-----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, SFHNRSTr0ZH0L2smgnBm18C4bTvy18Ki+HpDSERkFEZc8cLQEXlpzPBXcXIig4w/ iKxPhpGgs0KGqYVoxNMh0Q== 0000950129-97-002727.txt : 19970704 0000950129-97-002727.hdr.sgml : 19970704 ACCESSION NUMBER: 0000950129-97-002727 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970703 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIM EQUITY FUNDS INC CENTRAL INDEX KEY: 0000105377 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132576643 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01424 FILM NUMBER: 97636262 BUSINESS ADDRESS: STREET 1: ELEVEN GREENWAY PLZ STREET 2: STE 1919 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7136261919 MAIL ADDRESS: STREET 1: AIM EQUITY FUNDS INC STREET 2: 11 GREENWAY PLZ STE 1919 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: WEINGARTEN EQUITY FUND INC DATE OF NAME CHANGE: 19880929 FORMER COMPANY: FORMER CONFORMED NAME: COMPUFUND INC DATE OF NAME CHANGE: 19880616 N-30D 1 AEF CHARTER,CONSTELLATION,WEINGARTEN INST. A/R 1 AIM EQUITY FUNDS, INC. INSTITUTIONAL CLASSES AIM Charter Fund AIM Constellation Fund AIM Weingarten Fund [AIM LOGO APPEARS HERE] SEMIANNUAL REPORT APRIL 30, 1997 2 TABLE OF CONTENTS
AIM CHARTER FUND 3-17 AIM CONSTELLATION FUND 18-32 AIM WEINGARTEN FUND 33-INSIDE BACK COVER
Mutual funds, annuities, and other investments are not insured by the FDIC or any other government agency; are not deposits or other obligations of, or guaranteed by, any bank or any affiliate; and are subject to investment risks, including possible loss of principal amount invested. This report may be distributed only to current shareholders or to persons who have received a current prospectus of the Fund. 3 The Chairman's Letter Dear Fellow Shareholder: We have seen a great deal of change in the markets during the past few months, change that has been unsettling even for experienced market watchers. [PHOTO of In many instances the change has occurred suddenly as Charles T. the markets have fluctuated widely during the past six Bauer, months. The popular Dow Jones Industrial Average of 30 Chairman of large companies ranged from just over 7000 to just below the Board of 6400 before strengthening once again and regaining its lost the Fund, ground. Both the Russell 2000 Index, judged to be the APPEARS HERE] benchmark for small-cap stocks, and the Dow recently have set records. The point we want to emphasize is that such volatility seems to be the norm rather than the exception in the current market. Although most attention has been on the large stocks in the S&P 500 index, the broad-based index generally considered "the market," small- and mid-cap companies have been even more volatile. Indexes for smaller companies were down as much as 20% before their recent rebound. Similarly, bonds fluctuated widely as concerns mounted over the possibility of rising interest rates. What does all of this mean? In past reports, we suggested that the 20%-30% returns of 1995 and 1996 were unlikely to continue uninterrupted, and we have seen that to be true so far in 1997. However, we are still experiencing the longest bull market in history, now in its seventh year. For hundreds of thousands of investors, this bull market is the only investment climate they have ever known. If you have been invested in stocks only since 1990, your experience has truly been extraordinary: the S&P 500 had an annual return of 30% in 1991, 38% in 1995, and 23% in 1996. And not one down year. Of course, returns such as those we've enjoyed in this bull market are well above the averages for stocks. That has led mutual fund managers, financial consultants, and market experts to voice concern that some investors may not be prepared for more modest returns that are in line with historical averages. And, although we've seen nothing but advances in the S&P 500 since 1990, it is important to remember that the market has averaged a down year one out of every three years since 1928. KEEP REALISTIC EXPECTATIONS What many investors may not realize is that periodic declines are inevitable. In every market, there is always some segment, and some investment strategies, that occasionally fall out of favor. Declines similar to what we have seen in the small-cap and mid-cap sectors during the past six months often are more severe than warranted; that is, they take good stocks down with the bad. Of course, that lets us pick stocks just as prices for many attractive companies are near their lowest for the year. Not that we expect severe declines ahead. But it is important to maintain realistic expectations about investment performance. Indeed, indications are that stock performance may be returning to historic norms closer to 10% return per year than 20%. It's also a good idea to reassess your financial goals periodically with your financial consultant. Managing your investments in changing markets can be challenging. But your financial consultant knows a few time-tested investment strategies that can help. Diversification can help you cushion the effects of volatility. --------------------------------- In every market, there is always some segment, and some investment strategies, that occasionally fall out of favor. --------------------------------- Continued on next page 4 The Chairman's Letter On the following pages, your Fund's portfolio management team offers a complete discussion of recent market conditions and how the Fund was affected. They also discuss the Fund's portfolio strategy: why they believe the portfolio is well-positioned for growth, and why they are confident that the reasons for investing in the Fund are as compelling as ever. These discussions will help you better understand the relative performance of your Fund. AIM/INVESCO MERGER FINALIZED We are pleased to announce that the merger of A I M Management Group Inc. and INVESCO plc was concluded on February 28, 1997. AIM is now part of one of the world's largest independent investment management groups with approximately $170 billion in assets under management. The combined company, AMVESCAP plc, has the financial strength necessary to meet your needs in an increasingly competitive financial services environment, both in the United States and worldwide. And, we will not change the portfolio management, investment style, or name of any of the AIM funds you own. We have begun a new and promising era for AIM, one we believe will yield exciting opportunities. We appreciate the trust you have placed in us and we look forward to our continued close association. If you have any questions or comments about this report, we invite you to call Client Services at 800-659-1005 during normal business hours. Sincerely, /s/ CHARLES T. BAUER Charles T. Bauer Chairman 2 5 AIM CHARTER FUND For shareholders who seek growth and income by investing primarily in stocks of large-cap, well-run companies with a history of stable and improving earnings and generally increasing dividend payouts. ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT: o AIM Charter Fund Institutional Class performance figures are historical and reflect reinvestment of all distributions and changes in net asset value. o The Fund's investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. o Past performance cannot guarantee comparable future results. o The Fund's portfolio composition is subject to change, and there is no assurance the Fund will continue to hold any particular security. ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT: o Standard & Poor's Corporation (S&P) is a credit-rating agency. The unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P 500) is widely regarded by investors as representative of the stock market in general. The Dow Jones Industrial Average (DJIA) is an unmanaged composite of the performance of 30 large-company stocks. o An investment cannot be made in any index listed. Unless otherwise indicated, index results include reinvested dividends and do not reflect sales charges. =============================================================================== AIM CHARTER FUND INSTITUTIONAL CLASS Average Annual Total Returns FOR PERIODS ENDED 3/31/97, MOST RECENT CALENDAR QUARTER-END. 1 Year 13.79% 3 Years 17.15 5 Years 12.64 Inception (7/30/91) 12.70 FOR PERIODS ENDED 4/30/97 1 Year 16.47% 3 Years 18.99 5 Years 13.45 Inception (7/30/91) 13.45 =============================================================================== AIM Charter Fund 3 6 The Managers' Overview FUND CONTINUES TO PROVIDE ATTRACTIVE GROWTH AND INCOME - ------------------------------------------------------------------------------- A roundtable discussion with the Fund management team for AIM Charter Fund for the six months ended April 30, 1997. Q. PLEASE DESCRIBE AIM CHARTER FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED APRIL 30, 1997. A. The Fund continued to produce the steady growth and income for which it is managed. Total return for the Institutional Class for the six-month period covered by this report, including reinvestment of the quarterly distributions, was a solid 9.46%. Net assets of the Institutional Class increased from $29.6 million to $32.8 million during the reporting period. Q. WHAT WERE MARKET CONDITIONS LIKE DURING THIS REPORTING PERIOD? A. Stock markets remained volatile, as they were throughout 1996. The popular Dow Jones Industrial Average continued to climb through record highs, but its performance was punctuated by two downturns of consequence, the first in December 1996, the second from mid-March to mid-April 1997. In the second decline, the Dow lost 9.8% of its value--just about the 10% correction many market watchers believed was due given the prolonged length of this bull market. The primary cause of market volatility has been ongoing uncertainty regarding interest rates, the strength of the economy, and the outlook for corporate earnings. In circumstances like these, investors are drawn to large, predictable companies, a phenomenon termed a "flight to quality." Large-company stocks continued to outperform smaller-company stocks. During the six months covered by this report, the S&P 500, an index of large-company stocks, produced a total return of 14.71%. Q. THE CURRENT MARKET IS OFTEN DESCRIBED AS "NARROW." WHAT IS MEANT BY A NARROW MARKET? A. In a narrow market, the performance of a market index is generated by a comparatively few stocks. For example, if you took out of the S&P 500 the 100 largest stocks in that index, its performance for 1996 dropped from 22.95% to about 5.4%. In other words, 20% of the stocks in that index accounted for more than 75% of its total return. Such an unusual environment presents a challenge for a diversified mutual fund such as AIM Charter Fund, which has a relatively small holding of each security in its portfolio. AIM Charter Fund had 156 holdings as of the close of the reporting period. Keep in mind that while diversification means the Fund will not capture all the positive returns a narrow market may offer when it is going up, it also means the Fund may not experience all the negative returns during a downturn. Q. WHY IS THE MARKET NARROW? A. Many large companies are generating strong earnings, and the market has been willing to pay a high price for this performance. We think of these high prices as "earnings insurance." Investors seem disposed to pay a premium for a certain level of predictability about earnings that you get from such long-term performers as Coca-Cola and General Electric. But investors also want liquidity--securities that are widely traded so there will be a market for them if circumstances change abruptly. Even though the market resumed rising again in mid-April, with the Dow again reaching new highs shortly after the six-month reporting period closed, investors still seem skittish, uncertain whether this can continue. This is the main reason large-company stocks have outperformed small-company stocks for an extended period. Q. DID THE FUND'S PORTFOLIO CHANGE MUCH DURING THE REPORTING PERIOD? HAVE YOU TRIED TO MAKE IT LOOK MORE LIKE THE S&P 500? A. We have made modifications since our last report, but no dramatic changes. Financial stocks, technology stocks, and health-care stocks are still among our largest holdings. But we have not attempted to model the Fund's portfolio after any index. Q. WHAT DO YOU FIND ATTRACTIVE ABOUT FINANCIAL STOCKS? A. One attraction is the consolidation and restructuring going on in the banking and insurance industries. For example, since our last report, we have added a substantial holding in Washington Mutual, Inc. This savings and loan, which operates in Western states, has significantly expanded its customer base through a series of strategic mergers. Washington Mutual also announced record earnings for the first quarter of 1997. Other financial holdings include government-sponsored entities such as "Sallie Mae," the Student Loan Marketing Association, which has become the nation's leading provider of financial funding services for college education loans and is also a major source of financing for facilities and equipment for higher education institutions. AIM Charter Fund 4 7 Q. WITH MANY TECHNOLOGY STOCKS LAGGING, WHY DO YOU STILL OWN A LARGE NUMBER OF TECH STOCKS? A. Approximately 12% of the portfolio's common stock holdings are technology companies such as service providers, personal computer makers, and semiconductor manufacturers. This sector has had its difficulties. In a technology universe of 600 stocks followed by Bear Stearns, by April 1, 1997, the average software company stock was down 53% from its 1996 peak. Many tech stocks, especially those of smaller companies, have never fully recovered from the sell-off that hit last summer. But many technology companies have reported excellent earnings for the first quarter of 1997, and our stock-selection process has found a number of technology companies we consider very promising. However, they are different from the ones we owned when the reporting period opened. We have reduced our exposure to computer networking stocks, for example. This field has become problematic as networking has become complex and the field increasingly competitive. We have raised our stake in semi-conductor makers. We added Texas Instruments, whose operating profit was up significantly this year. Texas Instruments, like Intel, another semiconductor holding, illustrates the competitive advantage of high-value, noncommodity semiconductor products. Texas Instruments' revenue and profit growth came mainly from differentiated products used for data communications, a flourishing industry. Despite the potential uncertainty in the short run, technology has been the chief engine of economic expansion the past few years, generating up to one-third of all economic growth by some estimates. We think this sector still offers high growth possibilities over the long term. Q. FINALLY, HEALTH CARE. YOU HAVE HAD SIZABLE HOLDINGS IN THIS SECTOR FOR SOME TIME, HAVEN'T YOU? A. Yes. Health-care stocks remain among our largest positions, especially pharmaceutical companies and patient-care providers, which together made up about 13% of the portfolio as the reporting period closed. Pharmaceutical manufacturers in the portfolio tend to be recognizable names. For instance, both SmithKline Beecham and Bristol-Myers Squibb are bringing a steady stream of new products to market and reporting substantial earnings growth. About the only weakness of the Fund's pharmaceutical holdings is that some stock valuations in this industry have become so high we may reduce our exposure to them despite strong earnings. In the patient-care area, health maintenance organizations continue to lead the efficiency drive in the U.S. health-care industry and recently have improved their pricing structure. United HealthCare, a managed-care provider with a growing enrollment; and Genesis Health Ventures, which specializes in integrated care services for the elderly, are among our holdings in this area. Given demographic trends in the U.S., we believe health care remains a promising area of investment. Q. DOES THE FUND CONTINUE TO INVEST IN CONVERTIBLE BONDS AND OTHER INCOME-PRODUCING SECURITIES? A. Convertible securities still offer real growth and income opportunities for the Fund, and thus remain important in fulfilling the Fund's objectives. However, the Fund's allocation to convertibles was reduced due to the relative attractiveness of common stocks. In addition, many of the new issues that came to market during the reporting period did not meet our investment criteria. We have kept up our regular dividends and the income component of our investment strategy through keeping at least 80% of the portfolio in dividend-paying stocks. Q. WHAT IS YOUR MARKET OUTLOOK FOR THE NEAR TERM? A. In the U.S., the economic underpinnings for a strong market appear to be in place: given the absence of inflation, the Federal Reserve Board held interest rates steady when it met in May; the economy is growing at a very healthy clip; and for a record 17 quarters in a row, corporate earnings have outstripped analysts' forecasts. The unanswerable questions are whether this can continue and, if so, for how long? After two extraordinary years in 1995 and 1996, the consensus expectation is for market performance in 1997 to be closer to its historical norm: 9% or 10% total returns. We all need to keep in mind that 9% and 10% are substantial returns and well above the prevailing inflation rate of about 3%, though they may seem slim compared to the very recent past. The greatest challenge for investors may be to temper their expectations. PORTFOLIO COMPOSITION As of 4/30/97, based on net assets =============================================================================== COMMON STOCK 83.81% CONVERTIBLE PREFERRED STOCK 7.88% CONVERTIBLE BONDS 5.81% U.S. GOVERNMENT BONDS 1.33% OTHER 1.17% =============================================================================== =============================================================================== TOP 10 COMMON STOCK HOLDINGS =============================================================================== 1. Philip Morris Companies, Inc. 2.95% 2. Texas Instruments, Inc. 2.39 3. Washington Mutual, Inc. 2.12 4. Bristol-Myers Squibb Co. 2.11 5. Cincinnati Bell, Inc. 1.80 6. SmithKline Beecham PLC 1.73 7. Allstate Corp. 1.58 8. Federal National Mortgage Association 1.54 9. Hewlett-Packard Co. 1.41 10. Student Loan Marketing Association 1.27 Please keep in mind that the Fund's portfolio composition is subject to change and there is no assurance the Fund will continue to hold any particular security. =============================================================================== AIM Charter Fund 5 8 SCHEDULE OF INVESTMENTS APRIL 30, 1997 (UNAUDITED)
MARKET SHARES VALUE COMMON STOCKS-83.81% ADVERTISING/BROADCASTING-0.08% True North Communications, Inc. 148,200 $ 2,834,324 - --------------------------------------------------------------- AEROSPACE/DEFENSE-0.89% Rockwell International Corp. 275,000 18,287,500 - --------------------------------------------------------------- United Technologies Corp. 200,000 15,125,000 - --------------------------------------------------------------- 33,412,500 - --------------------------------------------------------------- APPLIANCES-0.36% Philips Electronics N.V.-ADR-New York Shares (Netherlands) 250,000 13,375,000 - --------------------------------------------------------------- AUTOMOBILE/TRUCK PARTS & TIRES-0.38% Lear Corp.(a) 400,000 14,300,000 - --------------------------------------------------------------- BANKING-1.24% Marshall & Ilsley Corp. 300,000 11,512,500 - --------------------------------------------------------------- NationsBank Corp. 400,000 24,150,000 - --------------------------------------------------------------- Wells Fargo & Co. 40,000 10,670,000 - --------------------------------------------------------------- 46,332,500 - --------------------------------------------------------------- BANKING (MONEY CENTER)-1.81% BankAmerica Corp. 260,000 30,387,500 - --------------------------------------------------------------- Chase Manhattan Corp. 400,000 37,050,000 - --------------------------------------------------------------- 67,437,500 - --------------------------------------------------------------- BEVERAGES-0.85% Coca-Cola Co. (The) 350,000 22,268,750 - --------------------------------------------------------------- PepsiCo, Inc. 268,500 9,363,938 - --------------------------------------------------------------- 31,632,688 - --------------------------------------------------------------- BIOTECHNOLOGY-0.63% Biogen, Inc.(a) 740,000 23,680,000 - --------------------------------------------------------------- BUSINESS SERVICES-1.66% CUC International, Inc.(a) 800,000 16,900,000 - --------------------------------------------------------------- Diebold, Inc. 300,000 10,050,000 - --------------------------------------------------------------- Equifax, Inc. 800,000 23,000,000 - --------------------------------------------------------------- Paychex, Inc. 260,000 12,171,250 - --------------------------------------------------------------- 62,121,250 - --------------------------------------------------------------- COMPUTER MAINFRAMES-0.78% International Business Machines Corp. 180,000 28,935,000 - --------------------------------------------------------------- COMPUTER MINI/PCS-3.63% Compaq Computer Corp.(a) 120,000 10,245,000 - --------------------------------------------------------------- Dell Computer Corp.(a) 300,000 25,106,250 - --------------------------------------------------------------- Gateway 2000, Inc.(a) 340,000 18,657,500 - --------------------------------------------------------------- Hewlett-Packard Co. 1,000,000 52,500,000 - --------------------------------------------------------------- Sun Microsystems, Inc.(a) 1,000,000 28,812,500 - --------------------------------------------------------------- 135,321,250 - --------------------------------------------------------------- COMPUTER NETWORKING-0.35% ECI Telecommunications Ltd. Designs (Israel) 600,000 13,125,000 - --------------------------------------------------------------- COMPUTER PERIPHERALS-0.49% Seagate Technology, Inc.(a) 400,000 18,350,000 - --------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-3.87% Computer Associates International, Inc. 32,300 1,679,600 - --------------------------------------------------------------- Compuware Corp.(a) 600,000 22,650,000 - --------------------------------------------------------------- Fiserv, Inc.(a) 460,000 17,365,000 - --------------------------------------------------------------- HBO & Co. 300,000 16,050,000 - --------------------------------------------------------------- Microsoft Corp.(a) 240,000 29,160,000 - --------------------------------------------------------------- Sterling Commerce, Inc.(a) 1,300,000 33,637,500 - ---------------------------------------------------------------
MARKET SHARES VALUE
COMPUTER SOFTWARE/SERVICES-(CONTINUED) Wallace Computer Services, Inc. 900,000 $ 24,075,000 - --------------------------------------------------------------- 144,617,100 - --------------------------------------------------------------- CONGLOMERATES-1.49% AlliedSignal Inc. 260,000 18,785,000 - --------------------------------------------------------------- Loews Corp. 400,000 36,750,000 - --------------------------------------------------------------- 55,535,000 - --------------------------------------------------------------- COSMETICS & TOILETRIES-2.33% Avon Products, Inc. 300,000 18,487,500 - --------------------------------------------------------------- Gillette Co. 200,000 17,000,000 - --------------------------------------------------------------- Procter & Gamble Co. (The) 200,000 25,150,000 - --------------------------------------------------------------- Warner-Lambert Co.(b) 270,000 26,460,000 - --------------------------------------------------------------- 87,097,500 - --------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-0.86% General Electric Co. 200,000 22,175,000 - --------------------------------------------------------------- Honeywell, Inc. 140,000 9,887,500 - --------------------------------------------------------------- 32,062,500 - --------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-2.47% Franklin Resources, Inc. 400,000 23,650,000 - --------------------------------------------------------------- Merrill Lynch & Co., Inc. 420,000 40,005,000 - --------------------------------------------------------------- Morgan Stanley Group, Inc. 300,000 18,937,500 - --------------------------------------------------------------- United Assets Management Corp. 400,000 9,800,000 - --------------------------------------------------------------- 92,392,500 - --------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-5.76% American Express Co. 500,000 32,937,500 - --------------------------------------------------------------- Concord EFS, Inc.(a) 400,000 7,900,000 - --------------------------------------------------------------- Federal Home Loan Mortgage Corp. 1,000,000 31,875,000 - --------------------------------------------------------------- Federal National Mortgage Association 1,400,000 57,575,000 - --------------------------------------------------------------- Green Tree Financial Corp. 600,000 17,775,000 - --------------------------------------------------------------- Household International, Inc. 220,000 19,360,000 - --------------------------------------------------------------- Student Loan Marketing Association 400,000 47,300,000 - --------------------------------------------------------------- 214,722,500 - --------------------------------------------------------------- FINANCE (SAVINGS & LOAN)-2.12% Washington Mutual, Inc. 1,600,000 79,000,000 - --------------------------------------------------------------- FOOD/PROCESSING-0.28% Interstate Bakeries Corp. 200,000 10,375,000 - --------------------------------------------------------------- FUNERAL SERVICES-0.55% Service Corp. International(b) 600,000 20,550,000 - --------------------------------------------------------------- HOTELS/MOTELS-0.63% HFS, Inc.(a) 400,000 23,700,000 - --------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-0.69% Equitable Companies, Inc. 500,000 14,625,000 - --------------------------------------------------------------- Provident Companies, Inc. 200,000 11,175,000 - --------------------------------------------------------------- 25,800,000 - --------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-6.07% Aetna Inc. 200,000 18,225,000 - --------------------------------------------------------------- Allstate Corp. 900,000 58,950,000 - --------------------------------------------------------------- American International Group, Inc. 300,000 38,550,000 - --------------------------------------------------------------- CIGNA Corp. 200,000 30,075,000 - --------------------------------------------------------------- ITT Hartford Group, Inc. 160,000 11,920,000 - --------------------------------------------------------------- MBIA, Inc. 120,000 11,685,000 - --------------------------------------------------------------- Travelers Group, Inc. 550,000 30,456,250 - --------------------------------------------------------------- Travelers Property Casualty Corp.-Class A 500,000 16,875,000 - --------------------------------------------------------------- 6 C H A R T E R 9
MARKET SHARES VALUE INSURANCE (MULTI-LINE PROPERTY)-(CONTINUED) USF&G Corp. 500,000 $ 10,000,000 - --------------------------------------------------------------- 226,736,250 - --------------------------------------------------------------- LEISURE & RECREATION-0.38% Brunswick Corp. 500,000 14,125,000 - --------------------------------------------------------------- MACHINERY (MISCELLANEOUS)-0.55% Thermo Electron Corp.(a) 600,000 20,700,000 - --------------------------------------------------------------- MEDICAL (DRUGS)-9.76% Abbott Laboratories 340,000 20,740,000 - --------------------------------------------------------------- American Home Products Corp. 600,000 39,750,000 - --------------------------------------------------------------- Bergen Brunswig Corp.-Class A 600,000 20,475,000 - --------------------------------------------------------------- Bristol-Myers Squibb Co. 1,200,000 78,600,000 - --------------------------------------------------------------- Johnson & Johnson 500,000 30,625,000 - --------------------------------------------------------------- Lilly (Eli) & Co.(b) 300,000 26,362,500 - --------------------------------------------------------------- Merck & Co., Inc. 480,000 43,440,000 - --------------------------------------------------------------- Pfizer, Inc. 200,000 19,200,000 - --------------------------------------------------------------- SmithKline Beecham PLC-ADR (United Kingdom) 800,000 64,500,000 - --------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Israel) 400,000 20,300,000 - --------------------------------------------------------------- 363,992,500 - --------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-3.45% Columbia/HCA Healthcare Corp. 800,000 28,000,000 - --------------------------------------------------------------- Genesis Health Ventures, Inc.(a) 300,000 8,962,500 - --------------------------------------------------------------- MedPartners, Inc.(a) 1,800,000 32,850,000 - --------------------------------------------------------------- Tenet Healthcare Corp.(a) 1,500,000 39,000,000 - --------------------------------------------------------------- United Healthcare Corp. 400,000 19,450,000 - --------------------------------------------------------------- 128,262,500 - --------------------------------------------------------------- MEDICAL INSTRUMENTS/PRODUCTS-1.74% Baxter International Inc. 600,000 28,725,000 - --------------------------------------------------------------- Medtronic, Inc. 100,000 6,925,000 - --------------------------------------------------------------- Omnicare, Inc. 800,000 19,500,000 - --------------------------------------------------------------- Stryker Corp.(a) 300,000 9,862,500 - --------------------------------------------------------------- 65,012,500 - --------------------------------------------------------------- NATURAL GAS PIPELINE-2.06% El Paso Natural Gas Co. 500,000 29,062,500 - --------------------------------------------------------------- Sonat, Inc. 300,000 17,137,500 - --------------------------------------------------------------- Williams Companies, Inc. (The) 700,000 30,712,500 - --------------------------------------------------------------- 76,912,500 - --------------------------------------------------------------- OFFICE AUTOMATION-0.99% Danka Business Systems PLC-ADR (United Kingdom) 600,000 18,337,500 - --------------------------------------------------------------- Xerox Corp. 300,000 18,450,000 - --------------------------------------------------------------- 36,787,500 - --------------------------------------------------------------- OFFICE PRODUCTS-0.33% Reynolds & Reynolds Co.- Class A 600,000 12,450,000 - --------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION)-0.36% Apache Corp.(a) 400,000 13,600,000 - --------------------------------------------------------------- OIL & GAS (SERVICES)-2.64% Exxon Corp. 520,000 29,445,000 - --------------------------------------------------------------- Halliburton Co. 300,000 21,187,500 - --------------------------------------------------------------- Mobil Corp. 140,000 18,200,000 - --------------------------------------------------------------- Petroleum Geo-Services ASA-ADR(a) (Norway) 300,000 11,550,000 - --------------------------------------------------------------- Royal Dutch Petroleum Co.-ADR-New York shares (Netherlands) 100,000 18,025,000 - --------------------------------------------------------------- 98,407,500 - ---------------------------------------------------------------
MARKET SHARES VALUE OIL EQUIPMENT & SUPPLIES-1.80% Baker Hughes, Inc. 500,000 $ 17,250,000 - --------------------------------------------------------------- BJ Services Co.(a) 400,000 18,850,000 - --------------------------------------------------------------- Coastal Corp. 400,000 19,000,000 - --------------------------------------------------------------- Tidewater, Inc. 300,000 12,037,500 - --------------------------------------------------------------- 67,137,500 - --------------------------------------------------------------- PAPER & FOREST PRODUCTS-0.82% Kimberly-Clark Corp. 600,000 30,750,000 - --------------------------------------------------------------- PUBLISHING-0.46% R.R. Donnelley & Sons Co. 500,000 17,125,000 - --------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS-1.42% Crescent Real Estate Equities, Inc. 400,000 10,500,000 - --------------------------------------------------------------- FelCor Suite Hotels, Inc. 260,000 9,327,500 - --------------------------------------------------------------- National Health Investors, Inc. 135,200 5,036,200 - --------------------------------------------------------------- Patriot American Hospitality, Inc. 600,000 12,900,000 - --------------------------------------------------------------- Starwood Lodging Trust 400,000 15,400,000 - --------------------------------------------------------------- 53,163,700 - --------------------------------------------------------------- RETAIL (FOOD & DRUGS)-0.84% American Stores Co. 300,000 13,650,000 - --------------------------------------------------------------- Safeway, Inc.(a) 400,000 17,850,000 - --------------------------------------------------------------- 31,500,000 - --------------------------------------------------------------- RETAIL (STORES)-2.60% Blue Square-Israel Ltd.-ADR(a) (Israel) 470,000 8,753,750 - --------------------------------------------------------------- Boise Cascade Office Products Corp.(a) 600,000 10,575,000 - --------------------------------------------------------------- CompUSA, Inc.(a) 2,000,000 38,500,000 - --------------------------------------------------------------- Sports Authority, Inc. (The)(a) 1,000,000 17,750,000 - --------------------------------------------------------------- U.S. Office Products Co.(a) 300,000 7,650,000 - --------------------------------------------------------------- Walgreen Co. 300,000 13,800,000 - --------------------------------------------------------------- 97,028,750 - --------------------------------------------------------------- SEMICONDUCTORS-3.21% Intel Corp. 200,000 30,625,000 - --------------------------------------------------------------- Texas Instruments, Inc. 1,000,000 89,250,000 - --------------------------------------------------------------- 119,875,000 - --------------------------------------------------------------- TELECOMMUNICATIONS-3.12% ADC Telecommunications, Inc.(a) 600,000 15,675,000 - --------------------------------------------------------------- Andrew Corp.(a) 200,000 4,950,000 - --------------------------------------------------------------- DSC Communications Corp.(a) 700,000 14,262,500 - --------------------------------------------------------------- Lucent Technologies, Inc. 200,000 11,825,000 - --------------------------------------------------------------- Nokia Oy A.B.-Class A-ADR (Finland) 460,000 29,727,500 - --------------------------------------------------------------- Telefonaktiebolaget LM Ericsson-ADR (Sweden) 600,000 20,175,000 - --------------------------------------------------------------- Tellabs, Inc.(a) 500,000 19,937,500 - --------------------------------------------------------------- 116,552,500 - --------------------------------------------------------------- TELEPHONE-2.69% Cincinnati Bell, Inc. 1,200,000 67,200,000 - --------------------------------------------------------------- SBC Communications, Inc. 600,000 33,300,000 - --------------------------------------------------------------- 100,500,000 - --------------------------------------------------------------- TOBACCO-4.07% Philip Morris Companies, Inc. 2,800,000 110,250,000 - --------------------------------------------------------------- RJR Nabisco Holdings Corp. 1,400,000 41,650,000 - --------------------------------------------------------------- 151,900,000 - --------------------------------------------------------------- TRANSPORTATION-0.25% Hvide Marine, Inc.-Class A(a) 551,800 9,518,550 - --------------------------------------------------------------- Total Common Stocks 3,128,746,362 - ---------------------------------------------------------------
7 C H A R T E R 10
PRINCIPAL MARKET AMOUNT VALUE CONVERTIBLE CORPORATE BONDS-5.81% BUSINESS SERVICES-0.48% Career Horizons, Inc., Conv. Bonds, 7.00%, 11/01/02(c) (acquired 10/16/95-02/04/97; cost $16,536,121) $10,350,000 $ 17,956,112 - --------------------------------------------------------------- COMPUTER NETWORKING-0.29% Comverse Technology, Inc., Conv. Sub. Deb., 5.75%, 10/01/06(c) (acquired 01/21/97-01/22/97; cost $11,702,662) 10,000,000 10,883,900 - --------------------------------------------------------------- COMPUTER PERIPHERALS-0.73% Quantum Corp., Conv. Sub. Notes, 5.00%, 03/01/03(c)(acquired 03/13/97-03/14/97; cost $26,181,500) 14,000,000 27,124,580 - --------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-0.58% Baan Co., N.V., (Netherlands) Conv. Sub. Notes, 4.50%, 12/15/01(c) (acquired 12/12/96-01/07/97; cost $16,027,500) 16,000,000 21,724,960 - --------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-0.30% SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06(c) (acquired 10/24/96-10/28/96; cost $9,952,680) 8,000,000 11,210,000 - --------------------------------------------------------------- HOTELS/MOTELS-0.34% Hilton Hotels Corp., Conv. Sub. Notes, 5.00%, 05/15/06 12,000,000 12,667,560 - --------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-0.33% Diamond Offshore Drilling, Inc., Conv. Sub. Notes, 3.75%, 02/15/07 12,000,000 12,235,800 - --------------------------------------------------------------- POLLUTION CONTROL-1.04% Sanifill, Inc., Conv. Sub. Deb., 5.00%, 03/01/06 18,000,000 23,044,860 - --------------------------------------------------------------- U.S. Filter Corp., Conv. Sub. Notes, 6.00%, 09/15/05 9,000,000 15,611,582 - --------------------------------------------------------------- 38,656,442 - --------------------------------------------------------------- RESTAURANTS-0.52% Boston Chicken, Inc., Conv. Sub. Deb., 7.75%, 05/01/04 18,000,000 19,485,000 - --------------------------------------------------------------- RETAIL (STORES)-0.28% Staples Inc., Conv. Sub. Deb., 4.50%, 10/01/00(c) (acquired 09/16/96-10/28/96; cost $11,027,260) 10,000,000 10,410,300 - --------------------------------------------------------------- SEMICONDUCTORS-0.92% Altera Corp., Conv. Sub. Notes, 5.75%, 06/15/02(c) (acquired 09/16/96-09/17/96; cost $11,677,400) 10,000,000 20,278,700 - --------------------------------------------------------------- Analog Devices, Conv. Sub. Notes, 3.50%, 12/01/00 10,000,000 14,039,000 - --------------------------------------------------------------- 34,317,700 - --------------------------------------------------------------- Total Convertible Corporate Bonds 216,672,354 - ---------------------------------------------------------------
MARKET SHARES VALUE CONVERTIBLE PREFERRED STOCKS-7.88% COSMETICS & TOILETRIES-0.35% McKesson Corp.-$2.50 Conv. Pfd.(c) (acquired 02/13/97-04/29/97; cost $11,905,813) 230,000 $ 13,167,500 - --------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-0.29% AES Trust I-$2.69 Conv. Pfd. 200,000 10,925,000 - --------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-1.08% Penncorp Financial Group, Inc.-$3.375 Conv. Pfd. 120,000 9,600,000 - --------------------------------------------------------------- SunAmerica, Inc.-Series E, $3.10 Dep. Conv. Pfd. 300,000 30,600,000 - --------------------------------------------------------------- 40,200,000 - --------------------------------------------------------------- FUNERAL SERVICES-1.11% SCI Financial LLC-Series A, $3.125 Conv. Pfd. 360,000 41,265,000 - --------------------------------------------------------------- HOTELS/MOTELS-0.45% Host Marriott Financial Trust-$3.375 Conv. Pfd.(c) (acquired 11/25/96-03/19/97; cost $15,929,000) 300,000 16,651,200 - --------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-1.57% Conseco Inc.-$4.278 Conv. PRIDES 400,000 58,600,000 - --------------------------------------------------------------- OIL & GAS (EXPLORATION & PRODUCTION)-0.47% Unocal Corp.-$3.125 Conv. Pfd. 320,000 17,725,760 - --------------------------------------------------------------- RETAIL (STORES)-0.55% TJX Companies, Inc.-Series E, $7.00 Conv. Pfd. 80,000 20,680,000 - --------------------------------------------------------------- TELECOMMUNICATIONS-2.01% WorldCom, Inc.-$2.68 Dep. Conv. Pfd. 900,000 75,150,000 - --------------------------------------------------------------- Total Convertible Preferred Stocks 294,364,460 - --------------------------------------------------------------- PRINCIPAL AMOUNT U.S. TREASURY NOTES-1.33% 6.00%, 09/30/98 $10,000,000 9,988,300 - --------------------------------------------------------------- 5.875%, 10/31/98 10,000,000 9,961,700 - --------------------------------------------------------------- 5.625%, 11/30/98 10,000,000 9,922,600 - --------------------------------------------------------------- 5.875%, 02/28/99 10,000,000 9,941,800 - --------------------------------------------------------------- 6.25%, 03/31/99 10,000,000 10,003,100 - --------------------------------------------------------------- Total U.S. Treasury Notes 49,817,500 - --------------------------------------------------------------- REPURCHASE AGREEMENT(d)-0.44% HSBC Securities Inc., 5.05%, 05/01/97(e) 16,471,349 16,471,349 - --------------------------------------------------------------- TOTAL INVESTMENTS-99.27% 3,706,072,025 - --------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-0.73% 27,255,511 - --------------------------------------------------------------- NET ASSETS-100.00% $3,733,327,536 - ---------------------------------------------------------------
Abbreviations: ADR -- American Depository Receipt Conv. -- Convertible Deb. -- Debentures Dep. -- Depository Pfd. -- Preferred PRIDES -- Preferred Redemption Increase Dividend Equity Security Sub. -- Subordinated Notes to Schedule of Investments: (a) Non-income producing security. (b) A portion of these securities are subject to call options written. See Note 7. (c) Restricted security. May be resold to qualified institutional buyers in accordance with 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 04/30/97 was $149,407,252 which represented 4.00% of the Fund's net assets. (d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (e) Joint repurchase agreement entered into 04/30/97 with a maturing value of $100,014,028. Collateralized by $96,950,000 U.S. Treasury obligations, 7.50% to 7.875% due 10/31/99 to 12/31/99 with an aggregate market value at 04/30/97 of $102,002,050. See Notes to Financial Statements. 8 C H A R T E R 11 STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1997 (UNAUDITED) ASSETS: Investments, at market value (cost $3,120,727,704) $3,706,072,025 - ------------------------------------------------------------ Cash 7 - ------------------------------------------------------------ Receivable for: Investments sold 48,915,615 - ------------------------------------------------------------ Capital stock sold 7,224,353 - ------------------------------------------------------------ Dividends and interest 6,001,017 - ------------------------------------------------------------ Investment for deferred compensation plan 34,314 - ------------------------------------------------------------ Other assets 232,354 - ------------------------------------------------------------ Total assets 3,768,479,685 - ------------------------------------------------------------ LIABILITIES: Payables for: Investments purchased 23,779,363 - ------------------------------------------------------------ Capital stock reacquired 5,050,489 - ------------------------------------------------------------ Options written 1,962,500 - ------------------------------------------------------------ Deferred compensation 34,314 - ------------------------------------------------------------ Accrued advisory fees 1,832,007 - ------------------------------------------------------------ Accrued administrative services fees 10,726 - ------------------------------------------------------------ Accrued distribution fees 1,570,549 - ------------------------------------------------------------ Accrued transfer agent fees 643,884 - ------------------------------------------------------------ Accrued operating expenses 268,317 - ------------------------------------------------------------ Total liabilities 35,152,149 - ------------------------------------------------------------ Net assets applicable to shares outstanding $3,733,327,536 ============================================================ NET ASSETS: Class A $2,948,273,303 ============================================================ Class B $ 752,280,983 ============================================================ Institutional Class $ 32,773,250 ============================================================ CAPITAL STOCK, $.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 257,010,441 ============================================================ Class B: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 65,718,858 ============================================================ Institutional Class: Authorized 200,000,000 - ------------------------------------------------------------ Outstanding 2,843,951 ============================================================ Class A: Net asset value and redemption price per share $ 11.47 ============================================================ Offering price per share: (Net asset value of $11.47 divided by 94.50%) $ 12.14 ============================================================ Class B: Net asset value and offering price per share $ 11.45 ============================================================ Institutional Class: Net asset value, offering and redemption price per share $ 11.52 ============================================================
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED) INVESTMENT INCOME: Dividends (net of $188,101 foreign withholding tax) $ 25,739,148 - ----------------------------------------------------------- Interest 10,862,728 - ----------------------------------------------------------- Total investment income 36,601,876 - ----------------------------------------------------------- EXPENSES: Advisory fees 11,175,345 - ----------------------------------------------------------- Administrative services fees 62,783 - ----------------------------------------------------------- Custodian fees 79,299 - ----------------------------------------------------------- Directors' fees 10,974 - ----------------------------------------------------------- Distribution fees-Class A 4,292,872 - ----------------------------------------------------------- Distribution fees-Class B 3,203,810 - ----------------------------------------------------------- Transfer agent fees-Class A 1,879,410 - ----------------------------------------------------------- Transfer agent fees-Class B 612,124 - ----------------------------------------------------------- Transfer agent fees-Institutional Class 1,440 - ----------------------------------------------------------- Other 586,524 - ----------------------------------------------------------- Total expenses 21,904,581 - ----------------------------------------------------------- Less: Advisory fees waived (193,862) - ----------------------------------------------------------- Expenses paid indirectly (29,281) - ----------------------------------------------------------- Net expenses 21,681,438 - ----------------------------------------------------------- Net investment income 14,920,438 - ----------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS: Net realized gain on sales of: Investment securities 149,439,237 - ----------------------------------------------------------- Foreign currencies 1,974 - ----------------------------------------------------------- Futures contracts 2,973,432 - ----------------------------------------------------------- 152,414,643 - ----------------------------------------------------------- UNREALIZED APPRECIATION (DEPRECIATION) OF: Investment securities 129,195,133 - ----------------------------------------------------------- Foreign currencies (1,823) - ----------------------------------------------------------- Futures contracts 51,980 - ----------------------------------------------------------- Option contracts (414,052) - ----------------------------------------------------------- 128,831,238 - ----------------------------------------------------------- Net gain on investment securities, foreign currencies, futures and option transactions 281,245,881 - ----------------------------------------------------------- Net increase in net assets resulting from operations $296,166,319 ===========================================================
See Notes to Financial Statements. 9 C H A R T E R 12 STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND THE YEAR ENDED OCTOBER 31, 1996 (UNAUDITED)
APRIL 30, OCTOBER 31, 1997 1996 -------------- -------------- OPERATIONS: Net investment income $ 14,920,438 $ 45,400,910 - ---------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities, foreign currencies and futures contracts 152,414,643 187,738,534 - ---------------------------------------------------------------------------------------------- Net unrealized appreciation of investment securities, foreign currencies, futures and option contracts 128,831,238 171,775,447 - ---------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 296,166,319 404,914,891 - ---------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income: Class A (19,825,669) (34,698,850) - ---------------------------------------------------------------------------------------------- Class B (2,392,357) (2,262,959) - ---------------------------------------------------------------------------------------------- Institutional Class (274,510) (506,177) - ---------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains on investments: Class A (151,133,306) (170,497,932) - ---------------------------------------------------------------------------------------------- Class B (31,330,634) (8,672,692) - ---------------------------------------------------------------------------------------------- Institutional Class (1,673,772) (2,168,635) - ---------------------------------------------------------------------------------------------- Net equalization credits: Class A 293,484 511,762 - ---------------------------------------------------------------------------------------------- Class B 189,770 219,669 - ---------------------------------------------------------------------------------------------- Institutional Class 5,631 1,194 - ---------------------------------------------------------------------------------------------- Share transactions-net: Class A 226,440,455 518,654,491 - ---------------------------------------------------------------------------------------------- Class B 222,049,354 417,063,105 - ---------------------------------------------------------------------------------------------- Institutional Class 2,341,356 2,366,710 - ---------------------------------------------------------------------------------------------- Net increase in net assets 540,856,121 1,124,924,577 - ---------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 3,192,471,415 2,067,546,838 - ---------------------------------------------------------------------------------------------- End of period $3,733,327,536 $3,192,471,415 - ---------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $2,995,573,811 $2,544,742,646 - ---------------------------------------------------------------------------------------------- Undistributed net investment income 1,794,279 8,877,492 - ---------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities, foreign currencies and futures contracts 151,029,177 182,752,246 - ---------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, futures and option contracts 584,930,269 456,099,031 - ---------------------------------------------------------------------------------------------- $3,733,327,536 $3,192,471,415 - ----------------------------------------------------------------------------------------------
See Notes to Financial Statements. 10 C H A R T E R 13 NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997 (UNAUDITED) NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six diversified portfolios: AIM Charter Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM Constellation Fund and AIM Weingarten Fund. The Fund currently offers three different classes of shares: Class A shares, Class B shares and the Institutional Class. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to provide growth of capital, with current income as a secondary objective. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. Security Valuations-A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date, or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued at the mean between last bid and asked prices based upon quotes furnished by independent sources. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions-Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. C. Federal Income Taxes-The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Expenses-Distribution and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses are allocated among the classes. E. Equalization-The Fund follows the accounting practice known as equalization by which a portion of the proceeds from sales and costs of repurchases of Fund shares, equivalent on a per share basis to the amount of undistributed net investment income, is credited or charged to undistributed net income when the transaction is recorded so that the undistributed net investment income per share is unaffected by sales or redemptions of Fund shares. F. Foreign Currency Translations-Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. G. Foreign Currency Contracts-A forward currency contract is an obligation to purchase or sell a specific currency for an agreed upon price at a future date. The Fund may enter into a forward currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed 11 C H A R T E R 14 to risk if counterparties to the contracts are unable to meet the terms of their contracts. H. Stock Index Futures Contracts-The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in the value of the contracts may not correlate with changes in the value of the securities being hedged. I. 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 period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $150 million, plus 0.625% of the Fund's average daily net assets in excess of $150 million. AIM has agreed to voluntarily waive a portion of its advisory fees paid by the Fund to AIM to the extent necessary to reduce the fees paid by the Fund at net asset levels higher than those currently incorporated in the present advisory fee schedule. Under the voluntary waiver, AIM will receive a fee calculated at the annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $150 million, plus 0.625% of the Fund's average daily net assets in excess of $150 million to and including $2 billion, plus 0.60% of the Fund's average daily net assets in excess of $2 billion. The approval of Board of Directors would be necessary before AIM can discontinue this waiver. During the six months ended April 30, 1997, AIM waived fees of $193,862. Under the terms of a master sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to reimburse AIM for certain administrative costs incurred in providing accounting services to the Fund. During the six months ended April 30, 1997, AIM was reimbursed $62,783 for such services. The Fund, pursuant to a transfer agency and services agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing transfer agency services to the Class A and Class B shares. During the six months ended April 30, 1997, AFS was paid $1,441,644 for such services. During the six months ended April 30, 1997, the Fund paid A I M Institutional Fund Services, Inc. ("AIFS") $1,440 for shareholder and transfer agency services with respect to the Institutional Class. The Fund received reductions in transfer agency fees of $27,534 from dividends received on balances in cash management bank accounts. In addition, the Fund incurred expenses of $1,747 for pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction in the Fund's total expenses of $29,281 during the six months ended April 30, 1997. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A and Class B shares and a master distribution agreement with Fund Management Company ("FMC") to serve as the distributor for the Institutional Class. The Company has adopted Plans pursuant to Rule 12b-1 under the 1940 Act with 12 C H A R T E R 15 respect to the Fund's Class A shares (the "Class A Plan") and with respect to the Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A Plan, pays AIM Distributors compensation at the annual rate of 0.30% of the average daily net assets attributable to the Class A shares. The Class A Plan is designed to compensate AIM Distributors for certain promotional and other sales related costs and provides periodic payments to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class A shares of the Fund. The Fund, pursuant to the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00% of the average daily net assets attributable to the Class B shares. Of this amount, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class B shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class B shares of the Fund. Any amounts not paid as a service fee under such Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges, that may be paid by the respective classes. AIM Distributors may, from time to time, assign, transfer or pledge to one or more designees, its rights to all or a designated portion of (a) compensation received by AIM Distributors from the Fund pursuant to the Class B Plan (but not AIM Distributors' duties and obligations pursuant to the Class B Plan), and (b) any contingent deferred sales charges received by AIM Distributors related to the Class B shares. During the six months ended April 30, 1997, the Class A and Class B shares paid AIM Distributors $4,292,872 and $3,203,810, respectively, as compensation under the Plans. AIM Distributors received commissions of $1,075,461 from sales of Class A shares of the Fund during the six months ended April 30, 1997. 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 six months ended April 30, 1997, AIM Distributors received commissions of $32,837 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AIM Capital, AIM Distributors, AFS, AIFS and FMC. During the six months ended April 30, 1997, the Fund paid legal fees of $7,348 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. Interest on borrowings under the line of credit is payable on maturity or prepayment date. During the six months ended April 30, 1997, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.08% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 5-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the six months ended April 30, 1997 was $3,547,442,583 and $3,316,306,601, respectively. The amount of unrealized appreciation (depreciation) of investment securities as of April 30, 1997, on a tax basis, is as follows: Aggregate unrealized appreciation of investment securities $624,573,790 - ------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (39,791,370) - ------------------------------------------------------------- Net unrealized appreciation of investment securities $584,782,420 ============================================================= Cost of investments for tax purposes is $3,121,289,605.
13 C H A R T E R 16 NOTE 6-CAPITAL STOCK Changes in the capital stock outstanding for the six months ended April 30, 1997 and the year ended October 31, 1996 were as follows:
APRIL 30, 1997 OCTOBER 31, 1996 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------- ------------ ------------- Sold - ------------------------------------------------------------------------------------------------------------------------ Class A 30,429,955 $ 348,827,200 71,824,128 $ 752,853,277 - ------------------------------------------------------------------------------------------------------------------------ Class B 20,107,157 229,853,138 41,436,800 435,348,846 - ------------------------------------------------------------------------------------------------------------------------ Institutional Class 266,233 3,067,395 448,911 4,759,971 - ------------------------------------------------------------------------------------------------------------------------ Issued as reinvestment of dividends: - ------------------------------------------------------------------------------------------------------------------------ Class A 15,034,968 162,130,649 19,521,139 192,994,968 - ------------------------------------------------------------------------------------------------------------------------ Class B 2,989,287 32,149,114 1,039,513 10,333,913 - ------------------------------------------------------------------------------------------------------------------------ Institutional Class 172,614 1,869,025 252,209 2,504,537 - ------------------------------------------------------------------------------------------------------------------------ Reacquired: Class A (24,923,860) (284,517,394) (40,679,494) (427,193,754) - ------------------------------------------------------------------------------------------------------------------------ Class B (3,513,718) (39,952,898) (2,705,793) (28,619,654) - ------------------------------------------------------------------------------------------------------------------------ Institutional Class (228,049) (2,595,064) (464,310) (4,897,798) - ------------------------------------------------------------------------------------------------------------------------ 40,334,587 $ 450,831,165 90,673,103 $ 938,084,306 ========================================================================================================================
NOTE 7-OPTION CONTRACTS WRITTEN Transactions in call options written during the six months ended April 30, 1997 are summarized as follows:
OPTION CONTRACTS ------------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ---------- Beginning of Period -- -- - -------------------------------------------------------------------------------------- Written 4,500 $1,548,448 - -------------------------------------------------------------------------------------- Closed -- -- - -------------------------------------------------------------------------------------- Exercised -- -- - -------------------------------------------------------------------------------------- Expired -- -- - -------------------------------------------------------------------------------------- End of period 4,500 $1,548,448 ======================================================================================
Open call option contracts written at April 30, 1997 were as follows:
NUMBER UNREALIZED CONTRACT STRIKE OF PREMIUM APRIL 30, 1997 APPRECIATION ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) ----- -------- ------ --------- -------- -------------- -------------- Lilly (Eli) & Co. Jul. 85 1,500 $ 732,475 $ 993,750 $ (261,275) - --------------------------------------------------------------------------------------------------------------------------------- Service Corp. International Nov. 35 2,000 331,489 487,500 (156,011) - --------------------------------------------------------------------------------------------------------------------------------- Warner-Lambert Co. Jul. 100 1,000 484,484 481,250 3,234 - --------------------------------------------------------------------------------------------------------------------------------- 4,500 $1,548,448 $ 1,962,500 $ (414,052) =================================================================================================================================
14 C H A R T E R 17 NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of the Institutional Class capital stock outstanding during the six months ended April 30, 1997, and each of the years in the five-year period ended October 31, 1996 and the period July 30, 1991 (date operations commenced) through October 31, 1991.
OCTOBER 31, APRIL 30, --------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 --------- -------- -------- -------- -------- -------- -------- Net asset value, beginning of period $ 11.24 $ 10.66 $ 8.93 $ 9.48 $ 8.38 $ 8.42 $ 7.92 - -------------------------------- ------- -------- -------- -------- -------- ------- ------- Income from investment operations: Net investment income 0.08 0.24 0.23 0.25 0.19 0.20 0.05 - -------------------------------- ------- -------- -------- -------- -------- ------- ------- Net gains (losses) on securities (both realized and unrealized) 0.93 1.44 2.07 (0.44) 1.23 0.16 0.45 - -------------------------------- ------- -------- -------- -------- -------- ------- ------- Total from investment operations 1.01 1.68 2.30 (0.19) 1.42 0.36 0.50 - -------------------------------- ------- -------- -------- -------- -------- ------- ------- Less distributions: Dividends from net investment income (0.10) (0.20) (0.24) (0.20) (0.32) (0.17) -- - -------------------------------- ------- -------- -------- -------- -------- ------- ------- Distributions from capital gains (0.63) (0.90) (0.33) (0.16) -- (0.23) -- - -------------------------------- ------- -------- -------- -------- -------- ------- ------- Total distributions (0.73) (1.10) (0.57) (0.36) (0.32) (0.40) -- - -------------------------------- ------- -------- -------- -------- -------- ------- ------- Net asset value, end of period $ 11.52 $ 11.24 $ 10.66 $ 8.93 $ 9.48 $ 8.38 $ 8.42 ================================ ======= ======== ======== ======== ======== ======= ======= Total return(a) 9.46% 17.29% 27.45% (2.02)% 17.39% 4.53% 6.31% ================================ ======= ======== ======== ======== ======== ======= ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $32,773 $ 29,591 $ 25,538 $ 21,840 $ 24,196 $ 7,800 $ 775 ================================ ======= ======== ======== ======== ======== ======= ======= Ratio of expenses to average net assets(b) 0.67%(c)(d) 0.69% 0.74% 0.73% 0.79% 0.87% 1.00%(e) ================================ ======= ======== ======== ======== ======== ======= ======= Ratio of net investment income to average net assets(f) 1.41%(c) 2.24% 1.98% 2.76% 2.26% 2.44% 2.43%(e) ================================ ======= ======== ======== ======== ======== ======= ======= Portfolio turnover rate 95% 164% 161% 126% 144% 95% 144% ================================ ======= ======== ======== ======== ======== ======= ======= Average broker commission rate paid(g) $0.0623 $ 0.0638 N/A N/A N/A N/A N/A ================================ ======= ======== ======== ======== ======== ======= =======
(a) For periods less than one year, total return is not annualized. (b) After waiver of advisory fees. Ratio of expenses to average net assets prior to waiver of advisory fees were 0.68% (annualized) and 0.70% for the periods 1997-1996 respectively. (c) Ratios are annualized and based on average daily net assets of $32,041,933. (d) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have remained the same. (e) Annualized. (f) Ratios of net investment income to average net assets prior to waiver of advisory fees were 1.40% (annualized) and 2.23% for the periods 1997-1996 respectively. (g) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. 15 C H A R T E R 18 SUPPLEMENTAL PROXY INFORMATION - -------------------------------------------------------------------------------- The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company") was held on February 7, 1997 at the offices of A I M Management Group Inc., 11 Greenway Plaza, Houston, Texas. The meeting was held for the following purposes: (1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F. Pennock, Ian W. Robinson and Louis S. Sklar. (2) To approve a new Master Investment Advisory Agreement between the AIM Charter Fund (the "Fund") and A I M Advisors, Inc. (3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital Management, Inc. (4) To approve the elimination of the fundamental investment policy prohibiting the Fund from investing in other investment companies. (5) To approve the elimination of provisions of a fundamental investment policy prohibiting or restricting investments in puts, calls, straddles and spreads. (6) To approve the elimination of the fundamental investment policy prohibiting investments in companies with less than five years of continuous operation. (7) To ratify the selection of KPMG Peat Marwick LLP as independent accountants for the Fund for the Company's fiscal year ending October 31, 1997. The results of the proxy solicitation on the above matters were as follows:
Votes Director/Matter Votes For Against Abstentions --------------- --------- ------- ----------- (1) Charles T. Bauer............................................ 618,811,245 0 19,923,485 Bruce L. Crockett........................................... 619,427,685 0 19,307,045 Owen Daly II................................................ 618,919,919 0 19,814,811 Carl Frischling............................................. 619,275,356 0 19,459,374 Robert H. Graham............................................ 619,431,576 0 19,303,154 John F. Kroeger............................................. 618,878,096 0 19,856,634 Lewis F. Pennock............................................ 619,272,998 0 19,461,732 Ian W. Robinson............................................. 618,944,840 0 19,789,890 Louis S. Sklar.............................................. 619,462,714 0 19,272,016 (2) Approval of Master Investment Advisory Agreement............ 173,793,114 2,961,324 7,253,671 (3) Approval of Sub-Advisory Agreement.......................... 173,153,366 3,196,109 7,658,634 (4) Elimination of Policy concerning Other Investment Companies................................................... 132,189,441 5,578,624 7,737,685 (5) Elimination of Policy concerning Puts, Calls, Straddles and Spreads..................................................... 130,439,316 6,922,517 8,143,916 (6) Elimination of Policy concerning Companies with Less Than Five Years of Continuous Operation.......................... 131,139,307 6,923,959 7,442,483 (7) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
16 C H A R T E R 19 Directors & Officers Board of Directors OFFICERS OFFICE OF THE FUND Charles T. Bauer Charles T. Bauer 11 Greenway Plaza Chairman Chairman Suite 100 A I M Management Group Inc. Houston, TX 77046 Robert H. Graham Bruce L. Crockett President INVESTMENT ADVISOR Formerly Director, President, and Chief Executive Officer John J. Arthur A I M Institutional Fund COMSAT Corporation Senior Vice President and Treasurer Services, Inc. 11 Greenway Plaza Owen Daly II Gary T. Crum Suite 100 Director Senior Vice President Houston, TX 77046 Cortland Trust Inc. Scott G. Lucas TRANSFER AGENT Jack Fields Senior Vice President Formerly Member of the A I M Fund Services, Inc. U.S. House of Representatives Carol F. Relihan P.O. Box 4739 Senior Vice President Houston, TX 77210-4739 Carl Frischling and Secretary Partner CUSTODIAN Kramer, Levin, Naftalis & Frankel Jonathan C. Schoolar Senior Vice President State Street Bank & Trust Robert H. Graham 225 Franklin Street President and Chief Executive Officer Melville B. Cox Boston, MA 02110 A I M Management Group Inc. Vice President COUNSEL TO THE FUND John F. Kroeger Dana R. Sutton Formerly Consultant Vice President and Assistant Treasurer Ballard Spahr Wendell & Stockel Associates, Inc. Andrews & Ingersoll P. Michelle Grace 1735 Market Street Lewis F. Pennock Assistant Secretary Philadelphia, PA 19103 Attorney David L. Kite COUNSEL TO THE DIRECTORS Ian W. Robinson Assistant Secretary Consultant; Formerly Executive Kramer, Levin, Naftalis & Frankel Vice President and Nancy L. Martin 919 Third Avenue Chief Financial Officer Assistant Secretary New York, NY 10022 Bell Atlantic Management Services, Inc. Ofelia M. Mayo DISTRIBUTOR Assistant Secretary Louis S. Sklar Fund Management Company Executive Vice President Kathleen J. Pflueger 11 Greenway Plaza Hines Interests Assistant Secretary Suite 100 Limited Partnership Houston, TX 77046 Samuel D. Sirko Assistant Secretary Stephen I. Winer Assistant Secretary Mary J. Benson Assistant Treasurer
AIM Charter Fund 17 20 AIM CONSTELLATION FUND For shareholders who seek capital appreciation though investments in common stocks, with emphasis on medium-size and smaller emerging growth companies. ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT: o AIM Constellation Fund Institutional Class performance figures are historical and reflect reinvestment of all distributions and changes in net asset value. o The Fund's investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. o The Fund's portfolio composition is subject to change and there is no assurance the Fund will continue to hold any particular security. o Past performance cannot guarantee comparable future results. ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT: o Standard & Poor's Corporation (S&P) is a credit-rating agency. The unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P 500) is widely regarded by investors as representative of the stock market in general. The Standard & Poor's Mid-Cap Index (S&P 400) is an unmanaged index comprising common stocks of approximately 400 mid-capitalization companies. o The Russell 2000 Stock Index is an unmanaged index generally considered representative of small-capitalization stocks. o The NASDAQ (National Association of Securities Dealers Automated Quotation System) Composite Index is a group of more than 4,500 unmanaged over-the- counter securities widely regarded by investors to be representative of the small- and medium-size company stock universe. o An investment cannot be made in the indexes listed. Unless otherwise indicated, index results include reinvestment dividends and do not reflect sales charges. ================================================================================ AIM CONSTELLATION FUND INSTITUTIONAL CLASS AVERAGE ANNUAL TOTAL RETURNS For periods ended 3/31/97, most recent calendar quarter-end. 1 Year 3.32% 3 Years 15.41 5 Years N/A Inception (4/8/92) 16.84 For periods ended 4/30/97 1 Year - 1.02% 3 Years 15.79 5 Years 17.14 Inception (4/8/92) 16.93 ================================================================================ 18 AIM Constellation Fund 21 The Managers' Overview FUND CONTENDS WITH STRENGTH OF LARGE-COMPANY STOCKS A roundtable discussion with the Fund management team for AIM Constellation Fund for the six-month period ended April 30, 1997. - -------------------------------------------------------------------------------- Q. HOW DID AIM CONSTELLATION FUND PERFORM DURING THE REPORTING PERIOD? A. AIM Constellation Fund, like similar funds, was bucking a market that continued to dote on large-company stocks. Total return for the Institutional Class was -2.16% for the six months covered by this report. Net assets of the Institutional Class grew from $293.0 million to $306.3 million during the reporting period. Compared with longer-term performance, the Fund's short-term performance was disappointing. Average annual total return for the Institutional Class of AIM Constellation Fund has been almost 17% since the class's inception in April 1992. However, within a month of the reporting period's close, the Fund had rebounded. For the period 10/31/96 through 5/31/97, the Institutional Class's total return was 7.75%. Q. WHAT FACTORS INFLUENCED THE FUND'S PERFORMANCE DURING THIS REPORTING PERIOD? A. Three factors shaped a difficult market environment for the Fund. First was the strong performance of large-cap stocks. Second was the continued narrowness of a market led by a relatively small number of stocks. And finally, certain sectors in which the Fund is heavily invested, particularly technology, were weak during the six months covered by this report. Q. WHY HAVE LARGE-CAP STOCKS BEEN STRONG? A. Heightened market volatility, uneasiness about earnings trends, and uncertainty about the economy's direction have driven investors to the relative safety and liquidity of stocks in big, predictable companies. It's a phenomenon often termed a "flight to quality." Historically, small- and mid-cap stocks have offered excellent returns for investors, but they tend to be more volatile than stocks of large, better-known corporations. As a result, large-company stocks continued to outperform small- and mid-cap stocks. During the six months covered by this report, the S&P 500, an index of large-company stocks, produced a total return of 14.71%. By contrast, the S&P 400 index of mid-capitalization stocks produced a total return of 6.88%, and the small-cap-dominated NASDAQ index produced a 3.23% return. Q. WHAT DO YOU MEAN BY "THE NARROWNESS OF THE MARKET?" A. In a narrow market, the performance of a market index is generated by a comparatively few stocks. For example, during 1996, four stocks--Microsoft, Intel, Cisco, and Oracle--accounted for 70% of the NASDAQ index's return; Intel alone represented 36%. Such an unusual environment presents a challenge for a diversified mutual fund such as AIM Constellation Fund, which has a relatively small holding of each security in its portfolio. AIM Constellation Fund had 323 holdings as of the close of the reporting period. Keep in mind that while such diversification means the Fund will not capture all the positive returns a narrow market may offer when it is going up, it also means the Fund may not experience all the negative returns during a downturn. Q. WITH MANY TECHNOLOGY STOCKS LAGGING, WHY DO YOU STILL OWN A LARGE NUMBER OF TECH STOCKS? A. Technology is one field where the Fund is overweighted compared to the benchmark S&P 400 index. The technology sector represented about 34% of the Fund's portfolio as of April 30, whereas technology is only about 10% of the S&P 400. So the impact of the tech group's decline has been greater on the Fund than on the index. This sector has had its difficulties. In a technology universe of 600 stocks followed by Bear Stearns, by April 1, 1997, the average software company stock was down 53% from its 1996 peak. Many tech stocks, especially those of smaller companies, have never fully recovered from the sell-off that hit last summer. But many technology companies have reported excellent earnings for the first quarter of 1997, and our stock-selection process has found a number of technology companies we consider very promising. However, they are different from the ones we owned when the reporting period opened. For example, as of October 31, 1996, computer networking stocks represented more than 5% of net assets; that had been cut back to 0.88% by the close of the reporting period. The networking field has become problematic as networking has become complex and the field increasingly competitive. Stock of networking device maker 3COM, for example, was hard hit when this part of the tech sector fell out of favor. During the six months covered by this report, we trimmed the number of networking device makers held by the portfolio from 11 to four. AIM Constellation Fund 19 22 The Managers' Overview PORTFOLIO COMPOSITION As of 4/30/97, based on total net assets
====================================================================================== Top 10 Common Stock Holdings Top 10 Industries - -------------------------------------------------------------------------------------- 1. Dell Computer Corp. 1.09% 1. Computer Software/Services 10.45% 2. Tenet Healthcare Corp. 1.09 2. Retail (Stores) 8.85 3. HEALTHSOUTH Corp. 1.04 3. Medical (Patient Services) 8.74 4. Microsoft Corp. 1.03 4. Semiconductors 7.80 5. Service Corp. International 1.01 5. Telecommunications 5.01 6. Compaq Computer Corp. 0.98 6. Finance (Consumer Credit) 4.52 7. Sun Microsystems, Inc. 0.98 7. Computer Minis/PCs 3.61 8. Cardinal Health, Inc. 0.97 8. Oil Equipment and Supplies 3.44 9. Parametric Technology Co. 0.89 9. Medical (Drugs) 2.86 10. Oxford Health Plans, Inc. 0.81 10. Retail (Food & Drug) 2.56 Of course the portfolio's composition is subject to change, and there is no assurance it will continue to hold any particular security. =======================================================================================
The Fund has migrated into other areas of the technology sector. Holdings of semiconductor makers were up significantly during the six-month reporting period. These are chiefly makers of high-value, noncommodity, specialized semiconductor products, including Xilinx and LSI Logic, which we believe possess significant competitive advantages over makers of commodity semiconductors. Despite the potential uncertainty in the short run, technology has been the chief engine of economic expansion the past few years, generating up to one-third of all economic growth by some estimates. We believe this sector still offers high growth possibilities over the long term. Q. YOU ALSO OWN QUITE A FEW HEALTH-CARE STOCKS. HOW HAVE THEY PERFORMED? A. The Fund's next largest weighting is in health care. Here again, the Fund is relatively overweighted compared to the S&P 400 (approximately 14% of the Fund's portfolio as opposed to about 10% of that index). Health-care stocks have been volatile as this changing industry sorts out its leaders and laggards. We have emphasized three major areas that offer attractive potential for earnings growth: hospitals, which are benefiting from ongoing consolidation efforts; assisted living facilities, with their appeal to the elderly; and health maintenance organizations, which continue to lead the efficiency drive in this industry and have recently improved their pricing structure. Many of the Fund's health-care holdings reflect the ferment in this field: Genesis Health Ventures, which specializes in integrated health services for the elderly; United HealthCare, a managed-care provider with a growing enrollment; and MedPartners, a rapidly growing physician practice management company. Q. WHAT IS YOUR MARKET OUTLOOK FOR MID-CAP STOCKS? A. We remain confident about them. Many of their prices have been flat or have been pressured lower, without regard for the higher potential for earnings growth projected by many analysts. That means that the Fund has been able to make stock selections while prices for many attractive companies are near their lowest for the year. By comparison, prices for stocks in many large companies are at record levels despite slower projected growth rates for future earnings. When current concerns about the direction of the economy and interest rates subside, the market should return its valuation focus to growth potential--a boost for faster-growing small and mid size companies. The recent disparity in the performance of large-capitalization versus small-capitalization stocks is highly unusual. Morgan Stanley has calculated that the spread in relative performance of the large-cap S&P 500 versus the small-cap Russell 2000 Index is the widest since that Russell index was launched in 1979. Many observers think the time is ripe for market sentiment to change and warm to smaller- and mid-cap stocks, which were attractively priced when the period covered by this report closed. Such a change would bode very well for funds such as AIM Constellation Fund. In fact, just after the close of the six-month period covered by this report, the market recovered from the 9.8% decline it registered from mid-March through mid-April of 1997, and for the first time in a long time, stocks of smaller and midsize companies participated in the rally. It is too early to declare the corner turned, but it is possible that the narrow market has at last begun to broaden. Q. WHAT IS YOUR OUTLOOK FOR THE MARKET IN GENERAL? A. After two extraordinary years of double-digit returns on stocks, professionals were warning about the potential for a market correction, with some making bearish forecasts. Nevertheless, after the near correction of early spring, the markets recovered swiftly. And with corporate profits strong, the optimism seems well grounded. In the U.S., the economic underpinnings for a strong market appear to be in place: given the absence of inflation, the Federal Reserve Board held interest rates steady when it met in May; the economy is growing at a very healthy clip; and for a record 17 quarters in a row, corporate earnings have outstripped analysts' forecasts. The consensus expectation is that stock performance may be returning to its historical norm of 9% and 10% returns, which may seem slim compared to the very recent past. Perhaps it is time for investors to fashion more realistic expectations of the market. 20 AIM Constellation Fund 23 SCHEDULE OF INVESTMENTS April 30, 1997 (Unaudited)
MARKET SHARES VALUE DOMESTIC COMMON STOCKS-83.91% ADVERTISING/BROADCASTING-0.99% American Radio Systems Corp.(a) 300,000 $ 8,775,000 - ------------------------------------------------------------------ Chancellor Corp.-Class A(a) 154,000 4,312,000 - ------------------------------------------------------------------ Clear Channel Communications, Inc.(a) 1,500,000 72,750,000 - ------------------------------------------------------------------ Jacor Communications, Inc.(a) 786,700 22,125,938 - ------------------------------------------------------------------ Paxson Communications Corp.(a) 750,000 7,500,000 - ------------------------------------------------------------------ True North Communications, Inc. 61,400 1,174,275 - ------------------------------------------------------------------ 116,637,213 - ------------------------------------------------------------------ AIRLINES-0.12% Southwest Airlines Co. 500,000 13,750,000 - ------------------------------------------------------------------ AUTOMOBILE/TRUCK PARTS & TIRES-0.14% Mark IV Industries, Inc. 689,063 16,020,703 - ------------------------------------------------------------------ BANKING-0.62% Bank of Boston Corp. 1,000,000 72,750,000 - ------------------------------------------------------------------ BEVERAGES-ALCOHOLIC-0.10% Cerner Corp.(a) 725,000 11,690,625 - ------------------------------------------------------------------ BIOTECHNOLOGY-0.92% Amgen, Inc.(a) 912,700 53,735,212 - ------------------------------------------------------------------ Biogen, Inc.(a) 668,100 21,379,200 - ------------------------------------------------------------------ Guidant Corp. 500,000 34,125,000 - ------------------------------------------------------------------ 109,239,412 - ------------------------------------------------------------------ BUSINESS SERVICES-1.25% AccuStaff, Inc.(a) 1,000,000 18,250,000 - ------------------------------------------------------------------ Corrections Corp. of America(a) 357,100 11,650,388 - ------------------------------------------------------------------ CUC International, Inc.(a) 900,000 19,012,500 - ------------------------------------------------------------------ Equifax, Inc. 500,000 14,375,000 - ------------------------------------------------------------------ HealthCare COMPARE Corp.(a) 493,900 21,422,912 - ------------------------------------------------------------------ Ingram Micro, Inc.-Class A(a) 1,350,000 30,712,500 - ------------------------------------------------------------------ Paychex, Inc. 700,000 32,768,750 - ------------------------------------------------------------------ 148,192,050 - ------------------------------------------------------------------ CHEMICALS (SPECIALTY)-0.20% IMC Global, Inc. 625,000 23,046,875 - ------------------------------------------------------------------ COMPUTER MINI/PCS-3.61% Compaq Computer Corp.(a) 1,350,000 115,256,250 - ------------------------------------------------------------------ Dell Computer Corp.(a) 1,538,400 128,744,850 - ------------------------------------------------------------------ Gateway 2000, Inc.(a) 500,000 27,437,500 - ------------------------------------------------------------------ Hewlett-Packard Co. 750,000 39,375,000 - ------------------------------------------------------------------ Sun Microsystems, Inc.(a) 4,000,000 115,250,000 - ------------------------------------------------------------------ 426,063,600 - ------------------------------------------------------------------ COMPUTER NETWORKING-0.88% ACT Networks, Inc.(a)(b) 500,000 6,750,000 - ------------------------------------------------------------------ Ascend Communications, Inc.(a) 625,000 28,593,750 - ------------------------------------------------------------------ Cabletron Systems, Inc.(a) 2,000,000 69,000,000 - ------------------------------------------------------------------ 104,343,750 - ------------------------------------------------------------------ COMPUTER PERIPHERALS-1.78% Adaptec, Inc.(a) 1,700,000 62,900,000 - ------------------------------------------------------------------ EMC Corp.(a) 2,000,000 72,750,000 - ------------------------------------------------------------------
MARKET SHARES VALUE COMPUTER PERIPHERALS-(CONTINUED) Microchip Technology, Inc.(a) 2,100,075 $ 65,627,344 - ------------------------------------------------------------------ Storage Technology Corp.(a) 250,000 8,781,250 - ------------------------------------------------------------------ 210,058,594 - ------------------------------------------------------------------ COMPUTER SOFTWARE/SERVICES-9.95% Adobe Systems, Inc. 1,350,000 52,818,750 - ------------------------------------------------------------------ Affiliated Computer Services, Inc.(a) 1,000,000 26,000,000 - ------------------------------------------------------------------ BDM International Inc.(a) 400,000 9,300,000 - ------------------------------------------------------------------ BISYS Group, Inc. (The)(a) 463,200 14,822,400 - ------------------------------------------------------------------ BMC Software, Inc.(a) 2,000,000 86,500,000 - ------------------------------------------------------------------ Cadence Design Systems, Inc.(a) 2,000,000 64,000,000 - ------------------------------------------------------------------ Centura Software Corp.(a) 42,893 85,786 - ------------------------------------------------------------------ Computer Associates International, Inc. 500,000 26,000,000 - ------------------------------------------------------------------ Computer Sciences Corp.(a) 400,000 25,000,000 - ------------------------------------------------------------------ Compuware Corp.(a) 2,000,000 75,500,000 - ------------------------------------------------------------------ CSG Systems International, Inc.(a) 510,000 9,052,500 - ------------------------------------------------------------------ DST Systems, Inc.(a) 1,000,000 28,375,000 - ------------------------------------------------------------------ Electronic Arts, Inc.(a) 500,000 12,062,500 - ------------------------------------------------------------------ Electronics for Imaging, Inc.(a) 317,200 12,450,100 - ------------------------------------------------------------------ First Data Corp. 850,000 29,325,000 - ------------------------------------------------------------------ Fiserv, Inc.(a) 625,000 23,593,750 - ------------------------------------------------------------------ HBO & Co. 900,000 48,150,000 - ------------------------------------------------------------------ HPR, Inc.(a) 500,000 7,062,500 - ------------------------------------------------------------------ IDX Systems Corp.(a) 356,900 10,617,775 - ------------------------------------------------------------------ McAfee Associates, Inc.(a) 1,000,000 55,750,000 - ------------------------------------------------------------------ Microsoft Corp.(a) 1,000,000 121,500,000 - ------------------------------------------------------------------ National Data Corp. 750,000 28,125,000 - ------------------------------------------------------------------ Network General Corp.(a)(b) 1,985,700 27,303,375 - ------------------------------------------------------------------ Oracle Corp.(a) 1,600,000 63,600,000 - ------------------------------------------------------------------ Parametric Technology Co.(a) 2,317,300 104,857,825 - ------------------------------------------------------------------ Physician Computer Network, Inc.(a) 1,500,000 7,968,750 - ------------------------------------------------------------------ Security Dynamics Technologies, Inc.(a) 1,000,000 25,250,000 - ------------------------------------------------------------------ Sterling Commerce, Inc.(a) 2,000,000 51,750,000 - ------------------------------------------------------------------ Sterling Software, Inc.(a) 500,000 15,250,000 - ------------------------------------------------------------------ SunGard Data Systems Inc.(a) 530,000 23,518,750 - ------------------------------------------------------------------ Sybase, Inc.(a) 1,000,000 14,750,000 - ------------------------------------------------------------------ Synopsys, Inc.(a) 2,000,000 63,750,000 - ------------------------------------------------------------------ Transition Systems, Inc.(a) 33,300 399,600 - ------------------------------------------------------------------ Wind River Systems(a) 450,000 10,350,000 - ------------------------------------------------------------------ 1,174,839,361 - ------------------------------------------------------------------ CONGLOMERATES-0.77% Corning Inc. 1,000,000 48,250,000 - ------------------------------------------------------------------ Tyco International Ltd. 411,982 25,130,902 - ------------------------------------------------------------------ U.S. Industries, Inc.(a) 500,000 18,062,500 - ------------------------------------------------------------------ 91,443,402 - ------------------------------------------------------------------ CONSUMER NON-DURABLES-0.05% Central Garden and Pet Co.(a) 300,000 5,981,250 - ------------------------------------------------------------------ COSMETICS & TOILETRIES-0.57% General Nutrition Companies, Inc.(a) 1,750,000 37,625,000 - ------------------------------------------------------------------
21 C O N S T E L L A T I O N 24
MARKET SHARES VALUE COSMETICS & TOILETRIES-(CONTINUED) McKesson Corp. 167,600 $ 12,130,050 - ------------------------------------------------------------------ Rexall Sundown, Inc.(a) 877,500 17,440,313 - ------------------------------------------------------------------ 67,195,363 - ------------------------------------------------------------------ ELECTRIC POWER-0.30% AES Corp.(a) 550,000 35,887,500 - ------------------------------------------------------------------ ELECTRONIC COMPONENTS/MISCELLANEOUS-1.79% AMETEK, Inc. 300,000 6,712,500 - ------------------------------------------------------------------ Berg Electronics Corp.(a) 500,000 15,000,000 - ------------------------------------------------------------------ BMC Industries, Inc. 500,000 14,500,000 - ------------------------------------------------------------------ Methode Electronics, Inc.-Class A 450,000 6,356,250 - ------------------------------------------------------------------ Micron Electronics, Inc.(a) 1,200,000 24,450,000 - ------------------------------------------------------------------ Molex, Inc.-Class A 292,969 8,496,094 - ------------------------------------------------------------------ Raychem Corp. 270,300 17,434,350 - ------------------------------------------------------------------ SCI Systems, Inc.(a) 105,300 6,502,275 - ------------------------------------------------------------------ Symbol Technologies, Inc.(a) 900,000 29,137,500 - ------------------------------------------------------------------ Teradyne, Inc.(a) 2,000,000 65,500,000 - ------------------------------------------------------------------ Thermo Instrument Systems, Inc.(a) 550,000 17,256,250 - ------------------------------------------------------------------ 211,345,219 - ------------------------------------------------------------------ ELECTRONIC/PC DISTRIBUTERS-0.30% Arrow Electronics, Inc.(a) 421,100 23,423,687 - ------------------------------------------------------------------ Avnet, Inc. 200,000 12,175,000 - ------------------------------------------------------------------ 35,598,687 - ------------------------------------------------------------------ FINANCE (ASSET MANAGEMENT)-0.12% Imperial Credit Industries, Inc.(a) 1,000,000 14,562,500 - ------------------------------------------------------------------ FINANCE (CONSUMER CREDIT)-4.37% Aames Financial Corp.(b) 1,060,500 16,305,187 - ------------------------------------------------------------------ American Express Co. 580,700 38,253,612 - ------------------------------------------------------------------ Capital One Financial Corp. 1,700,000 61,412,500 - ------------------------------------------------------------------ Cityscape Financial Corp.(a) 183,700 2,456,988 - ------------------------------------------------------------------ Concord EFS, Inc.(a) 2,250,000 44,437,500 - ------------------------------------------------------------------ Credit Acceptance Corp.(a) 500,000 5,406,250 - ------------------------------------------------------------------ Green Tree Financial Corp. 2,500,000 74,062,500 - ------------------------------------------------------------------ Household International, Inc. 650,000 57,200,000 - ------------------------------------------------------------------ IMC Mortgage Co.(a)(b) 1,398,000 15,727,500 - ------------------------------------------------------------------ MBNA Corp. 2,000,000 66,000,000 - ------------------------------------------------------------------ Money Store, Inc. (The) 1,579,800 34,163,175 - ------------------------------------------------------------------ PMT Services, Inc.(a) 1,000,000 11,875,000 - ------------------------------------------------------------------ Southern Pacific Funding Corp.(a) 300,000 3,187,500 - ------------------------------------------------------------------ Student Loan Marketing Association 450,000 53,212,500 - ------------------------------------------------------------------ SunAmerica, Inc. 700,000 32,200,000 - ------------------------------------------------------------------ 515,900,212 - ------------------------------------------------------------------ FINANCE (SAVINGS & LOAN)-0.21% Washington Mutual, Inc. 510,600 25,210,875 - ------------------------------------------------------------------ FUNERAL SERVICES-1.30% Equity Corp. International(a) 400,000 8,600,000 - ------------------------------------------------------------------ Service Corp. International 3,500,000 119,875,000 - ------------------------------------------------------------------ Stewart Enterprises, Inc.-Class A 750,000 24,750,000 - ------------------------------------------------------------------ 153,225,000 - ------------------------------------------------------------------ FURNITURE-0.29% Leggett & Platt, Inc. 1,000,000 34,750,000 - ------------------------------------------------------------------
MARKET SHARES VALUE GAMING-0.84% Circus Circus Enterprises(a) 1,250,000 $ 30,156,250 - ------------------------------------------------------------------ GTECH Holdings Corp.(a) 750,000 23,062,500 - ------------------------------------------------------------------ International Game Technology 1,358,300 21,563,013 - ------------------------------------------------------------------ MGM Grand, Inc.(a) 732,100 24,708,375 - ------------------------------------------------------------------ 99,490,138 - ------------------------------------------------------------------ HOTELS/MOTELS-1.05% Choice Hotels International, Inc.(a) 1,500,000 21,000,000 - ------------------------------------------------------------------ Doubletree Corp.(a) 702,800 29,517,600 - ------------------------------------------------------------------ HFS, Inc.(a) 750,000 44,437,500 - ------------------------------------------------------------------ Promus Hotel Corp.(a) 650,000 22,912,500 - ------------------------------------------------------------------ Sun International Hotels Ltd.(a) 200,000 6,075,000 - ------------------------------------------------------------------ 123,942,600 - ------------------------------------------------------------------ INSURANCE (LIFE & HEALTH)-0.40% Compdent Corp.(a)(b) 350,800 5,656,650 - ------------------------------------------------------------------ Conseco Inc. 1,000,000 41,375,000 - ------------------------------------------------------------------ 47,031,650 - ------------------------------------------------------------------ INSURANCE (MULTI-LINE PROPERTY)-1.15% CapMAC Holdings, Inc. 850,000 22,100,000 - ------------------------------------------------------------------ MGIC Investment Corp. 1,000,000 81,250,000 - ------------------------------------------------------------------ Progressive Corp. 44,900 3,418,012 - ------------------------------------------------------------------ Providian Corp. 500,000 28,875,000 - ------------------------------------------------------------------ 135,643,012 - ------------------------------------------------------------------ LEISURE & RECREATION-0.71% Harley-Davidson, Inc. 1,500,000 59,250,000 - ------------------------------------------------------------------ Regal Cinemas, Inc.(a) 500,000 13,625,000 - ------------------------------------------------------------------ Speedway Motorsports, Inc.(a) 511,200 10,671,300 - ------------------------------------------------------------------ 83,546,300 - ------------------------------------------------------------------ MACHINE TOOLS-0.23% Precision Castparts Corp. 500,000 26,750,000 - ------------------------------------------------------------------ MACHINERY (MISCELLANEOUS)-0.49% Pentair, Inc. 500,000 14,937,500 - ------------------------------------------------------------------ Thermo Electron Corp.(a) 1,250,000 43,125,000 - ------------------------------------------------------------------ 58,062,500 - ------------------------------------------------------------------ MEDICAL (DRUGS)-2.26% Cardinal Health, Inc. 2,143,200 114,125,400 - ------------------------------------------------------------------ Covance, Inc.(a) 1,650,000 24,337,500 - ------------------------------------------------------------------ Curative Technologies, Inc.(a) 282,200 6,666,975 - ------------------------------------------------------------------ Dura Pharmaceuticals, Inc.(a) 900,000 26,100,000 - ------------------------------------------------------------------ Express Scripts, Inc.-Class A(a) 700,000 25,725,000 - ------------------------------------------------------------------ Forest Laboratories, Inc.(a) 500,000 17,062,500 - ------------------------------------------------------------------ Jones Medical Industries, Inc. 1,121,350 39,527,588 - ------------------------------------------------------------------ Parexel International Corp.(a) 458,200 12,829,600 - ------------------------------------------------------------------ 266,374,563 - ------------------------------------------------------------------ MEDICAL (PATIENT SERVICES)-8.72% American HomePatient, Inc.(a)(b) 750,000 14,437,500 - ------------------------------------------------------------------ Columbia/HCA Healthcare Corp. 1,700,000 59,500,000 - ------------------------------------------------------------------ FPA Medical Management, Inc.(a) 1,000,000 16,250,000 - ------------------------------------------------------------------ Genesis Health Ventures, Inc.(a) 600,000 17,925,000 - ------------------------------------------------------------------ Health Care and Retirement Corp.(a)(b) 1,500,000 47,437,500 - ------------------------------------------------------------------ Health Management Associates, Inc.-Class A(a) 3,184,687 85,190,377 - ------------------------------------------------------------------ HEALTHSOUTH Corp.(a) 6,200,000 122,450,000 - ------------------------------------------------------------------
22 C O N S T E L L A T I O N 25
MARKET SHARES VALUE MEDICAL (PATIENT SERVICES)-(CONTINUED) Humana, Inc.(a) 1,975,000 $ 42,956,250 - ------------------------------------------------------------------ Lincare Holdings, Inc.(a) 1,100,000 43,175,000 - ------------------------------------------------------------------ MedPartners, Inc.(a) 800,000 14,600,000 - ------------------------------------------------------------------ Multicare Companies, Inc.(a) 702,700 13,087,787 - ------------------------------------------------------------------ OccuSystems, Inc.(a) 430,000 8,868,750 - ------------------------------------------------------------------ Orthodontic Centers of America, Inc.(a) 524,200 6,290,400 - ------------------------------------------------------------------ Oxford Health Plans, Inc.(a) 1,450,000 95,518,750 - ------------------------------------------------------------------ PacifiCare Health Systems, Inc.-Class B(a) 300,000 24,075,000 - ------------------------------------------------------------------ PhyCor, Inc.(a) 1,050,000 27,956,250 - ------------------------------------------------------------------ Quorum Health Group, Inc.(a) 1,100,000 34,237,500 - ------------------------------------------------------------------ Tenet Healthcare Corp.(a) 4,950,000 128,700,000 - ------------------------------------------------------------------ Total Renal Care Holdings, Inc.(a) 1,000,000 32,125,000 - ------------------------------------------------------------------ United Healthcare Corp. 1,250,000 60,781,250 - ------------------------------------------------------------------ Universal Health Services, Inc.-Class B(a) 1,350,000 51,131,250 - ------------------------------------------------------------------ Vencor, Inc.(a) 1,250,000 52,031,250 - ------------------------------------------------------------------ Wellpoint Health Networks, Inc.(a) 752,000 31,772,000 - ------------------------------------------------------------------ 1,030,496,814 - ------------------------------------------------------------------ MEDICAL INSTRUMENTS/PRODUCTS-3.10% Boston Scientific Corp.(a) 680,952 32,855,934 - ------------------------------------------------------------------ Dentsply International, Inc. 550,000 27,225,000 - ------------------------------------------------------------------ Gulf South Medical Supply, Inc.(a)(b) 1,054,700 15,029,475 - ------------------------------------------------------------------ Hillenbrand Industries, Inc. 650,000 27,950,000 - ------------------------------------------------------------------ Invacare Corp. 885,200 17,593,350 - ------------------------------------------------------------------ Omnicare, Inc. 3,250,000 79,218,750 - ------------------------------------------------------------------ Physician Sales & Service, Inc.(a) 750,000 10,875,000 - ------------------------------------------------------------------ Quintiles Transnational Corp.(a) 750,000 38,156,250 - ------------------------------------------------------------------ Steris Corp.(a) 500,000 16,375,000 - ------------------------------------------------------------------ Sybron International Corp.(a) 2,000,000 66,500,000 - ------------------------------------------------------------------ US Surgical Corp. 1,000,000 34,250,000 - ------------------------------------------------------------------ 366,028,759 - ------------------------------------------------------------------ OFFICE AUTOMATION-0.31% Xerox Corp. 600,000 36,900,000 - ------------------------------------------------------------------ OFFICE PRODUCTS-0.57% Avery Dennison Corp. 600,000 22,050,000 - ------------------------------------------------------------------ Reynolds & Reynolds Co.-Class A 2,155,400 44,724,550 - ------------------------------------------------------------------ 66,774,550 - ------------------------------------------------------------------ OIL & GAS (EXPLORATION & PRODUCTION)-0.65% Apache Corp. 686,800 23,351,200 - ------------------------------------------------------------------ Burlington Resources, Inc. 750,000 31,781,250 - ------------------------------------------------------------------ Santa Fe Energy Resources, Inc.(a) 1,500,000 21,187,500 - ------------------------------------------------------------------ 76,319,950 - ------------------------------------------------------------------ OIL & GAS (SERVICES)-1.36% Camco International, Inc. 963,700 42,764,187 - ------------------------------------------------------------------ Energy Ventures, Inc.(a) 300,000 20,062,500 - ------------------------------------------------------------------ Global Marine, Inc.(a) 1,750,000 35,218,750 - ------------------------------------------------------------------ Halliburton Co. 500,000 35,312,500 - ------------------------------------------------------------------ Pennzoil Co. 450,000 22,162,500 - ------------------------------------------------------------------ Veritas DGC, Inc.(a) 250,000 4,812,500 - ------------------------------------------------------------------ 160,332,937 - ------------------------------------------------------------------ OIL EQUIPMENT & SUPPLIES-3.44% Baker Hughes, Inc. 1,500,000 51,750,000 - ------------------------------------------------------------------ BJ Services Co.(a) 500,000 23,562,500 - ------------------------------------------------------------------
MARKET SHARES VALUE OIL EQUIPMENT & SUPPLIES-(CONTINUED) Cooper Cameron Corp.(a) 500,000 $ 35,625,000 - ------------------------------------------------------------------ Diamond Offshore Drilling, Inc.(a) 750,000 48,281,250 - ------------------------------------------------------------------ ENSCO International, Inc.(a) 1,000,000 47,500,000 - ------------------------------------------------------------------ Falcon Drilling Co., Inc.(a) 800,000 30,600,000 - ------------------------------------------------------------------ Marine Drilling Companies, Inc.(a)(b) 2,139,100 33,690,825 - ------------------------------------------------------------------ Nabors Industries, Inc.(a) 1,000,000 18,750,000 - ------------------------------------------------------------------ Pride Petroleum Services, Inc.(a) 1,208,100 20,839,725 - ------------------------------------------------------------------ Rowan Companies, Inc.(a) 750,000 13,500,000 - ------------------------------------------------------------------ Smith International, Inc.(a) 1,000,000 47,375,000 - ------------------------------------------------------------------ Varco International, Inc.(a)(b) 1,500,000 34,500,000 - ------------------------------------------------------------------ 405,974,300 - ------------------------------------------------------------------ POLLUTION CONTROL-1.10% United Waste Systems, Inc.(a) 1,300,000 43,875,000 - ------------------------------------------------------------------ US Filter Corp.(a) 1,300,000 39,487,500 - ------------------------------------------------------------------ USA Waste Services, Inc.(a) 1,410,000 46,177,500 - ------------------------------------------------------------------ 129,540,000 - ------------------------------------------------------------------ PUBLISHING-0.25% Gartner Group, Inc.(a) 500,000 13,125,000 - ------------------------------------------------------------------ Times Mirror Co. 300,000 16,575,000 - ------------------------------------------------------------------ 29,700,000 - ------------------------------------------------------------------ RESTAURANTS-1.03% Apple South, Inc. 1,000,000 13,000,000 - ------------------------------------------------------------------ Applebee's International, Inc. 1,000,000 23,375,000 - ------------------------------------------------------------------ Cracker Barrel Old Country Store, Inc. 1,250,000 33,437,500 - ------------------------------------------------------------------ Lone Star Steakhouse & Saloon(a) 1,000,000 19,750,000 - ------------------------------------------------------------------ Outback Steakhouse, Inc.(a) 538,900 10,575,913 - ------------------------------------------------------------------ Planet Hollywood International, Inc.-Class A(a) 425,000 7,809,375 - ------------------------------------------------------------------ Starbucks Corp.(a) 450,000 13,443,750 - ------------------------------------------------------------------ 121,391,538 - ------------------------------------------------------------------ RETAIL (FOOD & DRUG)-2.56% American Stores Co. 1,300,000 59,150,000 - ------------------------------------------------------------------ Kroger Co.(a) 2,400,000 66,000,000 - ------------------------------------------------------------------ Quality Food Centers, Inc.(a) 600,000 24,075,000 - ------------------------------------------------------------------ Revco D.S., Inc.(a) 800,000 34,800,000 - ------------------------------------------------------------------ Rite Aid Corp. 713,420 32,817,320 - ------------------------------------------------------------------ Safeway, Inc.(a) 1,925,000 85,903,125 - ------------------------------------------------------------------ 302,745,445 - ------------------------------------------------------------------ RETAIL (STORES)-8.79% Bed Bath & Beyond, Inc.(a) 1,000,000 27,375,000 - ------------------------------------------------------------------ Blyth Industries, Inc.(a) 172,000 6,794,000 - ------------------------------------------------------------------ CDW Computer Centers, Inc.(a) 1,049,700 50,385,600 - ------------------------------------------------------------------ CompUSA, Inc.(a) 3,000,000 57,750,000 - ------------------------------------------------------------------ Consolidated Stores Corp.(a) 2,250,000 90,000,000 - ------------------------------------------------------------------ Dayton Hudson Corp. 1,750,000 78,750,000 - ------------------------------------------------------------------ Dollar General Corp. 950,066 30,045,837 - ------------------------------------------------------------------ Dollar Tree Stores, Inc.(a) 600,000 23,700,000 - ------------------------------------------------------------------ Finish Line, Inc. (The)-Class A(a) 845,400 8,718,187 - ------------------------------------------------------------------ Gap, Inc. 500,000 15,937,500 - ------------------------------------------------------------------ Global DirectMail Corp.(a) 549,700 9,688,462 - ------------------------------------------------------------------ Hollywood Entertainment Corp.(a) 73,100 1,562,513 - ------------------------------------------------------------------ Home Depot, Inc. 100,000 5,800,000 - ------------------------------------------------------------------ Jones Apparel Group, Inc.(a) 1,150,000 48,012,500 - ------------------------------------------------------------------ Kohl's Corp.(a) 700,000 34,212,500 - ------------------------------------------------------------------
23 C O N S T E L L A T I O N 26
MARKET SHARES VALUE RETAIL (STORES)-(CONTINUED) Lowe's Companies, Inc. 1,600,000 $ 60,800,000 - ------------------------------------------------------------------ Men's Wearhouse, Inc. (The)(a)(b) 1,400,050 34,826,244 - ------------------------------------------------------------------ Meyer (Fred), Inc.(a) 706,300 29,046,587 - ------------------------------------------------------------------ Micro Warehouse, Inc.(a) 1,159,600 20,003,100 - ------------------------------------------------------------------ Oakley, Inc.(a) 500,000 5,125,000 - ------------------------------------------------------------------ Pep Boys-Manny, Moe & Jack 750,000 24,468,750 - ------------------------------------------------------------------ Petco Animal Supplies, Inc.(a)(b) 850,000 18,168,750 - ------------------------------------------------------------------ PETsMART, Inc.(a) 2,000,000 33,625,000 - ------------------------------------------------------------------ Ross Stores, Inc. 734,000 20,643,750 - ------------------------------------------------------------------ Saks Holdings, Inc.(a) 89,900 1,719,338 - ------------------------------------------------------------------ Sports Authority, Inc. (The)(a)(b) 1,250,000 22,187,500 - ------------------------------------------------------------------ Staples, Inc.(a) 3,500,000 63,000,000 - ------------------------------------------------------------------ Tech Data Corp.(a) 1,687,300 41,338,850 - ------------------------------------------------------------------ Tiffany & Co. 1,000,000 39,625,000 - ------------------------------------------------------------------ TJX Companies, Inc. 750,000 35,437,500 - ------------------------------------------------------------------ Toys "R" Us, Inc.(a) 2,000,000 57,000,000 - ------------------------------------------------------------------ Viking Office Products, Inc.(a) 2,000,000 27,250,000 - ------------------------------------------------------------------ Williams-Sonoma, Inc.(a) 500,000 15,500,000 - ------------------------------------------------------------------ 1,038,497,468 - ------------------------------------------------------------------ SCIENTIFIC INSTRUMENTS-0.49% Perkin-Elmer Corp. 794,800 57,722,350 - ------------------------------------------------------------------ SECURITY & SAFETY SERVICES-0.07% Rural/Metro Corp.(a) 300,000 8,625,000 - ------------------------------------------------------------------ SEMICONDUCTORS-7.70% Advanced Micro Devices, Inc.(a) 1,250,000 53,125,000 - ------------------------------------------------------------------ Altera Corp.(a) 1,821,400 90,273,137 - ------------------------------------------------------------------ Analog Devices, Inc.(a) 1,000,000 26,750,000 - ------------------------------------------------------------------ Applied Materials, Inc.(a) 1,150,000 63,106,250 - ------------------------------------------------------------------ Atmel Corp.(a) 500,000 12,437,500 - ------------------------------------------------------------------ Intel Corp. 150,000 22,968,750 - ------------------------------------------------------------------ Kemet Corp.(a) 279,900 5,458,050 - ------------------------------------------------------------------ KLA Instruments Corp.(a) 1,500,000 66,750,000 - ------------------------------------------------------------------ Lam Research Corp.(a) 525,000 15,225,000 - ------------------------------------------------------------------ Linear Technology Corp. 1,500,000 75,375,000 - ------------------------------------------------------------------ LSI Logic Corp.(a) 1,500,000 57,375,000 - ------------------------------------------------------------------ Maxim Integrated Products, Inc.(a) 1,275,000 67,415,625 - ------------------------------------------------------------------ Micron Technology, Inc. 800,000 28,200,000 - ------------------------------------------------------------------ Motorola, Inc. 1,000,000 57,250,000 - ------------------------------------------------------------------ National Semiconductor Corp.(a) 2,250,000 56,250,000 - ------------------------------------------------------------------ Novellus Systems, Inc.(a) 500,000 28,875,000 - ------------------------------------------------------------------ Solectron Corp.(a) 300,000 17,212,500 - ------------------------------------------------------------------ Tencor Instruments(a) 511,700 22,706,687 - ------------------------------------------------------------------ Texas Instruments, Inc. 700,000 62,475,000 - ------------------------------------------------------------------ Vitesse Semiconductor Corp.(a) 225,000 7,087,500 - ------------------------------------------------------------------ Xilinx, Inc.(a) 1,500,000 73,500,000 - ------------------------------------------------------------------ 909,815,999 - ------------------------------------------------------------------ SHOES & RELATED APPAREL-0.54% Nine West Group, Inc.(a) 1,113,100 44,106,587 - ------------------------------------------------------------------ Wolverine World Wide, Inc. 500,000 20,125,000 - ------------------------------------------------------------------ 64,231,587 - ------------------------------------------------------------------ TELECOMMUNICATIONS-3.42% ACC Corp. 81,500 1,293,813 - ------------------------------------------------------------------ ADC Telecommunications, Inc.(a) 3,000,000 78,375,000 - ------------------------------------------------------------------ Andrew Corp.(a) 1,014,500 25,108,875 - ------------------------------------------------------------------
MARKET SHARES VALUE TELECOMMUNICATIONS-(CONTINUED) Aspect Telecommunications Corp.(a) 1,200,000 $ 21,300,000 - ------------------------------------------------------------------ Billing Information Concepts(a)(b) 780,000 18,622,500 - ------------------------------------------------------------------ DSC Communications Corp.(a) 2,000,000 40,750,000 - ------------------------------------------------------------------ Lucent Technologies, Inc. 1,000,000 59,125,000 - ------------------------------------------------------------------ PairGain Technologies, Inc.(a)(b) 1,000,000 26,000,000 - ------------------------------------------------------------------ QUALCOMM, Inc.(a) 300,000 14,025,000 - ------------------------------------------------------------------ Tellabs, Inc.(a) 2,000,000 79,750,000 - ------------------------------------------------------------------ U.S. Long Distance Corp.(a) 343,300 4,162,512 - ------------------------------------------------------------------ WorldCom, Inc.(a) 1,500,000 36,000,000 - ------------------------------------------------------------------ 404,512,700 - ------------------------------------------------------------------ TELEPHONE-0.24% Cincinnati Bell, Inc. 500,000 28,000,000 - ------------------------------------------------------------------ TEXTILES-1.41% Liz Claiborne, Inc. 1,250,000 56,562,500 - ------------------------------------------------------------------ Nautica Enterprises, Inc.(a) 1,500,000 33,187,500 - ------------------------------------------------------------------ Tommy Hilfiger Corp.(a) 1,150,000 45,712,500 - ------------------------------------------------------------------ Unifi, Inc. 1,000,000 31,000,000 - ------------------------------------------------------------------ 166,462,500 - ------------------------------------------------------------------ TRANSPORTATION-0.07% AirNet Systems, Inc.(a) 560,000 8,680,000 - ------------------------------------------------------------------ TRUCKING-0.33% Consolidated Freightways, Inc. 825,000 24,543,750 - ------------------------------------------------------------------ USFreightways Corp. 550,000 14,850,000 - ------------------------------------------------------------------ 39,393,750 - ------------------------------------------------------------------ Total Domestic Common Stocks 9,910,718,601 - ------------------------------------------------------------------ DOMESTIC CONVERTIBLE PREFERRED STOCKS-0.07% INSURANCE (MULTI-LINE PROPERTY)-0.07% MGIC Investment Corp.-$3.12 Conv. Pfd. 116,500 8,140,438 - ------------------------------------------------------------------ Total Domestic Convertible Preferred Stocks 8,140,438 - ------------------------------------------------------------------ FOREIGN STOCKS & OTHER EQUITY INTERESTS-4.54% CANADA-1.28% CanWest Global Communications Corp. (Electronic Components/Miscellaneous) 2,250,000 30,093,750 - ------------------------------------------------------------------ Newbridge Networks Corp. (Computer Networking)(a) 2,000,000 63,500,000 - ------------------------------------------------------------------ Northern Telecom Ltd. (Telecommunications) 550,000 39,943,750 - ------------------------------------------------------------------ Potash Corp. of Saskatchewan Inc. (Metals) 225,000 17,296,875 - ------------------------------------------------------------------ 150,834,375 - ------------------------------------------------------------------ FINLAND-0.62% Nokia Oy A.B.-Class A-ADR (Telecommunications) 999,950 64,621,769 - ------------------------------------------------------------------ Nokia Oy A.B.-Class A (Telecommunications) 152,650 9,437,154 - ------------------------------------------------------------------ 74,058,923 - ------------------------------------------------------------------ FRANCE-0.10% SGS-Thomson Microelectronics N.V.-New York shares (Semiconductors)(a) 146,100 11,450,588 - ------------------------------------------------------------------ IRELAND-0.52% CBT Group PLC-ADR (Computer Software/Services)(a) 49,400 2,402,075 - ------------------------------------------------------------------ Elan Corp. PLC-ADR (Medical-Drugs)(a) 1,750,000 59,500,000 - ------------------------------------------------------------------ 61,902,075 - ------------------------------------------------------------------ ISRAEL-0.17% Tecnomatix Technologies Ltd. (Computer Software/Services)(a) 329,500 8,443,438 - ------------------------------------------------------------------ Teva Pharmaceutical Industries Ltd.-ADR (Medical-Drugs) 225,000 11,418,750 - ------------------------------------------------------------------ 19,862,188 - ------------------------------------------------------------------
24 C O N S T E L L A T I O N 27
MARKET SHARES VALUE ITALY-0.05% Telecom Italia Mobile S.p.A. (Telecommunications) 1,074,000 $ 3,369,080 - ------------------------------------------------------------------ Telecom Italia S.p.A. (Telecommunications) 1,074,000 2,843,425 - ------------------------------------------------------------------ 6,212,505 - ------------------------------------------------------------------ NETHERLANDS-0.61% Baan Co., N.V. (Computer Software/Services)(a) 550,000 29,562,500 - ------------------------------------------------------------------ Gucci Group N.V.-ADR (Textiles) 500,000 34,687,500 - ------------------------------------------------------------------ Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit (Publishing) 328,500 6,794,924 - ------------------------------------------------------------------ 71,044,924 - ------------------------------------------------------------------ SWEDEN-0.57% Telefonaktiebolaget LM Ericsson-ADR (Telecommunications) 2,000,000 67,250,000 - ------------------------------------------------------------------ UNITED KINGDOM-0.62% Burton Group PLC (Retail-Stores) 2,700,000 6,673,419 - ------------------------------------------------------------------ Danka Business Systems PLC-ADR (Office Automation) 2,000,000 61,125,000 - ------------------------------------------------------------------ Granada Group PLC (Leisure & Recreation) 390,000 5,625,608 - ------------------------------------------------------------------ 73,424,027 - ------------------------------------------------------------------ Total Foreign Stocks & Other Equity Interests 536,039,605 - ------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE DOMESTIC CONVERTIBLE BONDS-0.22% ADVERTISING/BROADCASTING-0.06% Jacor Communications Inc., Sr. Conv. LYONS, 5.50%, 06/12/11(c) $14,450,000 6,683,125 - ------------------------------------------------------------------ FINANCE (CONSUMER CREDIT)-0.15% Aames Financial Corp., Conv. Sub. Deb., 5.50%, 03/15/06(b) $ 7,150,000 $ 6,353,848 - ------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT VALUE FINANCE (CONSUMER CREDIT)-(CONTINUED) Cityscape Financial Corp., Conv. Sub. Deb., 6.00%, 05/01/06(d) (Acquired 08/06/96 - 04/17/97; Cost $7,563,854) $17,345,000 $ 11,504,765 - ------------------------------------------------------------------- 17,858,613 - ------------------------------------------------------------------- MEDICAL (PATIENT SERVICES)-0.01% Multicare Companies Inc., Conv. Sub. Deb., 7.00%, 03/15/03(d) (Acquired 01/13/97; Cost $1,800,000)(c) 1,500,000 1,717,500 - ------------------------------------------------------------------- Total Domestic Convertible Bonds 26,259,238 - ------------------------------------------------------------------- FOREIGN CONVERTIBLE BONDS-0.22% NETHERLANDS-0.16% Baan Co., N.V. (Computer Software/Services), Conv. Sub. Notes, 4.50%, 12/15/01(d) (Acquired 01/13/97 - 01/24/97; Cost $16,084,313) 13,965,000 18,961,817 - ------------------------------------------------------------------- SWITZERLAND-0.06% Sandoz Capital BVI Ltd. (Chemicals), Sr. Conv. Deb., 2.00%, 10/06/02(d) (Acquired 11/04/96 - 11/13/96; Cost $6,240,625) 5,540,000 6,952,700 - ------------------------------------------------------------------- Total Foreign Convertible Bonds 25,914,517 - ------------------------------------------------------------------- REPURCHASE AGREEMENTS-4.75%(e) Goldman, Sachs & Co., 5.375%, 05/01/97(f) 5,270,186 5,270,186 - ------------------------------------------------------------------- Goldman, Sachs & Co., 5.375%, 05/01/97(g) 555,263,395 555,263,395 - ------------------------------------------------------------------- Total Repurchase Agreements 560,533,581 - ------------------------------------------------------------------- TIME DEPOSIT-0.16% Deutsche Morgan Grenfelt/C.J. Lawrence Inc. 5.75%, 05/01/97 20,000,000 20,000,000 - ------------------------------------------------------------------- U.S. TREASURY BILLS-5.63%(h) 5.10%, 06/26/97 664,537,605(i) 664,537,605 - ------------------------------------------------------------------- TOTAL INVESTMENTS-99.50% 11,752,143,585 - ------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-0.50% 59,404,105 - ------------------------------------------------------------------- NET ASSETS-100.00% $11,811,547,690 ===================================================================
Notes to Schedule of Investments: (a) Non-income producing security. (b) Affiliated issuers are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. The Fund has never owned enough of the outstanding voting securities of any issuer to have control (as defined in the Investment Company Act of 1940) of that issuer. The aggregate market value of these securities as of April 30, 1997 was $342,996,854 which represented 2.90% of the Fund's net assets. (c) Zero coupon bond. The interest rate shown represents the rate of original issue discount. (d) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The valuation of this security has been determined in accordance with procedures established by the Board of Directors. The aggregate market value of this security at April 30, 1997 was $39,136,782, which represents 0.33% of the Fund's net assets. (e) Collateral on repurchase agreements, include the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (f) Joint repurchase agreement entered into 04/30/97 with a maturing value of $825,123,177. Collaterized by $823,214,000 U.S. Treasury obligations, 0% to 9.375% due 07/03/97 to 02/15/27 with an aggregate market value of $842,392,678. (g) Joint repurchase agreement entered into 04/30/97 with a maturing value of $701,547,221. Collaterized by $757,320,000 U.S. Treasury obligations at 0% to 9.375% due 07/17/97 to 02/15/26 with an aggregate market value of $716,184,843. (h) 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. (i) A portion of the principal balance was pledged as collateral to cover margin requirements for open future contracts. See Note 6. Abbreviations: ADR - American Depositary Receipt Conv. - Convertible Deb. - Debentures LYONS - Liquid Yield Option Notes Sr. - Senior Sub. - Subordinated See Notes to Financial Statements. 25 C O N S T E L L A T I O N 28 STATEMENT OF ASSETS AND LIABILITIES April 30, 1997 (Unaudited) ASSETS: Investments, at market value (cost $9,635,077,907) $11,752,143,585 - ------------------------------------------------------------ Foreign currencies, at market value (cost $757) 739 - ------------------------------------------------------------ Receivables for: Investments sold 130,129,821 - ------------------------------------------------------------ Capital stock sold 21,450,503 - ------------------------------------------------------------ Dividends and interest 2,980,490 - ------------------------------------------------------------ Variation margin 2,455,500 - ------------------------------------------------------------ Investment for deferred compensation plan 73,882 - ------------------------------------------------------------ Other assets 44,900 - ------------------------------------------------------------ Total assets 11,909,279,420 - ------------------------------------------------------------ LIABILITIES: Payables for: Investments purchased 48,427,070 - ------------------------------------------------------------ Capital stock reacquired 35,154,727 - ------------------------------------------------------------ Deferred compensation 73,882 - ------------------------------------------------------------ Accrued advisory fees 5,764,650 - ------------------------------------------------------------ Accrued administrative services fees 21,231 - ------------------------------------------------------------ Accrued directors' fees 17,187 - ------------------------------------------------------------ Accrued distribution fees 4,135,002 - ------------------------------------------------------------ Accrued transfer agent fees 2,160,574 - ------------------------------------------------------------ Accrued operating expenses 1,977,407 - ------------------------------------------------------------ Total liabilities 97,731,730 - ------------------------------------------------------------ Net assets applicable to shares outstanding $11,811,547,690 ============================================================ NET ASSETS: Class A $11,505,285,655 ============================================================ Institutional Class $ 306,262,035 ============================================================ CAPITAL STOCK, $.001 PAR VALUE PER SHARE: Class A: Authorized 750,000,000 - ------------------------------------------------------------ Outstanding 479,369,178 ============================================================ Institutional Class: Authorized 200,000,000 - ------------------------------------------------------------ Outstanding 12,459,982 ============================================================ CLASS A: Net asset value and redemption price per share $ 24.00 ============================================================ Offering price per share: (Net asset value of $24.00 divided by 94.50%) $ 25.40 ============================================================ INSTITUTIONAL CLASS: Net asset value, offering and redemption price per share $ 24.58 ============================================================
STATEMENT OF OPERATIONS For the six months ended April 30, 1997 (Unaudited) INVESTMENT INCOME: Dividends (net of $408,840 foreign withholding tax) $ 14,766,590 - ------------------------------------------------------------ Interest 30,752,729 - ------------------------------------------------------------ Total investment income 45,519,319 - ------------------------------------------------------------ EXPENSES: Advisory fees 38,143,072 - ------------------------------------------------------------ Administrative service fees 131,642 - ------------------------------------------------------------ Custodian fees 442,449 - ------------------------------------------------------------ Directors' fees 34,340 - ------------------------------------------------------------ Distribution fees-Class A 17,790,913 - ------------------------------------------------------------ Transfer agent fees-Class A 9,637,007 - ------------------------------------------------------------ Transfer agent fees-Institutional Class 14,456 - ------------------------------------------------------------ Other 2,325,081 - ------------------------------------------------------------ Total expenses 68,518,960 - ------------------------------------------------------------ Less: Fees waived by advisor (1,273,103) - ------------------------------------------------------------ Expenses paid indirectly (99,884) - ------------------------------------------------------------ Net expenses 67,145,973 - ------------------------------------------------------------ Net investment income (loss) (21,626,654) - ------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS: Net realized gain (loss) on sales of: Investment securities 253,029,008 - ------------------------------------------------------------ Foreign currencies (304,504) - ------------------------------------------------------------ Futures contracts 104,122,264 - ------------------------------------------------------------ 356,846,768 - ------------------------------------------------------------ Unrealized appreciation (depreciation) of: Investment securities (614,289,674) - ------------------------------------------------------------ Foreign currencies (11,004) - ------------------------------------------------------------ Futures contracts (33,091,970) - ------------------------------------------------------------ (647,392,648) - ------------------------------------------------------------ Net gain (loss) on investment securities, foreign currencies and futures contracts (290,545,880) - ------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $ (312,172,534) ============================================================
See Notes to Financial Statements. 26 C O N S T E L L A T I O N 29 STATEMENT OF CHANGES IN NET ASSETS For the six months ended April 30, 1997 and the year ended October 31, 1996 (Unaudited)
APRIL 30, OCTOBER 31, 1997 1996 OPERATIONS: Net investment income (loss) $ (21,626,654) $ (25,042,610) - ----------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities, foreign currencies and futures contracts 356,846,768 394,119,929 - ----------------------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities, foreign currencies and futures contracts (647,392,648) 672,745,646 - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (312,172,534) 1,041,822,965 - ----------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains on investment securities: Class A (401,530,087) (233,242,373) - ----------------------------------------------------------------------------------------------- Institutional Class (10,336,039) (4,789,469) - ----------------------------------------------------------------------------------------------- Share transactions-net: Class A 956,209,959 3,470,281,071 - ----------------------------------------------------------------------------------------------- Institutional Class 30,835,429 135,200,711 - ----------------------------------------------------------------------------------------------- Net increase in net assets 263,006,728 4,409,272,905 - ----------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 11,548,540,962 7,139,268,057 - ----------------------------------------------------------------------------------------------- End of period $11,811,547,690 $11,548,540,962 =============================================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 9,395,851,171 $ 8,408,805,783 - ----------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (21,751,192) (124,538) - ----------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities, foreign currencies and futures contracts 333,181,244 388,200,602 - ----------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies and futures contracts 2,104,266,467 2,751,659,115 - ----------------------------------------------------------------------------------------------- $11,811,547,690 $11,548,540,962 ===============================================================================================
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (Unaudited) NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six diversified portfolios: AIM Constellation Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund and AIM Weingarten Fund. The Fund currently offers two different classes of shares: the Class A shares and the Institutional Class. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to seek capital appreciation. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. Security Valuations--A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. If a mean is not available, as is the case in some foreign markets, the closing bid will be used absent a last sales price. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are 27 C O N S T E L L A T I O N 30 valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair market value as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions, Investment Income and Distributions--Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the specific identification of the securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. C. Federal Income Taxes--The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. D. Expenses--Distribution and transfer agency expenses directly attributable to a class of shares and charged to that class' operations. All other expenses which are attributable to more than one class are allocated between the classes. E. Foreign Currency Translation--Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. F. Foreign Currency Contracts--A forward currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a forward currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts. G. Stock Index Futures Contracts--The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $150 million, plus 0.625% of the Fund's average daily net assets in excess of $150 million. AIM has agreed to voluntary waive a portion of its advisory fees paid by the Fund to AIM to the extent necessary to reduce the fees paid by the Fund at net asset levels higher than those currently incorporated in the present advisory fee schedule. Under the voluntary waiver, AIM will receive a fee calculated at the annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $150 million, plus 0.625% of the Fund's average daily net assets in excess of $150 million to and including $2 billion, plus 0.60% of the Fund's average daily net assets in excess of $2 billion. During the six months ended April 30, 1997, AIM waived fees of $1,273,103. The waiver is entirely voluntary but approval is required by the Board of Directors for any decision by AIM to discontinue the waiver. Under the terms of a master sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to reimburse AIM for certain administrative costs incurred in providing accounting services to the Fund. During the six months ended April 30, 1997, AIM was reimbursed $131,642 for such services. The Fund, pursuant to a transfer agency and services agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency services to the Class A shares. During the 28 C O N S T E L L A T I O N 31 six months ended April 30, 1997, AFS was paid $5,265,385 for such services. During the six months ended April 30, 1997, the Fund paid A I M Institutional Fund Services, Inc. ("AIFS") with respect to the Institutional Class $14,456 for shareholder and transfer agency services. The Fund received reductions in transfer agency fees of $93,574 from dividends received on balances in cash management bank accounts. In addition, the Fund incurred expenses of $6,310 from pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction of the Fund's total expenses of $99,884 during the six months ended April 30, 1997. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A shares and a master distribution agreement with Fund Management Company ("FMC") to serve as the distributor for the Institutional Class. The Company has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), with respect to the Class A shares, whereby the Fund pays AIM Distributors an annual rate of 0.30% of the Class A shares average daily net assets as compensation for services related to the sales and distribution of the Class A shares. The Plan provides that payments to dealers and financial institutions that provide continuing personal shareholder services to their customers who purchase and own shares of the Class A shares, in amounts of up to 0.25% of the average net assets of the Class A shares attributable to the customers of such dealers or financial institutions, may be characterized as a service fee. The Plan also provides that payments in excess of service fees are characterized as an asset- based sales charge under the Plan. The Plan also imposes a cap on the total amount of sales charges, including asset-based sales charges, that may be paid by the Company with respect to the Fund's Class A shares. During the six months ended April 30, 1997, the Class A shares paid AIM Distributors $17,790,913 as compensation under the Plan. AIM Distributors received commissions of $6,178,551 from Class A capital stock transactions during the six months ended April 30, 1997. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of capital stock. During the six months ended April 30, 1997, AIM Distributors received commissions of $145,208 in contingent deferred sales charges imposed on the redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AIM Capital, AIM Distributors, AFS, AIFS and FMC. During the six months ended April 30, 1997, the Fund paid legal fees of $20,475 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-DIRECTOR'S FEES Director's fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company may invest directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 4-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. Interest on borrowings under the line of credit is payable on maturity or prepayment date. During the six months ended April 30, 1997, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.08% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 5-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the six months ended April 30, 1997 was $4,450,537,743 and $3,841,421,244, respectively. The amount of unrealized appreciation (depreciation) of investment securities as of April 30, 1997, on a tax basis, is as follows: Aggregate unrealized appreciation of investment securities $2,499,681,274 - ------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (384,213,274) - ------------------------------------------------------- Net unrealized appreciation of investment securities $2,115,468,000 - -------------------------------------------------------
Cost of investments for tax purposes is $9,636,675,585. NOTE 6-FUTURES CONTRACT On April 30, 1997, $27,285,000 par value U.S. Treasury obligations were pledged as collateral to cover margin requirements for futures contracts. Futures contracts outstanding at April 30, 1997: (Contracts--$500 times index/delivery month/commitment)
Unrealized Appreciation (Depreciation) -------------- S&P 500 Index/1,637 contracts/Jun 97/Buy $(12,789,125) ========================================================
NOTE 7-CAPITAL STOCK Changes in the capital stock outstanding for the six months ended April 30, 1997 and the year ended October 31, 1996 were as follows:
APRIL 30, 1997 OCTOBER 31, 1996 ------------------------------ ------------------------------ SHARES AMOUNT SHARES AMOUNT ------------ --------------- ------------ --------------- Sold: Class A 114,119,928 $ 2,895,955,476 282,903,859 $ 6,791,107,589 - --------------------- ------------ --------------- ----------- --------------- Institutional Class 3,519,313 91,297,192 7,711,696 189,568,037 - --------------------- ------------ --------------- ----------- --------------- Issued as reinvestment of dividends: Class A 15,529,296 381,399,365 10,007,849 218,670,843 - --------------------- ------------ --------------- ----------- --------------- Institutional Class 387,258 9,720,186 200,095 4,444,113 - --------------------- ------------ --------------- ----------- --------------- Reacquired: Class A (92,033,269) (2,321,144,882) (146,642,433) (3,539,497,361) - --------------------- ------------ --------------- ----------- --------------- Institutional Class (2,711,919) (70,181,949) (2,422,264) (58,811,439) - --------------------- ------------ --------------- ----------- --------------- 38,810,607 $ 987,045,388 151,758,802 $ 3,605,481,782 ===================== ============ =============== =========== ===============
29 C O N S T E L L A T I O N 32 NOTE 8-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of the Institutional Class capital stock outstanding during the six months ended April 30, 1997, each of the years in the four-year period ended October 31, 1996 and the period April 8, 1992 (date operations commenced) through October 31, 1992.
OCTOBER 31, APRIL 30, ------------------------------------------------------------ 1997 1996 1995 1994 1993 1992 --------- -------- -------- -------- -------- -------- Net asset value, beginning of period $ 26.01 $ 24.05 $ 18.49 $ 17.13 $ 13.27 $ 12.29 - ----------------------------------------------- -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income (loss) 0.01 0.04 0.02 0.03 -- (0.01) - ----------------------------------------------- -------- -------- -------- -------- -------- -------- Net gains (losses) on securities (both realized and unrealized) (0.55) 2.67 6.06 1.33 3.86 0.99 - ----------------------------------------------- -------- -------- -------- -------- -------- -------- Total from investment operations (0.54) 2.71 6.08 1.36 3.86 0.98 - ----------------------------------------------- -------- -------- -------- -------- -------- -------- Less distributions: Distributions from capital gains (0.89) (0.75) (0.52) -- -- -- - ----------------------------------------------- -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 24.58 $ 26.01 $ 24.05 $ 18.49 $ 17.13 $ 13.27 =============================================== ======== ======== ======== ======== ======== ======== Total return(a) (2.16)% 11.81% 34.09% 7.94% 29.09% 7.97% =============================================== ======== ======== ======== ======== ======== ======== Ratios/supplemental data: Net assets, end of period (000s omitted) $306,262 $293,035 $138,918 $ 39,847 $ 12,338 $ 3,087 =============================================== ======== ======== ======== ======== ======== ======== Ratio of expenses to average net assets(b) 0.66%(d)(e) 0.66% 0.66% 0.69% 0.87% 0.91%(g) =============================================== ======== ======== ======== ======== ======== ======== Ratio of net investment income (loss) to average net assets(c) 0.09%(d) 0.21% 0.18% 0.36% 0.04% (0.12)%(g) =============================================== ======== ======== ======== ======== ======== ======== Portfolio turnover rate 33% 58% 45% 79% 70% 62% =============================================== ======== ======== ======== ======== ======== ======== Average broker commission rate paid(f) $ 0.0588 $ 0.0596 N/A N/A N/A N/A =============================================== ======== ======== ======== ======== ======== ========
(a) For periods less than one year, total return is not annualized. (b) Ratios of expenses prior to waiver of advisory fees and/or expense reimbursement were 0.68% (annualized), 0.67%, 0.68%, 0.70%, and 1.26% for the periods 1997-1994 and 1992, respectively. (c) Ratios of net investment income prior to waiver of advisory fees and/or expense reimbursement were 0.07% (annualized,) 0.20%, 0.16%, 0.35% and (0.47)% for the periods 1997-1994 and 1992, respectively. (d) After waiver of advisory fees. Ratios are annualized and based on average net assets of $310,318,846. (e) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have remained the same. (f) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. (g) Annualized. 30 C O N S T E L L A T I O N 33 SUPPLEMENTAL PROXY INFORMATION - -------------------------------------------------------------------------------- The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company") was held on February 7, 1997 at the offices of A I M Management Group Inc., 11 Greenway Plaza, Houston, Texas. The meeting was held for the following purposes: (1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F. Pennock, Ian W. Robinson and Louis S. Sklar. (2) To approve a new Master Investment Advisory Agreement between the AIM Constellation Fund (the "Fund") and A I M Advisors, Inc. (3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital Management, Inc. (4) To approve the elimination of the fundamental investment policy prohibiting the Fund from investing in other investment companies. (5) To ratify the selection of KPMG Peat Marwick LLP as independent accountants for the Fund for the Company's fiscal year ending October 31, 1997. The results of the proxy solicitation on the above matters were as follows:
Votes Director/Matter Votes For Against Abstentions --------------- --------- ------- ----------- (1) Charles T. Bauer............................................ 618,811,245 0 19,923,485 Bruce L. Crockett........................................... 619,427,685 0 19,307,045 Owen Daly II................................................ 618,919,919 0 19,814,811 Carl Frischling............................................. 619,275,356 0 19,459,374 Robert H. Graham............................................ 619,431,576 0 19,303,154 John F. Kroeger............................................. 618,878,096 0 19,856,634 Lewis F. Pennock............................................ 619,272,998 0 19,461,732 Ian W. Robinson............................................. 618,944,840 0 19,789,890 Louis S. Sklar.............................................. 619,462,714 0 19,272,016 (2) Approval of Master Investment Advisory Agreement............ 230,906,150 3,535,231 9,875,635 (3) Approval of Sub-Advisory Agreement.......................... 230,060,493 4,051,941 10,204,582 (4) Elimination of Fundamental Investment Policy................ 167,170,198 8,866,029 10,438,104 (5) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
31 C O N S T E L L A T I O N 34 Directors & Officers Board of Directors OFFICERS OFFICE OF THE FUND Charles T. Bauer Charles T. Bauer 11 Greenway Plaza Chairman Chairman Suite 100 A I M Management Group Inc. Houston, TX 77046 Robert H. Graham Bruce L. Crockett President INVESTMENT ADVISOR Formerly Director, President, and Chief Executive Officer John J. Arthur A I M Advisors, Inc. COMSAT Corporation Senior Vice President and Treasurer 11 Greenway Plaza Suite 100 Owen Daly II Gary T. Crum Houston, TX 77046 Director Senior Vice President Cortland Trust Inc. TRANSFER AGENT Scott G. Lucas Jack Fields Senior Vice President A I M Institutional Fund Formerly Member of the Services, Inc. U.S. House of Representatives Carol F. Relihan 11 Greenway Plaza Senior Vice President Suite 100 Carl Frischling and Secretary Houston, TX 77046 Partner Kramer, Levin, Naftalis & Frankel Jonathan C. Schoolar CUSTODIAN Senior Vice President Robert H. Graham State Street Bank & Trust President and Chief Executive Officer Melville B. Cox 225 Franklin Street A I M Management Group Inc. Vice President Boston, MA 02110 John F. Kroeger Dana R. Sutton COUNSEL TO THE FUND Formerly Consultant Vice President and Assistant Treasurer Wendell & Stockel Associates, Inc. Ballard Spahr P. Michelle Grace Andrews & Ingersoll Lewis F. Pennock Assistant Secretary 1735 Market Street Attorney Philadelphia, PA 19103 David L. Kite Ian W. Robinson Assistant Secretary COUNSEL TO THE DIRECTORS Consultant; Formerly Executive Vice President and Nancy L. Martin Kramer, Levin, Naftalis & Frankel Chief Financial Officer Assistant Secretary 919 Third Avenue Bell Atlantic Management New York, NY 10022 Services, Inc. Ofelia M. Mayo Assistant Secretary DISTRIBUTOR Louis S. Sklar Executive Vice President Kathleen J. Pflueger Fund Management Company Hines Interests Assistant Secretary 11 Greenway Plaza Limited Partnership Suite 100 Samuel D. Sirko Houston, TX 77046 Assistant Secretary Stephen I. Winer Assistant Secretary Mary J. Benson Assistant Treasurer Mary J. Benson Assistant Treasurer
32 AIM Constellation Fund 35 AIM WEINGARTEN FUND For shareholders who seek long-term growth of capital through investments primarily in common stocks of leading U.S. companies considered by management to have strong earnings momentum. ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT: o AIM Weingarten Fund Institutional Class performance figures are historical and reflect reinvestment of all distributions and changes in net asset value. o The Fund's investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. o Past performance cannot guarantee comparable future results. o The Fund's portfolio composition is subject to change, and there is no assurance the Fund will continue to hold any particular security. ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT: o Standard & Poor's Corporation (S&P) is a credit-rating agency. The unmanaged Standard & Poor's Composite Index of 500 Stocks (S&P 500) is widely regarded by investors as representative of the stock market in general. The Dow Jones Industrial Average (DJIA) is an unmanaged composite of the performance of 30 large-company stocks. o An investment cannot be made in any index listed. Unless otherwise indicated, index results include reinvested dividends and do not reflect sales charges. ================================================================================ AIM WEINGARTEN FUND INSTITUTIONAL CLASS AVERAGE ANNUAL TOTAL RETURNS For periods ended 3/31/97, most recent calendar quarter-end. 1 Year 10.25% 3 Years 16.98 5 Years 11.48 Inception (10/8/91) 12.07 For periods ended 4/30/97 1 Year 11.84% 3 Years 18.41 5 Years 12.63 Inception (10/8/91) 12.68 ================================================================================ AIM Weingarten Fund 33 36 The Managers' Overview IN VOLATILE MARKET, FUND'S STEADY GROWTH CONTINUES A roundtable discussion with the Fund management team for AIM Weingarten Fund for the six months ended April 30, 1997. - -------------------------------------------------------------------------------- Q. PLEASE DESCRIBE THE FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED APRIL 30, 1997. A. The Fund continued to produce steady growth. Total return for the Institutional Class for the six-month period covered by this report was 5.93%. Net assets of the Institutional Class grew from $60.5 million to $63.5 million during the reporting period. Q. WHAT WERE MARKET CONDITIONS LIKE DURING THIS REPORTING PERIOD? A. Stock markets remained volatile, as they were throughout 1996. The popular Dow Jones Industrial Average continued to climb through record highs, but its performance was punctuated by two downturns of consequence, the first in December 1996, the second from mid-March to mid-April 1997. In the second decline, the Dow lost 9.8% of its value--just about the 10% correction many market watchers believed was due given the prolonged length of this bull market. The primary cause of market volatility has been ongoing uncertainty regarding interest rates, the strength of the economy, and the outlook for corporate earnings. As we noted in our last shareholder report, in circumstances like these investors are drawn to large, predictable companies, a phenomenon termed a "flight to quality." Large-company stocks continued to be market favorites, outperforming smaller-company stocks. During the six months covered by this report, the S&P 500, an index of large-company stocks, produced a total return of 14.71%. However, it was very narrow market. Q. WHAT DO YOU MEAN BY A NARROW MARKET? A. In a narrow market, the performance of a market index is generated by a comparatively few stocks. For example, if you took out of the S&P 500 the 100 largest stocks in that index, its performance for 1996 dropped from 22.95% to about 5.4%. In other words, 20% of the stocks in that index accounted for more than 75% of its total return. Such an unusual environment presents a challenge for a diversified mutual fund such as AIM Weingarten Fund, which has a relatively small holding of each security in its portfolio. AIM Weingarten Fund's portfolio had 228 holdings as of the close of the reporting period. Keep in mind that while diversification means the Fund will not capture all the positive returns a narrow market may offer when it is going up, it also means the Fund may not experience all the negative returns during a downturn. People seem willing to pay quite high prices for companies with a certain level of predictability in their earnings, such as Procter & Gamble or General Electric. It is as if they were paying an "earnings insurance" premium. But investors also want liquidity--securities that are widely traded so there will be a market for them if circumstances change abruptly. Even though the market resumed rising in mid-April, with the Dow again reaching new highs shortly after the six-month reporting period closed, investors still seem skittish, uncertain whether this can continue. So a relatively few large-company stocks continue to outperform dramatically. Q. DID THE FUND'S PORTFOLIO CHANGE MUCH DURING THE REPORTING PERIOD? HAVE YOU TRIED TO MAKE IT LOOK MORE LIKE THE S&P 500? A. We have made modifications since our last report, but no dramatic changes. Technology stocks, financial stocks, and health-care stocks are still among our largest holdings. But we have not attempted to model the Fund's portfolio after any index. Q. WITH MANY TECHNOLOGY STOCKS LAGGING, WHY DO YOU STILL OWN A LARGE NUMBER OF TECH STOCKS? A. Approximately 17% of the portfolio's common stock holdings are technology companies such as service providers, personal computer makers, and semiconductor manufacturers. This sector has had its difficulties. In a technology universe of 600 stocks followed by Bear Stearns, by April 1, 1997, the average software company stock was down 53% from its 1996 peak. Many tech stocks, especially those of smaller companies, have never fully recovered from the sell-off that hit last summer. But many tech companies have reported excellent earnings for the first quarter of 1997, and our stock-selection process has found a number of technology companies we consider very promising. However, they are different from the ones we owned six months ago. We have reduced our exposure to computer networking stocks, for example. This field has become more problematic as networking has become complex and the field increasingly competitive. Our holdings in this area are down to less than 34 AIM Weingarten Fund 37 The Managers' Overview PORTFOLIO HOLDINGS As of 4/30/97, based on total net assets
================================================================================================== Top 10 Stock Holdings Top 10 Industries - -------------------------------------------------------------------------------------------------- 1. Student Loan Marketing Association 2.08% 1. Medical (Drugs) 8.13% 2. Philip Morris Companies, Inc. 1.81 2. Semiconductors 5.95 3. RJR Nabisco Holdings Corp. 1.26 3. Retail (Stores) 5.78 4. Applied Materials, Inc. 1.21 4. Finance (Consumer Credit) 5.53 5. SmithKline Beecham PLC-ADR 1.15 5. Telecommunications 4.74 6. NationsBank Corp. 1.11 6. Computer Software/Services 4.52 7. American Home Products Corp. 1.10 7. Insurance (Multi-Line Property) 3.73 8. Thermo Electron Corp. 1.06 8. Medical (Patient Services) 3.71 9. Exxon Corp. 1.05 9. Tobacco 3.44 10. Baxter International Inc. 0.88 10. Electronic Components/Miscellaneous 3.39 Please keep in mind that the Fund's portfolio is subject to change and there is no assurance the Fund will continue to hold any particular security. ==================================================================================================
1% of the portfolio; when the reporting period opened, they represented more than 4% of the portfolio. On the other hand, we more than doubled our stake in semiconductor makers, focusing mainly on makers of high-value, differentiated semiconductor products, including Texas Instruments, Motorola, and Micron Technology. Companies such as these have significant competitive advantages over makers of commodity memory chips. Despite the potential uncertainty in the short run, keep in mind that technology has been the chief engine of economic expansion the past few years, generating up to one-third of all economic growth by some estimates. Based on the earnings estimates, we believe this sector will offer good growth possibilities over the long term. Q. WHAT DO YOU FIND ATTRACTIVE ABOUT FINANCIAL STOCKS? A. Stocks from various financial industries constitute almost 10% of the portfolio. We have had a relatively long period of stable interest rates and low inflation, which is a perfect environment for financial firms. This sector should remain healthy as long as inflation remains at bay. The consolidation and restructuring going on in the banking industry provide opportunities, as institutions like NationsBank gradually bring about truly national banking. Consumer-credit firms among our largest holdings are government-sponsored entities such as "Sallie Mae," the Student Loan Marketing Association, which has become the nation's leading provider of financial funding services for college education loans; and the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, the most important players in the home mortgage market. Q. FINALLY, HEALTH CARE. YOU HAVE HAD SIZABLE HOLDINGS IN THIS SECTOR FOR SOME TIME, HAVEN'T YOU? A. Yes. Health-care stocks remain among our largest positions, especially pharmaceutical companies and patient-care providers, which together make up almost 12% of the portfolio. Pharmaceutical manufacturers are bringing a steady stream of new products to market and many are reporting substantial earnings growth. The pharmaceutical manufacturers in the portfolio tend to be highly recognizable names such as Merck & Co., SmithKline Beecham, and Bristol-Myers Squibb. In the patient-care area, health maintenance organizations, including United HealthCare and Oxford Health Plans, managed-care providers with a growing enrollment, continue to lead the efficiency drive in the U.S. health-care industry and have recently improved their pricing structure. A recently formed alliance between other companies in the portfolio illustrates the ongoing change in this industry: MedPartners, Inc., the nation's largest physician practice management company, has contracted with hospital operator Tenet Healthcare to form the largest integrated health-care contracting network in Southern California. Given demographic trends in the U.S., we believe health care will remain a promising area of investment for some time. Q. WHAT IS YOUR MARKET OUTLOOK FOR THE NEAR TERM? A. In the U.S., the economic underpinnings for a strong market appear to be in place: given the absence of inflation, the Federal Reserve Board held interest rates steady when it met in May; the economy is growing at a very healthy clip; and for a record 17 quarters in a row, corporate earnings have surpassed analysts' forecasts. After two extraordinary years in 1995 and 1996, the consensus expectation is for market performance in 1997 to be closer to its historical norm: 9% or 10% total returns, which may seem low compared to the very recent past, but which are substantial returns and well above the prevailing inflation rate of about 3%. The greatest challenge for investors may be to temper their expectations. AIM Weingartern Fund 35 38 SCHEDULE OF INVESTMENTS April 30, 1997 (Unaudited)
MARKET SHARES VALUE DOMESTIC COMMON STOCKS-82.79% ADVERTISING/BROADCASTING-0.29% Interpublic Group of Companies, Inc. 275,000 $ 15,571,875 - --------------------------------------------------------------- AEROSPACE/DEFENSE-0.63% Gulfstream Aerospace Corp.(a) 444,300 11,329,650 - --------------------------------------------------------------- United Technologies Corp. 300,000 22,687,500 - --------------------------------------------------------------- 34,017,150 - --------------------------------------------------------------- APPLIANCES-0.25% Sunbeam Corp., Inc. 425,000 13,493,750 - --------------------------------------------------------------- BANKING-1.11% NationsBank Corp. 1,000,000 60,375,000 - --------------------------------------------------------------- BANKING (MONEY CENTER)-0.51% Chase Manhattan Corp. 300,000 27,787,500 - --------------------------------------------------------------- BEVERAGES (SOFT DRINKS)-0.09% PepsiCo, Inc. 143,000 4,987,125 - --------------------------------------------------------------- BIOTECHNOLOGY-0.89% Amgen, Inc.(a) 250,000 14,718,750 - --------------------------------------------------------------- Biogen, Inc.(a) 621,600 19,891,200 - --------------------------------------------------------------- Guidant Corp. 200,000 13,650,000 - --------------------------------------------------------------- 48,259,950 - --------------------------------------------------------------- BUSINESS SERVICES-2.17% AccuStaff, Inc.(a) 1,800,000 32,850,000 - --------------------------------------------------------------- Cognizant Corp. 935,700 30,527,213 - --------------------------------------------------------------- Diebold, Inc. 450,150 15,080,025 - --------------------------------------------------------------- Equifax, Inc. 1,000,000 28,750,000 - --------------------------------------------------------------- Ingram Micro, Inc.(a)-Class A 457,200 10,401,300 - --------------------------------------------------------------- 117,608,538 - --------------------------------------------------------------- CHEMICALS-0.27% Monsanto Co. 341,900 14,616,225 - --------------------------------------------------------------- COMPUTER MAINFRAMES-0.59% International Business Machines Corp. 200,000 32,150,000 - --------------------------------------------------------------- COMPUTER MINI/PCS-3.14% Compaq Computer Corp.(a) 500,000 42,687,500 - --------------------------------------------------------------- Dell Computer Corp.(a) 350,000 29,290,625 - --------------------------------------------------------------- Gateway 2000, Inc.(a) 350,000 19,206,250 - --------------------------------------------------------------- Hewlett-Packard Co. 679,500 35,673,750 - --------------------------------------------------------------- Stratus Computer, Inc.(a) 240,800 9,361,100 - --------------------------------------------------------------- Sun Microsystems, Inc.(a) 1,191,300 34,324,331 - --------------------------------------------------------------- 170,543,556 - ---------------------------------------------------------------
MARKET SHARES VALUE COMPUTER NETWORKING-0.57% Ascend Communications, Inc.(a) 350,000 $ 16,012,500 - --------------------------------------------------------------- Belden, Inc. 483,300 14,861,475 - --------------------------------------------------------------- 30,873,975 - --------------------------------------------------------------- COMPUTER PERIPHERALS-1.68% Adaptec, Inc.(a) 700,000 25,900,000 - --------------------------------------------------------------- American Power Conversion Corp.(a) 489,200 9,417,100 - --------------------------------------------------------------- EMC Corp.(a) 400,000 14,550,000 - --------------------------------------------------------------- Seagate Technology, Inc.(a) 625,000 28,671,875 - --------------------------------------------------------------- Storage Technology Corp.(a) 360,000 12,645,000 - --------------------------------------------------------------- 91,183,975 - --------------------------------------------------------------- COMPUTER SOFTWARE/SERVICES-4.52% Adobe Systems, Inc. 500,000 19,562,500 - --------------------------------------------------------------- BMC Software, Inc.(a) 290,000 12,542,500 - --------------------------------------------------------------- Cadence Design Systems, Inc.(a) 500,000 16,000,000 - --------------------------------------------------------------- Computer Associates International, Inc. 36,000 1,872,000 - --------------------------------------------------------------- Compuware Corp.(a) 700,000 26,425,000 - --------------------------------------------------------------- Electronic Arts, Inc.(a) 450,000 10,856,250 - --------------------------------------------------------------- Fiserv, Inc.(a) 708,600 26,749,650 - --------------------------------------------------------------- HBO & Co. 600,000 32,100,000 - --------------------------------------------------------------- Microsoft Corp.(a) 300,000 36,450,000 - --------------------------------------------------------------- National Data Corp. 343,100 12,866,250 - --------------------------------------------------------------- Parametric Technology Co.(a) 300,000 13,575,000 - --------------------------------------------------------------- Sterling Commerce, Inc.(a) 700,000 18,112,500 - --------------------------------------------------------------- Synopsys, Inc.(a) 210,900 6,722,438 - --------------------------------------------------------------- Wallace Computer Services, Inc. 425,000 11,368,750 - --------------------------------------------------------------- 245,202,838 - --------------------------------------------------------------- CONGLOMERATES-2.66% AlliedSignal Inc. 292,200 21,111,450 - --------------------------------------------------------------- Corning Inc. 375,000 18,093,750 - --------------------------------------------------------------- Johnson Controls, Inc. 400,000 15,350,000 - --------------------------------------------------------------- Loews Corp. 450,000 41,343,750 - --------------------------------------------------------------- Tyco International Ltd. 500,000 30,500,000 - --------------------------------------------------------------- U.S. Industries, Inc.(a) 500,000 18,062,500 - --------------------------------------------------------------- 144,461,450 - --------------------------------------------------------------- CONTAINERS-0.31% Sealed Air Corp.(a) 369,000 17,066,250 - --------------------------------------------------------------- COSMETICS & TOILETRIES-1.46% Dial Corp. 1,000,000 15,500,000 - --------------------------------------------------------------- McKesson Corp. 67,200 4,863,600 - --------------------------------------------------------------- Procter & Gamble Co. (The) 350,000 44,012,500 - ---------------------------------------------------------------
36 W E I N G A R T E N 39
MARKET SHARES VALUE COSMETICS & TOILETRIES-(CONTINUED) Warner-Lambert Co. 150,000 $ 14,700,000 - --------------------------------------------------------------- 79,076,100 - --------------------------------------------------------------- ELECTRIC POWER-0.30% AES Corp.(a) 250,000 16,312,500 - --------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-2.82% General Electric Co. 300,000 33,262,500 - --------------------------------------------------------------- Honeywell, Inc. 330,400 23,334,500 - --------------------------------------------------------------- Symbol Technologies, Inc. 670,100 21,694,487 - --------------------------------------------------------------- Teradyne, Inc.(a) 950,000 31,112,500 - --------------------------------------------------------------- Thermo Instrument Systems, Inc.(a) 538,500 16,895,437 - --------------------------------------------------------------- Waters Corp.(a) 901,900 26,718,787 - --------------------------------------------------------------- 153,018,211 - --------------------------------------------------------------- FINANCE (ASSET MANAGEMENT)-0.87% Franklin Resources, Inc. 406,500 24,034,312 - --------------------------------------------------------------- T. Rowe Price Associates 500,000 23,125,000 - --------------------------------------------------------------- 47,159,312 - --------------------------------------------------------------- FINANCE (CONSUMER CREDIT)-5.10% Federal Home Loan Mortgage Corp. 1,403,800 44,746,125 - --------------------------------------------------------------- Federal National Mortgage Association 1,134,500 46,656,313 - --------------------------------------------------------------- Finova Group, Inc. 227,000 15,577,875 - --------------------------------------------------------------- Green Tree Financial Corp. 611,400 18,112,725 - --------------------------------------------------------------- Household International, Inc. 175,000 15,400,000 - --------------------------------------------------------------- Money Store, Inc. (The) 1,013,500 21,916,937 - --------------------------------------------------------------- Student Loan Marketing Association 952,900 112,680,425 - --------------------------------------------------------------- SunAmerica, Inc. 33,400 1,536,400 - --------------------------------------------------------------- 276,626,800 - --------------------------------------------------------------- FINANCE (SAVINGS & LOAN)-1.52% H.F. Ahmanson & Co. 800,000 30,500,000 - --------------------------------------------------------------- ContiFinancial Corp.(a) 342,600 9,849,750 - --------------------------------------------------------------- Great Western Financial Corp. 1,000,000 42,000,000 - --------------------------------------------------------------- 82,349,750 - --------------------------------------------------------------- FOOD/PROCESSING-1.37% ConAgra, Inc. 550,000 31,693,750 - --------------------------------------------------------------- Dean Foods Co. 725,000 26,734,375 - --------------------------------------------------------------- Lancaster Colony Corp. 394,233 16,212,832 - --------------------------------------------------------------- 74,640,957 - --------------------------------------------------------------- FUNERAL SERVICES-0.82% Service Corp. International 1,305,600 44,716,800 - --------------------------------------------------------------- FURNITURE-0.30% Furniture Brands International, Inc.(a) 1,108,900 16,356,275 - --------------------------------------------------------------- GAMING-0.23% International Game Technology 800,000 12,700,000 - ---------------------------------------------------------------
MARKET SHARES VALUE HOTELS/MOTELS-0.97% HFS, Inc.(a) 350,000 $ 20,737,500 - --------------------------------------------------------------- Host Marriott Corp.(a) 208,500 3,622,687 - --------------------------------------------------------------- Marriot International, Inc. 515,000 28,453,750 - --------------------------------------------------------------- 52,813,937 - --------------------------------------------------------------- INSURANCE (LIFE & HEALTH)-1.23% Conseco Inc. 1,148,900 47,535,738 - --------------------------------------------------------------- Equitable Companies, Inc. 500,000 14,625,000 - --------------------------------------------------------------- Equitable of Iowa Companies 92,800 4,535,600 - --------------------------------------------------------------- 66,696,338 - --------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-3.28% Allstate Corp. 565,300 37,027,150 - --------------------------------------------------------------- American International Group, Inc. 225,000 28,912,500 - --------------------------------------------------------------- Everest Re Holdings, Inc. 800,500 23,014,375 - --------------------------------------------------------------- ITT Hartford Group, Inc. 375,000 27,937,500 - --------------------------------------------------------------- MBIA, Inc. 150,000 14,606,250 - --------------------------------------------------------------- MGIC Investment Corp. 200,000 16,250,000 - --------------------------------------------------------------- Travelers Group, Inc. 550,000 30,456,250 - --------------------------------------------------------------- 178,204,025 - --------------------------------------------------------------- LEISURE & RECREATION-0.81% Carnival Corp.-Class A 800,000 29,500,000 - --------------------------------------------------------------- Walt Disney Co. (The) 175,000 14,350,000 - --------------------------------------------------------------- 43,850,000 - --------------------------------------------------------------- MACHINERY (HEAVY)-0.59% Caterpillar Inc. 175,000 15,575,000 - --------------------------------------------------------------- Ingersoll-Rand Co. 334,100 16,412,663 - --------------------------------------------------------------- 31,987,663 - --------------------------------------------------------------- MACHINERY (MISCELLANEOUS)-1.06% Thermo Electron Corp.(a) 1,664,400 57,421,800 - --------------------------------------------------------------- MEDICAL (DRUGS)-6.24% Abbott Laboratories 250,000 15,250,000 - --------------------------------------------------------------- American Home Products Corp. 900,000 59,625,000 - --------------------------------------------------------------- AmeriSource Health Corp.-Class A(a) 500,000 22,312,500 - --------------------------------------------------------------- Bristol-Myers Squibb Co. 500,000 32,750,000 - --------------------------------------------------------------- Cardinal Health, Inc. 500,000 26,625,000 - --------------------------------------------------------------- ICN Pharmaceuticals, Inc. 1,200,000 25,350,000 - --------------------------------------------------------------- Johnson & Johnson 500,000 30,625,000 - --------------------------------------------------------------- Merck & Co., Inc. 500,000 45,250,000 - --------------------------------------------------------------- Pfizer, Inc. 300,000 28,800,000 - --------------------------------------------------------------- Rhone-Poulenc Rorer, Inc. 180,000 12,982,500 - --------------------------------------------------------------- Schering-Plough Corp. 175,000 14,000,000 - --------------------------------------------------------------- Watson Pharmaceuticals, Inc.(a) 700,000 25,025,000 - --------------------------------------------------------------- 338,595,000 - ---------------------------------------------------------------
37 W E I N G A R T E N 40
MARKET SHARES VALUE MEDICAL (PATIENT SERVICES)-3.71% Columbia/HCA Healthcare Corp. 875,000 $ 30,625,000 - --------------------------------------------------------------- Health Care and Retirement Corp.(a) 222,350 7,031,819 - --------------------------------------------------------------- HEALTHSOUTH Corp.(a) 1,400,000 27,650,000 - --------------------------------------------------------------- MedPartners, Inc.(a) 1,100,000 20,075,000 - --------------------------------------------------------------- Oxford Health Plans, Inc.(a) 300,000 19,762,500 - --------------------------------------------------------------- Quorum Health Group, Inc.(a) 1,000,000 31,125,000 - --------------------------------------------------------------- Tenet Healthcare Corp.(a) 1,100,000 28,600,000 - --------------------------------------------------------------- United Healthcare Corp. 550,000 26,743,750 - --------------------------------------------------------------- Universal Health Services, Inc.-Class B(a) 262,000 9,923,250 - --------------------------------------------------------------- 201,536,319 - --------------------------------------------------------------- MEDICAL INSTRUMENTS/PRODUCTS-2.96% Baxter International Inc. 1,000,000 47,875,000 - --------------------------------------------------------------- Becton, Dickinson & Co. 600,000 27,600,000 - --------------------------------------------------------------- Boston Scientific Corp.(a) 300,000 14,475,000 - --------------------------------------------------------------- DePuy, Inc.(a) 172,200 3,616,200 - --------------------------------------------------------------- Stryker Corp.(a) 701,600 23,065,100 - --------------------------------------------------------------- Sybron International Corp.(a) 941,900 31,318,175 - --------------------------------------------------------------- US Surgical Corp. 375,000 12,843,750 - --------------------------------------------------------------- 160,793,225 - --------------------------------------------------------------- OFFICE AUTOMATION-0.28% Xerox Corp. 250,000 15,375,000 - --------------------------------------------------------------- OFFICE PRODUCTS-0.42% Reynolds & Reynolds Co.-Class A 1,100,000 22,825,000 - --------------------------------------------------------------- OIL & GAS (DRILLING)-0.24% Reading & Bates Corp.(a) 575,000 12,865,625 - --------------------------------------------------------------- OIL & GAS (SERVICES)-1.98% Exxon Corp. 1,010,000 57,191,250 - --------------------------------------------------------------- Halliburton Co. 400,000 28,250,000 - --------------------------------------------------------------- Louisiana Land & Exploration Co.(a) 360,800 18,040,000 - --------------------------------------------------------------- Unocal Corp. 108,900 4,151,813 - --------------------------------------------------------------- 107,633,063 - --------------------------------------------------------------- OIL EQUIPMENT & SUPPLIES-1.71% Baker Hughes, Inc. 550,100 18,978,450 - --------------------------------------------------------------- BJ Services Co.(a) 142,800 6,729,450 - --------------------------------------------------------------- Coastal Corp. 300,000 14,250,000 - --------------------------------------------------------------- Cooper Cameron Corp.(a) 95,300 6,790,125 - --------------------------------------------------------------- Rowan Companies, Inc.(a) 675,000 12,150,000 - --------------------------------------------------------------- Schlumberger Ltd. 200,000 22,150,000 - --------------------------------------------------------------- Tidewater, Inc. 300,000 12,037,500 - --------------------------------------------------------------- 93,085,525 - --------------------------------------------------------------- PAPER & FOREST PRODUCTS-0.60% Kimberly-Clark Corp. 640,500 32,825,625 - ---------------------------------------------------------------
MARKET SHARES VALUE POLLUTION CONTROL-0.71% USA Waste Services, Inc.(a) 800,000 $ 26,200,000 - --------------------------------------------------------------- US Filter Corp.(a) 399,900 12,146,962 - --------------------------------------------------------------- 38,346,962 - --------------------------------------------------------------- PUBLISHING-0.54% Gannett Company, Inc. 97,600 8,515,600 - --------------------------------------------------------------- New York Times Co.-Class A 325,000 14,056,250 - --------------------------------------------------------------- Times Mirror Co. 122,400 6,762,600 - --------------------------------------------------------------- 29,334,450 - --------------------------------------------------------------- RESTAURANTS-0.49% Applebee's International, Inc. 630,800 14,744,950 - --------------------------------------------------------------- Boston Chicken, Inc.(a) 500,000 11,937,500 - --------------------------------------------------------------- 26,682,450 - --------------------------------------------------------------- RETAIL (FOOD & DRUG)-1.68% American Stores Co. 456,000 20,748,000 - --------------------------------------------------------------- Kroger Co.(a) 997,200 27,423,000 - --------------------------------------------------------------- Rite Aid Corp. 650,000 29,900,000 - --------------------------------------------------------------- Safeway, Inc.(a) 300,000 13,387,500 - --------------------------------------------------------------- 91,458,500 - --------------------------------------------------------------- RETAIL (STORES)-5.79% Barnes & Noble, Inc.(a) 111,200 4,170,000 - --------------------------------------------------------------- Bed Bath & Beyond, Inc.(a) 575,000 15,740,625 - --------------------------------------------------------------- Consolidated Stores Corp.(a) 562,500 22,500,000 - --------------------------------------------------------------- Costco Companies, Inc.(a) 1,100,000 31,762,500 - --------------------------------------------------------------- CVS Corp. 450,000 22,331,250 - --------------------------------------------------------------- Dayton Hudson Corp. 425,000 19,125,000 - --------------------------------------------------------------- Gap, Inc. 140,800 4,488,000 - --------------------------------------------------------------- Home Depot, Inc. 250,000 14,500,000 - --------------------------------------------------------------- Jones Apparel Group, Inc.(a) 200,000 8,350,000 - --------------------------------------------------------------- Lowe's Companies, Inc. 1,080,000 41,040,000 - --------------------------------------------------------------- Pep Boys-Manny, Moe & Jack 1,000,000 32,625,000 - --------------------------------------------------------------- Ross Stores, Inc. 525,000 14,765,625 - --------------------------------------------------------------- Sysco Corp. 298,600 10,600,300 - --------------------------------------------------------------- Tech Data Corp.(a) 786,800 19,276,600 - --------------------------------------------------------------- TJX Companies, Inc. 325,000 15,356,250 - --------------------------------------------------------------- Toys "R" Us, Inc.(a) 550,000 15,675,000 - --------------------------------------------------------------- U.S. Office Products Co.(a) 850,000 21,675,000 - --------------------------------------------------------------- 313,981,150 - --------------------------------------------------------------- SCIENTIFIC INSTRUMENTS-0.30% Perkin-Elmer Corp. 225,000 16,340,625 - --------------------------------------------------------------- SEMICONDUCTORS-5.95% Advanced Micro Devices, Inc.(a) 600,000 25,500,000 - --------------------------------------------------------------- Analog Devices, Inc.(a) 500,000 13,375,000 - --------------------------------------------------------------- Applied Materials, Inc.(a) 1,200,000 65,850,000 - ---------------------------------------------------------------
38 W E I N G A R T E N 41
MARKET SHARES VALUE SEMICONDUCTORS-(CONTINUED) Cypress Semiconductor Corp.(a) 638,900 $ 8,864,738 - --------------------------------------------------------------- Intel Corp. 100,000 15,312,500 - --------------------------------------------------------------- KLA Instruments Corp.(a) 700,000 31,150,000 - --------------------------------------------------------------- Linear Technology Corp. 300,000 15,075,000 - --------------------------------------------------------------- LSI Logic Corp.(a) 425,000 16,256,250 - --------------------------------------------------------------- Maxim Integrated Products, Inc.(a) 300,000 15,862,500 - --------------------------------------------------------------- Micron Technology, Inc. 850,000 29,962,500 - --------------------------------------------------------------- Motorola, Inc. 450,000 25,762,500 - --------------------------------------------------------------- National Semiconductor Corp.(a) 673,300 16,832,500 - --------------------------------------------------------------- Novellus Systems, Inc.(a) 125,600 7,253,400 - --------------------------------------------------------------- Texas Instruments, Inc. 400,000 35,700,000 - --------------------------------------------------------------- 322,756,888 - --------------------------------------------------------------- TELECOMMUNICATIONS-2.83% ADC Telecommunications, Inc.(a)(b) 750,000 19,593,750 - --------------------------------------------------------------- Andrew Corp.(a) 525,000 12,993,750 - --------------------------------------------------------------- Lucent Technologies, Inc. 600,000 35,475,000 - --------------------------------------------------------------- PairGain Technologies, Inc.(a) 500,000 13,000,000 - --------------------------------------------------------------- Tellabs, Inc.(a) 800,000 31,900,000 - --------------------------------------------------------------- WorldCom, Inc.(a) 1,700,000 40,800,000 - --------------------------------------------------------------- 153,762,500 - --------------------------------------------------------------- TELEPHONE-0.23% Cincinnati Bell, Inc. 225,000 12,600,000 - --------------------------------------------------------------- TEXTILES-0.28% Fruit of The Loom, Inc.-Class A(a) 415,100 14,943,600 - --------------------------------------------------------------- TOBACCO-3.44% Philip Morris Companies, Inc. 2,500,000 98,437,500 - --------------------------------------------------------------- RJR Nabisco Holdings Corp. 2,306,200 68,609,450 - --------------------------------------------------------------- Universal Corp. 700,000 19,600,000 - --------------------------------------------------------------- 186,646,950 - --------------------------------------------------------------- Total Domestic Common Stocks 4,494,518,082 - --------------------------------------------------------------- DOMESTIC CONVERTIBLE PREFERRED STOCKS-1.19% FINANCE (CONSUMER CREDIT)-0.43% SunAmerica, Inc.-Series E, $3.10 Conv. Pfd. 228,800 23,337,600 - --------------------------------------------------------------- HOTELS/MOTELS-0.31% Host Marriott Financial Trust- $3.375 Conv. Pfd. (acquired 02/12/97-02/19/97; cost $18,036,739)(c) 310,800 17,250,643 - --------------------------------------------------------------- INSURANCE (MULTI-LINE PROPERTY)-0.45% MGIC Investment Corp.-$3.12 Conv. Pfd. 347,600 24,288,550 - --------------------------------------------------------------- Total Domestic Convertible Preferred Stocks 64,876,793 - ---------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE DOMESTIC CONVERTIBLE BONDS & NOTES-1.42% CHEMICALS-0.39% Sandoz Capital BVI Ltd., Gtd. Conv. Deb., 2.00%, 10/06/02 (acquired 11/01/96-11/05/96; cost $18,721,100)(c) $17,000,000 $ 21,335,000 - --------------------------------------------------------------- ELECTRONIC COMPONENTS/MISCELLANEOUS-0.57% SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06 22,050,000 30,897,563 - --------------------------------------------------------------- POLLUTION CONTROL-0.09% US Filter Corp., Conv. Sub. Notes, 6.00%, 09/15/05 2,700,000 4,683,475 - --------------------------------------------------------------- SEMICONDUCTORS-0.37% Altera Corp., Conv. Sub. Notes, 5.75%, 06/15/02 (acquired 01/17/97; cost $16,951,400)(c) 10,000,000 20,278,700 - --------------------------------------------------------------- Total Domestic Convertible Bonds & Notes 77,194,738 - ---------------------------------------------------------------
SHARES FOREIGN STOCKS & OTHER EQUITY INTERESTS-8.37% CANADA-1.48% Canadian Pacific, Ltd. (Transportation) 585,000 14,259,375 - --------------------------------------------------------------- Newbridge Networks Corp.(a) (Computer Networking) 600,000 19,050,000 - --------------------------------------------------------------- Northern Telecom Ltd. (Telecommunications) 325,000 23,603,125 - --------------------------------------------------------------- Philip Environmental, Inc.(a) (Pollution Control) 1,500,000 23,625,000 - --------------------------------------------------------------- 80,537,500 - --------------------------------------------------------------- FINLAND-0.29% Nokia Oy A.B.-Class A-ADR (Telecommunications) 240,000 15,510,000 - --------------------------------------------------------------- FRANCE-0.51% Elf Aquitaine S.A. (Oil & Gas-Services) 285,000 27,638,139 - --------------------------------------------------------------- GERMANY-0.30% Adidas A.G. (Shoes & Related Apparel) 78,800 8,213,073 - --------------------------------------------------------------- VEBA A.G. (Electric Power) 158,000 8,138,122 - --------------------------------------------------------------- 16,351,195 - --------------------------------------------------------------- HONG KONG-0.88% HSBC Holdings PLC (Banking) 820,000 20,747,434 - --------------------------------------------------------------- Sun Hung Kai Properties Ltd. (Real Estate) 2,505,000 27,163,235 - --------------------------------------------------------------- 47,910,669 - --------------------------------------------------------------- IRELAND-0.36% Elan Corp. PLC-ADR(a)(Medical-Drugs) 580,000 19,720,000 - --------------------------------------------------------------- ISRAEL-0.38% Teva Pharmaceutical Industries Ltd.-ADR (Medical-Drugs) 405,800 20,594,350 - ---------------------------------------------------------------
39 W E I N G A R T E N 42
MARKET SHARES VALUE ITALY-0.64% Telecom Italia Mobile S.p.A. (Telecommunications) 6,000,000 $ 18,821,674 - --------------------------------------------------------------- Telecom Italia S.p.A. (Telecommunications) 6,000,000 15,885,058 - --------------------------------------------------------------- 34,706,732 - --------------------------------------------------------------- MALAYSIA-0.20% Malayan Banking Berhad (Banking) 1,074,000 10,693,803 - --------------------------------------------------------------- NETHERLANDS-1.05% Gucci Group N.V.-ADR-New York Registered Shares (Textiles) 250,000 17,343,750 - --------------------------------------------------------------- Philips Electronics N.V.-ADR-New York Shares (Appliances) 320,300 17,136,050 - --------------------------------------------------------------- Royal Dutch Petroleum Co.-ADR-New York Shares (Oil & Gas-Services) 125,000 22,531,250 - --------------------------------------------------------------- 57,011,050 - --------------------------------------------------------------- SWEDEN-0.55% Telefonaktiebolaget LM Ericsson-ADR (Telecommunications) 881,300 29,633,713 - ---------------------------------------------------------------
MARKET SHARES VALUE UNITED KINGDOM-1.73% Danka Business Systems PLC-ADR (Office Automation) 401,900 $ 12,283,069 - --------------------------------------------------------------- Granada Group PLC (Leisure & Recreation) 1,330,000 19,184,765 - --------------------------------------------------------------- SmithKline Beecham PLC-ADR (Medical-Drugs) 775,000 62,484,375 - --------------------------------------------------------------- 93,952,209 - --------------------------------------------------------------- Total Foreign Stocks & Other Equity Interests 454,259,360 - ---------------------------------------------------------------
PRINCIPAL AMOUNT COMMERCIAL PAPER TRUST-0.55% Citibank, N.A., 5.895%, 12/26/97(d) $30,000,000 30,000,000 - --------------------------------------------------------------- REPURCHASE AGREEMENTS(e)-5.24% Goldman, Sachs & Co., 5.375%, 05/01/97(f) 86,853,893 86,853,893 - --------------------------------------------------------------- HSBC Securities, Inc., 5.55%, 05/01/97(g) 197,510,181 197,510,181 - --------------------------------------------------------------- Total Repurchase Agreements 284,364,074 - --------------------------------------------------------------- TOTAL INVESTMENTS-99.56% 5,405,213,047 - --------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES-0.44% 23,707,955 - --------------------------------------------------------------- TOTAL NET ASSETS-100.00% $5,428,921,002 - ---------------------------------------------------------------
Abbreviations: ADR -American Depository Receipt Conv. -Convertible Pfd. -Preferred Gtd. -Guaranteed Sub. -Subordinated
Notes to Schedule of Investments: (a) Non-income producing security (b) A portion of this security is subject to call options written. See Note 6. (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 procedures established by the Board of Directors. The aggregate market value of these securities at April 30, 1997 was $58,864,343 which represented 1.08% of the Fund's net assets. (d) Variable rate trust certificates representing an interest in a trust (comprised of eligible debt obligations) entitling the Fund to receive variable rate interest. The Fund has the right, upon seven calendar days' notice to the trustee, to put its certificates to the trust at par value plus accrued interest. Because variable rate trust certificates involve a trust and a third party put feature, they involve complexities and potential risks that may not be present where the debt obligation is owned directly. Rate shown is the rate in effect on April 30, 1997. (e) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. The collateral is marked to market daily to ensure its market value as being 102% of the sales price of the repurchase agreement. The investments in some repurchase agreements are through participation in joint accounts with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates. (f) Joint repurchase agreement entered into on 04/30/97 with maturing value of $701,547,221. Collateralized by $757,320,000 U.S. Treasury obligations, 0% to 8.875% due 07/17/97 to 02/15/26 with an aggregate market value at April 30, 1997 of $716,184,843. (g) Joint repurchase agreement entered into on 04/30/97 with maturing value of $500,077,083. Collateralized by $285,655,288 U.S. Government agency obligations, 0% to 8.00% due 04/01/19 to 12/01/35 and $321,339,000 U.S. Treasury obligations, 4.75% to 9.25% due 09/30/97 to 10/31/99 with an aggregate market value at April 30, 1997 of $510,003,616. See Notes to Financial Statements. 36 W E I N G A R T E N 43 STATEMENT OF ASSETS AND LIABILITIES April 30, 1997 (Unaudited) ASSETS: Investments, at market value (cost $4,524,773,802) $5,405,213,047 - -------------------------------------------------------- Foreign currencies, at market value (cost $10,528) 10,792 - -------------------------------------------------------- Receivables for: Investments sold 90,580,668 - -------------------------------------------------------- Options purchased 281,250 - -------------------------------------------------------- Capital stock sold 4,604,126 - -------------------------------------------------------- Dividends and interest 4,277,796 - -------------------------------------------------------- Investment for deferred compensation plan 66,430 - -------------------------------------------------------- Other assets 126,497 - -------------------------------------------------------- Total assets 5,505,160,606 - -------------------------------------------------------- LIABILITIES: Payables for: Investments purchased 59,109,537 - -------------------------------------------------------- Options written 750,000 - -------------------------------------------------------- Capital stock reacquired 9,292,445 - -------------------------------------------------------- Deferred compensation 66,430 - -------------------------------------------------------- Accrued advisory fees 2,614,487 - -------------------------------------------------------- Accrued administrative service fees 10,510 - -------------------------------------------------------- Accrued distribution fees 2,109,588 - -------------------------------------------------------- Accrued transfer agent fees 1,541,871 - -------------------------------------------------------- Accrued operating expenses 744,736 - -------------------------------------------------------- Total liabilities 76,239,604 - -------------------------------------------------------- Net assets applicable to shares outstanding $5,428,921,002 ======================================================== NET ASSETS: Class A $5,014,448,112 ======================================================== Class B $ 351,019,539 ======================================================== Institutional Class $ 63,453,351 ======================================================== CAPITAL STOCK, $.001 PAR VALUE PER SHARE: CLASS A: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 264,935,631 ======================================================== CLASS B: Authorized 750,000,000 - -------------------------------------------------------- Outstanding 18,779,084 ======================================================== INSTITUTIONAL CLASS: Authorized 200,000,000 - -------------------------------------------------------- Outstanding 3,310,794 ======================================================== CLASS A: Net asset value and redemption price per share $ 18.93 - -------------------------------------------------------- Offering price per share: (Net asset value of $18.93 divided by 94.50%) $ 20.03 - -------------------------------------------------------- CLASS B: Net asset value and offering price per share $ 18.69 ======================================================== INSTITUTIONAL CLASS: Net asset value, offering and redemption price per share $ 19.17 ========================================================
STATEMENT OF OPERATIONS For the six months ended April 30, 1997 (Unaudited) INVESTMENT INCOME: Dividends (net of $396,081 foreign withholding tax) $ 24,799,615 - ---------------------------------------------------------- Interest 6,302,042 - ---------------------------------------------------------- Total investment income 31,101,657 - ---------------------------------------------------------- EXPENSES: Advisory fees 17,460,585 - ---------------------------------------------------------- Administrative service fees 73,693 - ---------------------------------------------------------- Custodian fees 191,071 - ---------------------------------------------------------- Directors' fees 15,990 - ---------------------------------------------------------- Distribution fees-Class A 7,688,203 - ---------------------------------------------------------- Distribution fees-Class B 1,589,373 - ---------------------------------------------------------- Transfer agent fees-Class A 4,286,458 - ---------------------------------------------------------- Transfer agent fees-Class B 385,368 - ---------------------------------------------------------- Transfer agent fees-Institutional Class 2,855 - ---------------------------------------------------------- Other 847,420 - ---------------------------------------------------------- Total expenses 32,541,016 - ---------------------------------------------------------- Less: Fees waived by advisor (949,019) - ---------------------------------------------------------- Expenses paid indirectly (45,865) - ---------------------------------------------------------- Net expenses 31,546,132 - ---------------------------------------------------------- Net investment (loss) (444,475) - ---------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS: Net realized gain (loss) on sales of: Investment securities 447,720,009 - ---------------------------------------------------------- Foreign currencies (2,571,094) - ---------------------------------------------------------- Options contracts 4,829,479 - ---------------------------------------------------------- 449,978,394 - ---------------------------------------------------------- Net unrealized appreciation (depreciation) of: Investment securities (153,788,488) - ---------------------------------------------------------- Foreign currencies (53,868) - ---------------------------------------------------------- Options contracts 2,178,320 - ---------------------------------------------------------- (151,664,036) - ---------------------------------------------------------- Net gain on investment securities, foreign currencies and option contracts 298,314,358 - ---------------------------------------------------------- Net increase in net assets resulting from operations $ 297,869,883 ========================================================
See Notes to Financial Statements. 41 W E I N G A R T E N 44 STATEMENT OF CHANGES IN NET ASSETS For the six months ended April 30, 1997 and the year ended October 31, 1996 (Unaudited)
APRIL 30, OCTOBER 31, 1997 1996 -------------- -------------- OPERATIONS: Net investment income (loss) $ (444,475) $ 14,147,587 - ---------------------------------------------------------------------------------------------- Net realized gain on sales of investment securities, foreign currencies, futures and options contracts 449,978,394 590,548,116 - ---------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investment securities, foreign currencies, and options contracts (151,664,036) 79,138,554 - ---------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 297,869,883 683,834,257 - ---------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income: Class A (14,825,812) -- - ---------------------------------------------------------------------------------------------- Institutional Class (446,594) -- - ---------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains on investment securities: Class A (552,424,286) (606,609,217) - ---------------------------------------------------------------------------------------------- Class B (32,141,402) (7,814,517) - ---------------------------------------------------------------------------------------------- Institutional Class (6,654,246) (7,332,667) - ---------------------------------------------------------------------------------------------- Net equalization credits: Class A 1,412,885 2,368,957 - ---------------------------------------------------------------------------------------------- Class B 62,469 992,175 - ---------------------------------------------------------------------------------------------- Institutional Class 86,077 65,590 - ---------------------------------------------------------------------------------------------- Share transactions-net: Class A 322,422,079 362,344,237 - ---------------------------------------------------------------------------------------------- Class B 101,653,884 210,825,508 - ---------------------------------------------------------------------------------------------- Institutional Class 6,470,978 5,462,015 - ---------------------------------------------------------------------------------------------- Net increase in net assets 123,485,915 644,136,338 - ---------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 5,305,435,087 4,661,298,749 - ---------------------------------------------------------------------------------------------- End of period $5,428,921,002 $5,305,435,087 ============================================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $4,079,731,400 $3,649,184,459 - ---------------------------------------------------------------------------------------------- Undistributed net investment income 30,361,176 44,516,626 - ---------------------------------------------------------------------------------------------- Undistributed net realized gain on sales of investment securities, foreign currencies, futures and options contracts 439,469,771 580,711,311 - ---------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities, foreign currencies, and option contracts 879,358,655 1,031,022,691 - ---------------------------------------------------------------------------------------------- $5,428,921,002 $5,305,435,087 ==============================================================================================
See Notes to Financial Statements. 42 W E I N G A R T E N 45 NOTES TO FINANCIAL STATEMENTS April 30, 1997 (Unaudited) NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM Weingarten Fund (the "Fund") is a series of AIM Equity Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six diversified portfolios: AIM Weingarten Fund, AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund and AIM Constellation Fund. The Fund currently offers three different classes of shares: the Class A shares, Class B shares and the Institutional Class. Matters affecting each portfolio or class will be voted on exclusively by such shareholders. The assets, liabilities and operations of each portfolio are accounted for separately. The Fund's investment objective is to seek growth of capital principally through investment in common stocks of seasoned and better capitalized companies. Information presented in these financial statements pertains only to the Fund. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. Security Valuations--A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the mean of the closing bid and asked prices. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, corporate and maturity date. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the New York Stock Exchange. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the New York Stock Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Directors. B. Foreign Currency Translations--Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. C. Foreign Currency Contracts--A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts. D. Stock Index Futures Contracts--The Fund may purchase or sell stock index futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash, and/or by securing a standby letter of credit from a major commercial bank, as collateral, for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in the value of the contract may not correlate with changes in the securities being hedged. E. Covered Call Options--The Fund may write call options, but only on a covered basis; that is, the Fund will own the underlying security. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option 43 W E I N G A R T E N 46 written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. The purchaser of a call option has the right to acquire the security which is the subject of the call option at any time during the option period. During the option period, in return for the premium paid by the purchaser of the option, the Fund has given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security increase, but has retained the risk of loss should the price of the underlying security decline. During the option period, the Fund may be required at any time to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time at which the Fund effects a closing purchase transaction by purchasing (at a price which may be higher than that received when the call option was written) a call option identical to the one originally written. F. Put options--The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, a Fund pays an option premium. The option's underlying instrument may be a security, or a futures contract. Put options may be used by a Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. G. Securities Transactions, Investment Income and Distributions--Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the specific identification of securities sold. Interest income is recorded as earned from settlement date and is recorded on the accrual basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. H. Federal Income Taxes--The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. I. Expenses--Distribution and transfer agency expenses directly attributable to a class of shares are charged to that class' operations. All other expenses which are attributable to more than one class are allocated between the classes. J. Equalization--The Fund follows the accounting practice known as equalization by which a portion of the proceeds from sales and the costs of repurchases of Fund shares, equivalent on a per share basis to the amount of undistributed net investment income, is credited or charged to undistributed net income when the transaction is recorded so that undistributed net investment income per share is unaffected by sales or redemptions of Fund shares. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). The terms of the master investment advisory agreement provide that the Fund shall pay an advisory fee to AIM at an annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $350 million, plus 0.625% of the Fund's average daily net assets in excess of $350 million. AIM is currently voluntarily waiving a portion of its advisory fees payable by the Fund to AIM to the extent necessary to reduce the fees paid by the Fund at net asset levels higher than those currently incorporated in the present advisory fee schedule. AIM will receive a fee calculated at the annual rate of 1.0% of the first $30 million of the Fund's average daily net assets, plus 0.75% of the Fund's average daily net assets in excess of $30 million to and including $350 million, plus 0.625% of the Fund's average daily net assets in excess of $350 million to and including $2 billion, plus 0.60% of the Fund's average daily net assets in excess of $2 billion to and including $3 billion, plus 0.575% of the Fund's average daily net assets in excess of $3 billion to and including $4 billion, plus 0.55% of the Fund's average daily net assets in excess of $4 billion. The waiver of fees is entirely voluntary but approval is required by the Board of Directors of the Company for any decision by AIM to discontinue the waiver. During the six months ended April 30, 1997, AIM waived fees of $949,019. Under the terms of a master sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to reimburse AIM for certain administrative costs incurred in providing accounting services to the Fund. During the six months ended April 30, 1997, AIM was reimbursed $73,693 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing transfer agency services to the Class A shares and Class B shares. During the six months ended April 30, 1997, AFS was reimbursed $2,228,690 for such services. During the six months ended April 30, 1997, the Fund, pursuant to a transfer agency and service agreement, paid A I M Institutional 44 W E I N G A R T E N 47 Fund Services, Inc. ("AIFS") $2,855 for shareholder and transfer agency services with respect to the Institutional Class. The Fund received reductions in transfer agency fees of $42,960 from dividends received on balances in cash management bank accounts. In addition, the Fund incurred expenses of $2,905 for pricing services which are paid through directed brokerage commissions. The effect of the above arrangements resulted in a reduction in the Fund's total expenses of $45,865 during the six months ended April 30, 1997. The Company has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A and Class B shares and a master distribution agreement with Fund Management Company ("FMC") to serve as the distributor for the Institutional Class. The Company has adopted Plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares (the "Class A Plan") and with respect to the Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A Plan, pays AIM Distributors compensation at the annual rate of 0.30% of the average daily net assets attributable to the Class A shares. The Class A Plan is designed to compensate AIM Distributors for certain promotional and other sales related costs, and to implement a program which provides periodic payments to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class A shares of the Fund. The Fund, pursuant to the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00% of the average daily net assets attributable to the Class B shares. Of this amount, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class B shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own Class B shares of the Fund. Any amounts not paid as a service fee under such Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges, that may be paid by the respective classes. AIM Distributors may, from time to time, assign, transfer or pledge to one or more designees, its rights to all or a designated portion of (a) compensation received by AIM Distributors from the Fund pursuant to the Class B Plan (but not AIM Distributors duties and obligations pursuant to the Class B Plan) and (b) any contingent deferred sales charges received by AIM Distributors related to the Class B shares. During the six months ended April 30, 1997, the Class A shares and the Class B shares paid AIM Distributors $7,688,203 and $1,589,373, respectively, as compensation under the Plans. AIM Distributors received commissions of $831,559 from sales of shares of the Class A shares of the Fund during the year six months ended April 30, 1997. 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 six months ended April 30, 1997, AIM Distributors received commissions of $24,937 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AIM Capital, AIM Distributors, AFS, AIFS and FMC. During the six months ended April 30, 1997, the Fund paid legal fees of $10,693 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold during the six months ended April 30, 1997 was $3,610,400,083 and $4,082,664,624, respectively. The amount of unrealized appreciation (depreciation) of investment securities, on a tax basis, as of April 30, 1997 is as follows: Aggregate unrealized appreciation of investment securities $ 980,079,896 - ---------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (105,092,131) - ---------------------------------------------------------- Net unrealized appreciation of investment securities $ 874,987,765 ==========================================================
Cost of investments for tax purposes is $4,530,225,282. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid or accrued to each director who is not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. Interest on borrowings under the line of credit is payable on maturity or prepayment date. During the six months ended April 30, 1997, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.08% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-OPTION CONTRACTS WRITTEN Transactions in call options written during the six months ended April 30, 1997 are summarized as follows:
OPTION CONTRACTS ------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ------------ Beginning of period 55,804 $ 22,601,072 - ----------------------------------------------------------- Written 62,525 18,316,598 - ----------------------------------------------------------- Closed (79,359) (30,366,331) - ----------------------------------------------------------- Exercised (9,500) (3,963,917) - ----------------------------------------------------------- Expired (21,970) (6,081,525) - ----------------------------------------------------------- End of period 7,500 $ 505,897 ===========================================================
45 W E I N G A R T E N 48 Open call option contracts written at April 30, 1997 were as follows:
APRIL 30, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) ISSUE -------- ------ --------- -------- ------------ -------------- ADC Telecommunications, Inc. April 27 7,500 $505,897 $750,000 $(244,103) - ---------------------------------------------------------------------------------------------------------------------------
NOTE 7-PUT OPTIONS PURCHASED Transactions in put options purchased during the six months ended April 30, 1997 are summarized as follows:
PUT OPTION CONTRACTS ------------------------ NUMBER OF PREMIUMS CONTRACTS PAID --------- ---------- Beginning of period -- -- - -------------------------------------------------------------------------------------- Purchased 7,500 $1,053,750 - -------------------------------------------------------------------------------------- Exercised -- -- - -------------------------------------------------------------------------------------- End of period 7,500 $1,053,750 - --------------------------------------------------------------------------------------
Open put option contracts purchased at April 30, 1997 were as follows:
APRIL 30, UNREALIZED CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION) ISSUE -------- ------ --------- ---------- ------------ -------------- ADC Telecommunications, Inc. April 22.5 7,500 $1,053,750 $281,250 $772,500 - ----------------------------------------------------------------------------------------------------------------------------
NOTE 8-CAPITAL STOCK Changes in the capital stock outstanding during the six months ended April 30, 1997 and the year ended October 31, 1996 were as follows:
APRIL 30, 1997 OCTOBER 31, 1996 -------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ Sold: Class A 18,222,095 $353,778,240 34,550,539 $648,183,624 - --------------------------------------------------------------------------------------------------------------------- Class B 5,136,342 98,559,132 12,381,545 231,706,372 - --------------------------------------------------------------------------------------------------------------------- Institutional Class 187,453 3,617,225 516,716 9,877,153 - --------------------------------------------------------------------------------------------------------------------- Issued as a reinvestment of dividends: Class A 29,415,287 528,056,969 32,395,132 557,844,149 - --------------------------------------------------------------------------------------------------------------------- Class B 1,715,463 30,689,638 425,933 7,326,082 - --------------------------------------------------------------------------------------------------------------------- Institutional Class 313,585 5,650,803 338,803 5,871,449 - --------------------------------------------------------------------------------------------------------------------- Reacquired: Class A (29,281,788) (559,413,130) (44,929,759) (843,683,536) - --------------------------------------------------------------------------------------------------------------------- Class B (1,461,847) (27,594,886) (1,500,861) (28,206,946) - --------------------------------------------------------------------------------------------------------------------- Institutional Class (146,120) (2,797,050) (552,275) (10,286,587) - --------------------------------------------------------------------------------------------------------------------- 24,100,470 $430,546,941 33,625,773 $578,631,760 =====================================================================================================================
46 W E I N G A R T E N 49 NOTE 9-FINANCIAL HIGHLIGHTS Shown below are the financial highlights for a share of the Institutional Class capital stock outstanding during the six months ended April 30, 1997, each of the years in the five-year period ended October 31, 1996 and the period October 8, 1991 (date operations commenced) through October 31, 1991.
OCTOBER 31, APRIL 30, --------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 --------- -------- -------- -------- -------- -------- -------- Net asset value, beginning of period $ 20.46 $ 20.48 $ 17.94 $ 17.69 $ 16.73 $ 15.77 $ 15.15 - -------------------------------- ------- -------- -------- -------- -------- -------- ------- Income from investment operations: Net investment income 0.08 0.17 0.10 0.17 0.16 0.14 0.01 - -------------------------------- ------- -------- -------- -------- -------- -------- ------- Net gains (losses) on securities (both realized and unrealized) 1.02 2.52 4.35 0.58 0.93 0.99 0.61 - -------------------------------- ------- -------- -------- -------- -------- -------- ------- Total from investment operations 1.10 2.69 4.45 0.75 1.09 1.13 0.62 - -------------------------------- ------- -------- -------- -------- -------- -------- ------- Less distributions: Dividends from net investment income (0.15) -- (0.13) (0.17) (0.13) (0.08) -- - -------------------------------- ------- -------- -------- -------- -------- -------- ------- Distributions from capital gains (2.24) (2.71) (1.78) (0.33) -- (0.09) -- - -------------------------------- ------- -------- -------- -------- -------- -------- ------- Total distributions (2.39) (2.71) (1.91) (0.50) (0.13) (0.17) -- - -------------------------------- ------- -------- -------- -------- -------- -------- ------- Net asset value, end of period $ 19.17 $ 20.46 $ 20.48 $ 17.94 $ 17.69 $ 16.73 $ 15.77 ================================ ======= ======== ======== ======== ======== ======== ======= Total return(a) 5.93% 15.34% 28.69% 4.37% 6.53% 7.16% 4.09% ================================ ======= ======== ======== ======== ======== ======== ======= Ratios/supplemental data: Net assets, end of period (000s omitted) $63,453 $ 60,483 $ 54,332 $ 40,486 $ 39,821 $ 16,519 $ 3,926 ================================ ======= ======== ======== ======== ======== ======== ======= Ratio of expenses to average net assets(b) 0.65%(c)(d) 0.65% 0.70% 0.65% 0.78% 0.82% 0.90%(e) ================================ ======= ======== ======== ======== ======== ======== ======= Ratio of net investment income to average net assets(f) 0.49%(c) 0.80% 0.45% 1.00% 0.97% 0.91% 1.00%(e) ================================ ======= ======== ======== ======== ======== ======== ======= Portfolio turnover rate 68% 159% 139% 136% 109% 37% 46% ================================ ======= ======== ======== ======== ======== ======== ======= Average broker commission rate paid(g) $0.0622 $ 0.0615 N/A N/A N/A N/A N/A ================================ ======= ======== ======== ======== ======== ======== ======= Borrowings for the period: Amount of debt outstanding at end of period (000s omitted) -- -- -- -- -- -- -- ================================ ======= ======== ======== ======== ======== ======== ======= Average amount of debt outstanding during the period (000s omitted)(h) -- -- $ 6 -- -- -- -- ================================ ======= ======== ======== ======== ======== ======== ======= Average number of shares outstanding during the period (000s omitted)(h) 3,203 2,908 2,526 2,256 1,826 707 249 ================================ ======= ======== ======== ======== ======== ======== ======= Average amount of debt per share during the period -- -- $ 0.0024 -- -- -- -- ================================ ======= ======== ======== ======== ======== ======== =======
(a) For periods less than one year, total return is not annualized. (b) After waiver of advisory fees. Ratios of expenses to average net assets prior to waiver of advisory fees were 0.66% (annualized), 0.68%, 0.72%, 0.68%, 0.81%, and 0.84% for the periods 1997-1992, respectively. (c) Ratios are annualized and based on average net assets of $63,238,088. (d) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the ratio of expenses to average net assets would have remained the same. (e) Annualized. (f) Ratios of net investment income to average net assets prior to waiver of advisory fees were 0.48% (annualized), 0.77%, 0.43%, 0.98%, 0.94%, and 0.89% for the periods 1997-1992, respectively. (g) Disclosure requirement beginning with the Fund's fiscal year ending October 31, 1996. (h) Averages computed on a daily basis. 47 W E I N G A R T E N 50 SUPPLEMENTAL PROXY INFORMATION - -------------------------------------------------------------------------------- The Annual Meeting of Shareholders of the AIM Equity Funds, Inc. (the "Company") was held on February 7, 1997 at the offices of A I M Management Group Inc., 11 Greenway Plaza, Houston, Texas. The meeting was held for the following purposes: (1) To elect Directors as follows: Charles T. Bauer, Bruce L. Crockett, Owen Daly II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F. Pennock, Ian W. Robinson and Louis S. Sklar. (2) To approve a new Master Investment Advisory Agreement between the AIM Constellation Fund (the "Fund") and A I M Advisors, Inc. (3) To approve a new Sub-Advisory Agreement between AIM and A I M Capital Management, Inc. (4) To approve the elimination of the fundamental investment policy prohibiting the Fund from investing in other investment companies. (5) To approve the elimination of the fundamental investment policy prohibiting or restricting the Fund's investments in puts, calls, straddles and spreads. (6) To ratify the selection of KPMG Peat Marwick LLP as independent accountants for the Fund for the Company's fiscal year ending October 31, 1997. The results of the proxy solicitation on the above matters were as follows:
Votes Director/Matter Votes For Against Abstentions --------------- --------- ------- ----------- (1) Charles T. Bauer............................................ 618,811,245 0 19,923,485 Bruce L. Crockett........................................... 619,427,685 0 19,307,045 Owen Daly II................................................ 618,919,919 0 19,814,811 Carl Frischling............................................. 619,275,356 0 19,459,374 Robert H. Graham............................................ 619,431,576 0 19,303,154 John F. Kroeger............................................. 618,878,096 0 19,856,634 Lewis F. Pennock............................................ 619,272,998 0 19,461,732 Ian W. Robinson............................................. 618,944,840 0 19,789,890 Louis S. Sklar.............................................. 619,462,714 0 19,272,016 (2) Approval of Master Investment Advisory Agreement............ 146,733,416 2,498,355 6,552,908 (3) Approval of Sub-Advisory Agreement.......................... 146,153,496 2,885,840 6,745,343 (4) Elimination of Fundamental Investment Policy Concerning Investments in Other Investment Companies................... 111,841,005 5,168,602 6,908,560 (5) Elimination of Fundamental Investment Policy concerning Puts, Calls, Straddles and Spreads.......................... 110,091,179 6,531,415 7,295,571 (6) KPMG Peat Marwick LLP....................................... 609,690,634 5,519,782 23,524,314
48 W E I N G A R T E N 51 Directors & Officers Board of Directors OFFICERS OFFICE OF THE FUND Charles T. Bauer Charles T. Bauer 11 Greenway Plaza Chairman Chairman Suite 100 A I M Management Group Inc. Houston, TX 77046 Robert H. Graham Bruce L. Crockett President INVESTMENT ADVISOR Formerly Director, President, and Chief Executive Officer John J. Arthur A I M Advisors, Inc. COMSAT Corporation Senior Vice President and Treasurer 11 Greenway Plaza Suite 100 Owen Daly II Gary T. Crum Houston, TX 77046 Director Senior Vice President Cortland Trust Inc. TRANSFER AGENT Scott G. Lucas Jack Fields Senior Vice President A I M Institutional Fund Formerly Member of the Services, Inc. U.S. House of Representatives Carol F. Relihan 11 Greenway Plaza Senior Vice President Suite 100 Carl Frischling and Secretary Houston, TX 77046 Partner Kramer, Levin, Naftalis & Frankel Jonathan C. Schoolar CUSTODIAN Senior Vice President Robert H. Graham State Street Bank & Trust President and Chief Executive Officer Melville B. Cox 225 Franklin Street A I M Management Group Inc. Vice President Boston, MA 02110 John F. Kroeger Dana R. Sutton COUNSEL TO THE FUND Formerly Consultant Vice President and Assistant Treasurer Wendell & Stockel Associates, Inc. Ballard Spahr P. Michelle Grace Andrews & Ingersoll Lewis F. Pennock Assistant Secretary 1735 Market Street Attorney Philadelphia, PA 19103 David L. Kite Ian W. Robinson Assistant Secretary COUNSEL TO THE DIRECTORS Consultant; Formerly Executive Vice President and Nancy L. Martin Kramer, Levin, Naftalis & Frankel Chief Financial Officer Assistant Secretary 919 Third Avenue Bell Atlantic Management New York, NY 10022 Services, Inc. Ofelia M. Mayo Assistant Secretary DISTRIBUTOR Louis S. Sklar Executive Vice President Kathleen J. Pflueger Fund Management Company Hines Interests Assistant Secretary 11 Greenway Plaza Limited Partnership Suite 100 Samuel D. Sirko Houston, TX 77046 Assistant Secretary Stephen I. Winer Assistant Secretary Mary J. Benson Assistant Treasurer
AIM Weingarten Fund 52 [LOGO APPEARS HERE] ---------------- BULK RATE FUND MANAGEMENT COMPANY U.S. POSTAGE 11 Greenway Plaza, Suite 100 PAID Houston, TX 77046-1188 HOUSTON, TX Permit No. 1919 ---------------- -----END PRIVACY-ENHANCED MESSAGE-----