<PAGE> 1
*******************************************************************************
* *
* The information in this prospectus is not complete and may be changed. We *
* may not sell these securities until the registration statement filed with *
* the Securities and Exchange Commission is effective. This prospectus is *
* not an offer to sell these securities and is not soliciting an offer to *
* buy these securities in any state where the offer or sale is not permitted. *
* *
*******************************************************************************
SUBJECT TO COMPLETION--DATED AUGUST 20, 1999
AIM LARGE CAP OPPORTUNITIES FUND
------------------------------------------------------------------------
AIM Large Cap Opportunities Fund seeks long-term growth of capital.
PROSPECTUS
SEPTEMBER 27, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered trademark--
<PAGE> 2
--------------------------------
AIM LARGE CAP OPPORTUNITIES FUND
--------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-5
Pricing of Shares A-6
Taxes A-6
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design and AIM Investor are service marks of A I M Management Group
Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 3
--------------------------------
AIM LARGE CAP OPPORTUNITIES FUND
--------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. The fund's
investment objective may be changed by the fund's Board of Trustees without
shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of
its total assets in securities of companies involving a special opportunity,
i.e., an unusual development in a company or group of companies. A special
opportunity may involve: 1) a technological advance or discovery, the offering
of a new or unique product or service, or changes in consumer demand or
consumption forecasts; 2) changes in the competitive outlook or growth potential
of an industry or a company within an industry, including changes in scope or
nature of foreign competition or development of an emerging industry; 3) new or
changed management, or material changes in management policies or corporate
structure; 4) significant economic or political occurrences, including changes
in foreign or domestic import and tax laws or other regulations; or 5) other
events, including a major change in demographic patterns, favorable litigation
settlements, or natural disasters.
The fund will invest at least 65% of its total assets in equity securities, or
securities convertible into equity securities, of companies with market
capitalizations, at the time of purchase, within the range of market
capitalizations of companies included in the Russell 1000(R), Growth Index. The
Russell 1000(R) Growth Index measures the performance of those securities in the
Russell 1000(R) Index with a greater than average growth orientation. The
Russell 1000(R) Index measures the performance of the 1,000 largest companies in
the Russell 3000(R) Index, which measures the performance of the 3,000 largest
U.S. companies based on total market capitalization. The fund may also invest up
to 25% of its total assets in foreign securities.
The fund may sell put and covered call options, and purchase put and call
options, on securities, securities indices and foreign currencies. An option is
a contract that gives the holder the right to buy (call) or sell (put) a certain
number of shares of a specific security at a specified price (exercise price)
for a limited amount of time. A call option is covered if the fund owns the
shares it would have to deliver if the holder of the call option exercised the
option. The fund may invest in options in order to increase its return and/or to
protect the value of its portfolio. The fund may sell securities short, which
means selling a security it does not yet own in anticipation of purchasing the
same security at a later date at a lower price. The fund may also borrow money
to purchase securities, a practice known as "leveraging."
The portfolio managers purchase securities of companies involving a special
opportunity that they believe have the potential for above-average growth in
revenues and earnings and have favorable prospects for future growth. The
portfolio managers consider whether to sell a particular security when any of
those factors materially changes.
The fund is non-diversified. With respect to 50% of its assets, it is
permitted to invest more than 5% of its assets in the securities of any one
issuer.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash,
money market instruments, bonds or other debt securities. As a result, the fund
may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
If the fund purchases a put or call option that expires without value, the
fund will have incurred an expense in the amount of the cost of the option. If
the fund sells a put option that is exercised, the fund will have to purchase
the security at a price greater than its market value. If the fund sells a call
option that is exercised, the fund will have to sell the security at a price
lower than its market value.
If the fund borrows money to buy securities (leverages) and the prices of
those securities decrease, or if the cost of borrowing exceeds any increases in
the prices of those securities, the net asset value of the fund's shares will
decrease faster than if the fund had not used leverage. To repay borrowings, the
fund may have to sell securities at a time and at a price that is unfavorable to
the fund. Interest on borrowings is an expense the fund would not otherwise
incur.
If the fund sells a security short, and the security increase in value, the
fund will have to pay the higher price to purchase the security. Since there is
no limit on how much the price of the security can increase, the fund's exposure
is unlimited. The more the fund pays to purchase the security, the more it will
lose on the transaction, and the more the price of your shares will be affected.
The fund will also incur transaction costs to engage in this practice.
The values of the convertible securities in which the fund may invest also
will be affected by market interest rates, the risk that the issuer may default
on interest or principal payments and the value of the underlying common stock
into which these securities may be converted. Specifically, since these types of
1
<PAGE> 4
--------------------------------
AIM LARGE CAP OPPORTUNITIES FUND
--------------------------------
convertible securities pay fixed interest and dividends, their values may fall
if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
Because it is non-diversified, the fund may invest in fewer issuers than if it
were a diversified fund. Thus, the value of the fund's shares may vary more
widely, and the fund may be subject to greater market and credit risk, than if
the fund invested more broadly.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE> 5
--------------------------------
AIM LARGE CAP OPPORTUNITIES FUND
--------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00 1.00
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C>
Management Fees [1.00%] [1.00%] [1.00%]
Distribution and/or
Service (12b-1) Fees [0.35] [1.00] [1.00]
Other Expenses(2) [0.48] [0.52] [0.52]
Total Annual Fund
Operating Expenses [1.83%] [2.52%] [2.52%]
- -------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Other expenses are based on estimated amounts for the current fiscal period.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- -------------------------
<S> <C> <C>
Class A [$726] [$1,094]
Class B [755] [1,085]
Class C [355] [785]
- -------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- -------------------------
<S> <C> <C>
Class A [$726] [$1,094]
Class B [255] [785]
Class C [255] [785]
- -------------------------
</TABLE>
3
<PAGE> 6
--------------------------------
AIM LARGE CAP OPPORTUNITIES FUND
--------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
The advisor is to receive a fee from the fund calculated at the annual rate of
1.00% of the first $1 billion of average daily net assets and 0.95% of assets
over $1 billion of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- - Brant H. DeMuth, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1996. From 1992 to 1996, he was Portfolio Manager for Colorado Public
Employee's Retirement Association.
- - Christopher P. Perras, Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1999. From 1997 to 1999, he was an equity analyst for Van Wagoner
Capital Management. From 1995 to 1997, he was Associate Portfolio Manager at
Van Kampen American Capital Asset Management, Inc. From 1993 to 1995, he was
Assistant Portfolio Manager with Hellman, Jordan Management Company.
- - Charles D. Scavone, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1996. From 1994 to 1996, he was Associate Portfolio Manager for Van
Kampen American Capital Asset Management, Inc.
- - Kenneth A. Zschappel, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1990.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Large Cap Opportunities Fund are subject to
the maximum 5.50% initial sales charge as listed under the heading "Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Purchases of Class B and Class C shares are subject to the
contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
[The fund generally declares and pays dividends, if any, annually.]
CAPITAL GAINS DISTRIBUTIONS
[The fund generally distributes long-term and short-term capital gains
(including any net gains from foreign currency transactions), if any, annually.]
4
<PAGE> 7
AIM SPECIAL OPPORTUNITIES FUNDS
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund (the Special Opportunities Funds).
CHOOSING A SHARE CLASS
The Special Opportunities Funds have multiple classes of shares, each class
representing an interest in the same portfolio of investments. When choosing a
share class, you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases(1) charge on redemptions within charge on redemptions within
six years one year(1)
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Small Cap Opportunities Fund will not accept any single purchase
order in excess of $250,000.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
The Special Opportunities Funds have adopted 12b-1 plans that allow them to pay
distribution fees to A I M Distributors, Inc. (the distributor) for the sale and
distribution of their shares and fees for services provided to shareholders, all
or a substantial portion of which are paid to the dealer of record. Because the
Special Opportunities Funds pay these fees out of their assets on an ongoing
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
A- 1 SOF--07/99
<PAGE> 8
AIM SPECIAL OPPORTUNITIES FUNDS
SALES CHARGES
Sales charges on the Special Opportunities Funds are detailed below. As used
below, the term "offering price" with respect to Class A shares includes the
initial sales charge.
INITIAL SALES CHARGES
The Special Opportunities Funds are subject to the following initial sales
charges:
<TABLE>
<CAPTION>
INVESTOR'S
SALES CHARGE
------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount, they will be subject to a
contingent deferred sales charge (CDSC) of 1% if you redeem them prior to 18
months after the date of purchase. The distributor may pay a dealer concession
and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- -----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- -----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of the AIM Funds during a 13-month period. The amount you
agree to purchase determines the initial sales charge you pay. If the full face
amount of the LOI is not invested by the end of the 13-month period, your
account will be adjusted to the higher initial sales charge level for the amount
actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the Fund's Statement of Additional
Information for details.
SOF--07/99 A- 2
<PAGE> 9
AIM SPECIAL OPPORTUNITIES FUNDS
PURCHASING SHARES
MINIMUM INVESTMENTS PER SPECIAL OPPORTUNITIES FUND ACCOUNT
The minimum initial investment for Special Opportunities Fund accounts is
$10,000. The minimum subsequent investment is $1,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed Account Application Mail your check and the remittance
and purchase payment to the transfer slip from your confirmation statement
agent, to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M Fund
Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the transfer
agent to place your purchase order.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the Special Opportunities
Funds by authorizing the Fund to withdraw the amount of your investment from
your bank account on a day or dates you specify and in an amount of at least
$1,000. You may stop the Automatic Investment Plan at any time by giving the
transfer agent notice ten days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from your Special Opportunities Fund account to one or
more other AIM Fund accounts with the identical registration. The account from
which exchanges are to be made must have a minimum balance of $5,000 before you
can use this option. Exchanges will occur on (or about) the 10th or 25th day of
the month, whichever you specify, in the amount you specify. The minimum amount
you can exchange to another Special Opportunities Fund is $1,000. The minimum
amount you can exchange to any other AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual
A- 3 SOF--07/99
<PAGE> 10
AIM SPECIAL OPPORTUNITIES FUNDS
basis. Your portfolio will be rebalanced through the exchange of shares in one
or more of your AIM Funds for shares of the same class of one or more other AIM
Funds in your portfolio. If you wish to participate in the Program, make changes
or cancel the Program, the transfer agent must receive your request to
participate, changes, or cancellation in good order at least five business days
prior to the next rebalancing date, which is normally the 28th day of the last
month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM Funds-sponsored
retirement plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans,
401(k) plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit
Sharing plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
SOF--07/99 A- 4
<PAGE> 11
AIM SPECIAL OPPORTUNITIES FUNDS
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares, reinvest all or part of
your redemption proceeds in Class A shares of any AIM Fund at net asset value in
an identically registered account. In addition, if you paid a contingent
deferred sales charge (CDSC) on any reinstated amount, you will not be subject
to a CDSC if you later redeem that amount. You must notify the transfer agent in
writing at the time you reinstate that you are exercising your reinstatement
privilege. You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You also may exchange Class A shares you own for
AIM Cash Reserve Shares of AIM Money Market Fund.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares of the Special Opportunities Funds for Class A shares of
another AIM Fund or AIM Cash Reserve Shares of AIM Money Market Fund; or
(2) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum and maximum purchase requirements for the AIM Fund
into which you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - Because excessive short-term trading or market-timing activity can hurt fund
performance, you are limited to a maximum of 10 exchanges per calendar year.
If you exceed that limit, or if an AIM Fund or the distributor determines, in
its sole discretion, that your short-term trading is excessive or that you are
engaging in market-timing activity, it may reject any additional exchange
orders. An exchange is the movement out of (redemption of) one AIM Fund and
into (purchase of) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially
A- 5 SOF--07/99
<PAGE> 12
AIM SPECIAL OPPORTUNITIES FUNDS
disadvantaged by the immediate transfer of exchange proceeds. There is no fee
for exchanges. The exchange privilege is not an option or right to purchase
shares. Any of the participating AIM Funds or the distributor may modify or
discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange and redemption orders at
the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
SOF--07/99 A- 6
<PAGE> 13
--------------------------------
AIM LARGE CAP OPPORTUNITIES FUND
--------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services,
Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
AIM Large Cap Opportunities Fund
SEC 1940 Act file number: 811-08697
[AIM LOGO APPEARS HERE] www.aimfunds.com LCO-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 14
**************************************************************************
* *
* The information in this Statement of Additional Information is not *
* complete and may be changed. We may not sell these securities until *
* the registration statement filed with the Securities and Exchange *
* Commission is effective. This Statement of Additional Information *
* is not an offer to sell these securities and is not soliciting an *
* offer to buy these securities in any state where the offer or sale *
* is not permitted. *
* *
**************************************************************************
SUBJECT TO COMPLETION DATED AUGUST 20, 1999
STATEMENT OF
ADDITIONAL INFORMATION
AIM LARGE CAP OPPORTUNITIES FUND
AIM MID CAP OPPORTUNITIES FUND
AIM SMALL CAP OPPORTUNITIES FUND
(SERIES PORTFOLIOS OF
AIM SPECIAL OPPORTUNITIES FUNDS)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
----------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IT SHOULD BE READ IN CONJUNCTION WITH
A PROSPECTUS OF THE ABOVE-NAMED FUNDS,
A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE
FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TX 77210-4739
OR BY CALLING (800) 347-4246.
----------------------
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 27, 1999
RELATING TO THE AIM LARGE CAP OPPORTUNITIES FUND PROSPECTUS DATED
SEPTEMBER 27, 1999,
THE AIM MID CAP OPPORTUNITIES FUND PROSPECTUS DATED SEPTEMBER 27, 1999
AND THE AIM SMALL CAP OPPORTUNITIES FUND PROSPECTUS DATED SEPTEMBER 27, 1999
<PAGE> 15
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION..........................................................................1
GENERAL INFORMATION ABOUT THE TRUST...................................................1
The Trust and Its Shares.....................................................1
PERFORMANCE...........................................................................3
Total Return Quotations......................................................4
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................................5
General Brokerage Policy.....................................................5
Allocation of Portfolio Transactions.........................................6
Section 28(e) Standards......................................................6
Transactions with Regular Brokers............................................7
Brokerage Commissions Paid...................................................7
Portfolio Turnover...........................................................7
INVESTMENT STRATEGIES AND RISKS.......................................................8
Equity Securities............................................................8
Common Stocks................................................................8
Preferred Stocks.............................................................8
Convertible Securities.......................................................9
Foreign Securities...........................................................9
Risk Factors Regarding Foreign Securities...................................10
Foreign Exchange Transactions...............................................10
Rule 144A Securities........................................................11
Lending of Portfolio Securities.............................................11
Repurchase Agreements.......................................................12
Reverse Repurchase Agreements...............................................12
Real Estate Investment Trusts...............................................12
Borrowings and Leverage.....................................................13
Special Situations..........................................................13
Investment in Unseasoned Issuers............................................13
Temporary Defensive Investments.............................................13
HEDGING AND OTHER INVESTMENT TECHNIQUES..............................................14
Warrants................................................................... 16
Short Sales.................................................................18
INVESTMENT RESTRICTIONS..............................................................19
Fundamental Restrictions....................................................19
Non-fundamental Restrictions................................................21
MANAGEMENT...........................................................................22
Trustees and Officers.......................................................22
Remuneration of Trustees...........................................25
AIM Funds Retirement Plan for Eligible Directors/Trustees..........26
Deferred Compensation Agreements...................................27
Investment Advisory and Administrative Services Agreements..................27
THE DISTRIBUTION PLANS...............................................................29
The Class A and C Plan......................................................29
The Class B Plan............................................................29
</TABLE>
i
<PAGE> 16
<TABLE>
<S> <C>
Both Plans..................................................................29
THE DISTRIBUTOR......................................................................34
SALES CHARGES AND DEALER CONCESSIONS.................................................35
REDUCTIONS IN INITIAL SALES CHARGES..................................................37
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS..........................................41
HOW TO PURCHASE AND REDEEM SHARES....................................................43
NET ASSET VALUE DETERMINATION........................................................43
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.............................................44
Reinvestment of Dividends and Distributions.................................44
Tax Matters.................................................................44
Qualification as a Regulated Investment Company.............................45
Investment in Foreign Financial Instruments.................................46
Hedging Transactions........................................................46
Excise Tax on Regulated Investment Companies................................47
Fund Distributions..........................................................47
Sale or Redemption of Shares................................................49
Foreign Shareholders........................................................49
Effect of Future Legislation; Local Tax Considerations......................50
SHAREHOLDER INFORMATION..............................................................50
MISCELLANEOUS INFORMATION............................................................52
Audit Reports...............................................................52
Legal Matters...............................................................52
Custodian and Transfer Agent................................................52
Control Persons and Principal Holders of Securities.........................53
Other Information...........................................................54
APPENDIX ............................................................................55
Description of Commercial Paper Ratings.....................................55
Description of Corporate Bond Ratings.......................................55
FINANCIAL STATEMENTS.................................................................FS
</TABLE>
ii
<PAGE> 17
INTRODUCTION
AIM Special Opportunities Funds (the "Trust") is a series mutual fund. The
rules and regulations of the Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors certain information
concerning the activities of the fund being considered for investment. This
information is included in a prospectus, dated September 27, 1999, which relates
to AIM Large Cap Opportunities Fund ("Large Cap"), a separate prospectus, dated
September 27, 1999, which relates to AIM Mid Cap Opportunities Fund ("Mid Cap"),
and a separate prospectus, dated September 27, 1999, which relates to AIM Small
Cap Opportunities Fund ("Small Cap"). Copies of the Large Cap, Mid Cap and Small
Cap prospectuses (each a "Prospectus" and collectively, the "Prospectuses") and
additional copies of this Statement of Additional Information may be obtained
without charge by writing the principal distributor of the Fund's shares, A I M
Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston, TX 77210-4739
or by calling (800) 347-4246. Investors must receive a Prospectus before they
invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning Large Cap, Mid Cap and Small
Cap. Some of the information required to be in this Statement of Additional
Information is also included in the Prospectuses, and in order to avoid
repetition, reference will be made herein to sections of the Prospectuses.
Additionally, the Prospectuses and this Statement of Additional Information omit
certain information contained in the Trust's Registration Statement filed with
the SEC. Copies of the Registration Statement, including items omitted from the
Prospectuses and this Statement of Additional Information, may be obtained from
the SEC by paying the charges described under its rules and regulations.
GENERAL INFORMATION ABOUT THE TRUST
THE TRUST AND ITS SHARES
The Trust is organized as a Delaware business trust pursuant to an Amended
and Restated Agreement and Declaration of Trust, dated November 5, 1998, as
amended (the "Trust Agreement"). The Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company, and may consist of one or more series portfolios
with one or more classes as authorized from time to time by the Board of
Trustees. Large Cap, Mid Cap and Small Cap (each a "Fund" and collectively, the
"Funds") are series portfolios of the Trust. Under the Trust Agreement, the
Board of Trustees is authorized to create new series of shares without the
necessity of a vote of shareholders of the Trust. The Trust was initially
created with one series portfolio, Small Cap. The Trust Agreement was amended on
August 10, 1998 to create Mid Cap and on July 13, 1999 to create Large Cap.
Shares of beneficial interest of the Trust are redeemable at their net
asset value at the option of the shareholder or at the option of the Trust in
certain circumstances. For information concerning the methods of redemption,
investors should consult the Prospectuses under the caption "Redeeming Shares."
The assets received by the Trust from the issue or sale of shares of each
of its series of shares and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors, are specifically allocated to the
appropriate Fund. They constitute the underlying assets of each Fund, are
required to be segregated on the Trust's books of account, and are to be charged
with the expenses of such Fund and its relative classes. Any general expenses of
the Trust not readily identified as belonging to a particular Fund are allocated
by or under the direction of the Board of Trustees, primarily on the basis of
relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in that
Fund with each other share and is entitled to such dividends and distributions
out of the income belonging to such Fund as are declared by the Board of
Trustees of the Trust. Each Fund offers three separate classes of shares as
follows: Class A shares, Class B shares and Class C shares. Each such class
represents interests in the same portfolio of investments but, as further
described in the Prospectuses, each such class is subject to differing sales
charges and expenses, which differences will result in differing net asset
values and dividends and distributions. Upon
1
<PAGE> 18
any liquidation of the Trust, shareholders of each class are entitled to share
pro rata in the net assets belonging to the applicable Fund allocable to such
class available for distribution after satisfaction of outstanding liabilities
of the Fund allocable to such class.
Class A shares, Class B shares and Class C shares of the same Fund
represent interests in that Fund's assets and have identical voting, dividend,
liquidation and other rights on the same terms and conditions, except that each
class of shares bears differing class-specific expenses, is subject to differing
sales loads, conversion features and exchange privileges, and has exclusive
voting rights on matters pertaining to that class's distribution plan (although
shareholders of Class A shares and Class B shareholders of a given Fund must
approve any material increase in fees payable with respect to the Class A shares
of such Fund under the Class A and C Plan).
Shareholders of the Funds are entitled to one vote per share (with
proportionate voting for fractional shares), irrespective of the relative net
asset value of the Class A shares, Class B shares and Class C shares of the
Funds. However, on matters affecting one portfolio of the Trust or one class of
shares, a separate vote of shareholders of that class is required. Shareholders
of a class are not entitled to vote on any matter which does not affect that
class but which requires a separate vote of another class. An example of a
matter which would be voted on separately by shareholders of a class of shares
is approval of a distribution plan. When issued, shares of the Funds are fully
paid and nonassessable, have no preemptive or subscription rights, and are fully
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights. Shareholders of the Funds do not have
cumulative voting rights, which means that in situations in which shareholders
elect trustees, holders of more than 50% of the outstanding shares of all Funds
voting together for election of trustees may elect all of the members of the
Board of Trustees of the Trust. In such event, the remaining holders cannot
elect any trustees of the Trust.
The term "majority of the outstanding shares" of the Trust, of a particular
Fund or a particular class of a Fund means, respectively, the vote of the lesser
of (a) 67% or more of the shares of the Trust, Fund or such class present at a
meeting of the Trust's shareholders, if the holders of more than 50% of the
outstanding shares of the Trust, such Fund or such class are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust or such Fund or such class.
The Trust is not required to hold annual or regular meetings of
shareholders. Meetings of shareholders of the Funds will be held from time to
time to consider matters requiring a vote of such shareholders in accordance
with the requirements of the 1940 Act, state law or the provisions of the Trust
Agreement. It is not expected that shareholder meetings will be held annually.
The Trust Agreement provides that the trustees of the Trust shall hold
office during the existence of the Trust, except as follows: (a) any trustee may
resign or retire; (b) any trustee may be removed by a vote of at least
two-thirds of the outstanding shares of the Trust, or at any time by written
instrument signed by at least two-thirds of the trustees and specifying when
such removal becomes effective; or (c) any trustee who has died or become
incapacitated and is unable to serve may be removed by a written instrument
signed by a majority of the trustees.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a Fund would be unable to meet its obligations
and wherein the complaining party was held not to be bound by the disclaimer.
2
<PAGE> 19
The Trust Agreement further provides that the trustees and officers will
not be liable for any act, omission or obligation of the Trust or any trustee or
officer. However, nothing in the Trust Agreement protects a trustee or officer
against any liability to the Trust or to the shareholders to which a trustee or
officer would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his or her office with the Trust. The Trust Agreement provides for
indemnification by the Trust of the trustees, the officers and employees or
agents of the Trust, if it is determined that such person acted in good faith
and reasonably believed: (1) in the case of conduct in his or her official
capacity for the Trust, that his or her conduct was in the Trust's best
interests, (2) in all other cases, that his or her conduct was at least not
opposed to the Trust's best interests and (3) in a criminal proceeding, that he
or she had no reason to believe that his or her conduct was unlawful. Such
person may not be indemnified against any liability to the Trust or to the
Trust's shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office. The Trust Agreement also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
PERFORMANCE
Each Fund's performance may be quoted in advertising in terms of total
return. All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of the Funds' shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Additional performance
information is contained in a Fund's Annual Report to Shareholders, which is
available upon request and without charge.
Each Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the maximum initial sales charge at
the time of purchase. Standardized total return for Class B and Class C shares
reflects the deduction of the maximum applicable contingent deferred sales
charge on a redemption of shares held for the period. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
investment in a Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. BECAUSE AVERAGE
ANNUAL RETURNS TEND TO EVEN OUT VARIATIONS IN A FUND'S RETURN, INVESTORS SHOULD
REALIZE THAT A FUND'S PERFORMANCE IS NOT CONSTANT OVER TIME, BUT CHANGES FROM
YEAR TO YEAR, AND THAT AVERAGE ANNUAL RETURNS DO NOT REPRESENT THE ACTUAL
YEAR-TO-YEAR PERFORMANCE OF A FUND.
In addition to average annual returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph or similar illustration. Total returns may be
quoted with or without taking a Fund's maximum applicable Class A front-end
sales charge or Class B or Class C contingent deferred sales charge into
account. Excluding sales charges from a total return calculation produces a
higher total return figure.
From time to time, A I M Advisors, Inc. ("AIM") or its affiliates may waive
all or a portion of their fees and/or assume certain expenses of any Fund.
Voluntary fee waivers or reductions or commitments to assume expenses may be
rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions or commitments to assume expenses, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions or reimbursements of expenses
3
<PAGE> 20
set forth in the Fee Table in a Prospectus may not be terminated or amended to
the Funds' detriment during the period stated in the agreement between AIM and
the Fund. Fee waivers or reductions or commitments to reduce expenses will have
the effect of increasing that Fund's yield and total return.
The performance of each Fund will vary from time to time and past results
are not necessarily indicative of future results. A Fund's performance is a
function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in any Fund.
A Fund's performance may be compared in advertising to the performance of
other mutual funds in general, or of particular types of mutual funds,
especially those with similar objectives. Such performance data may be prepared
by Lipper Incorporated and other independent services which monitor the
performance of mutual funds. The Funds may also advertise mutual fund
performance rankings which have been assigned to the Funds by such monitoring
services.
A Fund's performance may also be compared in advertising and other
materials to the performance of comparative benchmarks such as the Consumer
Price Index ("CPI"), the Standard & Poor's 500 Stock Index, and fixed-price
investments such as bank certificates of deposit and/or savings accounts.
The CPI, published by the U.S. Bureau of Labor Statistics, is a statistical
measure of changes, over time, in the prices of goods and services. Standard &
Poor's 500 Stock Index is a group of unmanaged securities widely regarded by
investors as representative of the stock market in general. Comparisons assume
the reinvestment of dividends. Fixed Price Investments, such as bank
certificates of deposits and savings accounts, are generally backed by federal
agencies for up to $100,000. Shares of a Fund are not insured and their value
will vary with market conditions.
In addition, a Fund's long-term performance may be described in advertising
in relation to historical, political and/or economic events. A Fund's
advertising may from time to time include discussions of general economic
conditions and interest rates. A Fund's advertising may also include references
to the use of the Fund as part of an individual's overall retirement investment
program.
From time to time, the Funds' sales literature and/or advertisements may
disclose (i) top holdings included in a Fund's portfolio, (ii) certain selling
group members, and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. These topics
include, but are not limited to, literature addressing general information about
mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money
markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning and inflation.
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return is as follows:
n
P(1+T) = ERV
where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable
maximum sales load is deducted at the beginning of the 1,
5 or 10 year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the 1, 5 or 10 year periods (or fractional
portion of such period).
4
<PAGE> 21
The average annual total returns of Mid Cap and Small Cap were as follows:
CLASS A AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
MID CAP [ %] [ %]
SMALL CAP [ %] [ %]
</TABLE>
* The inception dates for the Class A shares of the Funds are December 30,
1998 and June 29, 1998, respectively.
CLASS B AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
MID CAP N/A N/A
SMALL CAP [ %] [ %]
</TABLE>
* The inception date for Class B shares of Small Cap is July 13, 1998.
Class B shares of Mid Cap are not currently available.
CLASS C AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since
One Year Inception*
-------- ----------
<S> <C> <C>
MID CAP [ %] [ %]
SMALL CAP [ %] [ %]
</TABLE>
* Inception date for the Class C shares of Small Cap is December 30, 1998.
Class C shares of Mid Cap are not currently available.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for each Fund, selects
broker-dealers, effects the Funds' investment portfolio transactions, allocates
brokerage fees in such transactions, and where applicable, negotiates
commissions and spreads on transactions. AIM's primary consideration in
effecting a security transaction is to obtain the most favorable execution of
the order, which includes the best price on the security and a low commission
rate. While AIM seeks reasonably competitive commission rates, the Funds may not
pay the lowest commission or spread available. See "Section 28(e) Standards"
below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. In such transactions, a Fund deals directly with
dealers who make markets in the securities involved, except when better prices
are available elsewhere. Portfolio transactions placed through dealers who are
primary market makers are effected at net prices without commissions, but which
include compensation in the form of a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock markets
outside the United States. Although in recent years many overseas stock markets
have adopted a system of negotiated rates, a number of markets maintain an
established schedule of minimum commission rates.
5
<PAGE> 22
AIM may determine target levels of commission business with various brokers
on behalf of its clients (including the Funds) over a certain time period. The
target levels will be based upon the following factors, among others: (1) the
execution services provided by the broker; (2) the research services provided by
the broker; and (3) the broker's interest in mutual funds in general and in the
Funds and other mutual funds advised by AIM or A I M Capital Management, Inc.
(collectively, the "AIM Funds") in particular, including sales of the Funds and
of the other AIM Funds. In connection with (3) above, the Funds' trades may be
executed directly by dealers that sell shares of the AIM Funds or by other
broker-dealers with which such dealers have clearing arrangements. AIM will not
use a specific formula in connection with any of these considerations to
determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a Fund
any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which AIM can recapture are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of a Fund, provided the conditions of an exemptive order received by
the Funds from the SEC are met. In addition, a Fund may purchase or sell a
security from or to another AIM Fund provided the Funds follow procedures
adopted by the Board of Directors/Trustees of the various AIM Funds, including
the Trust. These inter-fund transactions do not generate brokerage commissions
but may result in custodial fees or taxes or other related expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some of
these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another AIM Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to a Fund. In making such allocations,
AIM considers the investment objectives and policies of its advisory clients,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the judgments of the persons responsible for recommending
the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
6
<PAGE> 23
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's Trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communication of trade information, the providing of
custody services, as well as the providing of equipment used to communicate
research information, the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other research services, the arranging of meetings with management
of companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the broker-dealers
used by AIM tend to follow a broader universe of securities and other matters
than AIM's staff can follow. In addition, the research provides AIM with a
diverse perspective on financial markets. Research services provided to AIM by
broker-dealers are available for the benefit of all accounts managed or advised
by AIM or by its affiliates. Some broker-dealers may indicate that the provision
of research services is dependent upon the generation of certain specified
levels of commissions and underwriting concessions by AIM's clients, including
the Funds. However, the Funds are not under any obligation to deal with any
broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
TRANSACTIONS WITH REGULAR BROKERS
As of July 31, 1999, Mid Cap and Small Cap entered into repurchase
agreements with the following regular broker, Goldman Sachs & Co., as that term
is defined in Rule 10b-1 under the 1940 Act, having the noted market value of
$[ ] and $[ ], respectively.
BROKERAGE COMMISSIONS PAID
For the fiscal period or year ended July 31, 1999, Mid Cap and Small Cap
paid brokerage commissions of $[ ] and $[ ], respectively. For the fiscal
period or year ended July 31, 1999, AIM allocated certain of Mid Cap and Small
Cap's brokerage transactions to certain broker-dealers that provided AIM with
certain research, statistical and other information. Such transactions amounted
to $[ ] and $[ ], respectively, and the related brokerage commissions were
$[ ].
PORTFOLIO TURNOVER
Any particular security will be sold, and the proceeds reinvested, whenever
such action is deemed prudent from the viewpoint of each Fund's investment
objectives, regardless of the holding period of that security. Under normal
market conditions, Mid Cap and Small Cap expect that the portfolio turnover rate
will be no more than 150%. Large Cap expects that the portfolio turnover rate
will be more than 150%. Higher portfolio turnover involves corresponding greater
transaction costs which are borne directly by the Funds, and may increase
capital gains which are taxable as ordinary income when distributed to
shareholders. Changes in the portfolio holdings are made without regard to
whether a sale would result in a profit or loss.]
7
<PAGE> 24
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment strategies and risks supplements the
discussion of the investment strategies and risks set forth in the Prospectus of
each Fund under the headings "Investment Objective and Strategies" and
"Principal Risks of Investing in the Fund." The investment objectives of Mid Cap
and Small Cap are deemed to be fundamental policies and, therefore, unless
permitted by law, may not be changed without the approval of a majority of each
Fund's outstanding shares (within the meaning of the 1940 Act.) The investment
objective of Large Cap is non-fundamental and may be changed without shareholder
approval. Each Fund's investment policies, strategies and practices are not
fundamental. The Board of Trustees of the Trust reserves the right to change any
of these non-fundamental investment policies, strategies or practices without
shareholder approval. The Funds have adopted investment restrictions, some of
which are fundamental and cannot be changed without shareholder approval. See
"Investment Restrictions" herein. Individuals considering the purchase of shares
of the Funds should recognize that there are risks in the ownership of any
security and that no assurance can be given that the Funds will achieve their
investment objectives.
The Funds are non-diversified portfolios (as defined in the 1940 Act),
which means that each Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and therefore may be subject to
greater market and credit risk than a more broadly diversified portfolio. (A
diversified portfolio may not, with respect to 75% of its total assets, invest
more than 5% of its assets in obligations of one issuer.) The Funds intend to
satisfy the diversification requirements of the Internal Revenue Code to qualify
as a regulated investment company. See "Dividends, Distributions and Tax
Matters" herein.
EQUITY SECURITIES
Each Fund will invest primarily in equity securities. While the Funds may
invest in securities of companies of varying market capitalization, it is
anticipated that Large Cap will be invested primarily in securities of large
capitalization companies, Mid Cap will be invested primarily in securities of
medium market capitalization companies, and Small Cap will be invested primarily
in securities of small capitalization companies. Small capitalization companies
may be in the early stages of development, have limited product lines, markets,
or financial resources, and/or lack management depth. These companies may be
more impacted by intense competition from larger companies, and the trading
market for their securities may be less liquid and more volatile. As a result,
investments in small companies involve greater risk than investments in larger,
more established companies, and the net asset value of funds that invest in
small companies may fluctuate more widely than other funds that do not so invest
or stock market indices such as the Dow Jones Industrial Average or the Standard
& Poor's 500 Stock Index.
COMMON STOCKS
The Funds will invest in common stocks. Common stocks represent the
residual ownership interest in the issuer and are entitled to the income and
increase in the value of the assets and business of the entity after all of its
obligations and preferred stocks are satisfied. Common stocks generally have
voting rights. Common stocks fluctuate in price in response to many factors
including historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions and
market liquidity.
PREFERRED STOCKS
The Funds may invest in preferred stocks. Preferred stock has a preference
over common stock in liquidation (and generally dividends as well) but is
subordinated to the liabilities of the issuer in all respects. As a general rule
the market value of preferred stock with a fixed dividend rate and no conversion
element varies inversely with interest rates and perceived credit risk, while
the market price of convertible preferred stock generally also reflects some
element of conversion value. Because preferred stock is junior to debt
securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar stated yield
characteristics. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the
8
<PAGE> 25
issuer's board of directors. Preferred stock also may be subject to optional or
mandatory redemption provisions.
CONVERTIBLE SECURITIES
There is no limit as to the percentage of total assets Large Cap may invest
in convertible securities. Mid Cap and Small Cap may invest up to 25% of their
total assets in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock or other equity security of
the same or a different issuer within a particular period of time at a specified
price or formula. Convertible securities consequently often involve attributes
of both debt and equity instruments, and investment in such securities requires
analysis of both credit and stock market risks. A convertible security entitles
the holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible income securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common stocks
of the same or similar issuers. Convertible securities rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Convertible securities may be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument and in some instances may be subject to
conversion into or exchanged for another security at the option of an issuer.
Although the Funds will only purchase convertible securities that AIM considers
to have adequate protection parameters, including an adequate capacity to pay
interest and repay principal in a timely manner, the Funds invest without regard
to corporate bond ratings.
FOREIGN SECURITIES
Each Fund may invest up to 25% of its total assets in foreign securities
which may be payable in U.S. or foreign currencies and publicly traded in the
United States or abroad. For purposes of computing such limitation, American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and other
securities representing underlying securities of foreign issuers are treated as
foreign securities. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. To the extent
the Funds invest in securities denominated in foreign currencies, each Fund
bears the risk of changes in the exchange rates between U.S. currency and the
foreign currency, as well as the availability and status of foreign securities
markets. These securities will be marketable equity securities (including common
and preferred stock, depositary receipts for stock and fixed income or equity
securities exchangeable for or convertible into stock) of foreign companies
which generally are listed on a recognized foreign securities exchange or traded
in a foreign over-the-counter market. The Funds may also invest in foreign
securities listed on recognized U.S. securities exchanges or traded in the U.S.
over-the-counter market. Foreign securities may be issued by foreign companies
located in developing countries in various regions of the world. A "developing
country" is a country in the initial stages of its industrial cycle. As compared
to investment in the securities markets of developed countries, investment in
the securities markets of developing countries involves exposure to markets that
may have substantially less trading volume and greater price volatility,
economic structures that are less diverse and mature, and political systems that
may be less stable. For a discussion of the risks pertaining to investments in
foreign obligations, see "Risk Factors Regarding Foreign Securities" below.
ADRs are receipts typically issued by a United States bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered form, are designed for use
in the United States securities markets, and EDRs, in bearer form, are designed
for use in European securities markets. ADRs and EDRs may be listed on stock
exchanges, or traded in OTC markets in the United States or Europe, as the case
may be. ADRs, like other securities traded in the United States, will be subject
to negotiated commission rates. Investments by a Fund in securities of foreign
corporations may involve considerations and risks that are different in certain
respects from an investment in securities of U.S. companies. Such risks include
possible imposition of withholding taxes on interest or dividends, possible
adoption of foreign governmental restrictions on repatriation of income or
capital invested, or other adverse political or economic developments.
Additionally, it may be more difficult to enforce the rights of a security
holder against a foreign
9
<PAGE> 26
corporation, and information about the operations of foreign corporations may be
more difficult to obtain and evaluate.
RISK FACTORS REGARDING FOREIGN SECURITIES
Investments by the Funds in foreign securities, whether denominated in U.S.
currencies or foreign currencies, may entail all of the risks set forth below.
Investments in ADRs, EDRs or similar securities also may entail some or all of
the risks as set forth below.
Currency Risk. The value of the Funds' foreign investments will be affected
by changes in currency exchange rates. The U.S. dollar value of a foreign
security decreases when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and increases when the value of
the U.S. dollar falls against such currency.
On January 1, 1999, certain members of the European Economic and Monetary
Union ("EMU"), namely Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, and Spain established a common
European currency known as the "euro" and each member's local currency became a
denomination of the euro. It is anticipated that each participating country will
replace its local currency with the euro on July 1, 2002. Any other European
country that is a member of the European Union and satisfies the criteria for
participation in the EMU may elect to participate in the EMU and may supplement
its existing currency with the euro. The anticipated replacement of existing
currencies with the euro on July 1, 2002 could cause market disruptions before
or after July 1, 2002 and could adversely affect the value of securities held by
a Fund.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest are not as developed as the United States economy and
may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the SEC and are
generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Funds may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the
Funds invest will have substantially less trading volume than the major United
States markets. As a result, the securities of some foreign companies may be
less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
FOREIGN EXCHANGE TRANSACTIONS
Each Fund may buy and sell currencies either in the spot (cash) market or
in the forward market (through forward contracts generally expiring within one
year). The Funds have authority to deal in foreign exchange between currencies
of the different countries in which they will invest as a hedge against possible
variations in the foreign exchange rate between those currencies. This may be
accomplished through direct purchases or sales of foreign currency, purchases of
options on futures contracts with respect to foreign currency, and contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) at a price set at the time of the contract. Such contractual
commitments may be forward contracts entered into directly with another party or
exchange-traded futures contracts. Forward contracts are traded
10
<PAGE> 27
over-the-counter, and not on organized commodities or securities exchanges. As a
result, it may be more difficult to value such forward contracts, and it may be
difficult to enter into closing transactions with respect to them. The Funds may
purchase and sell options on futures contracts or forward contracts which are
denominated in a particular foreign currency to hedge the risk of fluctuations
in the value of another currency. Each Funds' dealings in foreign exchange will
be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of foreign currency with
respect to specific receivables or payables of the Funds accruing in connection
with the purchase or sale of its portfolio securities, the sale and redemption
of shares of the Funds, or the payment of dividends and distributions by the
Funds. Position hedging is the purchase or sale of foreign currency with respect
to portfolio security positions (or underlying portfolio security positions,
such as in an ADR) denominated or quoted in a foreign currency. The Funds will
not speculate in foreign exchange, nor commit a larger percentage of its total
assets to foreign exchange hedges than the percentage of its total assets that
it may invest in foreign securities.
Purchases and sales of foreign securities are usually made with foreign
currencies, and consequently each Fund may from time to time hold cash balances
in the form of foreign currencies and multinational currency units. Such foreign
currencies and multinational currency units will usually be acquired on a spot
(cash) basis at the spot rate prevailing in foreign exchange markets and will
result in currency conversion costs to a Fund. The Funds attempt to purchase and
sell foreign currencies on as favorable a basis as practicable; however, some
price spread on foreign exchange transactions (to cover service charges) may be
incurred, particularly when a Fund changes investments from one country to
another, or when U.S. dollars are used to purchase foreign securities. Certain
countries could adopt policies which would prevent the Funds from transferring
cash out of such countries, and a Fund may be affected either favorably or
unfavorably by fluctuations in relative exchange rates while a Fund holds
foreign currencies.
RULE 144A SECURITIES
Each Fund may purchase securities which, while privately placed, are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Trust's Board of Trustees, will consider whether securities purchased under
Rule 144A are illiquid and thus subject to the Funds' restriction of investing
no more than 15% of its assets in illiquid securities. Determination of whether
a Rule 144A security is liquid or not is a question of fact. In making this
determination AIM will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security. In
addition, AIM could consider the (i) frequency of trades and quotes, (ii) number
of dealers and potential purchasers, (iii) dealer undertakings to make a market,
and (iv) nature of the security and of market place trades (for example, the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). The liquidity of Rule 144A securities will also be
monitored by AIM and, if as a result of changed conditions, it is determined
that a Rule 144A security is no longer liquid, a Fund's holdings of illiquid
securities will be reviewed to determine what, if any, action is required to
assure that such Fund does not invest more than 15% of its assets in illiquid
securities. Investing in Rule 144A securities could have the effect of
increasing the amount of each Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund may make secured
loans of portfolio securities amounting to not more than 33-1/3% of its total
assets. Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to the value of the securities
lent marked to market on a daily basis. The collateral received will consist of
cash, U.S. Government securities, letters of credit or such other collateral as
may be permitted under each Fund's investment program. While the securities are
being lent, a Fund will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Each Fund has a right
to call each loan and obtain the securities on five business days' notice or, in
connection with securities trading on foreign markets, within such longer period
of time which coincides with the normal settlement period for purchases and
sales of such securities in such foreign markets. A Fund will not have the right
to vote securities while they are
11
<PAGE> 28
being lent, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral in the
event the value of the collateral decreased below the value of the securities
loaned or of delay in recovering the securities loaned or even loss of rights in
the collateral should the borrower of the securities fail financially. Loans
will only be made to persons deemed by AIM to be of good standing and will not
be made unless, in the judgment of AIM, the consideration to be earned from such
loans would justify the risk.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. A repurchase agreement is
an instrument under which a Fund acquires ownership of a debt security and the
seller (usually a broker or bank) agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby determining the
yield during such Fund's holding period. In the event of bankruptcy or other
default of a seller of a repurchase agreement, a Fund may experience both delays
in liquidating the underlying securities and losses, including: (a) a possible
decline in the value of the underlying security during the period in which a
Fund seeks to enforce its rights thereto; (b) a possible subnormal level of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights. To the extent that the Funds invest to a significant
degree in these instruments, their ability to achieve their investment objective
may be adversely affected. A repurchase agreement is collateralized by the
security acquired by a Fund and its value is marked to market daily in order to
minimize the Fund's risk. Repurchase agreements usually are for short periods,
such as one or two days, but may be entered into for longer periods of time.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by a Fund, with an agreement that
it will repurchase the securities at an agreed upon price and date. Each Fund
may employ reverse repurchase agreements (i) for temporary emergency purposes,
such as to meet unanticipated net redemptions so as to avoid liquidating other
portfolio securities during unfavorable market conditions; (ii) to cover
short-term cash requirements resulting from the timing of trade settlements; or
(iii) to take advantage of market situations where the interest income earned
from the investment of the proceeds of the transaction is greater than the
interest expense of the transaction. Each Fund may employ reverse repurchase
agreements only in amounts up to 33-1/3% of the value of a Fund's total assets
at the time the Fund enters into a reverse repurchase agreement. At the time it
enters into a reverse repurchase agreement, a Fund will segregate liquid assets
having a dollar value equal to the repurchase price. The segregated securities
will be marked-to-market, and additional securities will be segregated if
necessary to maintain adequate coverage.
REAL ESTATE INVESTMENT TRUSTS
To the extent consistent with its investment objectives and policies, each
Fund may invest in securities issued by real estate investment trusts ("REITs").
Such investments will not exceed 25% of the total assets of each Fund.
REITs are trusts which sell equity or debt securities to investors and use
the proceeds to invest in real estate or interests therein. A REIT may focus on
particular projects, such as apartment complexes, or geographic regions, such as
the Southeastern United States, or both. By investing in REITs indirectly
through the Funds, a shareholder will bear not only his/her proportionate share
of the expenses of the Funds, but also, indirectly, similar expenses of the
REIT.
To the extent that the Funds have the ability to invest in REITs, the Funds
could conceivably own real estate directly as a result of a default on the
securities it owns. The Funds, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
12
<PAGE> 29
In addition to the risks described above, REITs may be affected by any
changes in the value of the underlying property in their portfolios. REITs are
dependent upon management skill, are not diversified, and are therefore subject
to the risk of financing single or a limited number of projects. REITs are also
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to maintain an exemption from the 1940 Act.
Changes in interest rates may also affect the value of debt securities held by
the Funds. By investing in REITs indirectly through the Funds, a shareholder
will bear not only his/her proportionate share of the expenses of the Funds, but
also, indirectly, similar expenses of the REITs.
BORROWINGS AND LEVERAGE
The Funds may borrow money from banks (including the Funds' custodian
bank), subject to the limitations under the 1940 Act. The Funds will limit
borrowings and reverse repurchase agreements to an aggregate of 33a% of the
Funds' total assets at the time of the transaction.
The Funds may employ "leverage" by borrowing money and using it to purchase
additional securities. Leverage increases both investment opportunity and
investment risk. If the investment gains on the securities purchased with
borrowed money exceed the interest paid on the borrowing, the net asset value of
the Funds' shares will rise faster than would otherwise be the case. On the
other hand, if the investment gains fail to cover the cost (including interest
on borrowings), or if there are losses, the net asset value of the Funds' shares
will decrease faster than would otherwise be the case. The Funds will maintain
asset coverage of at least 300% for all such borrowings, and should such asset
coverage at any time fall below 300%, the Funds will be required to reduce its
borrowing within three days to the extent necessary to satisfy this requirement.
To reduce its borrowing, the Fund might be required to sell securities at a
disadvantageous time. Interest on money borrowed is an expense the Fund would
not otherwise incur, and the Funds may therefore have little or no investment
income during periods of substantial borrowings.
SPECIAL SITUATIONS
Each Fund may invest in "special situations." A special situation arises
when, in the opinion of a Fund's management, the securities of a particular
company will, within a reasonably estimable period of time, be accorded market
recognition at an appreciated value solely by reason of a development applicable
to that company, and regardless of general business conditions or movements of
the market as a whole. Developments creating special situations might include,
among others: liquidations, reorganizations, recapitalizations, mergers,
material litigation, technical breakthroughs, and new management or management
policies. Although large and well-known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Investments in unseasoned companies and special situations often involve much
greater risk than is inherent in ordinary investment securities.
INVESTMENT IN UNSEASONED ISSUERS
Each Fund may purchase securities in unseasoned issuers. Securities in such
issuers may provide opportunities for long term capital growth. Greater risks
are associated with investments in securities of unseasoned issuers than in the
securities of more established companies because unseasoned issuers have only a
brief operating history and may have more limited markets and financial
resources. As a result, securities of unseasoned issuers tend to be more
volatile than securities of more established companies.
TEMPORARY DEFENSIVE INVESTMENTS
Each Fund may invest, for temporary or defensive purposes, all or
substantially all of its assets in corporate bonds, commercial paper, or U.S.
Government obligations. In addition, a portion of the Fund's assets may be held,
from time to time, in cash, repurchase agreements or other short-term debt
securities when such positions are deemed advisable in light of economic or
market conditions or for daily cash management purposes. For a description of
the various rating categories of corporate bonds and commercial paper in which
the Funds may invest, see the Appendix to this Statement of Additional
Information.
13
<PAGE> 30
HEDGING AND OTHER INVESTMENT TECHNIQUES
The Funds may enter into transactions in options, futures and forward
contracts on a variety of instruments and indexes, in order to protect against
declines in the value of portfolio securities and increases in the cost of
securities to be acquired as well as to increase the Funds' return.
Options. The Funds may write (sell) "covered" put and call options and buy
put and call options, including securities index and foreign currency options. A
call option is a contract that gives to the holder the right to buy a specified
amount of the underlying security at a fixed or determinable price (called the
exercise or strike price) upon exercise of the option. A put option is a
contract that gives the holder the right to sell a specified amount of the
underlying security at a fixed or determinable price upon exercise of the
option. In the case of index options, exercises are settled through the payment
of cash rather than the delivery of property. A call option is covered if, for
example, the Funds own the underlying security covered by the call or, in the
case of a call option on an index, holds securities the price changes of which
are expected to substantially correlate with the movement of the index. A put
option is covered if, for example, the Funds segregate cash or liquid securities
with a value equal to the exercise price of the put option.
Options purchased or written by the Funds may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange,
so it may be more difficult to value such options. In addition, it may be
difficult to enter into closing transactions with respect to such options. Such
options and the securities used as "cover" for such options, unless otherwise
indicated, would be considered illiquid securities.
In some instances in which the Funds have entered into agreements with
primary dealers with respect to the over-the-counter options it has written, and
such agreements would enable the Funds to have an absolute right to repurchase
at a pre-established formula price the over-the-counter option written by them,
the Funds would treat as illiquid only securities equal in amount to the formula
price described above less the amount by which the option is "in-the-money,"
i.e., the price of the option exceeds the exercise price.
The Funds may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of portfolio securities and against increases in the dollar
cost of securities to be acquired. Each Fund may use up to 10% of its total
assets to purchase put and call options on foreign currencies. Such investment
strategies will be used as a hedge and not for speculation. As in the case of
other types of options, the writing of an option on foreign currency will
constitute a partial hedge, up to the amount of the premium received. Moreover,
the Funds could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Funds' position, it may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies may be traded on the
national securities exchanges or in the over-the-counter market. As described
above, options traded in the over-the-counter market may not be as actively
traded as those on an exchange, so it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Funds' other investments and the risk
that there may not be a liquid secondary market for the option when the Funds
seek to hedge against adverse market movements. This may cause the Funds to lose
the entire premium on purchased options or reduce their ability to effect
closing transactions at favorable prices.
The Funds will not write options if, immediately after such sale, the
aggregate value of the securities or obligations underlying the outstanding
options exceeds 50% of the Funds' total assets. The Funds will not purchase
options if, at the time of the investment, the aggregate premiums paid for
outstanding options will exceed 25% of the Funds' total assets.
Each Fund may write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium
14
<PAGE> 31
income, a Fund loses any opportunity to profit from an increase in the market
price of the underlying securities, above the exercise price, while the contract
is outstanding, except to the extent the premium represents a profit. The Fund
also retains the risk of loss if the price of the security declines, although
the premium is intended to offset that loss in whole or in part. As long as its
obligations under the option continue, a Fund must assume that the call may be
exercised at any time and that the net proceeds realized from the sale of the
underlying securities pursuant to the call may be substantially below the
prevailing market price.
Each Fund may enter into a "closing purchase transaction", by purchasing an
option identical to the one it has written, and terminate its obligations under
the covered call. A Fund will realize a gain (or loss) from a closing purchase
transaction if the amount paid to purchase a call option is less (or more) than
the premium received upon writing the corresponding call option. Any loss
resulting from the exercise or closing out of a call option is likely to be
offset in whole or in part by unrealized appreciation of the underlying security
owned by a Fund primarily because a price increase of a call option generally
reflects an increase in the market price of the securities on which the option
is based. In order to sell portfolio securities that cover a call option, a Fund
will effect a closing purchase transaction so as to close out any existing
covered call option on those securities. A closing purchase transaction for
exchange-traded options may be made only on a national securities exchange. A
liquid secondary market on an exchange may not always exist for any particular
option, or at any particular time, and, for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If a
Fund is unable to effect a closing purchase transaction, it will not sell the
underlying security until the option expires or until it delivers the underlying
security upon exercise.
Each Fund may write put options to earn additional income in the form of
option premiums if it expects the price of the underlying securities to remain
stable or rise during the option period so that the option will not be
exercised. A Fund may also write put options if it expects a decline in the
price of the underlying securities and intends to exercise the option at a price
which, offset by the option premium, is less than the current price. The risk of
either strategy is that the price of the underlying securities may decline by an
amount greater than the premium received.
The Funds may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised. If a Fund is able to enter into a closing purchase transaction, it
will realize a profit (or loss) from that transaction if the cost of the
transaction is less (or more) than the premium received from the writing of the
option. After writing a put option, a Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying securities plus the premiums received from the sale of
the option.
The purchase of put options on securities enables a Fund to preserve, at
least partially, unrealized gains in an appreciated security in its portfolio
without actually selling the security. In addition, the Funds may continue to
receive interest or dividend income on the security.
The Funds may write call options on securities or securities indexes for
the purpose of providing a partial hedge against a decline in the value of its
portfolio securities. The Funds may write put options on securities or
securities indexes in order to earn additional income or (in the case of put
options written on individual securities) to purchase the underlying security at
a price below the current market price. If the Funds write an option which
expires unexercised or is closed out by the Funds at a profit, they will retain
all or part of the premium received for the option, which will increase its
gross income. If the price of the underlying security moves adversely to the
Funds' position, the option may be exercised and the Funds will be required to
sell or purchase the underlying security at a disadvantageous price, or, in the
case of index options, delivery an amount of cash, which loss may only be
partially offset by the amount of premium received.
The Funds may also purchase put or call options on securities and
securities indexes in order to hedge against changes in interest rates or stock
prices which may adversely affect the prices of securities that the Funds want
to purchase at a later date, to hedge their existing investments against a
decline in value, or to attempt to reduce the risk of missing a market or
industry segment advance or decline. In the event that the expected changes in
interest rates or stock prices occur, the Funds may be able to offset the
resulting adverse effect on the Funds by exercising or selling the options
purchased. The premium paid for a put or call option plus any transaction costs
will reduce the benefit, if any, realized by the Funds upon exercise or
liquidation of
15
<PAGE> 32
the option. Unless the price of the underlying security or level of the
securities index changes by an amount in excess of the premium paid, the option
may expire without value to the Funds.
An option on a securities index, unlike a stock option (which gives the
holder the right to purchase or sell a specified stock at a specified price)
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier." A securities index fluctuates with changes in the market
values of the securities included in the index. For example, some securities
index options are based on a broad market index such as the S&P 500 or the NYSE
Composite Index, or a narrower market index such as the S&P 100. Indexes may
also be based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. Options on stock indexes are
currently traded on the following exchanges, among others: The Chicago Board
Options Exchange, New York Stock Exchange, and American Stock Exchange. Options
on indexes of debt securities and other types of securities indexes are not
currently available. If such options are introduced and traded on exchanges in
the future, the Funds may use them.
The value of securities index options in any investment strategy depends
upon the extent to which price movements in the portion of the underlying
securities correlate with price movements in the selected securities index.
Perfect correlation is not possible because the securities held or to be
acquired by a Fund will not exactly match the composition of the securities
indexes on which options are written. In the purchase of securities index
options the principal risk is that the premium and transaction costs paid by a
Fund in purchasing an option will be lost if the changes (increase in the case
of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option. In writing securities index options, the
principal risk is that a Fund could bear a loss on the options that would be
only partially offset (or not offset at all) by the increased value or reduced
cost of the hedged securities. Moreover, in the event a Fund was unable to close
an option it had written, it might be unable to sell the securities used as
cover.
Each Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of a
Fund's overall position. For example, a Fund may purchase a put option and write
a covered call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to selling a
futures contract. This technique, called a "collar," enables a Fund to offset
the cost of purchasing a put option with the premium received from writing the
call option. However, by selling the call option, a Fund gives up the ability
for potentially unlimited profit from the put option. Another possible combined
position would involve writing a covered call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
WARRANTS
The Funds may invest in warrants. Warrants are, in effect, longer-term call
options. They give the holder the right to purchase a given number of shares of
a particular company at specified prices within certain periods of time. The
purchaser of a warrant expects that the market price of the security will exceed
the purchase price of the warrant plus the exercise price of the warrant, thus
giving him a profit. Of course, since the market price may never exceed the
exercise price before the expiration date of the warrant, the purchaser of the
warrant risks the loss of the entire purchase price of the warrant. Warrants
generally trade in the open market and may be sold rather than exercised.
Warrants are sometimes sold in unit form with other securities of an issuer.
Units of warrants and common stock may be employed in financing young,
unseasoned companies. The purchase price of a warrant varies with the exercise
price of the warrant, the current market value of the underlying security, the
life of the warrant and various other investment factors. The investment in
warrants by each Fund may not exceed 10% of the value of the Fund's net assets.
Futures Contracts and Forwards. A futures contract is a bilateral agreement
to buy or sell a security (or deliver a cash settlement price, in the case of an
index future) for a set price in the future. When the contract is entered into,
a good faith deposit, known as initial margin, is made with the broker.
Subsequent daily payments, known as variation margin, are made to and by the
broker reflecting changes in the value of the
16
<PAGE> 33
security or level of the index. Futures contracts are authorized by boards of
trade designated as "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"). Certain results may be accomplished more quickly, and with
lower transaction costs, in the futures market (because of its greater
liquidity) than in the cash market.
A Fund will incur brokerage fees when it purchases and sells futures
contracts, and it will be required to maintain margin deposits. Positions taken
in the futures markets are typically liquidated through offsetting transactions,
which may result in a gain or a loss, before delivery or cash settlement is
required. However, a Fund may close out a position by making or taking delivery
of the underlying securities wherever it appears economically advantageous to do
so.
Purchases of options on futures contracts may present less risk than the
purchase and sale of the underlying futures contracts, since the potential loss
is limited to the amount of the premium plus related transaction costs. A call
option on a futures contract gives the purchaser the right, in return for the
premium paid, to purchase a futures contract (assume a "long" position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position), for a specified exercise price, at any
time before the option expires.
Positions in futures contracts may be closed out only on an exchange or a
board of trade which provides the market for such futures. Although each Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there may not always be a liquid market,
and it may not be possible to close a futures position at that time; in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of maintenance margin. Whenever futures positions are used
to hedge portfolio securities, however, any increase in the price of the
underlying securities held by a Fund may partially or completely offset losses
on the futures contracts.
If a broker or clearing member of an options or futures clearing
corporation were to become insolvent, a Fund could experience delays and might
not be able to trade or exercise options or futures purchased through that
broker. In addition, a Fund could have some or all of its positions closed out
without its consent. If substantial and widespread, these insolvencies could
ultimately impair the ability of the clearing corporations themselves. While the
principal purpose of engaging in these transactions is to limit the effects of
adverse market movements, the attendant expense may cause a Fund's returns to be
less than if the transactions had not occurred. Their overall effectiveness,
therefore, depends on AIM's accuracy in predicting future changes in interest
rate levels or securities price movements, as well as on the expense of engaging
in these transactions.
Each Fund has the ability to short futures.
The Funds may purchase and sell stock index futures contracts to hedge the
value of the portfolio against changes in market conditions. Each Fund may also
purchase put and call options on futures contracts and write "covered" put and
call options on futures contracts in order to hedge against changes in stock
prices. Although the Funds are authorized to invest in futures contracts and
related options with respect to non-U.S. instruments, they will limit such
investments to those which have been approved by the CFTC for investment by U.S.
investors. The Funds may enter into futures contracts and buy and sell related
options, provided that the futures contracts and related options investments are
made for "bona fide hedging" purposes, as defined under CFTC regulations. No
more than 25% of each Fund's total assets will be committed to initial margin
deposits required pursuant to futures contracts. Percentage investment
limitations on the Funds' investment in options on futures contracts are set
forth above under "Options."
Bona fide Hedging. Each Fund will only enter into options and futures
transactions for bona fide hedging purposes. The CFTC has defined bona fide
hedging in its Rule 1.3(z) which provides that the transaction must be
"economically appropriate to the reduction of risks in the conduct and
management of a commercial enterprise." Common uses of financial futures and
related options by the Funds that would satisfy the Rule include the following:
17
<PAGE> 34
(1) to hedge various pertinent securities market risks (e.g. interest rate
movements, and broad based or specific equity or fixed-income market
movements);
(2) to establish a position as a temporary substitute for purchasing or
selling particular securities;
(3) to maintain liquidity while simulating full investment in the
securities markets.
SHORT SALES
The Funds intend from time to time to sell securities short. A short sale
is effected when it is believed that the price of a particular security will
decline, and involves the sale of a security which the Funds do not own in the
hope of purchasing the same security at a later date at a lower price. To make
delivery to the buyer, the Funds must borrow the security from a broker-dealer
through which the short sale is executed, and the broker-dealer delivers such
securities, on behalf of the Funds, to the buyer. The broker-dealer is entitled
to retain the proceeds from the short sale until the Fund delivers to such
broker-dealer the securities sold short. In addition, the Funds are required to
pay to the broker-dealer the amount of any dividends paid on shares sold short.
To secure their obligation to deliver to such broker-dealer the securities
sold short, the Fund must segregate an amount of cash or liquid securities equal
to the difference between the market value of the securities sold short at the
time they were sold short and any cash or liquid securities deposited as
collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). Furthermore, until the Funds replace the borrowed
security, they must daily maintain the segregated assets at a level so that (1)
the amount deposited in it plus the amount deposited with the broker (not
including the proceeds from the short sale) will equal the current market value
of the securities sold short, and (2) the amount deposited in it plus the amount
deposited with the broker (not including the proceeds from the short sale) will
not be less than the market value of the securities at the time they were sold
short. As a result of these requirements, the Funds will not gain any leverage
merely by selling short, except to the extent that it earns interest on the
immobilized cash or liquid securities while also being subject to the
possibility of gain or loss from the securities sold short.
The Funds are said to have a short position in the securities sold until
they deliver to the broker-dealer the securities sold, at which time the Funds
receive the proceeds of the sale. The Funds will normally close out a short
position by purchasing on the open market and delivering to the broker-dealer an
equal amount of the securities sold short.
The amount of each Fund's net assets that will at any time be in the type
of deposits described above (that is, collateral deposits or segregated assets)
will not exceed 25%. These deposits do not have the effect of limiting the
amount of money that the Funds may lose on a short sale, as the Funds' possible
losses may exceed the total amount of deposits.
The Funds will realize a gain if the price of a security declines between
the date of the short sale and the date on which the Funds purchase a security
to replace the borrowed security. On the other hand, the Funds will incur a loss
if the price of the security increases between those dates. The amount of any
gain will be decreased and the amount of any loss increased by any premium or
interest that the Funds may be required to pay in connection with a short sale.
It should be noted that possible losses from short sales differ from those that
could arise from a cash investment in a security in that losses from a short
sale may be limitless, while the losses from a cash investment in a security
cannot exceed the total amount of the Funds' investment in the security. For
example, if a Fund purchases a $10 security, potential loss is limited to $10;
however, if a Fund sells a $10 security short, it may have to purchase the
security for return to the broker-dealer when the market value of that security
is $50, thereby incurring a loss of $40.
The Funds may also make short sales "against the box." A short sale is
"against the box" to the extent that the Funds contemporaneously own or have the
right to obtain securities identical to those sold short without payment of
further consideration. Such short sales will also be subject to the limitations
on short sale transactions referred to above. Short sales "against the box"
result in a "constructive sale" and require the Funds to recognize any taxable
gain unless an exception to the constructive sale rule applies.
18
<PAGE> 35
In addition to enabling the Funds to hedge against market risk, short sales
may afford the Funds an opportunity to earn additional current income to the
extent the Funds are able to enter into arrangements with broker-dealers through
which the short sales are executed to receive income with respect to the
proceeds of the short sales during the period the Funds' short positions remain
open. The Funds believe that many broker-dealers will be willing to enter into
such arrangements, but there is no assurance that the Funds will be able to
enter into such arrangements to the desired degree.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
Large Cap is subject to the following investment restrictions, which may be
changed only by a vote of a majority of the Fund's outstanding shares:
(a) the Fund is a "diversified company" as defined in the 1940 Act.
The Fund will not purchase the securities of any issuer if, as a result,
the Fund would fail to be a diversified company within the meaning of the
1940 Act, and the rules and regulations promulgated thereunder, as such
statute, rules and regulations are amended from time to time or are
interpreted from time to time by the SEC staff (collectively, the "1940 Act
Laws and Interpretations") or to the extent that the Fund may be permitted
to do so by exemptive order or similar relief (collectively, with the 1940
Act Laws and Interpretations, the "1940 Act Laws, Interpretations and
Exemptions"). In complying with this restriction, however, the Fund may
purchase securities of other investment companies to the extent permitted
by the 1940 Act Laws, Interpretations and Exemptions.
(b) the Fund may not borrow money, except as permitted by the 1940 Act
Laws, Interpretations and Exemptions.
(c) the Fund may not issue senior securities, except as may be
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(d) the Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions
involving the acquisition, disposition or resale of its portfolio
securities, regardless of whether the Fund may be considered to be an
underwriter under the Securities Act of 1933.
(e) the Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act
Laws, Interpretations and Exemptions) of its investments in the securities
of issuers primarily engaged in the same industry. This restriction does
not limit the Fund's investments in (i) obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities, or (ii) tax-exempt
obligations issued by governments or political subdivisions of governments.
In complying with this restriction, the Fund will not consider a
bank-issued guaranty or financial guaranty insurance as a separate
security.
(f) the Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein.
(g) the Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions such as futures, contracts and options thereon or investing in
securities that are secured by physical commodities.
19
<PAGE> 36
(h) the Fund may not make personal loans or loans to persons who
control or are under the common control of the Fund, except to the extent
permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from purchasing debt obligations,
entering into repurchase agreements, loaning its assets to broker-dealers
or institutional investors, or investing in loans, including assignments
and participation interests.
(i) the Fund may, notwithstanding any other fundamental investment
policy or restriction, invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide Large Cap with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though Large Cap has this flexibility, the Board of Trustees of
the Trust has adopted internal guidelines for the Fund relating to certain of
these restrictions which the adviser must follow in managing the Fund. Any
changes to these guidelines, which are set forth below, require the approval of
the Board of Trustees.
1. In complying with the diversification restriction set forth in (a),
the Fund will not, with respect to 75% of its total assets, purchase
the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities), if, as a result, (i) more than 5% of the fund's
total assets would be invested in the securities of that issuer, or
(ii) the fund would hold more than 10% of the outstanding voting
securities of that issuer. The fund may (i) purchase securities of
other investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other money
market funds and lend money to other investment companies and their
series portfolios that have AIM as an investment adviser, subject to
the terms and conditions of any exemptive orders issued by the SEC.
2. In complying with the borrowing restriction set forth in (b), the Fund
may borrow money in an amount not exceeding 33-1/3% of its total
assets (including the amount borrowed) less liabilities (other than
borrowings). The Fund may borrow from banks, broker/dealers or other
investment companies or their series portfolios that have AIM or an
affiliate of AIM as an investment adviser (an "AIM Fund"). The Fund
may not borrow for leveraging, but may borrow for temporary or
emergency purposes, in anticipation of or in response to adverse
market conditions, or for cash management purposes. The Fund may not
purchase additional securities when any borrowing from banks exceed 5%
of the Fund's total assets.
3. In complying with the concentration restriction set forth in (e)
above, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the
same industry.
4. In complying with the lending restrictions set forth in (h) above, the
Fund may lend up to 33-1/3% of its total assets and may lend money to
another AIM Fund, on such terms and conditions as the SEC may require
in an exemptive order.
5. Notwithstanding the restriction set forth in (i) above, the Fund may
not invest all of its assets in the securities of a single open-end
management investment company with the same fundamental investment
objectives, policies and limitations as the Fund.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
The following restrictions are fundamental policies that have been adopted
by Mid Cap and Small Cap, and, unless permitted by law, they will not be changed
without approval of a majority of each Fund's outstanding voting securities.
20
<PAGE> 37
Neither Mid Cap nor Small Cap will:
(1) concentrate its investments; that is, invest 25% or more of the value
of its assets in issuers which conduct their business operations in the same
industry;
(2) invest for the purpose of exercising control over or management over a
company except that a Fund may purchase securities of other investment companies
to the extent permitted by applicable law or exemptive order;
(3) act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, a Fund may be deemed to be an
underwriter for purposes of the 1933 Act;
(4) purchase or sell real estate or any interest therein, except that a
Fund may, as appropriate and consistent with its investment policies and other
investment restrictions, invest in securities of entities secured by real estate
or marketable interests therein or securities of issuers that engage in real
estate operations or interests therein, and may hold and sell real estate
acquired as a result of ownership in such securities;
(5) purchase or sell commodity contracts, except that a Fund may, as
appropriate and consistent with its investment policies and other investment
restrictions, enter into futures contracts on securities, securities indices and
currency, options on such futures contracts, forward foreign currency exchange
contracts, forward commitments and repurchase agreements;
(6) make loans, except for collateralized loans of portfolio securities in
an amount not exceeding 33-1/3% of a Fund's total assets. This restriction does
not prevent a Fund from purchasing government obligations, short-term commercial
paper, master demand notes, or publicly traded debt, including bonds, notes,
debentures, certificates of deposit, bankers acceptances and equipment trust
certificates, nor does this restriction apply to loans made under insurance
policies, or through entry into repurchase agreements, to the extent they may be
viewed as loans; and
(7) issue senior securities, except to the extent permitted by the 1940
Act, including permitted borrowings.
In addition, each of Mid Cap and Small Cap Fund may, notwithstanding any
other fundamental investment policy or limitation, invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
limitations as each Fund.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to Mid Cap and Small Cap and
are not fundamental. They may be changed for either Fund without approval of
that Fund's voting securities.
(1) Neither Mid Cap nor Small Cap will invest more than 15% of its assets
in securities considered illiquid or not readily marketable, including
repurchase agreements having a maturity of more than seven days.
(2) Neither Mid Cap nor Small Cap will purchase or retain the securities of
any issuer if, to the knowledge of AIM, those officers and Trustees of the
Trust, its adviser or distributor owning individually more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer.
(3) The Trust does not currently intend to invest all of the assets of
either Mid Cap or Small Cap in the securities of a single open-end management
investment company with the same fundamental investment objectives, policies and
limitations as that Fund.
21
<PAGE> 38
(4) Neither Mid Cap nor Small Cap may invest in securities issued by other
investment companies except as part of a merger, reorganization or other
acquisition and except to the extent permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act. Currently, the 1940 Act allows these
Funds to invest up to 10% of their total assets in other investment companies.
MANAGEMENT
The overall management of the business and affairs of the Funds is vested
with the Trust's Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust and persons or companies furnishing
services to the Funds, including the Master Advisory Agreement with AIM, the
Master Administrative Services Agreement with AIM, the Master Distribution
Agreement with AIM Distributors as the distributor of the shares of the Funds,
the Custodian Agreement with State Street Bank and Trust Company as custodian
and the Transfer Agency and Service Agreement with A I M Fund Services, Inc.
("AFS"), a wholly owned subsidiary of AIM, as transfer agent. The day-to-day
operations of the Funds are delegated to the officers of the Trust and to AIM,
subject always to the objectives and policies of the Funds and to the general
supervision of the Trust's Board of Trustees. Certain trustees and officers of
the Trust are affiliated with AIM and A I M Management Group Inc. ("AIM
Management"), the parent of AIM. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent
investment management group engaged in institutional investment management and
retail mutual fund businesses in the United States, Europe and the Pacific
Region.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations
during the last five years are set forth below. Unless otherwise indicated, the
address of each trustee and officer is 11 Greenway Plaza, Suite 100, Houston, TX
77046-1173. All of the Trust's executive officers hold similar offices with some
or all of the other AIM Funds.
<TABLE>
<CAPTION>
========================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
========================================================================================================================
<S> <C> <C>
*CHARLES T. BAUER (80) Trustee and Chairman of the Board of Directors, A I M Management Group
Chairman Inc.; A I M Advisors, Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc. and Fund
Management Company; and Vice Chairman and Director, AMVESCAP
PLC.
- ------------------------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (55) Trustee Director, ACE Limited (insurance company). Formerly,
906 Frome Lane Director, President and Chief Executive Officer, COMSAT
McLean, VA 22102 Corporation; and Chairman, Board of Governors of INTELSAT
(international communications company).
========================================================================================================================
</TABLE>
- ----------
* A trustee who is an "interested person" of AIM and the Trust as defined in
the 1940 Act.
22
<PAGE> 39
<TABLE>
<CAPTION>
========================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
========================================================================================================================
<S> <C> <C>
OWEN DALY II (74) Trustee Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental Life
Baltimore, MD 21210 Insurance Company and Monumental General Insurance Company;
and Chairman of the Board of Equitable Bancorporation.
- ------------------------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (64) Trustee Chairman of the Board of Directors, Mercantile Mortgage
2 Hopkins Plaza, 20th Floor Corporation. Formerly, Vice Chairman of the Board of
Baltimore, MD 21201 Directors and President, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares.
- ------------------------------------------------------------------------------------------------------------------------
JACK FIELDS (47) Trustee Chief Executive Officer, Texana Global, Inc. (foreign
Texana Global, Inc. trading company) and Twenty First Century Group, Inc. (a
8810 Will Clayton Pkwy. governmental affairs company). Formerly, Member of the U.S.
Jetero Plaza, Suite E House of Representatives.
Humble, Texas 77338
- ------------------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (62) Trustee Partner, Kramer, Levin, Naftalis & Frankel LLP (law firm).
919 Third Avenue Formerly Partner, Reid & Priest (law firm).
New York, NY 10022
- ------------------------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (52) Trustee and Director, President and Chief Executive Officer, A I M
President Management Group Inc.; Director and President, A I M
Advisors, Inc.; Director and Senior Vice President, A I M
Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and Fund Management Company; and
Director, AMVESCAP PLC.
- ------------------------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (48) Trustee Chief Executive Officer, YWCA of the U.S.A., Commissioner,
350 Fifth Avenue, Suite 301 New York City Department for the Aging; and Member, Board of
New York, NY 10118 Directors, Metropolitan Transportation Authority of New York
State.
- ------------------------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (56) Trustee Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
- ------------------------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (59) Trustee Executive Vice President, Development and Operations, Hines
Transco Tower, 50th Floor Interests Limited Partnership (real estate development).
2800 Post Oak Blvd.
Houston, TX 77056
========================================================================================================================
</TABLE>
- ----------
* A trustee who is an "interested person" of AIM and the Trust as defined in
the 1940 Act.
** A trustee who is an "interested person" of the Trust as defined in the 1940
Act.
23
<PAGE> 40
<TABLE>
<CAPTION>
========================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
========================================================================================================================
<S> <C> <C>
GARY T. CRUM (51) Senior Vice Director and President, A I M Capital Management, Inc.;
President Director and Senior Vice President, A I M Management Group
Inc. and A I M Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC.
- ------------------------------------------------------------------------------------------------------------------------
EDGAR M. LARSEN (58) Senior Vice Vice President, A I M Capital Management, Inc.
President
- ------------------------------------------------------------------------------------------------------------------------
CAROL F. RELIHAN (44) Senior Vice Director, Senior Vice President, General Counsel and
President Secretary, A I M Advisors, Inc.; Senior Vice President,
and Secretary General Counsel and Secretary, A I M Management Group Inc.;
Director, Vice President and General Counsel, Fund
Management Company; Vice President and General Counsel, AIM
Fund Services, Inc.; and Vice President, A I M Capital
Management, Inc. and A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
DANA R. SUTTON (40) Vice President Vice President and Fund Controller, A I M Advisors, Inc.;
and Treasurer and Assistant Vice President and Treasurer, Fund Management
Company.
- ------------------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (55) Vice President Vice President and Chief Compliance Officer, A I M Advisors,
Inc., A I M Capital Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and Fund Management Company.
========================================================================================================================
</TABLE>
The standing committees of the Board of Trustees are the Audit Committee,
the Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock, Sklar and Ms. Mathai-Davis. The Audit
Committee is responsible for meeting with the Trust's auditors to review audit
procedures and results and to consider any matters arising from an audit to be
brought to the attention of the directors as a whole with respect to the Trust's
fund accounting or its internal accounting controls, and considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Trustees and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly,
Dunn, Fields, Frischling, Pennock, Sklar (Chairman) and Ms. Mathai-Davis. The
Investment Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Trustees and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock, Sklar and Ms. Mathai-Davis.
The Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as trustees who are not interested
persons as long as the Trust maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested trustees, and considering such matters as may from time to
time be set forth in a charter adopted by the Board of Trustees and such
committee.
24
<PAGE> 41
All of the Trust's Trustees also serve as directors or trustees of some or
all of the other investment companies managed or advised by A I M Advisors, Inc.
("AIM Funds"). All of the Trust's executive officers hold similar offices with
some or all of the other AIM Funds.
Remuneration of Trustees
Each trustee is reimbursed for expenses incurred in connection with each
meeting of the Board of Trustees or any Committee attended. Each trustee who is
not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a director or trustee of other AIM Funds. Each such trustee receives a
fee, allocated among the AIM Funds for which he or she serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
Set forth below is information regarding compensation paid or accrued for
each trustee of the Trust:
<TABLE>
<CAPTION>
============================================================================================
RETIREMENT
AGGREGATE COMPENSATION BENEFITS
FROM THE ACCRUED TOTAL
TRUST(1) BY ALL AIM COMPENSATION
TRUSTEE FUNDS(2) FROM ALL AIM FUNDS(3)
============================================================================================
<S> <C> <C> <C>
Charles T. Bauer $ [ ] $ 0 $ 0
- --------------------------------------------------------------------------------------------
Bruce L. Crockett [ ] 37,485 96,000
- --------------------------------------------------------------------------------------------
Owen Daly II [ ] 122,898 96,000
- --------------------------------------------------------------------------------------------
Edward K. Dunn Jr. [ ] 0 78,889
- --------------------------------------------------------------------------------------------
Jack Fields [ ] 15,826 95,500
- --------------------------------------------------------------------------------------------
Carl Frischling(4) [ ] 97,971 95,500
- --------------------------------------------------------------------------------------------
Robert H. Graham [ ] 0 0
- --------------------------------------------------------------------------------------------
John F. Kroeger(5) [ ] 107,896 91,654
- --------------------------------------------------------------------------------------------
Prema Mathai-Davis [ ] 0 32,636
- --------------------------------------------------------------------------------------------
Lewis F. Pennock [ ] 45,766 95,500
- --------------------------------------------------------------------------------------------
Ian Robinson(6) [ ] 94,442 94,500
- --------------------------------------------------------------------------------------------
Louis S. Sklar [ ] 90,232 95,500
============================================================================================
</TABLE>
(1) The total amount of compensation deferred by all Trustees of the Trust
during the fiscal year ended July 31, 1999, including interest earned
thereon, was $[ ].
(2) During the fiscal year ended July 31, 1999, the total amount of expenses
allocated to the company in respect of such retirement benefits was $[ ]
Data reflects compensation for the calendar year ended December 31, 1998.
(3) Each Trustee serves as director or trustee of a total of 12 registered
investment companies advised by AIM. Data reflects compensation for the
calendar year ended December 31, 1998.
(4) During the year ended July 31, 1999, Mid Cap and Small Cap, each paid
$[ ] and $[ ], respectively, in legal fees to Mr. Frischling's law
firm, Kramer, Levin, Naftalis & Frankel LLP for services rendered.
25
<PAGE> 42
(5) Mr. Kroeger was a Trustee until June 11, 1998, when he resigned. On that
date he became a consultant to the Trust. Of the amount listed above,
$12,784.63 was for compensation for services as a Trustee and the remainder
as a consultant. Mr. Kroeger passed away on November 26, 1998. Mr.
Kroeger's widow will receive his pension as described below under "AIM
Funds Retirement Plan for Eligible Directors/Trustees."
(6) Mr. Robinson was a Trustee until March 12, 1999, when he retired.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of
the AIM Funds, A I M Management or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board of Trustees. Pursuant to the
Plan, the normal retirement date is the date on which the eligible trustee has
attained age 65 and has completed at least five years of continuous service with
one or more of the regulated investment companies managed, administered or
distributed by AIM or its affiliates (the "Applicable AIM Funds"). Each eligible
trustee is entitled to receive an annual benefit from the Applicable AIM Funds
commencing on the first day of the calendar quarter coincident with or following
his date of retirement equal to a maximum of 75% of the annual retainer paid or
accrued by the Applicable AIM Funds for such trustee during the twelve-month
period immediately preceding the trustee's retirement (including amounts
deferred under a separate agreement between the Applicable AIM Funds and the
trustee) and based on the number of such trustee's years of service (not in
excess of 10 years of service) completed with respect to any of the Applicable
AIM Funds. Such benefit is payable to each eligible trustee in quarterly
installments. If an eligible trustee dies after attaining the normal retirement
date but before receipt of any benefits under the Plan commences, the trustee's
surviving spouse (if any) shall receive a quarterly survivor's benefit equal to
50% of the amount payable to the deceased trustee for no more than ten years
beginning the first day of the calendar quarter following the date of the
trustee's death. Payments under the Plan are not secured or funded by any
Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits payable
to an eligible trustee upon retirement assuming the retainer amount reflected
below and various years of service. The estimated credited years of service for
Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock, Robinson and
Sklar and Ms. Mathai-Davis are 11, 11, 0, 1, 21, 20, 16, 11, 8 and 0 years,
respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
===========================================
Number of
Years of Annual Retirement
Service With Paid By All Applicable
the AIM Funds AIM Funds
===========================================
<S> <C>
10 $ 67,500
-------------------------------------------
9 $ 60,750
-------------------------------------------
8 $ 54,000
-------------------------------------------
7 $ 47,250
-------------------------------------------
6 $ 40,500
-------------------------------------------
5 $ 33,750
===========================================
</TABLE>
26
<PAGE> 43
Deferred Compensation Agreements
Messrs. Daly, Dunn, Fields, Frischling, Robinson and Sklar (for purposes of
this paragraph only, the "deferring trustees") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring trustees may elect to defer receipt of up to 100% of
their compensation payable by the Trust, and such amounts are placed into a
deferral account. Currently, the deferring trustees may select various AIM Funds
in which all or part of their deferral accounts shall be deemed to be invested.
Distributions from the deferring trustees' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of five (5) or ten
(10) years (depending on the Agreement) beginning on the date the deferring
trustee's retirement benefits commence under the Plan. The Trust's Board of
Trustees, in its sole discretion, may accelerate or extend the distribution of
such deferral accounts after the deferring trustee's termination of service as a
trustee of the Trust. If a deferring trustee dies prior to the distribution of
amounts in his deferral account, the balance of the deferral account will be
distributed to his designated beneficiary in a single lump sum payment as soon
as practicable after such deferring trustee's death. The Agreements are not
funded and, with respect to the payments of amounts held in the deferral
accounts, the deferring trustees have the status of unsecured creditors of the
Trust and of each other AIM Fund from which they are deferring compensation.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
AIM serves as the investment advisor to each Fund pursuant to a Master
Investment Advisory Agreement, as amended (the "Master Advisory Agreement"). AIM
is a wholly owned subsidiary of AIM Management, a holding company that has been
engaged in the financial services business since 1976. The address of AIM is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. AIM was organized in 1976, and,
together with its subsidiaries, advises or manages approximately 110 investment
company portfolios encompassing a broad range of investment objectives. AIM
Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire
Square, London EC2M 4YR, United Kingdom. AMVESCAP PLC and its subsidiaries are
an independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Certain directors and officers of AIM are also executive
officers of the Trust and their affiliations are shown under "Trustees and
Officers".
AIM and the Trust have adopted a Code of Ethics which requires investment
personnel and certain other employees (a) to pre-clear personal securities
transactions subject to the Code of Ethics, (b) to file reports or duplicate
confirmations regarding such transactions, (c) to refrain from personally
engaging in (i) short-term trading of a security, (ii) transactions involving a
security within seven days of an AIM Fund transaction involving the same
security, and (iii) transactions involving securities being considered for
investment by an AIM Fund, and (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Trustees reviews quarterly and annual reports (including information on
any substantial violations of the Code of Ethics). Sanctions for violations of
the Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Trust has entered into the Master Advisory Agreement and a Master
Administrative Services Agreement (the "Master Administrative Services
Agreement") on behalf of the Funds with AIM.
Under the terms of the Master Advisory Agreement, AIM supervises all
aspects of the Funds' operations and provides investment advisory services to
the Funds. AIM obtains and evaluates economic, statistical and financial
information to formulate and implement investment programs for the Funds. AIM
will not be liable to the Funds or their shareholders except in the case of
AIM's willful misfeasance, bad faith, gross negligence or reckless disregard of
duty.
The Master Advisory Agreement provides that the Funds will pay or cause to
be paid all expenses of the Funds not assumed by AIM, including without
limitation: brokerage commissions, taxes, legal, auditing or governmental fees,
the cost of preparing share certificates, custodian, transfer and shareholder
service agent costs, expenses of issue, sale, redemption, and repurchase of
shares, expenses of registering and qualifying shares for sale, expenses
relating to trustees and shareholder meetings, the cost of preparing and
distributing reports and notices to shareholders, the fees and other expenses
incurred by the Funds in connection with
27
<PAGE> 44
membership in investment company organizations, the cost of printing copies of
prospectuses and statements of additional information distributed to the Funds'
shareholders and all other charges and costs of the Funds' operations unless
otherwise explicitly provided.
The Master Advisory Agreement will continue in effect from year to year
only if such continuance is specifically approved at least annually by (i) the
Trust's Board of Trustees or the vote of a "majority of the outstanding voting
securities" of a Fund (as defined in the 1940 Act), and (ii) the affirmative
vote of a majority of the trustees who are not parties to the agreements or
"interested persons" of any such party (the "Qualified Trustees") by votes cast
in person at a meeting called for such purpose. The Master Advisory Agreement
provides that the Board of Trustees of the Trust, a majority of the outstanding
voting securities of a Fund or AIM may terminate the agreement on 60 days'
written notice without penalty. The agreement terminates automatically in the
event of its assignment.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus
may not be terminated or amended to the Funds' detriment during the period
stated in the agreement between AIM and the Funds. Fee waiver or reductions set
forth in the Master Advisory Agreement may not be terminated without shareholder
approval.
Pursuant to the Master Advisory Agreement, AIM receives a fee from Large
Cap calculated at an annual rate of 1.00% of the first $1 billion of Large Cap's
average daily net assets, plus 0.95% of Large Cap's average daily net assets in
excess of $1 billion. With respect to Mid Cap, AIM receives a fee calculated at
an annual rate of 1.00% of the first $1 billion of Mid Cap's average daily net
assets, plus 0.95% of Mid Cap's average daily net assets in excess of $1
billion. With respect to Small Cap, AIM receives a fee calculated at an annual
rate of 1.00% of Small Cap's average daily net assets.
For the fiscal period or year ended July 31, 1999, Mid Cap and Small Cap
paid to AIM $[ ] and $[ ], respectively, in advisory fees net of any
expense limitations (fee waivers). For the fiscal period or year ended July 31,
1999, AIM did not waive any advisory fees for Mid Cap or Small Cap.
The Master Administrative Services Agreement provides that AIM may perform
or arrange for the performance of certain accounting, and shareholder services
and other administrative services to the Funds which are not required to be
performed by AIM under the Master Advisory Agreement. For such services, AIM
would be entitled to receive from a Fund reimbursement of its costs or such
reasonable compensation as may be approved by the Trust's Board of Trustees. The
Master Administrative Services Agreement will continue in effect from year to
year only if such continuance is specifically approved at least annually by (i)
the Trust's Board of Trustees or the vote of a majority of the outstanding
voting securities of a Fund, and (ii) the affirmative vote of a majority of the
Qualified Trustees by votes cast in person at a meeting called for such purpose.
The Master Administrative Services Agreement will terminate as to a Fund upon
the termination of the Master Advisory Agreement with respect to the Fund. The
agreement terminates automatically in the event of its assignment.
In addition, the Transfer Agency and Service Agreement for the Funds
provides that AFS, a registered transfer agent and wholly owned subsidiary of
AIM, will perform certain shareholder services for the Funds for a fee per
account serviced. The Transfer Agency and Service Agreement provides that AFS
will receive a per account fee plus out-of-pocket expenses to process orders for
purchases, redemptions and exchanges of shares, prepare and transmit payments
for dividends and distributions declared by the Funds, maintain shareholder
accounts and provide shareholders with information regarding the Funds and their
accounts.
Mid Cap and Small Cap paid AIM $[ ] and $[ ], respectively, as
reimbursement of administrative services costs for the fiscal period or year
ended July 31, 1999. For the fiscal period or year ended July 31, 1999, AFS
received an amount of $[ ] and $[ ] for transfer agency and shareholder
services fees with respect to Class A and Class B shares of Mid Cap and Small
Cap, respectively.
28
<PAGE> 45
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN. The Trust has adopted a Master Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act relating to the Class A and Class C
shares of the Funds (the "Class A and C Plan"). The Class A and C Plan provides
that the Class A shares pay 0.35% per annum of their daily average net assets as
compensation to AIM Distributors for the purpose of financing any activity which
is primarily intended to result in the sale of Class A shares. Under the Class A
and C Plan, Class C shares of the Funds pay compensation to AIM Distributors at
an annual rate of 1.00% of the average daily net assets attributable to Class C
shares. Activities appropriate for financing under the Class A and C Plan
include, but are not limited to, the following: printing of prospectuses and
statements of additional information and reports for other than existing
shareholders; overhead; preparation and distribution of advertising material and
sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class A and C Plan.
The Class A and C Plan is designed to compensate AIM Distributors, on a
quarterly basis, for certain promotional and other sales-related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected dealers who furnish continuing personal shareholder services to their
customers who purchase and own Class A or Class C shares of the Funds. Payments
can also be directed by AIM Distributors to selected institutions who have
entered into service agreements with respect to Class A and Class C shares of
the Funds and who provide continuing personal services to their customers who
own Class A and Class C shares of the Funds. The service fees payable to
selected institutions are calculated at the annual rate of 0.25% of the average
daily net asset value of those Fund shares that are held in such institution's
customers' accounts which were purchased on or after a prescribed date set forth
in the Plan.
Of the aggregate amount payable under the Class A and C Plan, payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the
Funds, in amounts of up to 0.25% of the average net assets of the Funds
attributable to the customers of such dealers or financial institutions, are
characterized as a service fee, and payments to dealers and other financial
institutions in excess of such amount and payments to AIM Distributors would be
characterized as an asset-based sales charge pursuant to the Class A and C Plan.
The Class A and C Plan also imposes a cap on the total amount of sales charges,
including asset-based sales charges, that may be paid by the Trust with respect
to the Funds.
THE CLASS B PLAN. The Trust has also adopted a Master Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of the
Funds (the "Class B Plan", and collectively with the Class A and C Plan, the
"Plans"). Under the Class B Plan, the Funds pay compensation to AIM Distributors
at an annual rate of 1.00% of the average daily net assets attributable to Class
B shares. Of such amount, the Funds pay a service fee of 0.25% of the average
daily net assets attributable to Class B shares to selected dealers and other
institutions which furnish continuing personal shareholder services to their
customers who purchase and own Class B shares. Any amounts not paid as a service
fee would constitute an asset-based sales charge. Amounts paid in accordance
with the Class B Plan may be used to finance any activity primarily intended to
result in the sale of Class B shares, including, but not limited to, printing of
prospectuses and statements of additional information and reports for other than
existing shareholders; overhead; preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class B Plan.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may enter
into agreements ("Shareholder Service Agreements") with investment dealers
selected from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Funds. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: preparing and distributing
advertising material and sales literature; answering routine customer inquiries
concerning the Funds; assisting customers in changing dividend options, account
29
<PAGE> 46
designations and addresses, and in enrolling in any of several special
investment plans offered in connection with the purchase of the Funds' shares;
assisting in the establishment and maintenance of customer accounts and records
and in the processing of purchase and redemption transactions; investing
dividends and any capital gains distributions automatically in the Funds'
shares; and providing such other information and services as the Funds or the
customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding a Fund and
the Trust; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing customer purchase and redemption transactions;
providing periodic statements showing a shareholder's account balance and the
integration of such statements with those of other transactions and balances in
the shareholder's other accounts serviced by the bank; forwarding applicable
prospectuses, proxy statements, reports and notices to bank clients who hold
Fund shares; and such other administrative services as a Fund reasonably may
request, to the extent permitted by applicable statute, rule or regulation.
Similar agreements may be permitted under the Plans for institutions which
provide record keeping for and administrative services to 401(k) plans.
The Trust may also enter into Variable Group Annuity Contractholder Service
Agreements ("Variable Contract Agreements") on behalf of a Fund authorizing
payments to selected insurance companies offering variable annuity contracts to
employers as funding vehicles for retirement plans qualified under Section
401(a) of the Internal Revenue Code. Services provided pursuant to such Variable
Contract Agreements may include some or all of the following: answering
inquiries regarding a Fund and the Trust; performing sub-accounting;
establishing and maintaining Contractholder accounts and records; processing and
bunching purchase and redemption transactions; providing periodic statements of
contract account balances; forwarding such reports and notices to
Contractholders relative to a Fund as deemed necessary; generally, facilitating
communications with Contractholders concerning investments in a Fund on behalf
of plan participants; and performing such other administrative services as
deemed to be necessary or desirable, to the extent permitted by applicable
statute, rule or regulation to provide such services.
Financial intermediaries and any other person entitled to receive
compensation for selling shares of a Fund may receive different compensation for
selling shares of one particular class over another.
Under a Shareholder Service Agreement, a Fund agrees to pay periodically
fees to selected dealers and other institutions who render the foregoing
services to their customers. The fees payable under a Shareholder Service
Agreement generally will be calculated at the end of each payment period for
each business day of a Fund during such period at the annual rate of 0.25% of
the average daily net asset value of a Fund's shares purchased or acquired
through exchange. Fees calculated in this manner shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which the Funds' shares are held.
AIM Distributors may from time to time waive or reduce any portion of its
12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM Distributors and the Funds.
Payments pursuant to the Plans are subject to any applicable limitations
imposed by rules of the National Association of Securities Dealers, Inc.
("NASD"). The Plans conform to rules of the NASD by limiting payments made to
dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of a Fund to
no more than 0.25% per annum of the average daily net assets of the funds
attributable to the customers of such dealers or financial institutions, and by
imposing a cap on the total sales charges, including asset based sales charges,
that may be paid by the Fund and its classes.
30
<PAGE> 47
Each Plan provides that no provision of the Plan will be interpreted to
prohibit payments during periods when sales of shares of the Funds have been
discontinued, suspended or otherwise limited.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Funds on an agency basis, may
receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Funds, in
making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors.
For the fiscal period or year ended July 31, 1999, with respect to their
Class A Shares, Mid Cap and Small Cap paid AIM Distributors under the Plan
$[ ] and $[ ], respectively, or an amount equal to 0.35% and 0.35% of
average daily net assets. For the fiscal period or year ended July 31, 1999,
with respect to its Class B Shares, Mid Cap and Small Cap paid AIM Distributors
under the Plan $[ ] and $[ ], respectively, or an amount equal to 1.00%
and 1.00% of average daily net assets. For the fiscal period or year ended
July 31, 1999, with respect to their Class C Shares, Mid Cap and Small Cap paid
AIM Distributors under the Plan $[ ] and $[ ], respectively, or an amount
equal to 1.00% and 1.00% of average daily net assets, respectively.
An estimate by category of actual fees paid by the following Funds under
the Class A and C Plan during the fiscal period or year ended July 31, 1999,
were allocated as follows:
<TABLE>
<CAPTION>
MID CAP SMALL CAP
----------- ---------
<S> <C> <C>
CLASS A
Advertising $ [ ] $ [ ]
Printing and mailing [ ] [ ]
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars [ ] [ ]
Compensation to [ ] [ ]
Underwriters to partially
offset other marketing
expenses
Compensation to [ ] [ ]
Dealers including
finder's fees
Compensation to [ ] [ ]
Sales Personnel
Annual Report Total [ ] [ ]
</TABLE>
31
<PAGE> 48
An estimate by category of actual fees paid by the following Funds under
the Class B Plan during the fiscal period or year ended July 31, 1999, were
allocated at follows:
<TABLE>
<CAPTION>
MID CAP SMALL CAP
----------- -----------
<S> <C> <C>
CLASS B
Advertising $ [ ] $ [ ]
Printing and mailing [ ] [ ]
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars [ ] [ ]
Compensation to [ ] [ ]
Underwriters to partially
offset other marketing
expenses
Compensation to [ ] [ ]
Dealers
Compensation to [ ] [ ]
Sales Personnel
Annual Report Totals [ ] [ ]
</TABLE>
An estimate by category of actual fees paid by the following Funds under
the Class A and C Plan during the fiscal period or year ended July 31, 1999,
were allocated as follows:
<TABLE>
<CAPTION>
MID CAP SMALL CAP
----------- -----------
<S> <C> <C>
CLASS C
Advertising $ [ ] $ [ ]
Printing and mailing [ ] [ ]
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders)
Seminars [ ] [ ]
Compensation to [ ] [ ]
Underwriters to partially
offset other marketing
expenses
Compensation to [ ] [ ]
Dealers including
finder's fees
Compensation to [ ] [ ]
Sales Personnel
Annual Report Totals [ ] [ ]
</TABLE>
32
<PAGE> 49
The Plans require AIM Distributors to provide the Board of Trustees at
least quarterly with a written report of the amounts expended pursuant to the
Plans and the purposes for which such expenditures were made. The Board of
Trustees reviews these reports in connection with their decisions with respect
to the Plans.
Both Plans require that the Distribution Agreements provide that AIM
Distributors (or dealers of financial institutions who offer and sell Class C
shares) will be deemed to have performed all services required to be performed
in order to receive an asset-backed sales charge on the average daily net assets
attributable to Class B or Class C shares upon settlement of each sale of a
Class B or Class C share.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or in any agreements related to the Plans ("Independent Trustees").
In approving the Plans in accordance with the requirements of Rule 12b-1, the
trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each affected class of the Funds and its
respective shareholders.
The Plans do not obligate the Funds to reimburse AIM Distributors for the
actual expenses AIM Distributors may incur in fulfilling its obligations under
the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Funds will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless the Plans are terminated earlier in accordance with their terms,
they continue as long as such continuance is specifically approved at least
annually by the Board of Trustees, including a majority of the Independent
Trustees. The Plans may be terminated with respect to a Class by the vote of a
majority of the Independent Trustees, or by the vote of a majority of the
outstanding voting securities of such Class of the Funds.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the trustees, including a majority of the Independent
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees. In the event the Class A and C Plan is amended in a manner
which the Board of Trustees determines would materially increase the charges
paid by holders of Class A shares under the Class A and C Plan, the Class B
shares of a Fund will no longer convert into Class A shares of the Fund unless
the Class B shares, voting separately, approve such amendment. If the Class B
shareholders do not approve such amendment, the Board of Trustees will (i)
create a new class of shares of a Fund which is identical in all material
respects to the Class A shares as they existed prior to the implementation of
the amendment, and (ii) ensure that the existing Class B shares of the Fund will
be exchanged or converted into such new class of shares no later than the date
the Class B shares were scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan and the Class B
Plan are: (i) the Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to 0.35% of average daily net assets of
each Fund's Class A shares and up to 1.00% of such assets of each Fund's Class C
shares and the Class B Plan allows payments of up to 1.00% of the average daily
net assets of the Class B shares; (ii) the Class B Plan obligates the Class B
shares to continue to make payments to AIM Distributors following termination of
the Class B shares Distribution Agreement with respect to Class B shares sold by
or attributable to the distribution efforts of AIM Distributors unless there has
been a complete termination of the Class B Plan (as defined in such Plan); and
(iii) the Class B Plan expressly authorizes AIM Distributors to assign, transfer
or pledge its rights to payments pursuant to the Class B Plan.
33
<PAGE> 50
THE DISTRIBUTOR
The Trust has entered into distribution arrangements with AIM Distributors,
a registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to
which AIM Distributors acts as distributor of Class A, Class B and Class C
Shares of the Funds. The address of AIM Distributors is 11 Greenway Plaza, Suite
100, Houston, TX 77046-1173. Certain trustees and officers of the Trust are
affiliated with AIM Distributors.
The Trust has entered into a Master Distribution Agreement with AIM
Distributors relating to the Class A and C shares of the Funds and a separate
Master Distribution Agreement with AIM Distributors relating to the Class B
shares of the Funds. Both such Master Distribution Agreements are hereinafter
collectively referred to as the "Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing prospectuses and
statements of additional information of the Funds relating to public offerings
made by AIM Distributors pursuant to the Distribution Agreements (other than
those prospectuses and statements of additional information distributed to
existing shareholders of the Funds), and any promotional or sales literature
used by AIM Distributors or furnished by AIM Distributors to dealers in
connection with the public offering of the Fund's shares, including expenses of
advertising in connection with such public offerings. AIM Distributors has not
undertaken to sell any specified number of shares of any class of the Funds.
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute Class A, Class B and Class C shares of the Funds directly
and through institutions with whom AIM Distributors has entered into selected
dealer agreements. The Distribution Agreements provide that AIM Distributors (or
dealers or financial institutions who offer and sell Class C shares) will be
deemed to have performed all services required to be performed in order to
receive an asset-backed sales charge on the average daily net assets
attributable to Class B or Class C shares upon settlement of each sale of a
Class B or Class C share.
Under the Distribution Agreement for the Class B shares, AIM Distributors
sells Class B shares of the Funds at net asset value subject to a contingent
deferred sales charge established by AIM Distributors. AIM Distributors is
authorized to advance to dealers through whom Class B shares are sold a sales
commission under schedules established by AIM Distributors. The Distribution
Agreement for the Class B shares provides that AIM Distributors (or its assignee
or transferee) will receive 0.75% (of the total 1.00% payable under the
distribution plan applicable to Class B shares) of the Funds' average daily net
assets attributable to Class B shares attributable to the sales efforts of AIM
Distributors.
AIM Distributors expects to pay sales commissions from its own resources to
dealers and institutions who sell Class B shares of the Funds at the time of
such sales. Payments with respect to Class B shares will equal 4.0% of the
purchase price of the Class B shares sold by the dealer or institution, and will
consist of a sales commission equal to 3.75% of the purchase price of the Class
B shares sold plus an advance of the first year service fee of 0.25% with
respect to such shares. The portion of the payments to AIM Distributors under
the Class B Plan which constitutes an asset-based sales charge (0.75%) is
intended in part to permit AIM Distributors to recoup a portion of such sales
commissions plus financing costs. AIM Distributors anticipates that it will
require a number of years to recoup from Class B Plan payments the sales
commissions paid to dealers and institutions in connection with sales of Class B
shares. In the future, if multiple distributors serve the Funds, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Funds' Class B
shares sold by or attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it from the Funds relating to Class C
shares for the first year after they are purchased. The portion of the payments
to AIM Distributors under the Class A and C Plan attributable to Class C shares
which constitutes an asset-based sales charge (0.75%) is intended in part to
permit AIM Distributors to recoup a portion of on-going sales commissions to
dealers plus financing costs, if any. After the first full year, dealers and
institutions will receive on a quarterly basis the full amount payable by
34
<PAGE> 51
the Funds with respect to Class C shares based on the average net asset value of
Class C shares which are attributable to shareholders for whom the dealers and
institutions are designated as dealers of record.
The Trust (on behalf of any class of the Funds), or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B Plan (as defined in such Plan) would terminate all
payments to AIM Distributors. Termination of the Class B Plan or Distribution
Agreement does not affect the obligations of Class B shareholders to pay
contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreement relating to Class B shares in order to
finance distribution expenditures in respect of Class B shares.
For the period or year ended July 31, 1999, the total sales charge paid in
connection with the sale of Class A shares of Mid Cap and Small Cap were $[ ]
and $[ ], respectively, and the amount retained by AIM Distributors was
$[ ] and $[ ], respectively. For the period or year ended July 31, 1999,
the contingent deferred sales charges paid by Class A and Class B shareholders
was $ 0.
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge
ranging from 5.50% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds include Class A shares of each of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor Large Cap Value Fund,
AIM Aggressive Growth Fund, AIM Asian Growth Fund, AIM Basic Value Fund, AIM
Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM
Constellation Fund, AIM Dent Demographic Trends Fund, AIM European Development
Fund, AIM Europe Growth Fund, AIM Global Utilities Fund, AIM Global Growth &
Income Fund, AIM International Equity Fund, AIM Japan Growth Fund, AIM Large Cap
Basic Value Fund, AIM Large Cap Growth Fund, AIM Large Cap Opportunities Fund,
AIM Mid Cap Equity Fund, AIM Mid Cap Opportunities Fund, AIM New Pacific Growth
Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund and AIM Weingarten Fund.
<TABLE>
<CAPTION>
Dealer
Investor's Sales Charge Concession
----------------------------- ----------
As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
-------------------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$ 100,000 but less than $ 250,000 3.75 3.90 3.00
$ 250,000 but less than $ 500,000 3.00 3.09 2.50
$ 500,000 but less than $ 1,000,000 2.00 2.04 1.60
</TABLE>
- ----------
(1) AIM Small Cap Opportunities Fund will not accept any single purchase in
excess of $250,000.
CATEGORY II. Certain AIM Funds are currently sold with a sales charge
ranging from 4.75% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds are: the Class A shares of each of AIM Advisor Real
Estate Fund, AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging
Markets Debt Fund, AIM Global Aggressive Growth Fund, AIM Global Consumer
Products and Services Fund, AIM Global
35
<PAGE> 52
Financial Services Fund, AIM Global Government Income Fund, AIM Global Growth
Fund, AIM Global Health Care Fund, AIM Global Income Fund, AIM Global
Infrastructure Fund, AIM Global Resources Fund, AIM Global Telecommunications
and Technology Fund, AIM Global Trends Fund, AIM High Income Municipal Fund, AIM
High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM Intermediate
Government Fund, AIM Latin American Fund, AIM Municipal Bond Fund, AIM Strategic
Income Fund and AIM Tax-Exempt Bond Fund of Connecticut.
<TABLE>
<CAPTION>
Dealer
Investor's Sales Charge Concession
----------------------------- ----------
As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
-------------------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$ 100,000 but less than $ 250,000 3.75 3.90 3.00
$ 250,000 but less than $ 500,000 2.50 2.56 2.00
$ 500,000 but less than $ 1,000,000 2.00 2.04 1.60
</TABLE>
CATEGORY III. Certain AIM Funds are currently sold with a sales charge
ranging from 1.00% to 0.50% of the offering price on purchases of less than
$1,000,000. These AIM Funds are the Class A shares of each of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
<TABLE>
<CAPTION>
Dealer
Investor's Sales Charge Concession
----------------------------- ----------
As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
-------------------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$ 100,000 but less than $ 250,000 0.75 0.76 0.50
$ 250,000 but less than $ 1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more of Category I,
II or III funds; however, AIM Distributors may pay a dealer concession and/or
advance a service fee on such transactions as set forth below.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the option of the dealer, such
incentives may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and their families to places within or outside the United States. The total
amount of such additional bonus payments or other consideration shall not exceed
0.25% of the public offering price of the shares sold. Any such bonus or
incentive programs will not change the price paid by investors for the purchase
of the applicable AIM Fund's shares or the amount that any particular AIM
36
<PAGE> 53
Fund will receive as proceeds from such sales. Dealers may not use sales of the
AIM Funds' shares to qualify for any incentives to the extent that such
incentives may be prohibited by the laws of any state.
AIM Distributors may make payments to dealers and institutions who are
dealers of record for purchases of $1 million or more of Class A shares (or
shares which normally involve payment of initial sales charges), which are sold
at net asset value and are subject to a contingent deferred sales charge, for
all AIM Funds other than Class A shares of each of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund as follows: 1% of the first $2 million
of such purchases, plus 0.80% of the next $1 million of such purchases, plus
0.50% of the next $17 million of such purchases, plus 0.25% of amounts in excess
of $20 million of such purchases. AIM Distributors may make payments to dealers
and institutions who are dealers of record for purchases of $1 million or more
of Class A shares (or shares which normally involve payment of initial sales
charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record of AIM Advisor Funds, Inc. on April 30, 1995, who purchase additional
shares in any of the Funds on or after May 1, 1995, and in circumstances where
AIM Distributors grants an exemption on particular transactions.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of all
AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate
Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit
plan as follows: 1% of the first $2 million of such purchases, plus 0.80% of the
next $1 million of such purchases, plus 0.50% of the next $17 million of such
purchases, plus 0.25% of amounts in excess of $20 million of such purchases and
up to 0.10% of the net asset value of any Class A shares of AIM Limited Maturity
Treasury Fund sold at net asset value to an employee benefit plan in accordance
with this paragraph.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class
B and Class C shares of the AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
37
<PAGE> 54
The term "purchaser" means:
o an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a
pension, profit-sharing, or other benefit plan established exclusively
for the benefit of any such person, such as an IRA, Roth IRA, a
single-participant money-purchase/profit-sharing plan or an individual
participant in a 403(b) Plan (unless such 403(b) plan qualifies as the
purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted with
respect to individual participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant with
the contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code) and 457 plans, although more than one
beneficiary or participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension account (SAR-SEP) or a Savings
Incentive Match Plans for Employees IRA (SIMPLE IRA), where the
employer has notified the distributor in writing that all of its
related employee SEP, SAR-SEP or SIMPLE IRA accounts should be linked;
or
o any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six
months and has some purpose other than the purchase at a discount of
redeemable securities of a registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine whether
any purchaser is entitled, by virtue of the foregoing definition, to the reduced
sales charge. No person or entity may distribute shares of the AIM Funds without
payment of the applicable sales charge other than to persons or entities who
qualify for a reduction in the sales charge as provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for (i) Class A
shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) within the following 13 consecutive months. By
marking the LOI section on the account application and by signing the account
application, the purchaser indicates that he understands and agrees to the terms
of the LOI and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge
made during the 13-month period will be made at the public offering price
applicable to a single transaction of the total dollar amount indicated by the
LOI, as described under "Sales Charges and Dealer Concessions." It is the
purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales charge.
The offering price may be further reduced as described under "Rights of
38
<PAGE> 55
Accumulation" if the Transfer Agent is advised of all other accounts at the time
of the investment. Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI. At any time during the
13-month period after meeting the original obligation, a purchaser may revise
his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not total
the amount specified, the investor will pay the increased amount of sales charge
as described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the
initial purchase (or subsequent purchases if necessary) the Transfer Agent will
escrow in the form of shares an appropriate dollar amount (computed to the
nearest full share). All dividends and any capital gain distributions on the
escrowed shares will be credited to the purchaser. All shares purchased,
including those escrowed, will be registered in the purchaser's name. If the
total investment specified under this LOI is completed within the 13-month
period, the escrowed shares will be promptly released. If the intended
investment is not completed, the purchaser will pay the Transfer Agent the
difference between the sales charge on the specified amount and the amount
actually purchased. If the purchaser does not pay such difference within 20 days
of the expiration date, he irrevocably constitutes and appoints the Transfer
Agent as his attorney to surrender for redemption any or all shares, to make up
such difference within 60 days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) Class A shares of
AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund
and (ii) Class B and Class C shares of the AIM Funds and (iii) shares of AIM
Floating Rate Fund) at the time of the proposed purchase. Rights of Accumulation
are also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. To determine whether or not a reduced initial sales charge
applies to a proposed purchase, AIM Distributors takes into account not only the
money which is invested upon such proposed purchase, but also the value of all
shares of the AIM Funds (except for (i) Class A shares of AIM Tax-Exempt Cash
Fund and AIM Cash Reserve Shares of AIM Money Market Fund, (ii) Class B and
Class C shares of the AIM Funds and (iii) shares of AIM Floating Rate Fund)
owned by such purchaser, calculated at their then current public offering price.
If a purchaser so qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money then being invested by such purchaser and
not just to the portion that exceeds the breakpoint above which a reduced sales
charge applies. For example, if a purchaser already owns qualifying shares of
any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000
in a fund, with a maximum initial sales charge of 5.50%, the reduced initial
sales charge of 5.25% will apply to the full $20,000 purchase and not just to
the $15,000 in excess of the $25,000 breakpoint. To qualify for obtaining the
discount applicable to a particular purchase, the purchaser or his dealer must
furnish AFS with a list of the account numbers and the names in which such
accounts of the purchaser are registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds
at net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a
fund; (b) exchanges of shares of certain funds; (c) use of the reinstatement
privilege; or (d) a merger, consolidation or acquisition of assets of a fund.
39
<PAGE> 56
The following purchasers will not pay initial sales charges on purchases of
Class A shares because there is a reduced sales effort involved in sales to
these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and members of
their immediate family) of AIM Management, its affiliates or The AIM
Family of Funds--Registered Trademark-- and any foundation, trust or
employee benefit plan established exclusively for the benefit of, or
by, such persons;
o Any current or retired officer, director, or employee (and members of
their immediate family), of CIGNA Corporation or its affiliates, or of
First Data Investor Services Group; and any deferred compensation plan
for directors of investment companies sponsored by CIGNA Investments,
Inc. or its affiliates;
o Sales representatives and employees (and members of their immediate
family) of selling group members or financial institutions that have
arrangements with such selling group members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined above, and
non-qualified plans offered in conjunction therewith, provided the
initial investment in the plan(s) is at least $1 million; the sponsor
signs a $1 million LOI; the employer-sponsored plan(s) has at least
100 eligible employees; or all plan transactions are executed through
a single omnibus account per Fund and the financial institution or
service organization has entered into the appropriate agreements with
the distributor. Section 403(b) plans sponsored by public educational
institutions are not eligible for a sales charge exception based on
the aggregate investment made by the plan or the number of eligible
employees. Purchases of AIM Small Cap Opportunities Fund by such plans
are subject to initial sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund on
November 17, 1986, who have continuously owned shares having a market
value of at least $500 and who purchase additional shares of the same
Fund;
o Shareholders of record of Advisor Class shares of AIM International
Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have
continuously owned shares of the AIM Funds.
o Unitholders of G/SET series unit investment trusts investing proceeds
from such trusts in shares of AIM Weingarten Fund or AIM Constellation
Fund; provided, however, prior to the termination date of the trusts,
a unitholder may invest proceeds from the redemption or repurchase of
his units only when the investment in shares of AIM Weingarten Fund
and AIM Constellation Fund is effected within 30 days of the
redemption or repurchase;
o A shareholder of a fund that merges or consolidates with an AIM Fund
or that sells its assets to an AIM Fund in exchange for shares of an
AIM Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who since
that date continually have owned shares of one or more of these funds;
and
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989, and
who have continuously held shares in the GT Global funds since that
time.
40
<PAGE> 57
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70-1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan; (8) redemptions made
in connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption: (1) total or partial redemptions resulting from a
distribution following retirement in the case of a tax-qualified
employer-sponsored retirement; (2) minimum required distributions made in
connection with an IRA, Keogh Plan or custodial account under Section 403(b) of
the Code or other retirement plan following attainment of age 70-1/2; (3)
redemptions pursuant to distributions from a tax-qualified employer-sponsored
retirement plan, which is invested in the former GT Global funds, which are
permitted to be made without penalty pursuant to the Code, other than tax-free
rollovers or transfers of assets, and the proceeds of which are reinvested in
the former GT Global funds; (4) redemptions made in connection with
participant-directed exchanges between options in an employer-sponsored benefit
plan; (5) redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan; (6) redemptions made in
connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (7) redemptions made in connection with
a distribution from a qualified profit-sharing or stock bonus plan described in
Section 401(k) of the Code to a participant or beneficiary under Section
401(k)(2)(B)(IV) of the Code upon hardship of the covered employee (determined
pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)); and (8) redemptions
made by or for the benefit of certain states, counties or cities, or any
instrumentalities, departments or authorities thereof where such entities are
prohibited or limited by applicable law from paying a sales charge or
commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex Fund, AIM
Advisor International Value Fund, AIM Advisor Large Cap Value Fund,
AIM Advisor MultiFlex Fund and AIM Advisor Real Estate Fund by
shareholders of record on April 30, 1995, of these Funds, except that
shareholders whose broker-dealers maintain a single omnibus account
with AFS on behalf of those shareholders, perform sub-accounting
functions with respect to those shareholders, and
41
<PAGE> 58
are unable to segregate shareholders of record prior to April 30,
1995, from shareholders whose accounts were opened after that date
will be subject to a CDSC on all purchases made after March 1, 1996;
o Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living
trust, of shares held in the account at the time of death or initial
determination of post-purchase disability;
o Certain distributions from individual retirement accounts, Section
403(b) retirement plans, Section 457 deferred compensation plans and
Section 401 qualified plans, where redemptions result from (i)
required minimum distributions to plan participants or beneficiaries
who are age 70-1/2 or older, and only with respect to that portion of
such distributions that does not exceed 12% annually of the
participant's or beneficiary's account value in a particular AIM Fund;
(ii) in kind transfers of assets where the participant or beneficiary
notifies the distributor of the transfer no later than the time the
transfer occurs; (iii) tax-free rollovers or transfers of assets to
another plan of the type described above invested in Class B or Class
C shares of one or more of the AIM Funds; (iv) tax-free returns of
excess contributions or returns of excess deferral amounts; and (v)
distributions on the death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of the participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual amount of
12% of the account value on a per fund basis, at the time the
withdrawal plan is established, provided the investor reinvests his
dividends;
o Liquidation by the Fund when the account value falls below the minimum
required account size of $500;
o Investment account(s) of AIM; and
o Class C shares where the investor's dealer or record notifies the
distributor prior to the time of investment that the dealer waives the
payment otherwise payable to him.
Upon the redemption of shares of funds in sales charge Categories I and II
(see "Sales Charges and Dealer Concessions") purchased in amounts of $1 million
or more, no CDSC will be applied in the following situations:
o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as qualified
purchasers, as defined above, where the redemptions are in connection
with employee terminations or withdrawals, provided the total amount
invested in the plan is at least $1,000,000; the sponsor signs a $1
million LOI; or the employer-sponsored plan has at least 100 eligible
employees; provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver on the
basis of the value of each plan participant's aggregate investment in
the AIM Funds, and not on the aggregate investment made by the plan or
on the number of eligible employees;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment; and
o Shares acquired by exchange from Class A shares of funds in sales
charge Categories I and II unless the shares acquired by exchange are
redeemed within 18 months of the original purchase of the Class A
shares.
42
<PAGE> 59
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Funds may be
purchased appears in each Prospectus under the caption "Purchasing Shares - How
to Purchase Shares."
The sales charge normally deducted on purchases of Class A shares of the
Funds is used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of such shares. Since
there is little expense associated with unsolicited orders placed directly with
AIM Distributors by persons, who because of their relationship with the Funds or
with AIM and its affiliates, are familiar with the Funds, or whose programs for
purchase involve little expense (e.g., because of the size of the transaction
and shareholder records required), AIM Distributors believes that it is
appropriate and in the Funds' best interests that such persons be permitted to
purchase Class A shares of the Funds through AIM Distributors without payment of
a sales charge. The persons who may purchase Class A shares of the Funds without
a sales charge set forth herein under the caption "REDUCTIONS IN INITIAL SALES
CHARGES - Purchases at Net Asset Value".
The following formula may be used by an investor to determine the public
offering price per Class A share of an investment:
Net Asset Value /(1 - Sales Charge as % of Offering Price) - Offering Price
Information concerning the method of exchanging shares of the Funds for
shares of the other mutual funds managed or advised by AIM is set forth in each
Prospectus under the caption "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in each
Prospectus under the caption "Redeeming Shares - How to Redeem Shares." Shares
of the AIM Funds may be redeemed directly through AIM Distributors or through
any dealer who has entered into an agreement with AIM Distributors. AIM intends
to redeem all shares of the Funds in cash. In addition to the Funds' obligation
to redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who have
executed Selected Dealer Agreements with AIM Distributors must phone orders to
the order desk of the Funds at (800) 959-4246 and guarantee delivery of all
required documents in good order. A repurchase is effected at the net asset
value of the Fund next determined after such order is received. Such arrangement
is subject to timely receipt by AFS of all required documents in good order. If
such documents are not received within a reasonable time after the order is
placed, the order is subject to cancellation. While there is no charge imposed
by the Funds or by AIM Distributors (other than any applicable CDSC) when shares
are redeemed or repurchased, dealers may charge a fair service fee for handling
the transaction.
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange ("NYSE") is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of the Funds not reasonably practicable.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the net
asset value of a share of each Fund is determined once daily as of the close of
trading of the NYSE (generally 4:00 p.m. Eastern Time), on each business day of
the Fund. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern
Time) on a particular day, the net asset value of a Fund is determined as of the
close of the NYSE on such day. For purposes of determining net asset value per
share, futures and options contract closing prices which are available fifteen
(15) minutes after the close of trading on the NYSE will generally be used. The
net asset value per share is determined by subtracting the liabilities (e.g.,
the expenses) of a Fund from its assets and dividing the result by the total
number of shares outstanding. Determination of a Fund's net asset value per
share is made in accordance with generally accepted accounting principles.
43
<PAGE> 60
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price on the exchange where the security is principally
traded or, lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not including securities reported on the NASDAQ National Market
System) is valued on the basis of prices provided by independent pricing
services. Each security reported on the NASDAQ National Market System is valued
at the last sales price on the valuation date, or lacking a last sale, at the
closing bid price on that day; option contracts are valued at the mean between
the closing bid and asked prices on the exchange where the contracts are
principally traded; futures contracts are valued at final settlement price
quotations from the primary exchange on which they are traded. Debt securities
(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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Securities for which market quotations
are not readily available or for which market quotations are not reflective of
fair value are valued at fair value as determined in good faith by or under the
supervision of the Trust's officers in a manner specifically authorized by the
Board of Trustees. Short-term obligations having sixty (60) days or less to
maturity are valued at amortized cost, which approximates market value. (See
also "Purchasing Shares - How to Purchase Shares," "Redeeming Shares - How to
Redeem Shares" and "Pricing of Shares" in each Prospectus.)
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the NYSE which will not be reflected
in the computation of a Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
Fund securities primarily traded in foreign markets may be traded in such
markets on days which are not business days of the Funds. Because the net asset
value per share of each Fund is determined only on business days of the Fund,
the net asset value per share of a Fund may be significantly affected on days
when an investor can not exchange or redeem shares of a Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the Funds unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth in the Prospectus under the caption "Special Plans -
Automatic Dividend Investment." If a shareholder's account does not have any
shares in it on a dividend or capital gains distribution payment date, the
dividend or distribution will be paid in cash whether or not the shareholder has
elected to have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
44
<PAGE> 61
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund is treated as a separate association taxable as a corporation.
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, a Fund is not subject to federal income tax on the
portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and 90% of its
tax-exempt income for the taxable year (the "Distribution Requirement"), and
satisfies certain other requirements of the Code that are described below.
Distributions by a Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test (the "Asset Diversification Test") in
order to qualify as a regulated investment company. Under this test, at the
close of each quarter of a Fund's taxable year, at least 50% of the value of the
Fund's assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value of the
Fund's total assets in securities of such issuer and as to which the Fund does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses.
For purposes of the Asset Diversification Test, the Internal Revenue
Service ("IRS") has ruled that the issuer of a purchased listed call option on
stock is the issuer of the stock underlying the option. The IRS has also
informally ruled that, in general, the issuers of purchased or written call and
put options on securities, of long and short positions on futures contracts on
securities and of options on such future contracts are the issuers of the
securities underlying such financial instruments where the instruments are
traded on an exchange. The IRS has informally suggested, however, that the
issuer of certain purchased over-the-counter options may be the writer of such
options.
Where the writer of a listed call option owns the underlying securities,
the IRS has ruled that the Asset Diversification Test will be applied solely to
such securities and not to the value of the option itself. With respect to
options on securities indexes, futures contracts on securities indexes and
options on such futures contracts, the IRS has informally ruled that the issuers
of such options and futures contracts are the separate entities whose securities
are listed on the index, in proportion to the weighing of securities in the
computation of the index. It is unclear under present law who should be treated
as the issuer of forward foreign currency exchange contracts, of options on
foreign currencies, or of foreign currency futures and related options. It has
been suggested that the issuer in each case may be the foreign central bank or
the foreign government backing the particular currency. Due to this uncertainty
and because the Funds may not rely on informal rulings of the IRS, the Funds may
find it necessary to seek a ruling from the IRS as to the application of the
Asset Diversification Test to certain
45
<PAGE> 62
of the foregoing types of financial instruments or to limit its holdings of some
or all such instruments in order to stay within the limits of such test.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
INVESTMENT IN FOREIGN FINANCIAL INSTRUMENTS
Under Code Section 988, gains or losses from certain foreign currency
forward contracts or fluctuations in exchange rates will generally be treated as
ordinary income or loss. Such Code Section 988 gains or losses will increase or
decrease the amount of each Fund's investment company taxable income available
to be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gains. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, a Fund would not be able to pay any ordinary income dividends, and
any such dividends paid before the losses were realized, but in the same taxable
year, would be recharacterized as a return of capital to shareholders, thereby
reducing the tax basis of Fund shares.
HEDGING TRANSACTIONS
Some of the forward foreign currency exchange contracts, options and
futures contracts that the Funds may enter into will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, regardless of whether a taxpayer's obligations (or rights) under
such contracts have terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is deemed to be
60% long-term (taxable at 20% to noncorporate shareholders) and 40% short-term
gain or loss. However, in the case of Section 1256 contracts that are forward
foreign currency exchange contracts, the net gain or loss is separately
determined and (as discussed above) generally treated as ordinary income or
loss.
The Funds may engage in certain hedging transactions (such as short sales
"against the box") that may be subject to special tax treatment as "constructive
sales" under Section 1259 of the Code if a Fund holds certain "appreciated
financial positions" (defined generally as any interest (including a futures or
forward contract, short sale or option) with respect to stock, certain debt
instruments, or partnership interests if there would be a gain were such
interest sold, assigned, or otherwise terminated at its fair market value). Upon
entering into a constructive sales transaction with respect to an appreciated
financial position, a Fund will generally be deemed to have constructively sold
such appreciated financial position and will recognize gain as if such position
were sold, assigned, or otherwise terminated at its fair market value on the
date of such constructive sale (and will take into account any gain in the
taxable year which includes such date).
Other hedging transactions in which the Funds may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to a
Fund's hedging transactions are not entirely clear. The hedging transactions may
increase the amount of short-term capital gain realized by a Fund (and, if they
are conversion transactions, the amount of ordinary income) which is taxed as
ordinary income when distributed to shareholders.
46
<PAGE> 63
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of any of the foregoing rules governing Section 1256
contracts, constructive sales and straddle and conversion transactions may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected investment or straddle
positions, the amount which must be distributed to shareholders and which will
be taxed to shareholders as ordinary income or long-term capital gain may be
increased or decreased as compared to a fund that did not engage in such
transactions.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall (a)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year, and (b) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends received deduction for
corporations only to the extent discussed below.
Each Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Funds currently intend to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by a Fund prior to the date on which the shareholder
acquired his shares. Conversely, if a Fund elects to retain its net capital
gain, it will be taxed thereon (except to the extent of any available capital
loss carry forwards) at the 35% corporate tax rate. If a Fund elects to retain
its net capital gain, it is expected that the Fund also will elect to have
shareholders treated as if each received a distribution of its pro rata share of
such gain, with the result that each shareholder will be required to report its
pro rata share of such gain on its tax return as long-term capital gain, will
receive a refundable tax credit for its share of tax paid by the Fund on the
gain, and will increase the tax basis for its shares by an amount equal to the
deemed distribution less the tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special
47
<PAGE> 64
taxes such as the accumulated earnings tax and the personal holding company tax)
to the extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. A dividend received by a Fund will
not be treated as a qualifying dividend (a) if it has been received with respect
to any share of stock that the Fund has held for less than 46 days (91 days in
the case of certain preferred stock), during the 90-day period beginning on the
date which is 45 days before the date on which the stock becomes ex-dividend
(during the 180-day period beginning on the date which is 90 days before such
date, in the case of certain preferred stock), and (ii) any period during which
the Fund has an option to sell, is under a contractual obligation to sell, has
made and not closed a short sale of, has granted certain options to buy or has
otherwise diminished its risk of loss by holding other positions with respect
to, such (or substantially identical) stock; (b) to the extent that the Fund is
under an obligation (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property;
or (c) to the extent the stock on which the dividend is paid is treated as
debt-financed under the rules of Code Section 246A. Moreover, the dividends
received deduction for a corporate shareholder may be disallowed or reduced (a)
if the corporate shareholder fails to satisfy the foregoing requirements with
respect to its shares of a Fund, or (b) by application of Code Section 246(b)
which in general limits the dividends received deduction to 70% of the
shareholder's taxable income (determined without regard to the dividends
received deduction and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum rate of 28% for
non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
The corporate dividends received deduction is not itself an item of tax
preference that must be added back to taxable income or is otherwise disallowed
in determining a corporation's AMTI. However, corporate shareholders will
generally be required to take the full amount of any dividend received from a
Fund into account (without a dividend received deduction) in determining their
adjusted current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMTI net operating loss deduction)) that is includable in AMTI. For taxable
years beginning after 1997, however, certain small corporations are wholly
exempt from the AMT.
Investment income that may be received by a Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Funds to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another AIM Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
In addition, if the net asset value at the time a shareholder purchases
shares of a Fund reflects undistributed net investment income or recognized
capital gain net income, or unrealized appreciation in the value of the assets
of the Fund, distributions of such amounts will be taxable to the shareholder in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the IRS.
48
<PAGE> 65
Each Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (a) who has
provided either an incorrect tax identification number or no number at all, (b)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (c) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within thirty (30) days before or after the
sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. Currently, any long-term gain recognized by
a non-corporate shareholder will be subject to tax at a maximum rate of 20%.
However, any capital loss arising from the sale or redemption of shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4) (discussed
above in connection with the dividends received deduction for corporations)
generally will apply in determining the holding period of shares. Long-term
capital gains of non-corporate taxpayers are currently taxed at a maximum rate
that in some cases may be 19.6% lower than the maximum rate applicable to
ordinary income. Capital losses in any year are deductible only to the extent of
capital gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary
income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund, (b)
disposes of such shares less then 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another Fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder. If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, dividends and return of
capital distributions (other than distributions of long-term capital gain) will
be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate)
upon the gross amount of the distribution. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of a Fund, capital gain dividends and amounts retained by a Fund that
are designated as undistributed net capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers
49
<PAGE> 66
with respect to the particular tax consequences to them of an investment in a
Fund, including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on
[September 27, 1999]. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Funds.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus under
the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer to ensure
that all orders are transmitted on a timely basis to the Transfer Agent. Any
loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
SHARE CERTIFICATES. AIM Funds will issue share certificates upon written
request to AFS. Otherwise, shares are held on the shareholder's behalf and
recorded on the Fund books. AIM Funds will not issue certificates for shares
held in prototype retirement plans.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, all shares
are to be held by the Transfer Agent and all dividends and distributions are
reinvested in shares of the applicable AIM Fund by the Transfer Agent. To
provide funds for payments made under the Systematic Withdrawal Plan, the
Transfer Agent redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the AIM Funds and AIM Cash Reserve
Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases
while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to be
acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with certain
dealers and investment advisory firms to accept telephone instructions to
exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be
50
<PAGE> 67
effective on the business day received by the Transfer Agent as long as such
request is received prior to NYSE Close. The Transfer Agent and AIM Distributors
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions if they do not follow reasonable procedures for verification of
telephone transactions. Such reasonable procedures may include recordings of
telephone transactions (maintained for six months), requests for confirmation of
the shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
By signing an account application form, an investor appoints the Transfer
Agent as his true and lawful attorney-in-fact to surrender for redemption any
and all unissued shares held by the Transfer Agent in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the premises. The Transfer Agent and AIM Distributors are
thereby authorized and directed to accept and act upon any telephone redemptions
of shares held in any of the account(s) listed, from any person who requests the
redemption proceeds to be applied to purchase shares in any one or more of the
AIM Funds, provided that such fund is available for sale and provided that the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed. An investor acknowledges by
signing the form that he understands and agrees that the Transfer Agent and AIM
Distributors may not be liable for any loss, expense or cost arising out of any
telephone exchange requests effected in accordance with the authorization set
forth in these instructions if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
requests for confirmation of the shareholder's Social Security Number and
current address, and mailings of confirmations promptly after the transaction.
The Transfer Agent reserves the right to modify or terminate the telephone
exchange privilege at any time without notice. An investor may elect not to have
this privilege by marking the appropriate box on the application. Then any
exchanges must be effected in writing by the investor.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints the Transfer Agent as his true and lawful attorney-in-fact to
surrender for redemption any and all unissued shares held by the Transfer Agent
in the designated account(s), present or future, with full power of substitution
in the premises. The Transfer Agent and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. The Transfer Agent
reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone redemption privilege at any time without notice. An investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any redemptions must be effected in writing by the investor.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $50,000 or the proceeds are to be sent to the address of record.
AIM Funds may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also accept
signatures with either: (1) a signature guaranteed with a medallion stamp of the
STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
51
<PAGE> 68
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital gains, if
any, available for distribution, net capital gains are offset against available
net capital losses, if any, carried forward from previous fiscal periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than those
for Class A shares or AIM Cash Reserve Shares because of higher distribution
fees paid by Class B and Class C shares. Dividends on all shares may also be
affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made by
the shareholder at any time by notice to the Transfer Agent and are effective as
to any subsequent payment if such notice is received by the Transfer Agent prior
to the record date of such payment. Any dividend and distribution election
remains in effect until the Transfer Agent receives a revised written election
by the shareholder.
Any dividend or distribution paid by a fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
MISCELLANEOUS INFORMATION
AUDIT REPORTS
The Board of Trustees will issue semi-annual reports of the financial
statements of the Funds to the shareholders. Financial statements, audited by
independent auditors, will be issued annually. The firm of KPMG LLP, 700
Louisiana, Houston, Texas 77002, currently serves as the auditors of each Fund.
LEGAL MATTERS
Legal matters for the Trust have been passed upon by Ballard Spahr Andrews
& Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of all securities and cash of the
Funds. The Custodian attends to the collection of principal and income, pays and
collects all monies for securities bought and sold by the Funds and performs
certain other ministerial duties. A I M Fund Services, Inc., a wholly owned
subsidiary of AIM, P.O. Box 4739, Houston, Texas 77210-4739 ("AFS" or the
"Transfer Agent"), acts as transfer and dividend disbursing agent for the Funds.
These services do not include any supervisory function over management or
provide any protection against any possible depreciation of assets. The Funds
pay the Custodian and the Transfer Agent such compensation as may be agreed upon
from time to time.
Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as
Sub-Custodian for purchases of the Funds.
52
<PAGE> 69
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has entered
into an agreement with the Trust (and certain other AIM Funds), First Data
Investor Service Group and Financial Data Services, Inc., pursuant to which
MLPF&S has agreed to perform certain shareholder sub-accounting services for its
customers who beneficially own shares of the Funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1999, the trustees and officers of the Trust, as a group,
owned less than 1% of all classes of outstanding shares of the Trust. To the
best knowledge of the Trust, the name and addresses of the holders of 5% or more
of the outstanding shares of each class of the Trust's equity securities as of
July 1, 1999, and the percentage of the outstanding shares held by such holders
are set forth below:
<TABLE>
<CAPTION>
Percentage
Name and Address Percentage Owned Owned of Record
Fund of Owner of Record* and Beneficially
- --------------------------- ---------------------------------- ---------------- ----------------
<S> <C> <C> <C>
AIM Mid Cap A I M Advisors, Inc. 34.34% -0-
Opportunities Fund - Attn: David Hessel
Class A Shares 11 Greenway Plaza, Suite 1919
Houston, TX 77046
W. Gary Littlepage and Melinda L. -0- 15.74%
Littlepage Ten In Common
4623 Banning Dr.
Houston, TX 77027
Charles T. Bauer -0- 13.27%
c/o AIM Management Group Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046
CFP Holdings Ltd (Partnership) 6.07% -0-
Attn: Gary Crum
11 Greenway Plaza, Suite 1919
Houston, TX 77046
AIM Small Cap Merrill Lynch Pierce Fenner & Smith 7.69% -0-
Opportunities Fund - FBO The Sole Benefit of Customers
Class A Shares Attn: Fund Administration
4800 Deer Lake Dr., East 2nd Floor
Jacksonville, FL 32246
AIM Small Cap Merrill Lynch Pierce Fenner & Smith 22.55% -0-
Opportunities Fund - FBO The Sole Benefit of Customers
Class B Shares Attn: Fund Administration
4800 Deer Lake Dr., East 2nd Floor
Jacksonville, FL 32246
</TABLE>
- ----------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
53
<PAGE> 70
<TABLE>
<CAPTION>
Percentage
Name and Address Percentage Owned Owned of Record
Fund of Owner of Record* and Beneficially
- --------------------------- ---------------------------------- ---------------- ----------------
<S> <C> <C> <C>
AIM Small Cap Merrill Lynch Pierce Fenner & Smith 19.19% -0-
Opportunities Fund - FBO The Sole Benefit of Customers
Class C Shares Attn: Fund Administration
4800 Deer Lake Dr., East 2nd Floor
Jacksonville, FL 32246
</TABLE>
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas, 77046, has provided the
initial capitalization of Large Cap and, accordingly, as of the date of this
Statement of Additional Information, owned all the outstanding shares of Large
Cap. Although Large Cap expects the sale of its shares to the public pursuant to
its Prospectus will promptly reduce the percentage of such shares owned by AIM,
as long as AIM owns over 25% of the shares of Large Cap that are outstanding, it
may be presumed to be in "control" of Large Cap, as defined in the 1940 Act.
OTHER INFORMATION
Each Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Funds and the
securities offered pursuant to the Prospectuses. The Registration Statement is
available for inspection by the public at the SEC in Washington, D.C.
- ----------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
54
<PAGE> 71
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well-established, and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's Commercial Paper is rated A-1 or A-2. A-1 indicates the degree of
safety regarding time of payment is very strong. A-2 indicates that the capacity
for timely payment is strong, but that the relative degree of safety is not as
overwhelming as for issues designated A-1.
MOODY'S
Prime-1 and Prime-2 are the two highest commercial paper ratings assigned
by Moody's Investors Service. Among the factors considered by Moody's in
assigning ratings are the following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and customer
acceptance; (d) liquidity; (e) amount and quality of long-term debt; (f) trend
of earnings over a period of ten years; (g) financial strength of a parent
company and the relationships which exist with the issuer; and (h) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1 or Prime-2.
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
MOODY'S
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as "high-grade bonds." They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
55
<PAGE> 72
FINANCIAL STATEMENTS
FS
<PAGE> 73
AIM MID CAP OPPORTUNITIES FUND
UNAUDITED FINANCIALS FOR
THE PERIOD ENDED JANUARY 31, 1999
SCHEDULE OF INVESTMENTS
JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-77.74%
AEROSPACE/DEFENSE-0.64%
Gulfstream Aerospace Corp.(a) 200 $ 11,000
- -------------------------------------------------------------
AIRLINES-0.86%
COMAIR Holdings Inc. 400 14,675
- -------------------------------------------------------------
BANKS (REGIONAL)-2.40%
Bank United Corp.-Class A 300 12,000
- -------------------------------------------------------------
First Tennessee National Corp. 400 14,625
- -------------------------------------------------------------
National Commerce Bancorporation 700 14,305
- -------------------------------------------------------------
40,930
- -------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.75%
Adolph Coors Co. 200 12,812
- -------------------------------------------------------------
BIOTECHNOLOGY-0.58%
Biogen, Inc.(a) 100 9,825
- -------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-1.59%
Heftel Broadcasting Corp.(a) 200 9,125
- -------------------------------------------------------------
Univision Communications Inc.(a) 400 18,000
- -------------------------------------------------------------
27,125
- -------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.00%
ADC Telecommunications, Inc.(a) 200 7,963
- -------------------------------------------------------------
Comverse Technology, Inc.(a) 200 16,800
- -------------------------------------------------------------
ECI Telecommunications Ltd. 200 8,675
- -------------------------------------------------------------
General Instrument Corp.(a) 500 17,750
- -------------------------------------------------------------
51,188
- -------------------------------------------------------------
COMPUTERS (HARDWARE)-1.10%
Apple Computer, Inc.(a) 100 4,119
- -------------------------------------------------------------
NCR Corp.(a) 300 14,625
- -------------------------------------------------------------
18,744
- -------------------------------------------------------------
COMPUTERS (NETWORKING)-0.59%
FORE Systems, Inc.(a) 600 10,087
- -------------------------------------------------------------
COMPUTERS (PERIPHERALS)-4.32%
Adaptec, Inc.(a) 400 9,250
- -------------------------------------------------------------
Jabil Circuit, Inc.(a) 200 14,288
- -------------------------------------------------------------
Lexmark International Group, Inc.(a) 200 22,625
- -------------------------------------------------------------
QLogic Corp.(a) 200 27,575
- -------------------------------------------------------------
73,738
- -------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-13.37%
Advanced Fibre Communications, Inc.(a) 500 5,906
- -------------------------------------------------------------
Allaire Corp.(a) 500 25,688
- -------------------------------------------------------------
America Online, Inc. 200 35,150
- -------------------------------------------------------------
American Management Systems, Inc.(a) 400 14,675
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Check Point Software Technologies Ltd.(a) 200 $ 9,700
- -------------------------------------------------------------
Citrix Systems, Inc.(a) 200 18,125
- -------------------------------------------------------------
Complete Business Solutions, Inc.(a) 400 12,000
- -------------------------------------------------------------
Concord EFS, Inc.(a) 200 8,125
- -------------------------------------------------------------
Electronic Arts, Inc.(a) 300 12,646
- -------------------------------------------------------------
Electronics for Imaging, Inc.(a) 300 10,800
- -------------------------------------------------------------
Gemstar International Group Ltd.(a) 100 5,788
- -------------------------------------------------------------
Informix Corp.(a) 900 9,844
- -------------------------------------------------------------
Macromedia, Inc.(a) 400 14,025
- -------------------------------------------------------------
Novell, Inc.(a) 500 10,188
- -------------------------------------------------------------
Rational Software Corp.(a) 200 6,612
- -------------------------------------------------------------
USWeb Corp.(a) 400 12,200
- -------------------------------------------------------------
VERITAS Software Corp.(a) 200 16,725
- -------------------------------------------------------------
228,197
- -------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.35%
Tut Systems, Inc.(a) 400 23,000
- -------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.74%
Patterson Dental Co.(a) 300 12,712
- -------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.30%
American Power Conversion Corp.(a) 100 5,112
- -------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION)-1.35%
Perkin-Elmer Corp. 50 4,753
- -------------------------------------------------------------
Waters Corp.(a) 200 18,200
- -------------------------------------------------------------
22,953
- -------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-4.05%
Flextronics International Ltd.(a) 200 8,475
- -------------------------------------------------------------
Level One Communications, Inc.(a) 400 15,800
- -------------------------------------------------------------
Micrel, Inc.(a) 400 19,700
- -------------------------------------------------------------
PMC-Sierra, Inc.(a) 200 14,862
- -------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 200 10,338
- -------------------------------------------------------------
69,175
- -------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.41%
FINOVA Group, Inc. 300 18,075
- -------------------------------------------------------------
SEI Investments Co. 200 23,025
- -------------------------------------------------------------
41,100
- -------------------------------------------------------------
FOODS-0.56%
Flowers Industries, Inc. 400 9,625
- -------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-0.90%
Allergan, Inc. 200 15,375
- -------------------------------------------------------------
</TABLE>
FS-1
<PAGE> 74
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.38%
MedImmune, Inc.(a) 450 $ 22,275
- -------------------------------------------------------------
Mylan Laboratories, Inc. 600 18,300
- -------------------------------------------------------------
40,575
- -------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-1.56%
Express Scripts, Inc.-Class A(a) 200 13,150
- -------------------------------------------------------------
PacifiCare Health Systems, Inc.-Class
B(a) 100 7,075
- -------------------------------------------------------------
Trigon Healthcare, Inc.(a) 200 6,388
- -------------------------------------------------------------
26,613
- -------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.12%
Bausch & Lomb Inc. 100 6,138
- -------------------------------------------------------------
Henry Schein, Inc.(a) 200 8,412
- -------------------------------------------------------------
Safeskin Corp.(a) 400 9,350
- -------------------------------------------------------------
VISX, Inc.(a) 200 12,200
- -------------------------------------------------------------
36,100
- -------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.72%
Omnicare, Inc. 400 12,250
- -------------------------------------------------------------
HOMEBUILDING-0.76%
Centex Corp. 300 12,955
- -------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.91%
AFLAC Inc. 200 8,575
- -------------------------------------------------------------
Protective Life Corp. 200 6,913
- -------------------------------------------------------------
15,488
- -------------------------------------------------------------
INVESTMENT MANAGEMENT-1.02%
Federated Investors, Inc.-Class B 900 17,438
- -------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.91%
Harley-Davidson, Inc. 300 15,600
- -------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.65%
Applied Power, Inc.-Class A 300 11,100
- -------------------------------------------------------------
RESTAURANTS-2.45%
Brinker International, Inc.(a) 400 11,000
- -------------------------------------------------------------
CKE Restaurants, Inc. 400 9,500
- -------------------------------------------------------------
Papa John's International, Inc.(a) 400 16,275
- -------------------------------------------------------------
Sonic Corp.(a) 200 5,050
- -------------------------------------------------------------
41,825
- -------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.85%
CompUSA, Inc.(a) 300 3,788
- -------------------------------------------------------------
Tandy Corp. 200 10,800
- -------------------------------------------------------------
14,588
- -------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.79%
Kohl's Corp.(a) 200 13,550
- -------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.77%
Dollar Tree Stores, Inc. 100 4,319
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DISCOUNTERS)-(CONTINUED)
99 Cents Only Stores(a) 200 $ 8,875
- -------------------------------------------------------------
13,194
- -------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.23%
Micro Warehouse, Inc.(a) 100 3,900
- -------------------------------------------------------------
RETAIL (SPECIALTY)-3.26%
General Nutrition Companies, Inc.(a) 500 8,062
- -------------------------------------------------------------
Hollywood Entertainment Corp.(a) 400 13,525
- -------------------------------------------------------------
Linens 'N Things, Inc.(a) 300 11,063
- -------------------------------------------------------------
Tiffany & Co. 400 23,050
- -------------------------------------------------------------
55,700
- -------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-5.27%
Abercrombie & Fitch Co.-Class A(a) 200 15,350
- -------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 300 20,512
- -------------------------------------------------------------
AnnTaylor Stores Corp.(a) 400 15,500
- -------------------------------------------------------------
Intimate Brands, Inc. 300 11,963
- -------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 500 14,813
- -------------------------------------------------------------
TJX Companies, Inc. 400 11,825
- -------------------------------------------------------------
89,963
- -------------------------------------------------------------
SAVINGS & LOAN COMPANIES-2.47%
Astoria Financial Corp. 300 13,725
- -------------------------------------------------------------
Dime Bancorp, Inc. 500 12,125
- -------------------------------------------------------------
GreenPoint Financial Corp. 500 16,375
- -------------------------------------------------------------
42,225
- -------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.63%
CMGI Inc.(a) 100 12,200
- -------------------------------------------------------------
Lamar Advertising Co.(a) 400 15,700
- -------------------------------------------------------------
27,900
- -------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.86%
Galileo International, Inc. 300 14,700
- -------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-2.57%
CIBER, Inc.(a) 400 11,000
- -------------------------------------------------------------
Insight Enterprises, Inc.(a) 400 20,000
- -------------------------------------------------------------
Keane, Inc.(a) 400 12,900
- -------------------------------------------------------------
43,900
- -------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.73%
Affiliated Computer Services, Inc.(a) 100 4,825
- -------------------------------------------------------------
CSG Systems International, Inc.(a) 200 14,975
- -------------------------------------------------------------
Fiserv, Inc.(a) 200 9,788
- -------------------------------------------------------------
29,588
- -------------------------------------------------------------
SPECIALTY PRINTING-0.60%
Valassis Communications, Inc.(a) 200 10,225
- -------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 75
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-2.37%
Gucci Group N.V.-ADR-New York shares 200 $ 13,763
- -------------------------------------------------------------
Jones Apparel Group, Inc.(a) 400 12,500
- --------------------------------------------------------------
Tommy Hilfiger Corp.(a) 200 14,150
- -------------------------------------------------------------
40,413
- -------------------------------------------------------------
Total Common Stocks (Cost $1,289,083) $1,327,163
- -------------------------------------------------------------
OPTIONS PURCHASED-0.67%
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
<S> <C> <C> <C> <C>
CALLS-0.67%
BIOTECHNOLOGY-0.27%
AMEX Biotech Index 500 200 Mar-99 4,625
- ---------------------------------------------------------------------
COMPUTERS (NETWORKING)-0.12%
FORE Systems, Inc. 200 17.50 Apr-99 500
- ---------------------------------------------------------------------
FORE Systems, Inc. 900 20 Apr-99 1,463
- ---------------------------------------------------------------------
1,963
- ---------------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.02%
Iomega Corp. 2,000 10 Feb-99 312
- ---------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.26%
Baxter International
Inc. 1,600 70 Feb-99 4,500
- ---------------------------------------------------------------------
Total Options Purchased
(Cost $12,178) $11,400
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT AGENCY OBLIGATIONS-31.34%
Federal Home Loan Discount Notes,
4.62%, 02/01/99 $535,000 $ 535,000
- --------------------------------------------------------------
TOTAL INVESTMENTS-109.75% 1,873,563
- --------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS-(9.75)% (166,446)
- --------------------------------------------------------------
NET ASSETS-100.00% $1,707,117
==============================================================
</TABLE>
SECURITIES SOLD SHORT(b)
JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
SOLD MARKET
SHORT VALUE
<S> <C> <C>
SECURITIES SOLD SHORT
Advanced Micro Devices, Inc. 200 $ 4,588
- ------------------------------------------------------------
ANADIGICS, Inc. 400 7,050
- ------------------------------------------------------------
Dollar General Corp. 200 4,988
- ------------------------------------------------------------
HEALTHSOUTH Corp. 900 12,206
- ------------------------------------------------------------
I2 Technologies, Inc. 500 17,437
- ------------------------------------------------------------
J.D. Edwards & Co. 200 4,062
- ------------------------------------------------------------
Ocular Sciences, Inc. 200 4,625
- ------------------------------------------------------------
Shared Medical Systems Corp. 100 4,700
- ------------------------------------------------------------
United Assets Management Corp. 300 6,975
- ------------------------------------------------------------
$66,631
============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Collateral on short sales was segregated by the Fund in the amount of
$119,878 which represents 179.91% of market value of securities sold short.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
FS-3
<PAGE> 76
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,836,261) $1,873,563
- ---------------------------------------------------------
Cash 18,965
- ---------------------------------------------------------
Receivables for:
Investments sold 11,799
- ---------------------------------------------------------
Investments sold short 64,413
- ---------------------------------------------------------
Fund shares sold 25,690
- ---------------------------------------------------------
Receivable due from advisor 1,063
- ---------------------------------------------------------
Total assets 1,995,493
- ---------------------------------------------------------
LIABILITIES:
Payables for investments purchased 218,784
- ---------------------------------------------------------
Market value of securities sold short
(proceeds from sales $64,413) 66,631
- ---------------------------------------------------------
Accrued administrative services fees 2,000
- ---------------------------------------------------------
Accrued distribution fees 372
- ---------------------------------------------------------
Accrued trustees' fees 70
- ---------------------------------------------------------
Accrued transfer agent fees 63
- ---------------------------------------------------------
Accrued operating expenses 456
- ---------------------------------------------------------
Total liabilities 288,376
- ---------------------------------------------------------
Net assets applicable to shares outstanding $1,707,117
=========================================================
NET ASSETS:
Class A $1,707,117
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 156,473
=========================================================
Class A:
Net asset value and redemption price per
share $ 10.91
=========================================================
Offering price per share:
(Net asset value of $10.91
divided by / 94.50%) $ 11.54
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 30, 1998 (DATE OPERATIONS COMMENCED) THROUGH
JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 3,452
- --------------------------------------------------------
EXPENSES:
Advisory fees 1,090
- --------------------------------------------------------
Administrative services fees 2,000
- --------------------------------------------------------
Legal fees 528
- --------------------------------------------------------
Custodian fees 1,464
- --------------------------------------------------------
Transfer agent fees-Class A 69
- --------------------------------------------------------
Trustees' fees 70
- --------------------------------------------------------
Distribution fees-Class A 382
- --------------------------------------------------------
Other 9
- --------------------------------------------------------
Total expenses 5,612
- --------------------------------------------------------
Less: Expenses paid indirectly (1,464)
- --------------------------------------------------------
Fees waived and reimbursed by advisor (2,153)
- --------------------------------------------------------
Net expenses 1,995
- --------------------------------------------------------
Net investment income 1,457
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND SECURITIES SOLD SHORT:
Net realized gain (loss) from:
Investment securities 95,375
- --------------------------------------------------------
Securities sold short (228)
- --------------------------------------------------------
95,147
- --------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 37,302
- --------------------------------------------------------
Securities sold short (2,218)
- --------------------------------------------------------
35,084
- --------------------------------------------------------
Net gain from investment securities and
securities sold short 130,231
- --------------------------------------------------------
Net increase in net assets resulting from
operations $131,688
========================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 77
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 30, 1998 (DATE OPERATIONS COMMENCED) THROUGH
JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 1,457
- ------------------------------------------------------------------------
Net realized gain from investment securities and
securities sold short 95,147
- ------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
securities sold short 35,084
- ------------------------------------------------------------------------
Net increase in net assets resulting from operations 131,688
- ------------------------------------------------------------------------
Share transactions-net:
Class A 1,575,429
- ------------------------------------------------------------------------
Net increase in net assets 1,707,117
- ------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------
End of period $1,707,117
========================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,575,429
- ------------------------------------------------------------------------
Undistributed net investment income 1,457
- ------------------------------------------------------------------------
Undistributed net realized gain from investment securities
and securities sold short 95,147
- ------------------------------------------------------------------------
Unrealized appreciation of investment securities and
securities sold short 35,084
- ------------------------------------------------------------------------
$1,707,117
========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
(UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Opportunities Fund (the "Fund") is a series portfolio of AIM Special
Opportunities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of two
investment portfolios. The Fund commenced operations on December 30, 1998. The
Fund currently offers Class A shares to employees of AIM Management Group Inc.,
AMVESCAP PLC and their affiliates, and to any current or retired officer,
director or trustee of The AIM Family of Funds. Class B and Class C shares of
the Fund are not currently available. Class A shares are sold with a front-end
sales charge. Matters affecting each portfolio or class are voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund's investment
objective is long-term capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price 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 closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices and may reflect appropriate factors such
as yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued at the
mean between the last bid and asked prices based upon quotes furnished by
independent sources. Securities for which market quotations either are not
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the Trust's officers in a manner
specifically authorized by the Board of Trustees. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value.
FS-5
<PAGE> 78
B. Accounting for Securities Sold Short -- When the Fund sells common stock
short, an amount equal to the proceeds of the sale is recorded as an asset.
This asset is offset by a liability (representing the borrowed security)
recorded on the books of the Fund at the market value of the common stock
determined each day in accordance with the procedures for security valuations
discussed in section "A" above. The Fund's risk is that the value of the
security will increase rather than decline and thus an unrealized loss will
be recorded. When the Fund closes out a short position by delivering the
stock sold short, the Fund will realize a gain or loss and the liability
related to such short position will be eliminated. The Fund is required to
segregate cash or securities as collateral at a level that is equal to the
current market value of the securities sold short to secure its obligation to
the broker who delivered such securities to the buyer on behalf of the Fund.
The amount segregated as collateral deposits will not at anytime exceed 25%
of the Fund's net assets.
C. 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, dividend expense on
short sales and distributions to shareholders are recorded on the ex-dividend
date.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
E. Call Options -- The Fund may write and buy call options, including securities
index options. 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 call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities included
in the index. In the purchase of securities index options the principal risk
is that the premium and transaction costs paid by the Fund in purchasing an
option will be lost if the changes in the level of the index do not exceed
the cost of the option. In writing securities index options, the principal
risk is that the Fund could bear a loss on the options that would be only
partially offset (or not offset at all) by the increased value or reduced
cost of hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities
used as cover.
The Fund will not write options if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 50% of the total assets of the
Fund.
F. Put Options -- The Fund may purchase and write put options including
securities index options. By purchasing a put option, the Fund obtains the
right (but not the obligation) to sell the options' 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, securities
index, 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 hedge. The Fund may write put options to earn
additional income in the form of option premiums if it expects the price of
the underlying securities to remain stable or rise during the option period
so that the option will not be exercised. The risk in this strategy is that
the price of the underlying securities may decline by an amount greater than
the premium received. The Fund will not purchase options if, at the time of
the investment, the aggregate premiums paid for outstanding options will
exceed 25% of the Fund's total assets.
G. 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.
FS-6
<PAGE> 79
NOTE 2- ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 1% of the
Fund's average daily net assets for the first $1 billion of net assets and 0.95%
of the Fund's average daily net assets above $1 billion. During the period
December 30, 1998 (date operations commenced) through January 31, 1999, AIM
waived fees and reimbursed expenses of $2,153.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period December 30, 1998 (date
operations commenced) through January 31, 1999, AIM was reimbursed $2,000 for
such services.
The Fund, pursuant to a transfer agency and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency shareholder services to the Fund. During the period December 30, 1998
(date operations commenced) through January 31, 1999, AFS was paid $44 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. The Fund pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of these amounts, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class A, Class B or Class C
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. As of January 31, 1999, Class B and
Class C Shares are not currently available. During the period December 30, 1998
(date operations commenced) through January 31, 1999, Class A paid AIM
Distributors $382 as compensation under the Plan.
Certain officers and trustees of the Trust are officers and directors of AIM,
AIM Distributors and AFS.
NOTE 3-INDIRECT EXPENSES
During the period December 30, 1998 (date operations commenced) through January
31, 1999, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) and reductions in custodian fees of $1 and $1,463,
respectively under expense offset arrangements. The effect of the above
arrangements resulted in a reduction of the Fund's total expenses of $1,464
during the period December 30, 1998 (date operations commenced) through January
31, 1999.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, 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) $240,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
During the period December 30, 1998 (date operations commenced) through January
31, 1999, the Fund did not borrow under the line of credit agreement. The funds
which are parties to the line of credit are charged a commitment fee of 0.06% on
the unused balance of the committed line. The commitment fee is allocated among
such funds based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period December 30, 1998 (date
operations commenced) through January 31, 1999 was $1,406,282 and $209,452,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of January 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of:
Investment securities $ 76,775
- --------------------------------------------------------
Securities sold short 2,196
- --------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (39,473)
- --------------------------------------------------------
Securities sold short (4,414)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities $ 35,084
========================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
Proceeds from securities sold short for tax purposes is the same.
FS-7
<PAGE> 80
NOTE 7-SHARE INFORMATION
Changes in shares Class A outstanding during the period December 30, 1998 (date
operations commenced) through January 31, 1999 are as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------- ----------
<S> <C> <C>
Sold 161,518 $1,625,429
- ----------------------------------------------------------------------------------
Reacquired (5,045) (50,000)
- ----------------------------------------------------------------------------------
156,473 $1,575,429
==================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during the period December 30, 1998 (date operations commenced) through January
31, 1999.
<TABLE>
<CAPTION>
<S> <C>
Net asset value, beginning of period $ 10.00
- ------------------------------------------------------------ --------
Income from investment operations:
Net investment income 0.01
- ------------------------------------------------------------ --------
Net gains on securities (both realized and unrealized) 0.90
- ------------------------------------------------------------ --------
Total from investment operations 0.91
- ------------------------------------------------------------ --------
Net asset value, end of period $ 10.91
============================================================ ========
Total return(a) 9.10%
============================================================ ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,707
============================================================ ========
Ratio of expenses to average net assets:
Excluding indirect expenses(b) 1.83%(c)
============================================================ ========
Including indirect expenses 3.17%(c)
============================================================ ========
Ratio of net investment income to average net assets(d) 1.34%(c)
============================================================ ========
Portfolio turnover rate 29%
============================================================ ========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
3.80% (annualized).
(c) Ratios are annualized and based on average net assets of $1,243,607.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income(loss) to average net assets prior to fee waivers and/or expense
reimbursements was (0.64)% (annualized).
FS-8
<PAGE> 81
AIM SMALL CAP OPPORTUNITIES FUND
UNAUDITED FINANCIALS FOR
THE PERIOD ENDED JANUARY 31, 1999
SCHEDULE OF INVESTMENTS
January 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-107.52%
AIR FREIGHT-0.59%
Atlas Air, Inc.(a) 33,000 $ 1,697,438
- ------------------------------------------------------------
AIRLINES-0.57%
COMAIR Holdings, Inc. 45,000 1,650,938
- ------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.77%
Midas, Inc. 65,000 2,205,938
- ------------------------------------------------------------
BANKS (REGIONAL)-5.22%
Bank United Corp.-Class A 51,500 2,060,000
- ------------------------------------------------------------
Centennial Bancorp(a) 104,500 1,724,250
- ------------------------------------------------------------
Centura Banks, Inc. 20,000 1,410,000
- ------------------------------------------------------------
CCB Financial Corp. 30,000 1,631,250
- ------------------------------------------------------------
Community First Bankshares,
Inc. 85,000 1,652,188
- ------------------------------------------------------------
First Virginia Banks, Inc. 46,000 2,173,500
- ------------------------------------------------------------
Golden State Bancorp, Inc.(a) 72,000 1,345,500
- ------------------------------------------------------------
Southwest Bancorporation of Texas,
Inc.(a) 50,000 662,500
- ------------------------------------------------------------
Sterling Bancshares, Inc. 70,000 778,750
- ------------------------------------------------------------
Trustmark Corp. 75,000 1,575,000
- ------------------------------------------------------------
15,012,938
- ------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.84%
Adolph Coors Co. 37,500 2,402,344
- ------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.85%
Emmis Broadcasting Corp.-Class
A(a) 47,500 2,434,375
- ------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-4.43%
Comverse Technology, Inc.(a) 37,000 3,108,000
- ------------------------------------------------------------
Dycom Industries, Inc.(a) 57,450 2,244,141
- ------------------------------------------------------------
Harmonic Lightwaves, Inc.(a) 75,000 1,837,500
- ------------------------------------------------------------
Periphonics Corp.(a) 200,000 2,625,000
- ------------------------------------------------------------
REMEC, Inc.(a) 75,000 1,500,000
- ------------------------------------------------------------
VideoServer, Inc.(a) 90,000 1,406,250
- ------------------------------------------------------------
12,720,891
- ------------------------------------------------------------
COMPUTERS (PERIPHERALS)-3.63%
Jabil Circuit, Inc.(a) 45,000 3,214,688
- ------------------------------------------------------------
Network Appliance, Inc.(a) 30,000 1,590,000
- ------------------------------------------------------------
QLogic Corp.(a) 10,000 1,378,750
- ------------------------------------------------------------
SMART Modular Technologies,
Inc.(a) 75,000 1,537,500
- ------------------------------------------------------------
Xircom, Inc.(a) 60,000 2,715,000
- ------------------------------------------------------------
10,435,938
- ------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-17.21%
Advanced Fibre Communications,
Inc.(a) 75,000 885,938
- ------------------------------------------------------------
Allaire Corp.(a) 32,000 1,644,000
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
American Management Systems,
Inc.(a) 70,000 $ 2,568,125
- ------------------------------------------------------------
Axent Technologies, Inc.(a) 62,000 2,108,000
- ------------------------------------------------------------
Business Objects S.A.-ADR(a)
(France) 50,000 1,725,000
- ------------------------------------------------------------
Check Point Software
Technologies Ltd. (Israel) 57,500 2,788,750
- ------------------------------------------------------------
Completed Business Solutions,
Inc.(a) 40,000 1,200,000
- ------------------------------------------------------------
Computer Management Sciences,
Inc.(a) 125,000 1,945,313
- ------------------------------------------------------------
Concord EFS, Inc.(a) 56,000 2,275,000
- ------------------------------------------------------------
Concur Technologies, Inc.(a) 35,000 1,102,500
- ------------------------------------------------------------
EarthLink Network, Inc.(a) 10,000 798,750
- ------------------------------------------------------------
Gemstar International Group
Ltd.(a) 15,000 868,125
- ------------------------------------------------------------
InfoCure Corp.(a) 58,500 2,106,000
- ------------------------------------------------------------
Informix Corp.(a) 150,000 1,640,625
- ------------------------------------------------------------
InfoSpace.com, Inc.(a) 30,000 1,725,000
- ------------------------------------------------------------
Macromedia, Inc.(a) 70,000 2,454,375
- ------------------------------------------------------------
Medical Manager Corp.(a) 45,000 1,563,750
- ------------------------------------------------------------
Mercury Interactive Corp.(a) 20,000 1,262,500
- ------------------------------------------------------------
MindSpring Enterprises,
Inc.(a) 15,000 1,530,000
- ------------------------------------------------------------
QRS Corp.(a) 35,000 1,750,000
- ------------------------------------------------------------
QuadraMed Corp.(a) 100,000 2,837,500
- ------------------------------------------------------------
Rational Software Corp.(a) 95,000 3,140,938
- ------------------------------------------------------------
Secure Computing Corp.(a) 80,000 1,895,000
- ------------------------------------------------------------
Structural Dynamics Research
Corp.(a) 125,000 2,468,750
- ------------------------------------------------------------
USWeb Corp.(a) 100,000 3,050,000
- ------------------------------------------------------------
Verity, Inc.(a) 50,000 1,700,000
- ------------------------------------------------------------
Wind River Systems(a) 13,400 442,200
- ------------------------------------------------------------
49,476,139
- ------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES, & GIFTS)-0.47%
Fossil, Inc.(a) 45,000 1,334,531
- ------------------------------------------------------------
CONSUMER FINANCE-0.42%
Doral Financial Corp. 60,000 1,201,875
- ------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-1.03%
Patterson Dental Co.(a) 70,000 2,966,250
- ------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.55%
Aeroflex Inc.(a) 90,000 1,591,875
- ------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-6.02%
Applied Micro Circuits
Corp.(a) 30,000 1,260,000
- ------------------------------------------------------------
Flextronics International Ltd. 60,000 2,542,500
- ------------------------------------------------------------
Level One Communications,
Inc.(a) 65,000 2,567,500
- ------------------------------------------------------------
Microchip Technology, Inc.(a) 55,000 1,588,125
- ------------------------------------------------------------
PMC-Sierra, Inc.(a) 25,000 1,857,813
- ------------------------------------------------------------
</TABLE>
FS-9
<PAGE> 82
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS (SEMICONDUCTORS)-(CONTINUED)
RF Micro Devices, Inc.(a) 50,000 $ 3,618,750
- ------------------------------------------------------------
Semtech Corp.(a) 35,000 1,251,250
- ------------------------------------------------------------
Sipex Corp.(a) 50,000 1,337,500
- ------------------------------------------------------------
TranSwitch Corp.(a) 32,500 1,275,625
- ------------------------------------------------------------
17,299,063
- ------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.92%
ARM Financial Group,
Inc.-Class A 70,000 1,290,625
- ------------------------------------------------------------
NCO Group, Inc.(a) 55,000 1,938,750
- ------------------------------------------------------------
SEI Investments Co. 20,000 2,302,500
- ------------------------------------------------------------
5,531,875
- ------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-0.59%
IVAX Corp.(a) 125,000 1,695,313
- ------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-4.69%
Alpharma, Inc.-Class A 100,000 3,462,500
- ------------------------------------------------------------
Anesta Corp.(a) 100,000 2,843,750
- ------------------------------------------------------------
Barr Laboratories, Inc.(a) 50,000 1,971,875
- ------------------------------------------------------------
Inhale Therapeutic Systems,
Inc.(a) 50,000 1,668,750
- ------------------------------------------------------------
Jones Pharma, Inc. 66,400 2,116,500
- ------------------------------------------------------------
Medicis Pharmaceutical
Corp.-Class A(a) 20,000 1,422,500
- ------------------------------------------------------------
13,485,875
- ------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-1.14%
Express Scripts, Inc.-Class
A(a) 50,000 3,287,500
- ------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-8.50%
Biomatrix, Inc.(a) 40,000 2,415,000
- ------------------------------------------------------------
CardioThoracic Systems,
Inc.(a) 31,000 298,375
- ------------------------------------------------------------
Colorado MEDtech, Inc.(a) 125,000 1,625,000
- ------------------------------------------------------------
Heartport, Inc.(a) 250,000 1,953,125
- ------------------------------------------------------------
MiniMed, Inc.(a) 100,000 1,086,250
- ------------------------------------------------------------
Osteotech, Inc.(a) 70,000 3,640,000
- ------------------------------------------------------------
Perclose, Inc.(a) 40,000 1,650,000
- ------------------------------------------------------------
PSS World Medical, Inc.(a) 10,000 1,562,500
- ------------------------------------------------------------
ResMed, Inc.(a) 20,000 985,000
- ------------------------------------------------------------
SangStat Medical Corp.(a) 100,000 2,759,375
- ------------------------------------------------------------
VISX, Inc.(a) 53,000 3,233,000
- ------------------------------------------------------------
Xomed Surgical Products,
Inc.(a) 89,500 3,210,813
- ------------------------------------------------------------
24,418,438
- ------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-4.01%
First Consulting Group,
Inc.(a) 100,000 2,162,500
- ------------------------------------------------------------
Hooper Holmes, Inc. 82,000 2,378,000
- ------------------------------------------------------------
Renal Care Group, Inc.(a) 75,000 2,325,000
- ------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 40,000 1,665,000
- ------------------------------------------------------------
Techne Corp.(a) 75,000 1,893,750
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES)-(CONTINUED)
Veterinary Centers of America,
Inc.(a) 59,900 $ 1,093,175
- ------------------------------------------------------------
11,517,425
- ------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.37%
Penn Treaty American Corp.(a) 45,000 1,063,125
- ------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.38%
Alfa Corp. 50,000 1,100,000
- ------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.34%
HCC Insurance Holdings, Inc. 50,000 971,875
- ------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.70%
EVEREN Capital Corp. 83,000 2,023,125
- ------------------------------------------------------------
INVESTMENT MANAGEMENT-0.84%
Federated Investors,
Inc.-Class B 125,000 2,421,875
- ------------------------------------------------------------
LEISURE TIME (PRODUCTS)-2.06%
Acclaim Entertainment, Inc.(a) 150,000 1,387,500
- ------------------------------------------------------------
JAKKS Pacific, Inc.(a) 175,000 2,800,000
- ------------------------------------------------------------
THQ, Inc.(a) 70,000 1,741,250
- ------------------------------------------------------------
5,928,750
- ------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.16%
Superior TeleCom Inc. 75,000 3,318,750
- ------------------------------------------------------------
OFFICE EQUIPMENT &
SUPPLIES-0.55%
School Specialty, Inc.(a) 65,000 1,568,125
- ------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.43%
Cal Dive International,
Inc.(a) 80,000 1,240,000
- ------------------------------------------------------------
PERSONAL CARE-1.10%
D & K Healthcare Resources,
Inc.(a) 50,000 1,237,500
- ------------------------------------------------------------
NBTY, Inc.(a) 325,000 1,909,375
- ------------------------------------------------------------
3,146,875
- ------------------------------------------------------------
PUBLISHING-0.49%
Scholastic Corp.(a) 25,000 1,415,625
- ------------------------------------------------------------
RESTAURANTS-4.53%
Brinker International, Inc.(a) 50,000 1,375,000
- ------------------------------------------------------------
CKE Restaurants, Inc. 49,500 1,175,625
- ------------------------------------------------------------
Foodmaker, Inc.(a) 75,000 1,734,375
- ------------------------------------------------------------
O'Charley's Inc.(a) 145,000 2,011,875
- ------------------------------------------------------------
Papa John's International,
Inc.(a) 40,000 1,627,500
- ------------------------------------------------------------
Sonic Corp.(a) 130,000 3,282,500
- ------------------------------------------------------------
Taco Cabana-Class A(a) 200,000 1,812,500
- ------------------------------------------------------------
13,019,375
- ------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.21%
CDW Computer Centers, Inc.(a) 27,000 2,392,875
- ------------------------------------------------------------
</TABLE>
FS-10
<PAGE> 83
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (COMPUTERS & ELECTRONICS)-(CONTINUED)
CompUSA, Inc.(a) 85,000 $ 1,073,125
- ------------------------------------------------------------
3,466,000
- ------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.77%
99 Cents Only Stores(a) 50,000 2,218,750
- ------------------------------------------------------------
RETAIL (DRUG STORES)-0.67%
Longs Drug Stores Corp. 50,000 1,915,625
- ------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.88%
Micro Warehouse, Inc.(a) 65,000 2,535,000
- ------------------------------------------------------------
RETAIL (SPECIALTY)-4.22%
CSK Auto Corp.(a) 80,000 2,700,000
- ------------------------------------------------------------
General Nutrition Companies,
Inc.(a) 150,000 2,418,750
- ------------------------------------------------------------
Hollywood Entertainment
Corp.(a) 32,000 1,082,000
- ------------------------------------------------------------
Linens 'N Things, Inc.(a) 65,000 2,396,875
- ------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 32,000 1,588,000
- ------------------------------------------------------------
Rent-A-Center, Inc.(a) 60,000 1,935,000
- ------------------------------------------------------------
12,120,625
- ------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-5.57%
American Eagle Outfitters,
Inc.(a) 50,000 3,418,750
- ------------------------------------------------------------
Ann Taylor Stores Corp.(a) 80,000 3,100,000
- ------------------------------------------------------------
Bebe Stores, Inc.(a) 65,000 2,348,125
- ------------------------------------------------------------
Chico's Fas, Inc.(a) 120,100 3,753,125
- ------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 73,600 2,180,400
- ------------------------------------------------------------
Urban Outfitters, Inc.(a) 75,000 1,223,437
- ------------------------------------------------------------
16,023,837
- ------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-2.49%
Abacus Direct Corp.(a) 25,000 1,262,500
- ------------------------------------------------------------
ACNielsen Corp.(a) 70,000 1,601,250
- ------------------------------------------------------------
CMGI Inc.(a) 16,000 1,952,000
- ------------------------------------------------------------
Lamar Advertising Co.(a) 60,000 2,355,000
- ------------------------------------------------------------
7,170,750
- ------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.95%
Championship Auto Racing Teams,
Inc.(a) 60,000 1,620,000
- ------------------------------------------------------------
G & K Services, Inc.-Class A 20,000 1,095,000
- ------------------------------------------------------------
Regis Corp. 70,000 2,887,500
- ------------------------------------------------------------
5,602,500
- ------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.62%
Insight Enterprises, Inc.(a) 50,000 1,543,750
- ------------------------------------------------------------
Sykes Enterprises, Inc.(a) 62,500 3,125,000
- ------------------------------------------------------------
4,668,750
- ------------------------------------------------------------
SERVICES (DATA PROCESSING)-4.33%
CSG Systems International,
Inc.(a) 35,000 2,620,625
- ------------------------------------------------------------
FactSet Research Systems, Inc. 40,000 2,960,000
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING)-(CONTINUED)
Fair, Issac, and Company, Inc. 50,000 $ 2,525,000
- ------------------------------------------------------------
MedQuist, Inc.(a) 70,000 2,423,750
- ------------------------------------------------------------
National Computer Systems,
Inc. 50,000 1,912,500
- ------------------------------------------------------------
12,441,875
- ------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.54%
Data Processing Resources
Corp.(a) 65,000 1,560,000
- ------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-1.12%
Cornell Corrections, Inc.(a) 75,000 1,471,875
- ------------------------------------------------------------
Tetra Tech, Inc.(a) 71,250 1,745,625
- ------------------------------------------------------------
3,217,500
- ------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.90%
Metro One Telecommunications,
Inc.(a) 140,000 2,590,000
- ------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.63%
Global Crossing Ltd.
(Bermuda)(a) 62,500 3,304,681
- ------------------------------------------------------------
Viatel, Inc. 75,000 1,368,750
- ------------------------------------------------------------
4,673,431
- ------------------------------------------------------------
TELEPHONE-0.78%
GeoTel Communications Corp.(a) 57,500 2,246,094
- ------------------------------------------------------------
TEXTILES (APPAREL)-1.61%
Quicksilver, Inc.(a) 75,100 2,525,238
- ------------------------------------------------------------
Tarrant Apparel Group(a) 50,000 2,100,000
- ------------------------------------------------------------
4,625,238
- ------------------------------------------------------------
TEXTILES (SPECIALTY)-0.45%
Happy Kids, Inc.(a) 105,000 1,286,250
- ------------------------------------------------------------
WASTE MANAGEMENT-0.38%
KTI, Inc.(a) 48,800 1,079,700
- ------------------------------------------------------------
Total Common Stocks (Cost
$239,621,385) 309,026,384
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE EXPIRATION MARKET
CONTRACTS PRICE DATE VALUE
<S> <C> <C> <C> <C>
OPTIONS PURCHASED-1.59%
CALLS-1.39%
Amex Biotech Index 995 200 Mar-99 920,375
- ----------------------------------------------------------------------
Baxter International
Inc. (Health
Care-Medical
Products & Supplies) 2,800 70 Feb-99 787,500
- ----------------------------------------------------------------------
Fore Systems, Inc. 1,000 17.50 Apr-99 250,000
(Computers-Networking) 2,280 20 Apr-99 370,500
- ----------------------------------------------------------------------
Iomega Corp.
(Computers-Peripherals) 5,500 10 Feb-99 85,938
- ----------------------------------------------------------------------
KBW Banks Index 35 825 Mar-99 139,563
65 850 Mar-99 182,812
- ----------------------------------------------------------------------
Rational Software Co.
(Computers-Software
& Services) 2,000 30 Apr-99 1,150,000
- ----------------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 84
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE EXPIRATION MARKET
CONTRACTS PRICE DATE VALUE
<S> <C> <C> <C> <C>
CALLS-(CONTINUED)
SunRise Assisted
Living, Inc.
(Healthcare-Medical
Products &
Supplies) 1,000 45 Feb-99 $ 106,250
- ----------------------------------------------------------------------
3,992,938
- ----------------------------------------------------------------------
PUTS-0.20%
Lernout & Hasupie Speech Products N.V.
(Services-Commercial
& Consumer) 1,000 40 Feb-99 587,500
- ----------------------------------------------------------------------
S & P 500 Index 125 925 Feb-99 1,562
- ----------------------------------------------------------------------
589,062
- ----------------------------------------------------------------------
Total Options Purchased (Premiums
paid $4,897,554) 4,582,000
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
WARRANTS-0.44%
BANKS (REGIONAL)-0.44%
Golden State Bancorp, Litigation
Warrants, expiring 01/01/01
(Cost $1,471,875) 300,000 1,265,625
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-2.42%(b)
Dean Witter Reynolds, Inc.,
4.78%, 02/01/99(c) $6,965,025 6,965,025
- -----------------------------------------------------------
TOTAL INVESTMENTS-111.97% 321,839,034
- -----------------------------------------------------------
LIABILITIES LESS OTHER ASSETS-(11.97)% (34,404,609)
- -----------------------------------------------------------
NET ASSETS-100.00% $287,434,425
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
SOLD MARKET
SHORT VALUE
<S> <C> <C>
SECURITIES SOLD SHORT(d)
Adobe Systems, Inc. 35,000 $ 1,671,250
- ----------------------------------------------------------
Advanced Micro Devices, Inc. 45,000 1,032,187
- ----------------------------------------------------------
Anadigics, Inc. 75,100 1,323,637
- ----------------------------------------------------------
Beckman Coulter Inc. 25,000 1,246,875
- ----------------------------------------------------------
Brite Voice Systems, Inc. 56,100 561,000
- ----------------------------------------------------------
CONMED Corp. 30,000 982,500
- ----------------------------------------------------------
Dollar General Corp. 55,000 1,371,563
- ----------------------------------------------------------
Duane Reade, Inc. 11,000 330,000
- ----------------------------------------------------------
J. D. Edwards & Co. 50,000 1,015,625
- ----------------------------------------------------------
Enhance Financial Service Group
Inc. 50,000 1,250,000
- ----------------------------------------------------------
Harmon Industries, Inc. 30,000 675,000
- ----------------------------------------------------------
HEALTHSOUTH Corp. 150,000 2,034,375
- ----------------------------------------------------------
HealthCare Financial Partners, Inc. 10,000 308,125
- ----------------------------------------------------------
IDEC Pharmaceuticals Corp. 15,000 757,500
- ----------------------------------------------------------
Information Management Resources,
Inc. 45,000 1,141,875
- ----------------------------------------------------------
InterVoice, Inc. 40,000 437,500
- ----------------------------------------------------------
I2 Technologies, Inc. 50,000 1,743,750
- ----------------------------------------------------------
King Pharmaceuticals, Inc. 70,500 1,700,813
- ----------------------------------------------------------
Lernout & Hasupie Speech Products
N.V. 10,000 355,000
- ----------------------------------------------------------
Ocular Sciences, Inc. 7,200 166,500
- ----------------------------------------------------------
ProBusiness Services, Inc. 15,000 541,875
- ----------------------------------------------------------
Profit Recovery Group
International, Inc. 35,000 1,207,500
- ----------------------------------------------------------
Stryker Corp. 37,500 1,739,064
- ----------------------------------------------------------
Tenet Healthcare Corp. 50,000 1,046,875
- ----------------------------------------------------------
United Asset Management Corp. 50,000 1,162,500
- ----------------------------------------------------------
WestPoint Stevens, Inc. 75,000 1,994,531
- ----------------------------------------------------------
Whole Foods Market, Inc. 19,500 625,218
- ----------------------------------------------------------
$28,422,638
- ----------------------------------------------------------
</TABLE>
- ---------------
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) 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.
(c) Joint repurchase agreement entered into 01/29/99 with a maturing value of
$300,119,500. Collateralized by $304,204,000 U.S. Treasury obligations, 0%
due 02/04/99 to 02/20/07 with an aggregate market value at 01/31/99 of
$306,000,685.
(d) Collateral on short sales was segregated by the Fund in the amount of
$30,194,093 which represents 106.23% of market value of securities sold short.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
FS-12
<PAGE> 85
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$252,955,839) $321,839,034
- ---------------------------------------------------------
Cash 3,727,497
- ---------------------------------------------------------
Receivables for:
Investments sold 2,597,413
- ---------------------------------------------------------
Investments sold short 27,276,177
- ---------------------------------------------------------
Fund shares sold 1,630,084
- ---------------------------------------------------------
Dividends and interest 7,462
- ---------------------------------------------------------
Investment for deferred compensation plan 2,835
- ---------------------------------------------------------
Other assets 587,295
- ---------------------------------------------------------
Total assets 357,667,797
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 10,224,141
- ---------------------------------------------------------
Fund shares reacquired 761,613
- ---------------------------------------------------------
Deferred compensation plan 2,835
- ---------------------------------------------------------
Loans 30,000,000
- ---------------------------------------------------------
Market value of securities sold short
(proceeds from sales $27,276,177) 28,422,638
- ---------------------------------------------------------
Options written (premiums received
$287,128) 257,109
- ---------------------------------------------------------
Accrued advisory fees 236,298
- ---------------------------------------------------------
Accrued distribution fees 156,544
- ---------------------------------------------------------
Accrued trustees' fees 842
- ---------------------------------------------------------
Accrued transfer agent fees 30,983
- ---------------------------------------------------------
Accrued operating expenses 140,369
- ---------------------------------------------------------
Total liabilities 70,233,372
- ---------------------------------------------------------
Net assets applicable to shares outstanding $287,434,425
- ---------------------------------------------------------
NET ASSETS:
Class A $165,174,376
- ---------------------------------------------------------
Class B $121,535,734
- ---------------------------------------------------------
Class C $ 724,315
- ---------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 13,577,596
- ---------------------------------------------------------
Class B 10,028,884
- ---------------------------------------------------------
Class C 59,762
- ---------------------------------------------------------
Class A:
Net asset value and redemption price per
share $ 12.17
- ---------------------------------------------------------
Offering price per share:
(Net asset value of
$12.17 divided by 94.50%) $ 12.88
- ---------------------------------------------------------
Class B:
Net asset value and offering price per
share $ 12.12
- ---------------------------------------------------------
Class C:
Net asset value and offering price per
share $ 12.12
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 750,743
- ---------------------------------------------------------
Dividends 167,362
- ---------------------------------------------------------
Total investment income 918,105
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,106,069
- ---------------------------------------------------------
Administrative services fees 64,128
- ---------------------------------------------------------
Custodian fees 26,908
- ---------------------------------------------------------
Interest expense 177,922
- ---------------------------------------------------------
Transfer agent fees-Class A 102,102
- ---------------------------------------------------------
Transfer agent fees-Class B 87,822
- ---------------------------------------------------------
Transfer agent fees-Class C 153
- ---------------------------------------------------------
Trustees' fees 4,636
- ---------------------------------------------------------
Distribution fees-Class A 220,826
- ---------------------------------------------------------
Distribution fees-Class B 474,873
- ---------------------------------------------------------
Distribution fees-Class C 263
- ---------------------------------------------------------
Other 184,711
- ---------------------------------------------------------
Total expenses 2,450,413
- ---------------------------------------------------------
Less: Expenses paid indirectly (12,413)
- ---------------------------------------------------------
Net expenses 2,438,000
- ---------------------------------------------------------
Net investment income (loss) (1,519,895)
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, SECURITIES SOLD
SHORT, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Futures contracts (6,060,564)
- ---------------------------------------------------------
Investment securities (11,502,276)
- ---------------------------------------------------------
Securities sold short 1,182,572
- ---------------------------------------------------------
Option contracts (1,740,866)
- ---------------------------------------------------------
(18,121,134)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 73,186,912
- ---------------------------------------------------------
Securities sold short (1,223,603)
- ---------------------------------------------------------
Futures contracts 3,348,202
- ---------------------------------------------------------
Option contracts (252,753)
- ---------------------------------------------------------
75,058,758
- ---------------------------------------------------------
Net gain from investment securities,
securities sold short, futures and
option contracts 56,937,624
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 55,417,729
- ---------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-13
<PAGE> 86
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND THE PERIOD JUNE 29, 1998 (DATE
OPERATIONS COMMENCED) THROUGH JULY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (1,519,895) $ 148,549
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
option contracts (18,121,134) 1,217,379
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, securities sold short, futures and option
contracts 75,058,758 (7,292,005)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 55,417,729 (5,926,077)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (102,771) --
- -----------------------------------------------------------------------------------------
Class B (48,776) --
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 25,668,581 110,724,862
- -----------------------------------------------------------------------------------------
Class B 13,966,004 86,925,398
- -----------------------------------------------------------------------------------------
Class C 709,475 --
- -----------------------------------------------------------------------------------------
Net increase in net assets 95,610,242 191,724,183
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 191,824,183 100,000
- -----------------------------------------------------------------------------------------
End of period 287,434,425 191,824,183
- -----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $238,091,945 $197,747,885
- -----------------------------------------------------------------------------------------
Undistributed net investment income (loss) (1,520,518) 150,924
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, securities sold short, futures and option
contracts (16,903,755) 1,217,379
- -----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, securities sold short, futures and option
contracts 67,766,753 (7,292,005)
- -----------------------------------------------------------------------------------------
$287,434,425 $191,824,183
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-14
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
(UNAUDITED)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Opportunities Fund (the "Fund") is a series portfolio of AIM
Special Opportunities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of two
investment portfolios. The Fund commenced operations on June 29, 1998. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C. Class A shares are sold with a front-end sales charge. Class
B and Class C shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class are voted on exclusively by the shareholders
of such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these financial
statements pertains only to the Fund. The Fund's investment objective is
long-term capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price 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 closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices and may reflect appropriate factors such
as yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued at the
mean between the last bid and asked prices based upon quotes furnished by
independent sources. Securities for which market quotations either are not
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the Trust's officers in a manner
specifically authorized by the Board of Trustees. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value.
B. Accounting for Securities Sold Short -- When the Fund sells common stock
short, an amount equal to the proceeds of the sale is recorded as an asset.
This asset is offset by a liability (representing the borrowed security)
recorded on the books of the Fund at the market value of the common stock
determined each day in accordance with the procedures for security valuations
discussed in section "A". The Fund's risk is that the value of the security
will increase rather than decline and thus an unrealized loss will be
recorded. When the Fund closes out a short position by delivering the stock
sold short, the Fund will realize a gain or loss and the liability related to
such short position will be eliminated. The Fund is required to segregate
cash or securities as collateral at a level that is equal to the current
market value of the securities sold short to secure its obligation to the
broker who delivered such securities to the buyer on behalf of the Fund. The
amount segregated as collateral deposits will not at any time exceed 25% of
the Fund's net assets.
C. 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, dividend expense on
short sales and distributions to shareholders are recorded on the ex-dividend
date.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
E. Call Options -- The Fund may write and buy call options, including securities
index options. 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 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
FS-15
<PAGE> 88
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.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities included
in the index. In the purchase of securities index options the principal risk
is that the premium and transaction costs paid by the Fund in purchasing an
option will be lost if the changes in the level of the index do not exceed
the cost of the option. In writing securities index options, the principal
risk is that the Fund could bear a loss on the options that would be only
partially offset (or not offset at all) by the increased value or reduced
cost of hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities
used as cover.
The Fund will not write options if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 50% of the total assets of the
Fund.
F. Put Options -- The Fund may purchase and write put options including
securities index options. By purchasing a put option, the Fund obtains the
right (but not the obligation) to sell the options' 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, securities
index, 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 hedge. The Fund may write put options to earn
additional income in the form of option premiums if it expects the price of
the underlying securities to remain stable or rise during the option period
so that the option will not be exercised. The risk in this strategy is that
the price of the underlying securities may decline by an amount greater than
the premium received. The Fund will not purchase options if, at the time of
the investment, the aggregate premiums paid for outstanding options will
exceed 25% of the Fund's total assets.
G. Stock Index Futures Contracts -- The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash 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 Fund's portfolio being hedged.
H. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
NOTE 2- ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 1% of the
Fund's average daily net assets.
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 January 31, 1999,
AIM was reimbursed $64,128 for such services.
The Fund, pursuant to a transfer agency and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency shareholder services to the Fund. During the six months ended January 31,
1999, AFS was paid $97,764 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. The Fund pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of these amounts, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class A, Class B or Class C
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. During the period ended January 31,
1999, the Class A, Class B and Class C shares paid AIM Distributors $220,826,
$474,873, and $263, respectively, as compensation under the Plans.
FS-16
<PAGE> 89
AIM Distributors received commissions of $126,592 from sales of the Class A
shares of the Fund during the six months ended January 31, 1999. Such
commissions are not an expense of the Fund. They are deducted from, and are not
included in, the proceeds from sales of Class A shares. During the year ended
December 31, 1998, AIM Distributors received $8,758 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and trustees of
the Trust are officers and directors of AIM, AIM Distributors and AFS. During
the six months ended January 31, 1999, the Fund paid legal fees of $686 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board
of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
During the six months ended January 31, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $1,223 and $11,190, respectively under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $12,413 during the six months ended January 31, 1999.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, 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) $240,000,000 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 January 31, 1999, the maximum amount outstanding
during the period was $35,000,000 while borrowings averaged $7,092,391 per day
with a weighted average interest rate of 4.98%. Interest expense for the period
ended January 31, 1999, was $177,922. The funds which are parties to the line of
credit are charged a commitment fee of 0.06% on the unused balance of the
committed line. The commitment fee is allocated among such funds based on their
respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended January 31, 1999 was
$373,158,274 and $209,358,890, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of January 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of:
Investment securities $75,188,543
- ---------------------------------------------------------
Securities sold short 1,336,074
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (7,361,935)
- ---------------------------------------------------------
Securities sold short (2,482,535)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $66,680,147
- ---------------------------------------------------------
Cost of investments for tax purposes is $254,012,426.
Proceeds from securities sold short for tax purposes is
the same for tax and financial reporting purposes.
</TABLE>
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the six months ended January 31, 1999 and
the period June 29, 1998 (date operations commenced) through July 31, 1998 were
as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1999 JULY 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 5,851,161 $ 58,525,689 11,173,989 $112,285,297
- ----------------------------------------------------------------------------
Class B* 2,532,799 25,055,157 8,700,960 87,549,103
- ----------------------------------------------------------------------------
Class C* 59,762 709,475 -- --
- ----------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 8,676 96,297 -- --
- ----------------------------------------------------------------------------
Class B* 3,754 41,577 -- --
- ----------------------------------------------------------------------------
Reacquired:
Class A (3,300,415) (32,953,405) (155,815) (1,560,435)
- ----------------------------------------------------------------------------
Class B* (1,146,130) (11,130,730) (62,499) (623,705)
- ----------------------------------------------------------------------------
4,009,607 $ 40,344,060 19,656,635 $197,650,260
- ----------------------------------------------------------------------------
</TABLE>
* Class B and Class C shares commenced sales on July 13, 1998 and December 30,
1998, respectively.
FS-17
<PAGE> 90
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the six months ended January 31,
1999 are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of period 775 $ 71,774
- -------------------------------------------------------------------------------------
Written 2,476 1,700,837
- -------------------------------------------------------------------------------------
Closed (2,951) (1,551,018)
- -------------------------------------------------------------------------------------
Expired (200) (29,399)
- -------------------------------------------------------------------------------------
End of period 100 $ 192,194
- -------------------------------------------------------------------------------------
</TABLE>
Open call option contracts written at January 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
1999 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM MARKET APPRECIATION/
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ----- -------- ------ --------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index Mar 1,325 100 $192,194 $251,250 $(59,056)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 9-PUT OPTION CONTRACTS
Transactions in put option contracts written during the six months ended January
31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
<S> <C> <C>
Beginning of period 100 $ 63,448
- --------------------------------------------------------------------------------------
Written 640 495,585
- --------------------------------------------------------------------------------------
Closed (315) (265,206)
- --------------------------------------------------------------------------------------
Expired (300) (198,893)
- --------------------------------------------------------------------------------------
End of period 125 $ 94,934
- --------------------------------------------------------------------------------------
</TABLE>
Open put option contracts written at January 31, 1999 were as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1999
CONTRACT STRIKE NUMBER OF PREMIUM MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
- ----- -------- ------ --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index Feb 1,025 125 $94,934 $ 5,859 $89,075
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during the six months ended January 31, 1999 and the period June 29, 1998 (date
operations commenced) through July 31, 1998, for a share of Class B outstanding
during the period July 13, 1998 (date sales commenced) through January 31, 1999,
and for a share of Class C outstanding during the period December 30, 1998 (date
sales commenced) through January 31, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------------- ---------------------- -----------
JANUARY 31, JULY 31, JANUARY 31, JULY 31, JANUARY 31,
1999 1998 1999 1998 1999
----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.76 $ 10.00 $ 9.76 $ 10.07 $ 11.70
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Income from investment operations:
Net investment income (loss) (0.04)(a) 0.02(a) (0.08)(a) 0.01(a) (0.02)(a)
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 2.46 (0.26) 2.45 (0.32) 0.44
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Total from investment operations 2.42 (0.24) 2.37 (0.31) 0.42
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Dividends from net investment income (0.01) -- (0.01) -- --
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Net asset value, end of period $ 12.17 $ 9.76 $ 12.12 $ 9.76 $ 12.12
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Total return(b) 24.78% (2.40)% 24.24% (3.08)% 6.04%
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $165,174 $107,540 $121,536 $84,285 $ 724
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Ratio of expenses to average net assets 1.67%(c) 1.59% 2.38%(c) 2.30% 2.38%(c)
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Ratio of net investment income (loss) to average net assets (0.84)%(c) 2.00% (1.55)%(c) 1.29% (1.74)%(c)
- ------------------------------------------------------------ -------- -------- -------- ------- -------
Portfolio turnover rate 102% 13% 102% 13% 102%
- ------------------------------------------------------------ -------- -------- -------- ------- -------
</TABLE>
(a)Calculated using average shares outstanding.
(b)Does not deduct sales charges and is not annualized for periods less than one
year.
(c)Ratios are annualized and based on average net assets of $125,157,832,
$94,200,350, and $400,351 for Class A, Class B and Class C shares,
respectively.
FS-18
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Small Cap Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of the AIM
Small Cap Opportunities Fund (a series of AIM Special Opportunities Funds)
including the schedule of investments, as of July 31, 1998, and the related
statement of operations, changes in net assets, and financial highlights for the
period June 29, 1998 (date operations commenced) through July 31, 1998. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
AIM Small Cap Opportunities Fund as of July 31, 1998, the results of its
operations, changes in its net assets and financial highlights for the period
June 29, 1998 (date operations commenced) through July 31, 1998, in conformity
with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
September 4, 1998
Houston, Texas
FS-19
<PAGE> 92
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-44.21%
AEROSPACE/DEFENSE-0.35%
AAR Corp. 26,700 $ 675,844
- --------------------------------------------------------------
AIR FREIGHT-0.01%
Eagle USA Airfreight, Inc.(a) 600 16,650
- --------------------------------------------------------------
AIRLINES-0.46%
ASA Holdings, Inc. 5,800 246,500
- --------------------------------------------------------------
Atlantic Coast Airlines
Holdings(a) 400 10,550
- --------------------------------------------------------------
COMAIR Holdings, Inc. 20,000 631,250
- --------------------------------------------------------------
888,300
- --------------------------------------------------------------
BANKS (REGIONAL)-1.89%
Bank United Corp.-Class A 17,000 758,625
- --------------------------------------------------------------
First Virginia Banks, Inc. 11,000 604,313
- --------------------------------------------------------------
Golden State Bancorp, Inc.(a) 25,000 689,063
- --------------------------------------------------------------
Southwest Bancorporation of Texas,
Inc.(a) 50,000 893,750
- --------------------------------------------------------------
Sterling Bancshares, Inc. 45,000 675,000
- --------------------------------------------------------------
3,620,751
- --------------------------------------------------------------
BIOTECHNOLOGY-0.10%
ICON plc-ADR(a) (United Kingdom) 5,900 184,375
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.57%
Citadel Communications Corp.(a) 12,500 275,000
- --------------------------------------------------------------
Heftel Broadcasting Corp.(a) 20,000 815,000
- --------------------------------------------------------------
1,090,000
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.02%
OM Group, Inc. 1,000 37,063
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.62%
Anixter International, Inc.(a) 1,000 18,188
- --------------------------------------------------------------
Comverse Technology, Inc.(a) 14,000 714,875
- --------------------------------------------------------------
Dycom Industries, Inc.(a) 13,300 457,188
- --------------------------------------------------------------
1,190,251
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-0.59%
IDX Systems Corp.(a) 20,000 992,500
- --------------------------------------------------------------
Splash Technology Holdings,
Inc.(a) 5,900 134,594
- --------------------------------------------------------------
1,127,094
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-0.65%
Broadcom Corp.(a) 20,000 1,255,000
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.78%
MICROS Systems, Inc.(a) 27,100 1,016,250
- --------------------------------------------------------------
SMART Modular Technologies,
Inc.(a) 25,000 478,125
- --------------------------------------------------------------
1,494,375
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-4.95%
Aspect Development, Inc.(a) 300 18,300
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Aspen Technology, Inc.(a) 1,700 $ 45,050
- --------------------------------------------------------------
AVT Corp.(a) 40,800 933,300
- --------------------------------------------------------------
Business Objects S.A.-ADR(a)
(France) 57,100 849,363
- --------------------------------------------------------------
Computer Management Sciences,
Inc.(a) 7,800 189,150
- --------------------------------------------------------------
Concord Communications, Inc. 100 3,450
- --------------------------------------------------------------
Concord EFS, Inc.(a) 30,000 735,000
- --------------------------------------------------------------
Datastream Systems, Inc.(a) 12,700 198,438
- --------------------------------------------------------------
HNC Software, Inc.(a) 20,000 821,250
- --------------------------------------------------------------
Jack Henry & Associates, Inc. 20,000 811,250
- --------------------------------------------------------------
Learning Company, Inc. (The)(a) 30,000 798,750
- --------------------------------------------------------------
Legato Systems, Inc.(a) 30,000 1,305,000
- --------------------------------------------------------------
QRS Corp.(a) 14,300 450,450
- --------------------------------------------------------------
QuadraMed Corp.(a) 35,700 1,044,225
- --------------------------------------------------------------
Rational Software Corp.(a) 65,000 1,072,500
- --------------------------------------------------------------
Secure Computing Corp.(a) 17,300 211,925
- --------------------------------------------------------------
9,487,401
- --------------------------------------------------------------
CONSUMER FINANCE-0.01%
AmeriCredit Corp.(a) 600 20,250
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.09%
Patterson Dental Co.(a) 5,000 181,250
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.69%
Oak Industries, Inc.(a) 4,800 178,200
- --------------------------------------------------------------
Sanmina Corp.(a) 25,000 1,140,625
- --------------------------------------------------------------
1,318,825
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-1.87%
Applied Micro Circuits Corp.(a) 25,000 567,188
- --------------------------------------------------------------
Artisan Components, Inc.(a) 35,000 450,625
- --------------------------------------------------------------
Dallas Semiconductor Corp. 200 6,425
- --------------------------------------------------------------
Level One Communications, Inc.(a) 20,400 453,900
- --------------------------------------------------------------
Micrel, Inc.(a) 15,000 450,000
- --------------------------------------------------------------
Microchip Technology, Inc.(a) 41,900 1,284,497
- --------------------------------------------------------------
PMC-Sierra, Inc.(a) 500 20,438
- --------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 11,000 361,625
- --------------------------------------------------------------
3,594,698
- --------------------------------------------------------------
ENTERTAINMENT-0.36%
SFX Entertainment, Inc.-Class A(a) 16,000 688,000
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.55%
NCO Group, Inc.(a) 50,000 1,056,250
- --------------------------------------------------------------
FOODS-0.27%
American Italian Pasta Co.-Class
A(a) 200 6,900
- --------------------------------------------------------------
Earthgrains Co. (The) 15,000 513,750
- --------------------------------------------------------------
520,650
- --------------------------------------------------------------
</TABLE>
FS-20
<PAGE> 93
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOOTWEAR-0.54%
Stride Rite Corp. 18,300 $ 221,888
- --------------------------------------------------------------
Wolverine World Wide, Inc. 50,000 812,500
- --------------------------------------------------------------
1,034,388
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.87%
Alpharma, Inc.-Class A 40,000 990,000
- --------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 36,000 927,000
- --------------------------------------------------------------
Jones Pharma, Inc. 30,000 954,375
- --------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class
A(a) 20,000 715,000
- --------------------------------------------------------------
3,586,375
- --------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-1.06%
Concentra Managed Care, Inc.(a) 50,000 1,150,000
- --------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 12,000 882,375
- --------------------------------------------------------------
2,032,375
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.98%
Hooper Holmes, Inc. 35,000 700,000
- --------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 30,000 1,155,000
- --------------------------------------------------------------
Veterinary Centers of America,
Inc.(a) 1,000 18,875
- --------------------------------------------------------------
1,873,875
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.45%
Henry Schein, Inc.(a) 21,000 1,010,625
- --------------------------------------------------------------
Hologic, Inc.(a) 15,100 250,094
- --------------------------------------------------------------
MiniMed, Inc.(a) 20,400 1,035,300
- --------------------------------------------------------------
ResMed, Inc.(a) 500 22,437
- --------------------------------------------------------------
VISX, Inc.(a) 7,500 468,750
- --------------------------------------------------------------
2,787,206
- --------------------------------------------------------------
HOMEBUILDING-0.32%
American Homestar Corp.(a) 30,800 604,450
- --------------------------------------------------------------
HOUSEWARES-1.01%
Helen of Troy Ltd.(a) 55,600 1,257,950
- --------------------------------------------------------------
Windmere-Durable Holdings Inc.(a) 25,000 684,375
- --------------------------------------------------------------
1,942,325
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.01%
Penn Treaty American Corp.(a) 600 16,950
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.79%
EVEREN Capital Corp. 31,000 862,187
- --------------------------------------------------------------
Hambrecht & Quist Group 20,700 657,225
- --------------------------------------------------------------
1,519,412
- --------------------------------------------------------------
INVESTMENT MANAGEMENT-0.01%
Knight/Trimark Group, Inc.(a) 700 12,075
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.39%
Bally Total Fitness Holding
Corp.(a) 30,000 744,375
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.35%
Applied Power, Inc.-Class A 20,000 662,500
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-0.37%
Zebra Technologies Corp.(a) 22,000 $ 713,625
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.43%
Mail-Well, Inc.(a) 45,000 832,500
- --------------------------------------------------------------
PERSONAL CARE-0.51%
Twinlab Corp.(a) 23,500 975,250
- --------------------------------------------------------------
PUBLISHING-0.25%
IDG Books Worldwide, Inc.(a) 30,300 484,800
- --------------------------------------------------------------
RESTAURANTS-1.30%
Apple South, Inc. 20,000 250,000
- --------------------------------------------------------------
CEC Entertainment, Inc.(a) 10,000 267,500
- --------------------------------------------------------------
CKE Restaurants, Inc. 25,000 934,375
- --------------------------------------------------------------
Papa John's International, Inc.(a) 30,000 1,038,750
- --------------------------------------------------------------
2,490,625
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.62%
Eagle Hardware & Garden, Inc.(a) 55,000 1,182,500
- --------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.29%
Rex Stores Corp.(a) 50,000 565,625
- --------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.76%
Ames Department Stores, Inc.(a) 25,000 534,375
- --------------------------------------------------------------
99 Cents Only Stores(a) 22,500 922,500
- --------------------------------------------------------------
1,456,875
- --------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.00%
DM Management Co.(a) 400 7,350
- --------------------------------------------------------------
RETAIL (SPECIALTY)-4.06%
Finish Line, Inc. (The)-Class A(a) 50,700 1,096,387
- --------------------------------------------------------------
Footstar, Inc.(a) 12,600 466,988
- --------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 5,000 173,750
- --------------------------------------------------------------
Just for Feet, Inc.(a) 24,100 557,312
- --------------------------------------------------------------
Linens 'n Things, Inc.(a) 30,000 843,750
- --------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 50,000 850,000
- --------------------------------------------------------------
Michaels Stores, Inc.(a) 500 16,375
- --------------------------------------------------------------
Musicland Stores Corp.(a) 36,300 537,694
- --------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 30,000 1,061,250
- --------------------------------------------------------------
Party City Corp.(a) 600 13,575
- --------------------------------------------------------------
Pier 1 Imports, Inc. 63,000 980,437
- --------------------------------------------------------------
Renters Choice, Inc.(a) 12,700 328,613
- --------------------------------------------------------------
Sunglass Hut International,
Inc.(a) 1,700 13,600
- --------------------------------------------------------------
Trans World Entertainment Corp.(a) 500 19,687
- --------------------------------------------------------------
Williams-Sonoma, Inc.(a) 25,000 826,562
- --------------------------------------------------------------
7,785,980
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.98%
Abercrombie & Fitch Co.-Class A(a) 7,900 366,856
- --------------------------------------------------------------
AnnTaylor Stores Corp.(a) 20,200 425,462
- --------------------------------------------------------------
Buckle, Inc. (The)(a) 34,200 825,075
- --------------------------------------------------------------
</TABLE>
FS-21
<PAGE> 94
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL)-(CONTINUED)
Chico's Fas, Inc.(a) 25,000 $ 362,500
- --------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 29,900 773,662
- --------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 23,600 746,350
- --------------------------------------------------------------
Pacific Sunwear of California,
Inc.(a) 10,000 295,000
- --------------------------------------------------------------
3,794,905
- --------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.44%
Abacus Direct Corp.(a) 15,400 662,200
- --------------------------------------------------------------
Acxiom Corp.(a) 400 9,150
- --------------------------------------------------------------
ADVO, Inc.(a) 5,500 169,812
- --------------------------------------------------------------
Catalina Marketing Corp.(a) 5,000 246,875
- --------------------------------------------------------------
Healthworld Corp.(a) 30,000 465,000
- --------------------------------------------------------------
Lamar Advertising Co.(a) 25,000 951,562
- --------------------------------------------------------------
Metris Companies Inc. 300 22,200
- --------------------------------------------------------------
Professional Detailing, Inc.(a) 10,000 230,000
- --------------------------------------------------------------
2,756,799
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.04%
ABR Information Services, Inc.(a) 25,000 437,500
- --------------------------------------------------------------
Cerner Corp.(a) 700 19,862
- --------------------------------------------------------------
G & K Services, Inc.-Class A 10,000 497,500
- --------------------------------------------------------------
MSC Industrial Direct Co.,
Inc.-Class A(a) 25,000 746,875
- --------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 10,000 283,750
- --------------------------------------------------------------
1,985,487
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.64%
Insight Enterprises, Inc.(a) 20,000 965,000
- --------------------------------------------------------------
InterVoice, Inc.(a) 1,900 35,269
- --------------------------------------------------------------
Leasing Solutions, Inc.(a) 25,600 795,200
- --------------------------------------------------------------
Shared Medical Systems Corp. 20,000 1,357,500
- --------------------------------------------------------------
3,152,969
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.64%
CSG Systems International, Inc.(a) 23,000 983,250
- --------------------------------------------------------------
FactSet Research Systems, Inc.(a) 20,000 735,000
- --------------------------------------------------------------
MedQuist, Inc.(a) 30,000 693,750
- --------------------------------------------------------------
National Data Corp. 18,000 741,375
- --------------------------------------------------------------
3,153,375
- --------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.34%
Labor Ready, Inc.(a) 20,400 650,250
- --------------------------------------------------------------
On Assignment, Inc.(a) 100 3,587
- --------------------------------------------------------------
653,837
- --------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.41%
Cornell Corrections, Inc.(a) 30,000 461,250
- --------------------------------------------------------------
Tetra Tech, Inc.(a) 15,000 322,500
- --------------------------------------------------------------
783,750
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SPECIALTY PRINTING-0.01%
Consolidated Graphics, Inc.(a) 400 $ 23,525
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.43%
Amdocs Limited(a) 17,300 236,794
- --------------------------------------------------------------
International Telecommunication Data Systems,
Inc.(a) 20,000 588,750
- --------------------------------------------------------------
825,544
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.55%
ITC DeltaCom, Inc.(a) 22,000 1,050,500
- --------------------------------------------------------------
TELEPHONE-0.36%
GeoTel Communications Corp.(a) 15,500 689,750
- --------------------------------------------------------------
TEXTILES (APPAREL)-0.76%
Nautica Enterprises, Inc.(a) 13,800 355,782
- --------------------------------------------------------------
Quicksilver, Inc.(a) 30,100 538,037
- --------------------------------------------------------------
Russell Corp. 17,400 568,762
- --------------------------------------------------------------
1,462,581
- --------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.32%
Mohawk Industries, Inc.(a) 20,000 622,500
- --------------------------------------------------------------
WIRELESS EQUIPMENT-0.27%
Carrier Access Corp. 32,000 516,000
- --------------------------------------------------------------
WASTE MANAGEMENT-0.82%
American Disposal Services,
Inc.(a) 20,000 767,500
- --------------------------------------------------------------
KTI, Inc.(a) 33,800 811,200
- --------------------------------------------------------------
1,578,700
- --------------------------------------------------------------
Total Common Stocks (Cost $88,796,847) 84,808,685
- --------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
OPTIONS PURCHASED-0.08%
COMMUNICATIONS EQUIPMENT-0.04%
Ciena, Corp.-Sept. 90 calls 77,500 70,234
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.04%
America Online Inc.-Aug. 120 calls 10,000 73,125
- --------------------------------------------------------------
Yahoo!, Inc.-Aug. 185 calls 300 3,300
- --------------------------------------------------------------
76,425
- --------------------------------------------------------------
Total Options Purchased (Cost
$243,882) 146,659
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-36.32%
U.S. TREASURY BILLS-36.32%(b)
4.835%, 09/24/98(c) $51,565,000 51,195,816
- --------------------------------------------------------------
4.862%, 09/24/98(c) 18,605,000 18,482,951
- --------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $69,668,674) 69,678,767
- --------------------------------------------------------------
Total Investments, Excluding
Repurchase Agreements (Cost
$158,709,403) 154,634,111
- --------------------------------------------------------------
</TABLE>
FS-22
<PAGE> 95
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-28.02%(d)
Dean Witter Reynolds, Inc., 5.67%,
08/03/98(e) $25,000,000 $ 25,000,000
- --------------------------------------------------------------
Goldman, Sachs & Co., 5.66%,
08/03/98(f) 28,740,077 28,740,077
- --------------------------------------------------------------
Total Repurchase Agreements
(Cost $53,740,077) 53,740,077
- --------------------------------------------------------------
TOTAL INVESTMENTS-108.63% 208,374,188
- --------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS-(8.63)% (16,550,005)
- --------------------------------------------------------------
NET ASSETS-100.00% $191,824,183
==============================================================
</TABLE>
SECURITIES SOLD SHORT
July 31, 1998
<TABLE>
<CAPTION>
SHARES
SOLD MARKET
SECURITIES SOLD SHORT(g) SHORT VALUE
- ------------------------ ------ ----------
<S> <C> <C>
Aetna, Inc. 7,500 $ 519,844
Cybercash, Inc. 35,000 395,937
Lernout & Hauspie Speech Products
N.V. 10,000 516,250
Melita International Corp. 30,000 361,875
Tektronix, Inc. 19,000 520,125
Tenet Healthcare Corp. 20,000 598,750
----------
$2,912,781
----------
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing securities.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open future contracts. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 07/31/98, with a maturing value of
$300,141,750. Collateralized by $306,718,000 U.S. Treasury obligations 0% to
8.00% due 08/06/98 to 06/15/44 with an aggregate market value at 07/31/98 of
$306,000,958.
(f) Joint repurchase agreement entered into 07/31/98, with a maturing value of
$800,377,333. Collateralized by $657,534,000 U.S. Treasury obligations 0% to
14.25% due 10/31/98 to 02/15/27 with an aggregate market value at 07/31/98
of $816,817,098.
(g) Collateral on short sales was segregated by the Fund in the amount of
$4,423,077 which represents 152% of market value.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
FS-23
<PAGE> 96
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase
agreements, at market value (cost
$158,709,403) $154,634,111
- ---------------------------------------------------------
Repurchase agreements 53,740,077
- ---------------------------------------------------------
Cash 1,443,012
- ---------------------------------------------------------
Receivables for:
Investments sold 254,792
- ---------------------------------------------------------
Investments sold short 2,979,830
- ---------------------------------------------------------
Fund shares sold 6,763,892
- ---------------------------------------------------------
Dividends and interest 13,581
- ---------------------------------------------------------
Investment for deferred compensation plan 751
- ---------------------------------------------------------
Other assets 26,129
- ---------------------------------------------------------
Total assets 219,856,175
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 22,943,225
- ---------------------------------------------------------
Fund shares reacquired 572,146
- ---------------------------------------------------------
Options written 70,781
- ---------------------------------------------------------
Deferred compensation plan 751
- ---------------------------------------------------------
Variation margin 1,374,450
- ---------------------------------------------------------
Market value of securities sold short
(proceeds from sales $2,979,830) 2,912,781
- ---------------------------------------------------------
Accrued advisory fees 86,671
- ---------------------------------------------------------
Accrued administrative services fees 3,400
- ---------------------------------------------------------
Accrued distribution fees 54,253
- ---------------------------------------------------------
Accrued trustees' fees 842
- ---------------------------------------------------------
Accrued transfer agent fees 10,291
- ---------------------------------------------------------
Accrued operating expenses 2,401
- ---------------------------------------------------------
Total liabilities 28,031,992
- ---------------------------------------------------------
Net assets applicable to shares outstanding $191,824,183
=========================================================
NET ASSETS:
Class A $107,539,648
=========================================================
Class B $ 84,284,535
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 11,018,174
=========================================================
Class B 8,638,461
=========================================================
Class A:
Net asset value and redemption price per
share $ 9.76
=========================================================
Offering price per share:
(Net asset value of $9.76 divided by
94.50%) $ 10.33
=========================================================
Class B:
Net asset value and offering price per
share $ 9.76
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period June 29, 1998
(date operations commenced)
through July 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 306,109
- ---------------------------------------------------------
Dividends 4,870
- ---------------------------------------------------------
Total investment income 310,979
- ---------------------------------------------------------
EXPENSES:
Advisory fees 86,671
- ---------------------------------------------------------
Administrative services fees 3,400
- ---------------------------------------------------------
Custodian fees 528
- ---------------------------------------------------------
Transfer agent fees-Class A 5,743
- ---------------------------------------------------------
Transfer agent fees-Class B 6,496
- ---------------------------------------------------------
Trustees' fees 2,618
- ---------------------------------------------------------
Distribution fees-Class A 17,437
- ---------------------------------------------------------
Distribution fees-Class B 36,852
- ---------------------------------------------------------
Other 4,248
- ---------------------------------------------------------
Total expenses 163,993
- ---------------------------------------------------------
Less: Expenses paid indirectly (1,563)
- ---------------------------------------------------------
Net expenses 162,430
- ---------------------------------------------------------
Net investment income 148,549
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, SECURITIES SOLD SHORT, FUTURES AND OPTION
CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,182,721
- ---------------------------------------------------------
Option contracts purchased 34,658
- ---------------------------------------------------------
1,217,379
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities (4,075,292)
- ---------------------------------------------------------
Securities sold short 67,049
- ---------------------------------------------------------
Futures contracts (3,348,202)
- ---------------------------------------------------------
Option contracts written 64,440
- ---------------------------------------------------------
(7,292,005)
- ---------------------------------------------------------
Net gain (loss) from investment
securities, securities sold short,
futures and option contracts (6,074,626)
- ---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(5,926,077)
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-24
<PAGE> 97
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 29, 1998 (DATE OPERATIONS COMMENCED) THROUGH JULY 31, 1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 148,549
- --------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts purchased 1,217,379
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, securities sold short, futures and option
contracts written (7,292,005)
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (5,926,077)
- --------------------------------------------------------------------------
Share transactions-net:
Class A 110,724,862
- --------------------------------------------------------------------------
Class B 86,925,398
- --------------------------------------------------------------------------
Net increase in net assets 191,724,183
- --------------------------------------------------------------------------
NET ASSETS:
Beginning of period 100,000
- --------------------------------------------------------------------------
End of period $191,824,183
==========================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $197,747,885
- --------------------------------------------------------------------------
Undistributed net investment income 150,924
- --------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, securities sold short, futures and option
contracts purchased 1,217,379
- --------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, securities sold short, futures and option
contracts written (7,292,005)
- --------------------------------------------------------------------------
$191,824,183
==========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Opportunities Fund (the "Fund") is a series portfolio of AIM
Special Opportunities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of one
investment portfolio. The Fund commenced operations on June 29, 1998. The Fund
currently offers two different classes of shares: Class A shares and Class B
shares. Class A shares are sold with a front-end sales charge. Class B shares
are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class are voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is long-term capital
appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. 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 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 either are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Accounting for Securities Sold Short -- When the Fund sells common stock
short, an amount equal to the proceeds of the sale is recorded as an asset.
This asset is offset by a liability
FS-25
<PAGE> 98
(representing the borrowed security) recorded on the books of the Fund at the
market value of the common stock determined each day in accordance with the
procedures for security valuations discussed in "A" above. The Fund's risk is
that the value of the security will increase rather than decline and thus an
unrealized loss will be recorded. When the Fund closes out a short position
by delivering the stock sold short, the Fund will realize a gain or loss and
the liability related to such short position will be eliminated. The Fund is
required to segregate cash or securities as collateral to secure its
obligation to the broker who delivered such securities to the buyer on behalf
of the Fund. The amount of the Fund's net assets that will at any time be
segregated as collateral deposits will not exceed 25%.
C. 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, dividend expense on
short sales and distributions to shareholders are recorded on the ex-dividend
date. On July 31, 1998, $2,375 was reclassified from undistributed net
investment income to paid in capital. The reclassification was made in order
to comply with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net Assets of the Fund were
unaffected by the reclassification discussed above.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
E. Call Options -- The Fund may write and buy call options, including securities
index options. 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 call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities included
in the index. In the purchase of securities index options the principal risk
is that the premium and transaction costs paid by the Fund in purchasing an
option will be lost if the changes in the level of the index do not exceed
the cost of the option. In writing securities index options, the principal
risk is that the Fund could bear a loss on the options that would be only
partially offset (or not offset at all) by the increased value or reduced
cost of hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities
used as cover.
The Fund will not write options if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 50% of the total assets of the
Fund.
The Fund will not purchase options if, at the time of the investment, the
aggregate premiums paid for outstanding options will exceed 25% of the Fund's
total assets.
F. Put Options -- The Fund may purchase and write put options including
securities index options. By purchasing a put option, the Fund obtains the
right (but not the obligation) to sell the options' 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, securities
index, 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 hedge. The Fund may write put options to earn
additional income in the form of option premiums if it expects the price of
the underlying securities to remain stable or rise during the option period
so that the option will not be exercised. The risk in this strategy is that
the price of the underlying securities may decline by an amount greater than
the premium received. The Fund will not write options if, immediately
thereafter, the aggregate value of the
FS-26
<PAGE> 99
securities underlying all such options, determined as of the dates such
options were written, would exceed 50% of the total assets of the Fund. The
Fund will not purchase options if, at the time of the investment, the
aggregate premiums paid for outstanding options will exceed 25% of the Fund's
total assets.
G. Stock Index Futures Contracts -- The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash 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 Fund's portfolio being hedged.
H. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated between
the classes.
NOTE 2- ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 1% of the
Fund's average daily net assets.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period June 29, 1998 (date
operations commenced) through July 31, 1998, AIM was reimbursed $3,400 for such
services.
The Fund, pursuant to a transfer agency and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency shareholder services to the Fund. During the period June 29, 1998 (date
operations commenced) through July 31, 1998, AFS was paid $12,969 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. The Fund pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of these amounts, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class A, Class B or Class C
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. As of July 31, 1998, Class C shares
are not currently available. During the period June 29, 1998 (date operations
commenced) through July 31, 1998, the Class A and Class B shares paid AIM
Distributors $17,437 and $36,852, respectively, as compensation under the Plans.
AIM Distributors received commissions of $626,915 from sales of the Class A
shares of the Fund during the period June 29, 1998 (date operations commenced)
through July 31, 1998. Such commissions are not an expense of the Fund. They are
deducted from, and are not included in, the proceeds from sales of Class A
shares. Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Distributors and AFS.
NOTE 3-INDIRECT EXPENSES
During the period June 29, 1998 (date operations commenced) through July 31,
1998, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) and reductions in custodian fees of $69 and $1,494,
respectively under expense offset arrangements. The effect of the above
arrangements resulted in a reduction of the Fund's total expenses of $1,563
during the period June 29, 1998 (date operations commenced) through July 31,
1998.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period June 29, 1998 (date operations
commenced) through July 31, 1998 was $91,439,138 and $3,825,012, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of:
Investment securities $ 1,263,811
- ---------------------------------------------------------
Securities sold short 79,716
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (5,340,929)
- ---------------------------------------------------------
Securities sold short (12,667)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $(4,010,069)
=========================================================
</TABLE>
Cost of investments for tax purposes is $158,711,229.
Proceeds from securities sold short for tax purposes is $2,979,830.
FS-27
<PAGE> 100
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the period June 29, 1998 (date operations
commenced) through July 31, 1998 were as follows:
<TABLE>
<CAPTION>
JULY 31, 1998
-------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Sold:
Class A 11,173,989 $112,285,297
- -------------------------------------------------------------------
Class B 8,700,960 87,549,103
- -------------------------------------------------------------------
Reacquired:
Class A (155,815) (1,560,435)
- -------------------------------------------------------------------
Class B (62,499) (623,705)
- -------------------------------------------------------------------
19,656,635 $197,650,260
===================================================================
</TABLE>
NOTE 7-FUTURES CONTRACTS
On July 31, 1998, $3,294,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts at July 31, 1998 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF APPRECIATION
CONTRACT CONTRACTS MONTH COMMITMENT (DEPRECIATION)
-------- --------- ----- ---------- --------------
<S> <C> <C> <C> <C>
S&P 500 Index 238 Sept. Buy $(3,348,202)
- ------------------------------------------------------------------
</TABLE>
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the period June 29, 1998 (date
operations commenced) through July 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------- ---------
<S> <C> <C>
Beginning of period -- $ --
- -------------------------------------------------------------
Written 775 71,774
- -------------------------------------------------------------
Closed -- --
- -------------------------------------------------------------
Expired -- --
- -------------------------------------------------------------
End of period 775 $71,774
- -------------------------------------------------------------
</TABLE>
Open call option contracts written at July 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
JULY 31,
1998
CONTRACT STRIKE NUMBER OF PREMIUM MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
----- -------- ------ --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Tellabs, Inc. Aug. 90 775 $71,774 $14,531 $57,243
- --------------------------------------------------------------------------------------------
</TABLE>
NOTE 9-PUT OPTION CONTRACTS
Transactions in put options contracts written during the period June 29, 1998
(date operations commenced) through July 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of period -- $ --
- -----------------------------------------------------------
Written 100 63,448
- -----------------------------------------------------------
End of period 100 $63,448
- -----------------------------------------------------------
</TABLE>
Open put option contracts written at July 31, 1998 were as follows:
<TABLE>
<CAPTION>
JULY 31,
1998
CONTRACT STRIKE NUMBER OF PREMIUM MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
----- -------- ------ --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index Aug. 1040 100 $63,448 $56,251 $7,197
- ------------------------------------------------------------------------------------------
</TABLE>
FS-28
<PAGE> 101
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and Class B
outstanding during the period June 29, 1998 (date operations commenced) through
July 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------- -------
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00
- ------------------------------------------------------------ -------- -------
Income from investment operations:
Net investment income 0.02(a) 0.01(a)
- ------------------------------------------------------------ -------- -------
Net gains (losses) on securities (both realized and
unrealized) (0.26) (0.25)
- ------------------------------------------------------------ -------- -------
Total from investment operations (0.24) (0.24)
- ------------------------------------------------------------ -------- -------
Net asset value, end of period $ 9.76 $ 9.76
============================================================ ======== =======
Total return(b) (2.40)% (2.40)%
============================================================ ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $107,540 $84,285
============================================================ ======== =======
Ratio of expenses to average net assets 1.59%(c) 2.30%(c)
============================================================ ======== =======
Ratio of net investment income to average net assets 2.00%(c) 1.29%(c)
============================================================ ======== =======
Portfolio turnover rate 13% 13%
============================================================ ======== =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) Ratios are annualized and based on average net assets of $55,102,897 and
$40,760,109 for Class A and Class B shares, respectively.
FS-29
