----------- --------------- Sold: Class A 38,697,927 $ 994,480,979 62,788,326 $ 1,368,867,407 - ---------------------------------------- -------------- ---------------- ------------ --------------- Class B 17,982,789 456,125,945 12,056,594 257,385,548 - ---------------------------------------- -------------- ---------------- ------------ --------------- Class C 3,622,407 92,753,207 1,204,025 25,772,311 - ---------------------------------------- -------------- ---------------- ------------ --------------- Institutional Class 826,477 21,885,030 593,328 13,533,791 - ---------------------------------------- -------------- ---------------- ------------ --------------- Issued as reinvestment of dividends: Class A 16,540,521 383,078,048 41,795,514 813,441,370 - ---------------------------------------- -------------- ---------------- ------------ --------------- Class B 2,102,927 47,274,883 3,831,332 73,061,374 - ---------------------------------------- -------------- ---------------- ------------ --------------- Class C 71,213 1,602,275 31,251 600,022 - ---------------------------------------- -------------- ---------------- ------------ --------------- Institutional Class 217,868 5,146,039 456,144 9,035,386 - ---------------------------------------- -------------- ---------------- ------------ --------------- Reacquired: Class A (50,133,647) (1,282,020,107) (79,734,776) (1,740,229,701) - ---------------------------------------- -------------- ---------------- ------------ --------------- Class B (6,174,366) (155,447,302) (4,228,997) (89,772,805) - ---------------------------------------- -------------- ---------------- ------------ --------------- Class C (926,007) (23,418,060) (246,074) (5,178,145) - ---------------------------------------- -------------- ---------------- ------------ --------------- Institutional Class (391,478) (10,387,047) (458,838) (10,266,383) - ---------------------------------------- -------------- ---------------- ------------ --------------- 22,436,631 $ 531,073,890 38,087,829 $ 716,250,175 ======================================== ============== ================ ============ ===============
FS-90 175 NOTE 9-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of Class A capital stock outstanding during each of the years in the five-year period ended October 31, 1999, for a share of Class B capital stock outstanding during each of the years in the four-year period ended October 31, 1999 and the period June 26, 1995 (date sales commenced) through October 31, 1995, and for a share of Class C capital stock outstanding during each of years in the two year period ended October 31, 1999 and the period August 4, 1997 (date sales commenced) through October 31, 1997.
CLASS A ------------------------------------------------------------------ 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 21.72 $ 22.72 $ 20.19 $ 20.33 $ 17.82 - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) (0.10) 0.02 0.01 0.06 -- - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Net gains on securities (both realized and unrealized) 8.16 2.38 4.82 2.51 4.36 - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Total from investment operations 8.06 2.40 4.83 2.57 4.36 - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (0.01) -- (0.06) -- (0.07) - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Distributions from net realized gains (1.46) (3.40) (2.24) (2.71) (1.78) - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Total distributions (1.47) (3.40) (2.30) (2.71) (1.85) - ------------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 28.31 $ 21.72 $ 22.72 $ 20.19 $ 20.33 ============================================================ ========== ========== ========== ========== ========== Total return(a) 38.62% 12.34% 26.83% 14.81% 28.20% ============================================================ ========== ========== ========== ========== ========== Ratios/supplemental data: Net assets, end of period (000s omitted) $8,089,739 $6,094,178 $5,810,582 $4,977,493 $4,564,730 ============================================================ ========== ========== ========== ========== ========== Ratio of expenses to average net assets(b) 1.03%(c) 1.04% 1.07% 1.12% 1.17% ============================================================ ========== ========== ========== ========== ========== Ratio of net investment income (loss) to average net assets(d) (0.38)%(c) 0.07% 0.07% 0.33% (0.02)% ============================================================ ========== ========== ========== ========== ========== Portfolio turnover rate 124% 125% 128% 159% 139% ============================================================ ========== ========== ========== ========== ==========
(a) Does not deduct sales charges. (b) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.08%, 1.09%, 1.11%, 1.15% and 1.19% for 1999-1995. (c) Ratios are based on average net assets of $7,520,454,321. (d) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (0.43)%, 0.02%, 0.03%, 0.30%, and (0.04)% for 1999-1995. FS-91 176 NOTE 9-FINANCIAL HIGHLIGHTS-continued
CLASS B CLASS C --------------------------------------------------------- ------------------------------ 1999 1998 1997 1996 1995 1999 1998 1997 ---------- -------- -------- -------- ------- -------- ------- ------- Net asset value, beginning of period $ 21.12 $ 22.34 $ 19.98 $ 20.28 $ 18.56 $ 21.14 $ 22.34 $ 22.83 - ------------------------------------ ---------- -------- -------- -------- ------- -------- ------- ------- Income from investment operations: Net investment income (loss) (0.30)(a) (0.15)(a) (0.15)(a) (0.05)(a) (0.03) (0.30)(a) (0.15)(a) (0.04)(a) - ------------------------------------ ---------- -------- -------- -------- ------- -------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 7.93 2.33 4.75 2.46 1.75 7.92 2.35 (0.45) - ------------------------------------ ---------- -------- -------- -------- ------- -------- ------- ------- Total from investment operations 7.63 2.18 4.60 2.41 1.72 7.62 2.20 (0.49) - ------------------------------------ ---------- -------- -------- -------- ------- -------- ------- ------- Distributions from net realized gains (1.46) (3.40) (2.24) (2.71) -- (1.46) (3.40) -- - ------------------------------------ ---------- -------- -------- -------- ------- -------- ------- ------- Net asset value, end of period $ 27.29 $ 21.12 $ 22.34 $ 19.98 $ 20.28 $ 27.30 $ 21.14 $ 22.34 ==================================== ========== ======== ======== ======== ======= ======== ======= ======= Total return(b) 37.59% 11.45% 25.78% 13.95% 9.27% 37.50% 11.54% (2.15)% ==================================== ========== ======== ======== ======== ======= ======== ======= ======= Ratios/supplemental data: Net assets, end of period (000's omitted) $1,291,456 $705,750 $486,105 $267,459 $42,238 $105,420 $23,107 $ 2,326 ==================================== ========== ======== ======== ======== ======= ======== ======= ======= Ratio of expenses to average net assets(c) 1.82%(d) 1.83% 1.87% 1.95% 1.91%(e) 1.82%(d) 1.83% 1.84%(e) ==================================== ========== ======== ======== ======== ======= ======== ======= ======= Ratio of net investment income (loss) to average net assets(f) (1.17)%(d) (0.72)% (0.73)% (0.50)% (0.76)%(e) (1.17)%(d) (0.72)% (0.70)%(e) ==================================== ========== ======== ======== ======== ======= ======== ======= ======= Portfolio turnover rate 124% 125% 128% 159% 139% 124% 125% 128% ==================================== ========== ======== ======== ======== ======= ======== ======= =======
(a) Calculated using average shares outstanding. (b) Does not deduct contingent deferred sales charges and is not annualized for periods less than one year. (c) After fee waivers and/or expense reimbursements. Ratios of expenses to average net assets prior to fee waivers and/or expense reimbursements were 1.87%, 1.87%, 1.91%, 1.98% and 1.94% (annualized) for 1999-1995 for Class B and 1.87%, 1.87%, 1.88% (annualized) for 1999-1997 for Class C. (d) Ratios are based on average net assets of $1,038,290,381 and $59,391,348 for Class B and Class C, respectively. (e) Annualized. (f) After fee waivers and/or expense reimbursements. Ratios of net investment income (loss) to average net assets prior to fee waivers and/or expense reimbursements were (1.22)%, (0.76)%, (0.77)%, (0.53)% and (0.79)% (annualized) for 1999-1995 for Class B and (1.22)%, (0.76)%, (0.74)% (annualized) for 1999-1997 for Class C. FS-92 -----END PRIVACY-ENHANCED MESSAGE-----