<PAGE> 1
PROSPECTUS
FEBRUARY 27, 1998
AIM SUMMIT FUND, INC.
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 995-4246
AIM Summit Fund, Inc. (the "Fund") is a diversified, open-end investment
company whose objective is capital growth. Although the Fund may purchase
income-producing securities, income will generally not be a consideration in the
selection of securities for the Fund's portfolio.
Shares of the Fund are offered to and may be purchased by the general
public only through Summit Investors Plans, a unit investment trust. Details of
Summit Investors Plans, including the creation and sales charges and the
custodian charges applicable to Summit Investors Plans, may be found in the
Summit Investors Plans Prospectus which, along with this Prospectus of the Fund,
should be read and retained by the investor for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT INVESTORS SHOULD KNOW
ABOUT THE FUND PRIOR TO INVESTING AND SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 27, 1998 HAS
BEEN FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC")
AND IS HEREBY INCORPORATED BY REFERENCE. IT IS AVAILABLE UPON REQUEST AND
WITHOUT CHARGE BY WRITING OR CALLING A I M DISTRIBUTORS, INC. AT (800) 995-4246.
THE SEC MAINTAINS A WEB SITE AT HTTP://WWW.SEC.GOV THAT CONTAINS THE STATEMENT
OF ADDITIONAL INFORMATION MATERIAL INCORPORATED BY REFERENCE AND OTHER
INFORMATION REGARDING THE FUND.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
PAGE PAGE
Summary............................... A-2 Determining Net Asset Value........... A-11
Table of Fees and Expenses............ A-3 Sales of Shares....................... A-11
Financial Highlights.................. A-4 Redemption of Shares.................. A-12
Performance........................... A-5 Open Account.......................... A-14
Investment Program.................... A-5 Management of the Fund................ A-14
Dividends, Distributions and General Information................... A-17
Tax Matters......................... A-10
</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 and La Familia AIM de Fondos and Design are registered
service marks, and Invest With Discipline and AIM Bank Connection are service
marks of A I M Management Group Inc.
A-1
<PAGE> 2
SUMMARY
INVESTMENT OBJECTIVE
AIM Summit Fund, Inc. (the "Fund") is a diversified, open-end investment
company whose objective is capital growth. Although the Fund may purchase
income-producing securities, income will generally not be a consideration in the
selection of securities for the Fund's portfolio. There can be no assurance that
the Fund will achieve its investment objective. See "Investment Program."
SALES OF SHARES
The principal underwriter of the Fund's shares is A I M Distributors, Inc.
Shares of the Fund's common stock offered by this Prospectus are available to
the general public only by means of an investment in Summit Investors Plans.
Investors should consult the Summit Investors Plans Prospectus for information
regarding minimum initial and subsequent investments and creation and sales
charges applicable to Summit Investors Plans. See "Sales of Shares."
REDEMPTION OF SHARES
Planholders of Summit Investors Plans should consult the Summit Investors
Plans Prospectus for information concerning the redemption or repurchase of Fund
shares held in Plans. Investors who qualify to hold shares of the Fund directly
may at any time redeem all or a portion of their shares at net asset value
without charge. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and distributions from net capital
gains are paid annually. Dividends and distributions will be automatically
reinvested at net asset value without charge unless the shareholder has elected
to receive such payments in cash. See "Dividends, Distributions and Tax
Matters."
MANAGEMENT OF THE FUND
A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, acts as investment advisor to the Fund and in such capacity
supervises all aspects of management of the Fund, including the provision for
the Fund of a continuous investment program. AIM is primarily engaged in the
business of acting as investment advisor or manager to investment companies. AIM
has entered into a sub-advisory agreement with TradeStreet Investment
Associates, Inc. ("TradeStreet"), which furnishes AIM with investment research
and advisory services concerning a portion of the Fund's investment program.
TradeStreet is a wholly owned subsidiary of NationsBank, N.A. and a registered
investment advisor.
SPECIAL CONSIDERATIONS
Shares of the Fund are available to the general public only through
investment in a Summit Investors Plan which calls for fixed monthly investments.
Investments in a continuous investment plan may involve special risks not
usually associated with an investment in other investment companies. As
securities are subject to market fluctuations, an investor who liquidates his
investment when the market value of his accumulated shares is less than his
cost, including creation
A-2
<PAGE> 3
and sales charges, will incur a loss. Investments in a continuous investment
plan do not eliminate this risk. The Fund is designed for investors who are
seeking the accumulation of capital through systematic investments over a period
of 15 or more years. The net proceeds of systematic investments will be received
and invested, and additional Fund shares will be issued, during periods of
varying economic and market conditions. The investment objective and policies of
the Fund may not be appropriate for an investor who may have to liquidate his
investment after a relatively short period of time. Investors should therefore
consider their financial ability to continue regular monthly investments in a
Plan. See the Summit Investors Plans Prospectus for further information.
TABLE OF FEES AND EXPENSES
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets):
Management Fees........................................... .64%
Other Expenses............................................ .04%
Total Fund Operating Expenses............................. .68%
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor in the Fund would pay the following
expenses on a $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the end of
each time period: $7 $22 $38 $85
</TABLE>
The purpose of the foregoing Table of Fees and Expenses is to assist an
investor in understanding the various costs and expenses that an investor in the
Fund will bear directly and indirectly. (For a more complete description of the
various costs and expenses, see "Management of the Fund," herein.) The fees and
expenses of the Fund are based on the average net assets of the Fund for its
1997 fiscal year. The information in the foregoing Table of Fees and Expenses
should be read in conjunction with the information appearing elsewhere in the
prospectus of Summit Investors Plans, particularly with respect to the Creation
and Sales Charges imposed in connection with the purchase of Summit Investors
Plans. These and other charges relating to the purchase of Summit Investors
Plans are in addition to the expenses shown in the foregoing Table of Fees and
Expenses. (See "Allocation of Investments and Deductions," "Rights and
Privileges of Planholders" and "Custodian and Sponsor Charges" sections of the
attached Summit Investors Plans prospectus immediately preceding the Fund
prospectus.)
THE EXAMPLE SHOWN IN THE TABLE ABOVE SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
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FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of the Fund
outstanding during each of the years in the four-year period ended October 31,
1997, the ten months ended October 31, 1993 and each of the years in the
five-year period ended December 31, 1992. The data has been audited by KPMG Peat
Marwick LLP, independent auditors, whose unqualified report is contained in the
Fund's Statement of Additional Information which is available upon request and
without charge from A I M Distributors, Inc.
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
--------------------------------------------------------------------- ----------------------
1997 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 12.99 $ 12.14 $ 9.78 $ 10.46 $ 9.64 $ 10.09 $ 7.56
---------- ---------- ---------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.02 0.04 0.04 0.10 0.09 0.11 0.14
---------- ---------- ---------- -------- -------- -------- --------
Net gains (losses) on
securities (both
realized and
unrealized) 3.34 1.69 2.81 (0.04) 0.73 0.35 3.16
---------- ---------- ---------- -------- -------- -------- --------
Total from investment
operations 3.36 1.73 2.85 0.06 0.82 0.46 3.30
---------- ---------- ---------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.03) (0.03) (0.10) (0.10) -- (0.11) (0.13)
---------- ---------- ---------- -------- -------- -------- --------
Distributions from
capital gains (1.17) (0.85) (0.39) (0.64) -- (0.80) (0.64)
---------- ---------- ---------- -------- -------- -------- --------
Total distributions (1.20) (0.88) (0.49) (0.74) -- (0.91) (0.77)
---------- ---------- ---------- -------- -------- -------- --------
Net asset value, end of
period $ 15.15 $ 12.99 $ 12.14 $ 9.78 $ 10.46 $ 9.64 $ 10.09
---------- ---------- ---------- -------- -------- -------- --------
Total return(b) 28.53% 15.61% 31.03% 0.61% 8.51% 4.50% 43.64%
---------- ---------- ---------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $1,650,234 $1,261,008 $1,050,011 $765,073 $705,580 $604,329 $517,835
---------- ---------- ---------- -------- -------- -------- --------
Ratio of expenses to
average net assets 0.68%(c)(d) 0.70% 0.71% 0.72% 0.79%(e) 0.76% 0.75%
---------- ---------- ---------- -------- -------- -------- --------
Ratio of net investment
income to average net
assets 0.11%(c) 0.29% 0.33% 1.04% 1.13%(e) 1.09% 1.48%
---------- ---------- ---------- -------- -------- -------- --------
Portfolio turnover rate 88.23% 118.34% 126.00% 121.69% 115.76% 97.41% 109.04%
---------- ---------- ---------- -------- -------- -------- --------
Average brokerage
commission rate paid(f) $ 0.0608 $ 0.0643 N/A N/A N/A N/A N/A
---------- ---------- ---------- -------- -------- -------- --------
<CAPTION>
DECEMBER 31,
-----------------------------------
1990 1989 1988(a)
--------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning
of period $ 7.79 $ 6.57 $ 5.70
-------- -------- --------
Income from investment
operations:
Net investment income 0.15 0.16 0.16
-------- -------- --------
Net gains (losses) on
securities (both
realized and
unrealized) (0.08) 1.86 0.84
-------- -------- --------
Total from investment
operations 0.07 2.02 1.00
-------- -------- --------
Less distributions:
Dividends from net
investment income (0.16) (0.16) (0.13)
-------- -------- --------
Distributions from
capital gains (0.14) (0.64) --
-------- -------- --------
Total distributions (0.30) (0.80) (0.13)
-------- -------- --------
Net asset value, end of
period $ 7.56 $ 7.79 $ 6.57
-------- -------- --------
Total return(b) 0.93% 30.92% 17.65%
-------- -------- --------
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $316,043 $262,655 $164,996
-------- -------- --------
Ratio of expenses to
average net assets 0.80% 0.82% 1.04%
-------- -------- --------
Ratio of net investment
income to average net
assets 2.02% 2.14% 2.57%
-------- -------- --------
Portfolio turnover rate 142.60% 97.26% 114.94%
-------- -------- --------
Average brokerage
commission rate paid(f) N/A N/A N/A
-------- -------- --------
</TABLE>
(a) The Fund changed investment advisers on October 5, 1988.
(b) For periods less than one year, total return is not annualized.
(c) Ratios are based on average net assets of $1,462,594,326.
(d) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have been the same.
(e) Annualized.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
A-4
<PAGE> 5
PERFORMANCE
All advertisements of the Fund will disclose the maximum creation and sales
charges and other fees (collectively, the "Sales Charges") imposed on purchases
of the Fund's shares. If any advertised performance data does not reflect the
maximum Sales Charges, such advertisement will disclose that the Sales Charges
have not been deducted in computing the performance data, and that, if
reflected, the maximum Sales Charges would reduce the performance quoted. See
the Statement of Additional Information for further details concerning
performance comparisons used in advertisements by the Fund. Further information
regarding the Fund's performance is contained in the Fund's annual report to
shareholders, which is available upon request and without charge.
Total return is calculated in accordance with a standardized formula for
computation of annualized total return. Standardized total return for the Fund's
shares reflects the deduction of the Fund's maximum Sales Charges at the time of
purchase.
The Fund's total return shows its overall change in value, including
changes in share price and assuming all dividends and capital gain distributions
are reinvested. A cumulative total return reflects the Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
compounded annual rate of return that would have produced the same cumulative
total return if the Fund's performance had been constant over the entire period.
BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT VARIATIONS IN THE FUND'S RETURN,
INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS ARE NOT THE SAME AS ACTUAL
YEAR-BY-YEAR RESULTS. To illustrate the components of overall performance, the
Fund may separate its cumulative and average annual returns into income results
and capital gains or losses.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Fund is capital growth. Although the Fund
may purchase income-producing securities, income will generally not be a
consideration in the selection of securities for the Fund's portfolio. There can
be no assurance that the Fund will achieve its investment objective.
The Fund will invest primarily in three types of securities:
1. Core Stocks -- These are securities issued by companies which have
established a long-term record of earnings growth and which are believed by
AIM, as the Fund's advisor, to be capable of sustaining such growth in the
future. Generally (but not always) the common stocks of these companies
will be listed on a national securities exchange.
2. Emerging Growth Stocks -- These securities are issued by smaller
growth-oriented companies. The securities of a number of such companies are
traded only in the over-the-counter market. Such securities may not have
widespread interest among institutional investors. Accordingly, such
securities may present increased opportunity for gain if significant
institutional investor interest subsequently develops, but may also involve
additional risk of loss in the event of adverse developments because of the
limited market for such securities. The
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<PAGE> 6
business prospects and earnings of emerging growth companies may be subject
to more rapid or unanticipated changes than in the case of larger, better
established concerns.
3. Value-Oriented Stocks -- These are stocks which are believed to be
currently undervalued relative to other available investments. Since this
belief may be based upon projections made by the Fund's advisor or
sub-advisor of earnings, dividends or price-earnings ratios (which
projections may differ significantly from similar projections made by other
investors), the Fund's ability to realize capital appreciation on
value-oriented stocks may be more dependent upon the advisor's and
sub-advisor's capabilities than is the case with other types of securities
in which the Fund may invest.
It is anticipated that approximately 50% of the Fund's investments will be
in core stocks while the remaining 50% will be in emerging growth and
value-oriented stocks. However, these percentages may be changed by AIM from
time to time in response to current market conditions. The Fund does not
concentrate its investments in any particular industry or group of industries,
but diversifies its holdings among as many different companies and industries as
seems appropriate to the advisor in light of the monetary, economic and stock
market conditions prevailing at any given time.
Although the investment emphasis of the Fund is on common stocks, the Fund
may also invest in other securities believed by AIM to have capital appreciation
potential, including but not limited to, preferred stocks, bonds, debentures,
notes and other debt securities, and warrants and rights to acquire securities.
Consistent with the Fund's objective of capital growth, the Fund's assets will
tend to be fully invested in the securities listed above. However, pending
investment of the proceeds from the sale of the Fund's shares, or if market
conditions are believed to warrant a more conservative or defensive investment
strategy, the Fund's assets may be invested without limit in money market
instruments chosen by AIM or retained in cash. Such money market instruments
will consist of obligations of, or guaranteed by, the United States Government
or its agencies or instrumentalities; certificates of deposit, bankers'
acceptances, time deposits, master notes and other obligations of domestic banks
having total assets of at least $500 million; and commercial paper rated in the
highest category by a nationally recognized statistical rating organization.
The Fund may make short sales or maintain a short position in securities if
at all times when such a short position is open the Fund owns at least an equal
amount of such securities or securities convertible into or exchangeable at no
added cost for at least an equal amount of such securities.
The receipt by the Fund of new money primarily through the medium of
continuing investments under systematic investment plans may tend to produce a
more even rate of influx than is the case with other funds. This may furnish a
base for a gradual and planned accumulation of positions in individual portfolio
securities when such a program is deemed to be appropriate. One example of how
this concept could be employed is through a program of "dollar-cost averaging"
in the purchase of securities for the Fund. "Dollar-cost averaging" involves the
purchase of a fixed dollar amount of stock of a company at regular intervals.
The number of shares of stock obtained upon each purchase will therefore vary
with the price of the stock, with more shares being obtained as the price of the
stock declines and fewer shares being obtained as the price of the stock
increases. Such a program could be hampered by increased redemptions of the
Fund's shares which would reduce amounts available for investment by the Fund.
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<PAGE> 7
CERTAIN INVESTMENT STRATEGIES AND POLICIES
LENDING OF FUND SECURITIES. The Fund may also lend its portfolio
securities in amounts up to 33-1/3% of its total assets to financial
institutions in accordance with the investment restrictions of the Fund. Such
loans would involve risks of delay in receiving additional collateral in the
event the value of the collateral decreased below the value of the securities
loaned or of delay in recovering the securities loaned or even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans will be made only to borrowers deemed by AIM to be of good standing and
only when, in AIM's judgment, the income to be earned from the loans justifies
the attendant risks.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
securities that are illiquid. Illiquid securities include securities that have
no readily available market quotations and cannot be disposed of promptly
(within seven days) in the normal course of business at a price at which they
are valued. Illiquid securities may include securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933. Restricted securities may, in certain circumstances, be
resold pursuant to Rule 144A, and thus may or may not constitute illiquid
securities. The Fund's Board of Directors is responsible for developing and
establishing guidelines and procedures for determining the liquidity of Rule
144A restricted securities on behalf of the Fund and monitoring AIM's
implementation of the guidelines and procedures. Limitations on the resale of
restricted securities may have an adverse effect on their marketability, which
may prevent the Fund from disposing of them promptly at reasonable prices. The
Fund may have to bear the expense of registering such securities for resale, and
the risk of substantial delays in effecting such registrations.
INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest up to 20% of its
total assets in foreign securities. These securities will be marketable equity
securities (including common and preferred stock, depositary receipts for stock
and fixed income or equity securities exchangeable for or convertible into
stock) of foreign companies which, with their predecessors, have been in
continuous operation for three years or more and which generally are listed on a
recognized foreign securities exchange or traded in a foreign over-the-counter
market. The Fund may also invest in foreign securities listed on recognized U.S.
securities exchanges or traded in the U.S. over-the-counter market. Such foreign
securities may be issued by foreign companies located in developing countries in
various regions of the world. A "developing country" is a country in the initial
stages of its industrial cycle. As compared to investment in the securities
markets of developed countries, investment in the securities markets of
developing countries involves exposure to markets that may have substantially
less trading volume and greater price volatility, economic structures that are
less diverse and mature, and political systems that may be less stable. The Fund
may also purchase securities of foreign issuers which are in the form of
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), or
other securities representing underlying securities of foreign issuers. ADRs,
EDRs, and other securities representing underlying securities of foreign issuers
are included in the percentage limitations applicable to the Fund's investments
in foreign securities. To the extent it invests in securities denominated in
foreign currencies, the Fund bears the risks 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. For a discussion of the risks pertaining
to investments in foreign securities, see "Risk Factors Regarding Foreign
Securities" below.
A-7
<PAGE> 8
RISK FACTORS REGARDING FOREIGN SECURITIES. Investments by the Fund in
foreign securities, whether denominated in U.S. dollars or foreign currencies
including Eurodollar, Yankee dollar and other foreign obligations, may entail
some or all of the risks set forth below. Investments by the Fund in ADRs and
EDRs may entail certain political and economic risks and regulatory risks
described below.
Currency Risk. The value of the Fund's foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in
which the Fund may invest are not as developed as the United States economy and
may be subject to significantly different economic and political forces.
Political or social instability, expropriation or confiscatory taxation, and
limitations on the removal of funds or other assets could also adversely affect
the value of the Fund's investments.
Regulatory Risk. Foreign companies are not registered with the SEC and are
generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. In addition, income from foreign
securities owned by the Fund may be reduced by a withholding tax at the source,
which tax would reduce dividend income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the
Fund may 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.
STOCK INDEX FUTURES CONTRACTS AND RELATED CALL OPTIONS. The Fund may
purchase and sell stock index futures contracts as a hedge against changes in
market conditions. A stock index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. The Fund will only enter into domestic stock index
futures. The Fund will only enter into stock index futures contracts or write
call options thereon in order to hedge the value of the portfolio against
changes in market conditions. Generally, the Fund may elect to close a position
in a futures contract by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. The Fund may also write
call options with respect to such futures contracts. As the writer of a call
option on a futures contract, the Fund would be required to assume a short
position in a futures contract at a specified exercise price if the option is
exercised during the option period. If the option is
A-8
<PAGE> 9
exercised on the last trading date prior to the expiration date of the option,
the settlement of the option will be made entirely in cash equal to the
difference between the exercise price of the option and the closing price of the
underlying futures contract on the expiration date. See the Statement of
Additional Information for a description of the Fund's investments in futures
contracts including certain related risks. The Fund may purchase or sell futures
contracts if, immediately thereafter, the sum of the amount of margin deposits
and premiums on open positions with respect to futures contracts and related
call options would not exceed 5% of the market value of the Fund's total assets.
PORTFOLIO TURNOVER
Consistent with its objective of capital growth, the Fund does not intend
to engage in substantial short-term trading. However, the Fund reserves the
right to dispose of any security without regard to the period of time it has
been held and to take short-term or long-term profits when such action is
consistent with its investment program. The Fund's historical portfolio turnover
rates are included in the Financial Highlights table on page A-4. A higher rate
of portfolio turnover may result in higher transaction costs, including
brokerage commissions. The Fund's turnover may vary greatly from year to year
and may exceed 100% during years when the Fund has taken a significant defensive
position or otherwise makes changes in the investment strategies which it
pursues consistent with its overall investment objective. Also, to the extent
that higher portfolio turnover results in a higher rate of net realized capital
gains to a Fund, the portion of the Fund's distributions constituting taxable
capital gains may increase.
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal regulatory
limitations. These restrictions are designed to minimize (but cannot eliminate)
certain risks associated with investing in specified types of securities or
engaging in certain transactions and to limit the amount of the Fund's assets
which may be invested in any specific industry or issuer. The most significant
of these restrictions provide that the Fund will not purchase a security if as a
result of such purchase:
(1) More than 25% of the value of the Fund's total assets would
be invested in the securities of issuers primarily engaged in the same
industry, except that this restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies
or instrumentalities;
(2) More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer, except that this
restriction does not apply to obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities, or
repurchase agreements pertaining to such securities, and except that
the Fund may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order; or
(3) The Fund would own more than 10% of the outstanding voting
securities of any issuer or more than 10% of any class of securities
of an issuer, with the debt and preferred stock of an issuer each
considered to be a separate single class for this
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<PAGE> 10
purpose, except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or
exemptive order.
The foregoing percentage limitations will be calculated by giving effect to
such purchase and will be based upon values at the time of purchase. The Fund
may retain any security purchased by it notwithstanding changes in the value of
its assets occurring subsequent to the time of any such purchase.
The Fund's investment objective as described under "Investment Objective,"
the policy relating to lending of securities as described under "Certain
Investment Strategies and Policies -- Lending of Fund Securities," and the
foregoing investment restrictions are matters of fundamental policy which may
not be changed without the vote of a majority of the Fund's outstanding shares,
as defined in "General Information -- Organization and Description of Common
Stock."
Information concerning other investment restrictions and policies of the
Fund, some of which may be changed by the Board without shareholder approval, is
contained in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
It is the present policy of the Fund to declare and pay annually net
investment income dividends and capital gains distributions. It is the Fund's
intention to distribute substantially all of its net investment income and
capital gains by the end of the calendar year. In determining the amount of
capital gains, if any, available for distribution, net capital gains will be
offset against available net capital losses, if any, carried forward from
previous fiscal periods. All dividends and distributions will be automatically
reinvested at the net asset value determined on the record date in full and
fractional shares of the Fund unless the shareholder has elected prior to the
record date, by written notice to Boston Financial Data Services, Inc. ("BFDS"),
P.O. Box 8300, Boston, Massachusetts 02266-8300, Attention: AIM Summit Fund,
Inc., to receive all such payments in cash. Such reinvestments will not be
subject to sales charges and shares so purchased will be automatically credited
to the account of the shareholder.
Changes in the form of dividend and distribution payments may be made by
the shareholder at any time and will be effective as to any subsequent payment
if such notice is received by BFDS prior to the applicable record date. Any
dividend and distribution election will remain in effect until BFDS receives a
revised written election by the shareholder.
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986 (the "Code"). Because the Fund intends to distribute substantially all
of its net investment income and net realized capital gains to shareholders, it
is not expected that the Fund will be required to pay any federal income tax.
The Fund intends to meet the distribution requirements of the Code to avoid the
imposition of a 4% excise tax. However, shareholders normally are subject to
federal income taxes and any applicable state and local income taxes, on the
dividends and distributions from the Fund, whether received in cash or
reinvested in shares of the Fund. With respect to tax-exempt shareholders,
distributions from the Fund will not be subject to federal income taxation to
the extent permitted under the applicable tax-exemption. Shareholders are
notified annually of the federal income tax status of dividends and capital
gains distributions. To avoid being subject to a 31%
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federal backup withholding on dividends, distributions and redemption payments a
shareholder must furnish the Fund with his taxpayer identification number and
certify under penalties of perjury that the number provided is correct and that
he is not subject to backup withholding for any reason.
Any dividend or distribution paid by the Fund 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 paid shortly
after a purchase of shares by an investor would represent, in substance, a
return of capital to the shareholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes, as discussed
herein.
Distributions may be subject to state and local taxes, and the treatment
thereof may differ from the federal income tax consequences discussed herein.
Additional information about taxes is set forth in the Statement of Additional
Information.
DETERMINING NET ASSET VALUE
The net asset value of a Fund share is determined as of the close of
trading of the New York Stock Exchange (the "NYSE") (generally 4:00 p.m. Eastern
Time) on each business day of the Fund (defined as any day on which the NYSE is
open for business). Net asset value is determined by dividing the value of the
Fund's assets, less all of its liabilities, by the number of shares outstanding.
In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a
particular day, the net asset value of a Fund share is determined as of the
close of the NYSE on such day. Determination of the Fund's net asset value per
share is made in accordance with generally accepted accounting principles.
Portfolio securities are valued using market values, if available. For purposes
of determining net asset value per share, futures and options contract closing
prices which are available 15 minutes after the close of trading of the NYSE are
generally used. Securities for which market quotations are not readily available
or are questionable are valued at fair value as determined in good faith by or
under the supervision of the Fund's officers in a manner specifically authorized
by the Board of Directors of the Fund. Notwithstanding the above, short-term
obligations with maturities of 60 days or less are valued at amortized cost as
reflecting fair value. Additional information concerning the valuation of the
Fund's shares is contained in the Statement of Additional Information.
SALES OF SHARES
The Fund has entered into a Distribution Agreement (the "Distribution
Agreement") with A I M Distributors, Inc. ("AIM Distributors"), a registered
broker-dealer and a wholly owned subsidiary of AIM, which in turn is a wholly
owned subsidiary of A I M Management Group Inc. ("AIM Management"), under which
the Fund will issue shares at net asset value to State Street Bank and Trust
Company, as custodian for Summit Investors Plans ("State Street Bank" or the
"Custodian"). The address of AIM Distributors is P.O. Box 4264, Houston, Texas
77210-4264. AIM Distributors acts as sponsor and principal underwriter of Summit
Investors Plans. The terms of offering of Summit Investors Plans are contained
in the Prospectus of Summit Investors Plans. AIM Distributors does not receive
any fee from the Fund pursuant to the Distribution Agreement. Certain directors
and officers of the Fund are affiliated with AIM Distributors and AIM
Management. More information concerning the directors and officers of the Fund
and their affiliation may be found in the Statement of Additional Information.
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THE FUND WILL NOT OFFER ITS SHARES TO THE GENERAL PUBLIC EXCEPT THROUGH
SUMMIT INVESTORS PLANS. However, the following persons may purchase shares of
the Fund directly through AIM Distributors at net asset value: (a) any current
or retired officer, trustee, director, or employee, or any member of the
immediate family (spouse, children, parents and parents of spouse) of any such
person, of AIM Management or its subsidiaries, or of any investment company
managed or advised by AIM; or (b) any employee benefit plan established for
employees of AIM Management or its subsidiaries. The Fund reserves the right to
reject any purchase order.
REDEMPTION OF SHARES
THE FOLLOWING DISCUSSION RELATES ONLY TO THOSE INVESTORS WHO HOLD SHARES OF
THE FUND DIRECTLY. PLANHOLDERS SHOULD CONSULT THEIR SUMMIT INVESTORS PLANS
PROSPECTUS FOR THE REQUIREMENTS FOR REDEMPTION OF FUND SHARES HELD IN A SUMMIT
INVESTORS PLAN.
A shareholder may redeem his shares of the Fund at any time without charge,
either by a written request to BFDS, or by calling BFDS at (617) 328-5000,
subject to the restrictions specified below. Upon receipt by BFDS of a proper
request, the Fund will redeem shares in cash at the next determined net asset
value. All written redemption requests must be directed to BFDS, P.O. Box 8300,
Boston, Massachusetts 02266-8300, Attention: AIM Summit Fund, Inc. Any written
request sent to the Fund will be forwarded to BFDS and the effective date of the
redemption request will be when the request is received by AIM Distributors or
BFDS.
Written requests for redemption must include the following: (a) signatures
of each registered owner exactly as the shares are registered; (b) the account
number and number of shares to be redeemed; (c) stock certificates, either
properly endorsed or accompanied by a duly executed stock power, for the shares
to be redeemed if such certificates have been issued and the shares are not in
the custody of State Street Bank; (d) signature guarantees, as described below;
and (e) any additional documents required for redemption by corporations,
partnerships, trusts or other fiduciaries.
To assure proper redemption, and to protect the shareholder, the Fund, AIM
Distributors and the Custodian, the Fund requires that the signature of each
registered shareholder be guaranteed. Acceptable guarantors are banks,
broker-dealers, savings and loan associations, credit unions, national
securities exchanges and any other "eligible guarantor institution" as defined
in rules adopted by the SEC. A notary public is not an acceptable guarantor. The
signature guarantee(s) must appear either: (a) on the written request for
redemption, which must clearly identify the exact name(s) in which the account
is registered, the account number and the number of shares or the dollar amount
to be redeemed; (b) on a stock power, which may be obtained from AIM
Distributors, State Street Bank or from most banks and stockbrokers; or (c) on
all share certificates tendered for redemption, in which case the signature
guarantee(s) must also appear on the written request or a stock power if shares
held by State Street Bank are also being redeemed. It is the present policy of
the Fund not to require signature guarantees for redemption requests of $50,000
or less unless the proceeds are to be paid to a person other than the record
owner or are to be sent to an address other than the one of record. Upon notice
to the shareholders, this policy may be changed. Currently, in addition to these
requirements, if a shareholder has invested in the Fund to establish an IRA, he
should include the following information along with his written request for
either partial or full liquidation of Fund shares: (a) a statement as to whether
or not he has attained age 59 1/2; (b) a
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statement as to whether or not he is legally disabled; (c) a statement as to
whether or not he elects to have federal income tax withheld from the proceeds
of his redemption, and (d) his Social Security number along with the following
statement: "I certify under penalties of perjury that the Social Security number
provided is correct and that I am not subject to backup withholding either
because I am exempt from backup withholding, I have not been notified by the
Internal Revenue Service that I am subject to backup withholding, or the
Internal Revenue Service has notified me that I am no longer subject to backup
withholding." If the shareholder has been notified by the Internal Revenue
Service that he is currently subject to backup withholding, then the preceding
statement should be modified accordingly. Even if he elects not to have federal
income tax withheld, he is liable for federal income tax on the taxable portion
of his redemption proceeds. He may also be subject to tax penalties under the
estimated tax payment rules if his payments of estimated tax and withholding, if
any, are not adequate.
Shareholders may also request redemptions by telephone by calling BFDS at
(617) 328-5000. If a shareholder does not wish to allow redemptions by telephone
by any person in his account, he should decline that option on the account
application. The telephone redemption feature can be used only if: (a) the
proceeds are made payable to the shareholder of record and mailed to the address
of record; (b) there has been no change of address of record on the account
within the preceding 30 days; (c) the shares to be redeemed are not in
certificate form; (d) the person requesting withdrawal can provide proper
identification information; and (e) the proceeds of the withdrawal do not exceed
$50,000.
Shares held in retirement plans (such as IRA and IRA/SEP) or 403(b) plans
may not be redeemed by telephone. AIM Distributors has made arrangements with
certain dealers to accept telephone instructions for the redemption of shares.
AIM Distributors reserves the right to impose conditions on these dealers,
including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with AIM
Distributors. The Fund, AIM Distributors, the Custodian, and BFDS will not be
liable for any loss, expense or cost arising out of any telephone redemption
request effected in accordance with the authorization set forth at that item of
the account application if they reasonably believe such request to be genuine,
but may in certain cases be liable for losses due to unauthorized or fraudulent
transactions if they do not follow reasonable procedures for verification of
telephone transactions. Such reasonable procedures may include recording of
telephone transactions, requests for confirmation of the shareholder's Social
Security Number and current address, and mailings of confirmations promptly
after the transaction.
Shares redeemed by telephone are redeemed at their net asset value next
determined after a request for redemption in proper form is received by BFDS.
Orders for the redemption of shares received in proper form prior to the NYSE
close on any business day of the Fund will be confirmed at the price determined
as of the close of that day. Any resulting loss from the dealer's failure to
submit a request for redemption within the prescribed time frame will be borne
by that dealer. Telephone redemption requests must be made by NYSE close on any
business day of the Fund and will be confirmed at the price determined as of the
close of that day. No telephone redemption request will be accepted which
specifies a particular date for redemption or which specify and special
conditions.
Upon receipt of a proper request for redemption, payment is made as soon as
practicable, but in any event within seven days after presentation of all
required redemption documents in good
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order. However, in the event of a redemption of shares purchased by check,
redemption proceeds will not be mailed until the check has cleared.
OPEN ACCOUNT
THE FOLLOWING DISCUSSION OF AN OPEN ACCOUNT IS APPLICABLE ONLY TO THOSE
SHAREHOLDERS WHO HOLD SHARES OF THE FUND DIRECTLY.
The Fund maintains an open account for each shareholder, under which
additional Fund shares acquired through reinvestment of dividends and capital
gains distributions are held by State Street Bank for the shareholder's account
unless the shareholder elects to receive stock certificates or to obtain
dividends and distributions in cash. Stock certificates (in full shares only)
are issued without charge (but only on written request) and may be redeposited
at any time. It is anticipated that as a matter of convenience most shareholders
will not request certificates. A shareholder receives a statement from BFDS
after each acquisition or redemption of Fund shares, and after each dividend or
capital gains distribution.
MANAGEMENT OF THE FUND
THE BOARD OF DIRECTORS
The overall management of the business and affairs of the Fund is vested
with the Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including the Fund's agreements with the Fund's advisor, sub-advisor,
distributor, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's officers and to AIM, subject always to the
investment objective and policies of the Fund and to the general supervision of
the Fund's Board of Directors. Information concerning the Board of Directors may
be found in the Statement of Additional Information.
THE INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 100, Houston, Texas
77046, serves as the Fund's investment advisor pursuant to an Investment
Advisory Agreement, dated February 28, 1997 (the "Advisory Agreement"). AIM,
organized in 1976, together with its subsidiaries, manages or advises over 50
investment company portfolios encompassing a broad range of investment
objectives. AIM is a wholly owned subsidiary of AIM Management, the parent
corporation of AIM. AIM Management is a holding company engaged in the financial
services business and is an indirect wholly owned subsidiary of AMVESCAP PLC, a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. Certain of the
directors and officers of AIM are also executive officers of the Fund and their
affiliations are set forth in detail in the Statement of Additional Information.
Pursuant to the terms of the Advisory Agreement, AIM supervises all aspects
of the Fund's operations, including the investment and reinvestment of the cash,
securities or other properties
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comprising the Fund, subject at all times to the policies and control of the
Fund's Board of Directors. AIM obtains and evaluates economic, statistical and
financial information to formulate and implement investment programs for the
Funds. AIM may delegate to a sub-advisor certain of its duties; however, AIM
must supervise the performance of any such sub-advisor. AIM entered into a sub-
advisory agreement with TradeStreet as described below. AIM maintains a trading
desk and selects the core stocks which generally comprise approximately 50% of
the Fund's portfolio and the emerging growth stocks which generally comprise 25%
of the Fund's portfolio. The remainder of the Fund's portfolio is invested in
value-oriented stocks selected by the sub-advisor.
The portion of the Fund's portfolio invested in core stocks and in emerging
growth and value oriented stocks is determined by AIM.
The Advisory Agreement also provides that, upon the request of the Fund's
Board of Directors, AIM may perform or arrange for the performance of certain
accounting, shareholder servicing and other administrative services not required
to be performed by AIM under the Advisory Agreement. For such services, pursuant
to an administrative service agreement with the Fund, AIM is entitled to receive
from the Fund reimbursement of its costs or such reasonable compensation as may
be agreed upon between AIM and the Fund's Board of Directors, upon a finding by
the Board of Directors that the provision of such services is in the best
interests of the Fund and its shareholders. The Board of Directors has made such
a finding and, accordingly, has entered into an Administrative Services
Agreement dated February 28, 1997 with AIM (the "Administrative Services
Agreement"). Under the Administrative Services Agreement, AIM is currently
reimbursed for the services of a principal financial officer and his staff, who
maintain the financial accounts and books and records of the Fund, including the
calculation of the daily net asset value of the Fund, and prepare tax returns
and financial statements for the Fund and is also reimbursed for any expenses
related to providing such services, as well as the services of staff responding
to various shareholder inquiries.
AIM may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee and/or assume certain expenses of the Fund
but will retain its ability to be reimbursed prior to the end of the fiscal
year. Fee waivers or reductions and waivers of expense reimbursements, other
than those set forth in the Advisory Agreement, may be rescinded at any time
without notice to investors.
For the fiscal year ended October 31, 1997, AIM received fees from the Fund
that amounted to 0.64% of the Fund's average daily net assets. For the fiscal
year ended October 31, 1997, TradeStreet received fees from AIM that amounted to
0.20% of the Fund's average daily net assets for sub-advisory services. For the
fiscal year ended October 31, 1997, the Fund paid 0.005% of its average daily
net assets to AIM for reimbursement for administrative services.
For a discussion of AIM Management and its subsidiaries' Year 2000
Compliance Project, see "General Information -- Year 2000 Compliance Project."
THE SUB-ADVISOR
TradeStreet Investment Associates, Inc. ("TradeStreet"), 101 South Tryon
Street, Suite 1000, Charlotte, North Carolina 28255, serves as the Fund's
sub-advisor pursuant to a Sub-Advisory Agreement dated February 28, 1997, (the
"Sub-Advisory Agreement"). TradeStreet is a wholly owned subsidiary of
NationsBank Corp. Prior to April 1, 1996, NationsBank of Texas, N.A. served as
sub-advisor to the Fund.
Pursuant to the terms of the Sub-Advisory Agreement, AIM has appointed
TradeStreet to provide certain investment advisory services including economic,
statistical and financial research
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and securities analysis to the Fund, subject to overall supervision by AIM and
the Fund's Board of Directors. Pursuant to the terms of the Sub-Advisory
Agreement, TradeStreet, under AIM's supervision, will determine the
value-oriented stocks to be purchased or sold by the Fund. It is anticipated
that approximately, 25% of the Fund's portfolio will be invested in
value-oriented stocks, although that percentage may change from time to time as
deemed advisable by AIM based upon current market conditions.
For the fiscal year ended October 31, 1997, the expenses of the Fund borne
by the Fund, including the fees paid under the Advisory Agreement, amounted to
0.68% of the Fund's average daily net assets. The advisory fee rate paid by the
Fund is higher than that paid by some other investment companies. However, many
of those investment companies are a different size or have different objectives
than the Fund. The effective rate of fees and expenses paid by the Fund at its
current size is lower than that for many other funds with similar investment
objectives.
PORTFOLIO MANAGERS
AIM uses a team approach and disciplined investment strategy in providing
investment advisory services to all its accounts, including the Fund. AIM's
investment staff consists of approximately 135 individuals. While individual
members of AIM's investment staff are assigned primary responsibility for the
day-to-day management of each of AIM's accounts, all accounts are reviewed on a
regular basis by AIM's Investment Policy Committee to ensure that they are being
invested in accordance with the accounts' and AIM's investment policies. The
individuals on the investment team primarily responsible for the day-to-day
management of the Fund are David P. Barnard, Robert M. Kippes and Jonathan C.
Schoolar. Messrs. Barnard, Kippes and Schoolar have had responsibility for the
Fund since March 1, 1995. Jeffrey C. Moser is Senior Product Manager with
TradeStreet, and has been responsible for the Fund since 1995.
Mr. Barnard is Vice President of A I M Capital Management, Inc. ("AIM
Capital") a wholly owned subsidiary of AIM. He has been associated with AIM
and/or its subsidiaries since 1982 and became an investment professional in
1973.
Mr. Kippes is Vice President of AIM Capital. He has been associated with
AIM and/or its subsidiaries since he began working as an investment professional
in 1989.
Mr. Schoolar is Senior Vice President and Director of AIM Capital and is
Vice President of AIM and the Fund. He has been associated with AIM and/or its
subsidiaries since 1986 and became an investment professional in 1983.
Mr. Moser, who has been associated with NationsBank Texas since 1990, and
TradeStreet since 1996, began working as an investment professional in 1983.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Fund's Board of Directors, AIM is
responsible for the selection of broker/dealers to effect transactions for the
Fund and for the negotiation of brokerage commission rates with such
broker/dealers. AIM's primary consideration in effecting a security transaction
will be execution at the most favorable price. When selecting a broker/dealer to
execute each particular transaction, AIM will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker/dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker/dealer to
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the investment performance of the Fund on a continuing basis. Portfolio
transactions placed through dealers serving as primary market makers are
effected at net prices, without commissions as such, but which include
compensation in the form of mark up or mark down. In certain instances, the Fund
makes purchases of underwritten issues at prices which include underwriting
fees.
Broker/dealers selected by AIM may furnish AIM, or any sub-advisor to AIM
with statistical, research and other information or services which are deemed by
them to be beneficial to the Fund's investment program. Certain research
services furnished by broker/dealers may be useful to AIM or any sub-advisor
with clients other than the Fund. AIM may cause the Fund to pay a higher price
for securities or higher commissions in recognition of research services
furnished by broker/dealers. AIM may also consider sales of shares of the Fund
and of the other open-end investment companies managed or advised by AIM as a
factor in the selection of broker/dealers to execute portfolio transactions for
the Fund, subject to the requirements of best price and execution.
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF COMMON STOCK
The Fund is an open-end, diversified management investment company
organized as a corporation under the laws of the State of Maryland on February
17, 1982, and has an authorized capital of 1,000,000,000 shares of common stock,
par value $.01 per share. The shares of common stock of the Fund have equal
rights with respect to voting, dividends, distributions, redemption and
liquidation. Fractional shares have the same rights as full shares to the extent
of their proportionate interest. Shareholders of the Fund do not have cumulative
voting rights. There are no preemptive or conversion rights applicable to any of
the Fund's shares. The Fund's shares, when issued, are fully paid and
non-assessable.
Shares are redeemable at the net asset value thereof at the option of the
holders thereof. In the event of any dissolution or liquidation of the Fund, and
subject to the rights of creditors, the holders of the Fund's shares are
entitled to receive the assets of the Fund available for distribution in
proportion to the number of shares held by such holders.
As used in this Prospectus, the term "majority vote" means the affirmative
vote of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or
more of the shares present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy,
whichever is less.
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, 02110, serves as transfer agent for the Fund's shares and as
custodian for the Fund's portfolio securities and cash. The custodian's
administrative duties have been delegated by State Street Bank to its partially
owned affiliate, Boston Financial Data Services, Inc., P.O. Box 8300, Boston,
Massachusetts 02266-8300. State Street Bank and BFDS will receive such
compensation from the Fund for their services in such capacities as may be
agreed to from time to time by State Street Bank and the Fund.
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LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania, serves as counsel to the Fund.
FINANCIAL STATEMENTS
The financial statements of the Fund, including a report of the Fund's
auditors, are contained in the Statement of Additional Information.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be
directed to AIM Distributors by calling (800) 995-4246.
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Fund, AIM Management and its subsidiaries rely
on both internal software systems as well as external software systems provided
by third parties. Many software systems in use today are unable to distinguish
between the year 2000 from the year 1900. This defect if not cured will likely
adversely affect the services that AIM Management, its subsidiaries and other
service providers provide to the Fund and its shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases, namely
(i) inventorying every software application in use at AIM Management and its
subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and phase (iii) has
commenced. The Project is scheduled to be completed during the fourth quarter of
1998. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm Year 2000 compliance
upon installation.
OTHER INFORMATION
This Prospectus omits certain information contained in the registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. From time to time, Fund sales
literature and/or advertisements may disclose top holdings included in the
Fund's portfolio. Information regarding the Fund's performance is contained in
the annual report to shareholders, which is available upon request without
charge.
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[AIM LOGO APPEARS HERE]
================================================================================
SPONSOR
A I M DISTRIBUTORS, INC.
P.O. BOX 4264
HOUSTON, TEXAS 77210-4264
(800) 995-4246
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
CUSTODIAN'S AGENT
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. BOX 8300
BOSTON, MASSACHUSETTS 02266-8300
(617) 328-5000
AUDITORS
KPMG PEAT MARWICK LLP
700 LOUISIANA
HOUSTON, TEXAS 77002
<PAGE> 21
STATEMENT OF ADDITIONAL INFORMATION
AIM SUMMIT FUND, INC.
11 Greenway Plaza
Suite 100
Houston, Texas 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 FUND,
A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE FROM
AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC., P.O. BOX 4264,
HOUSTON, TEXAS 77210-4264.
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 27, 1998
RELATING TO THE PROSPECTUS DATED FEBRUARY 27, 1998
<PAGE> 22
TABLE OF CONTENTS
INTRODUCTION..............................................................1
PERFORMANCE INFORMATION...................................................1
Total Return Quotations..........................................2
GENERAL INFORMATION ABOUT THE FUND........................................3
The Fund and its Capital Stock...................................3
Directors and Officers...........................................3
The Investment Advisor...........................................9
The Sub-Advisor.................................................11
Expenses .......................................................12
Transfer Agent and Custodian....................................12
Reports .......................................................12
TAX AND DIVIDEND INFORMATION.............................................12
Qualification as a Regulated Investment Company.................13
Excise Tax on Regulated Investment Companies....................14
Fund Distributions..............................................14
Sale or Redemption of Fund Shares...............................15
Foreign Shareholders............................................15
Effect of Future Legislation; Local Tax Considerations..........16
SHARE PURCHASES, REDEMPTIONS AND REPURCHASES.............................16
Purchases and Redemptions.......................................16
Suspension of Right of Redemption...............................16
Valuation of Shares.............................................16
The Distribution Agreement......................................17
INVESTMENT PROGRAM AND RESTRICTIONS......................................17
Investment Program..............................................17
Common Stocks...................................................18
Preferred Stocks................................................18
Convertible Securities..........................................18
Corporate Debt Securities.......................................18
U.S. Government Securities......................................19
Warrants .......................................................19
Foreign Securities..............................................19
Foreign Exchange Transactions...................................19
Repurchase Agreements...........................................20
Rule 144A Securities............................................20
Futures Contracts...............................................20
Risks as to Futures Contracts and Related Call Options..........21
Portfolio Transactions and Brokerage............................22
Investment Restrictions.........................................24
FINANCIAL STATEMENTS.....................................................FS
<PAGE> 23
INTRODUCTION
AIM Summit Fund, Inc. (formerly, Summit Investors Fund, Inc.) (the
"Fund") is a mutual fund. The rules and regulations of the United States
Securities and Exchange Commission (the "SEC") require all mutual funds to
furnish prospective investors certain information concerning the activities of
the fund being considered for investment. This information is included in a
Prospectus dated February 27, 1998, which may be obtained without charge by
written request to A I M Distributors, Inc. ("AIM Distributors"). Investors may
also call AIM Distributors at (800) 995-4246 or dealers authorized by AIM
Distributors to distribute the Fund's shares. Investors must receive a
Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Fund. Some of
the information required to be in this Statement of Additional Information is
also included in the Fund's current prospectus and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
PERFORMANCE INFORMATION
Total return figures for the Fund are neither fixed nor guaranteed, and
no principal is insured. Performance quotations reflect historical information
and should not be considered representative of the Fund's performance for any
period in the future. Performance is a function of a number of factors which can
be expected to fluctuate. The Fund may provide performance information in
reports, sales literature and advertisements. The Fund may also, from time to
time, quote information published or aired by publications or other media
entities which contain articles or segments relating to investment results or
other data. The following is a list of such publications or media entities:
Advertising Age Forbes Nation's Business
Barron's Fortune New York Times
Best's Review Hartford Courant Inc. Pension World
Broker World Institutional Investor Pensions & Investments
Business Week Inssurance Forum Personal Investor
Changing Times Insurance Week Philadelphia Inquirer
Christian Science Monitor Investor's Daily USA Today
Consumer Reports Journal of the American U.S. News & World Report
Economist Society of CLU & ChFC Wall Street Journal
FACS of the Week Kiplinger Letter Washington Post
Financial Planning Money CNN
Financial Product News Mutual Fund Forecaster CNBC
Financial Services Week PBS
Financial World
The Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper Analytical Services
1
<PAGE> 24
The Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
Standard & Poor's 400 Index
Standard & Poor's 500 Stock Index Bond Buyer Index
Dow Jones Industrial Average NASDAQ
EAFE Index COFI
Consumer Price Index First Boston High Yield Index
Lehman Bond Indices
The Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasuries
30 year Treasuries
90 day Treasury Bills
Advertising for the Fund may from time to time include discussions of
general economic conditions and interest rates, and may also include references
to the use of the Fund as part of an individual's overall retirement investment
program. From time to time, sales literature and/or advertisements may disclose
(i) the largest holdings in the Fund's portfolio, (ii) certain selling group
members and/or (iii) certain institutional shareholders.
From time to time, the Fund's sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is 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, inflation.
Although performance data may be useful to prospective investors when
comparing the Fund's performance with other funds and other potential
investments, investors should note that the methods of computing performance of
other potential investments are not necessarily comparable to the methods
employed by the Fund.
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return, as described in the
Prospectus, 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).
The average annual total return for the Fund, for the one, five and ten
year periods ended October 31, 1997, was _____%, _____% and _____%,
respectively. These average annual total returns do not include the effect of
paying the separate Creation and Sales Charges and Custodian Fees associated
with the purchase of shares of the Fund through Summit Investors Plans. Total
returns would be lower if Creation and Sales Charges and Custodian Fees were
taken into account. Shares of the Fund may be acquired by the general public
only through Summit Investors Plans. Investors should consult the Summit
Investors Plans' Prospectus for complete information regarding Creation and
Sales Charges and Custodian Fees.
The average annual total return for the Fund, for the one, five and ten
year periods ended October 31, 1997, was _____%, _____% and _____%,
respectively. These average annual total returns include change in share price,
reinvestment of dividends and capital gains, and the effects of the separate
Creation and Sales Charges and Custodian Fees assessed through Summit Investors
Plans. The average annual total returns assume an initial $_____ lump sum
investment at the beginning of each period shown with no subsequent Plan
investments. Because the illustrations assume lump sum investments, they do not
reflect what investors would have earned only had they made regular monthly
investments over the period. Consult the Summit Investors Plans' Prospectus for
more complete information on applicable charges and fees.
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
2
<PAGE> 25
n
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment of only
a stated portion of, or none of, the applicable maximum
sales load at the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
n
P(1+V) =ERV
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a
stated portion of, or none of, the applicable maximum
sales load at the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
GENERAL INFORMATION ABOUT THE FUND
THE FUND AND ITS CAPITAL STOCK
The Fund is an open-end, diversified management investment company
organized as a corporation under the laws of the State of Maryland on February
17, 1982. Shares of the Fund are redeemable at the net asset value thereof at
the option of the holders thereof. For information concerning the methods of
redemption and the rights of share ownership, consult the Prospectus under the
captions "General Information" and "Redemption of Shares."
As of January 31, 1998, no person owned of record or is known by the
Fund to own of record or beneficially 5% or more of the Fund's outstanding
equity securities. As of January 31, 1998, the directors and officers of the
Fund as a group owned beneficially less than 1% of the Fund's outstanding
shares.
The Board of Directors may classify or reclassify any unissued shares
into shares of any class or classes in addition to that already authorized by
setting or changing in any one or more respects, from time to time, prior to the
issuance of such shares, the preference, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualification, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the laws of the State of
Maryland and the Investment Company Act of 1940, as amended (the "1940 Act").
DIRECTORS AND OFFICERS
The directors and officers of the Fund and their principal occupations
during the last five years are set forth below. All of the Fund's executive
officers hold similar offices with some or all of the other AIM Funds. Unless
otherwise indicated, the address of each director and officer is 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
3
<PAGE> 26
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s) During,
Name, Address and Age with Registrant At Least, the Past 5 years
- --------------------- --------------- --------------------------
<S> <C> <C>
*Charles T. Bauer (78) Chairman and Chairman of the Board of Directors, A I M
Director Management Group 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 Director and Vice
Chairman of AMVESCAP PLC.
Bruce L. Crockett, (53) Director Director, ACE Limited (insurance company).
906 Frome Lane Formerly Director, President and Chief Executive
McLean, VA 22102 Officer, COMSAT Corporation; and Chairman,
Board of Governors of INTELSAT (international communications
company).
Owen Daly II (73) Director Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental
Baltimore, MD 21210 Life Insurance Company and Monumental General
Insurance Company; and Chairman of the Board of
Equitable Bancorporation
Jack Fields (46) Director Chief Executive Officer, Texana Global, Inc.
Texana Global, Inc. (foreign trading company). Formerly, Member of the
Jetero Plaza, Suite E U.S. House of Representatives.
8810 Will Clayton Parkway
Humble, TX 77338
**Carl Frischling (61) Director Partner, Kramer, Levin, Naftalis & Frankel (law
919 Third Avenue firm). Director, ERD Waster, Inc. (waste
New York, NY 10022 management), Aegis Consumer Finance (auto leasing
company) and Lazard Funds, Inc. (investment companies).
Formerly, Partner, Reid & Priest (law firm); and,
prior thereto, Partner, Spengler Carlson Gubar Brodsky
& Frischling (law firm).
</TABLE>
- --------
* A director who is an "interested person" of the Fund and A I M Advisors,
Inc. as defined in the 1940 Act.
** A director who is an "interested person" of the Fund as defined in the
1940 Act.
4
<PAGE> 27
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s) During,
Name, Address and Age with Registrant At Least, the Past 5 years
- --------------------- --------------- --------------------------
<S> <C> <C>
*Robert H. Graham (51) Director and Director, President and Chief Executive Officer,
President A I M Management Group Inc.; Director and
President, A I M Advisors, Inc.; Director and Senior
Vice President, A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc.
and Fund Management Company; Director,
AMVESCAP PLC.
John F. Kroeger (73) Director Director, Flag Investors International Fund, Inc.,
37 Pippins Way Flag Investors Emerging Growth Fund, Inc., Flag
Morristown, NJ 07960 Investors Telephone Income Fund, Inc., Flag
Investors Equity Partners Fund, Inc., Total Return
U.S. Treasury Fund, Inc., Flag Investors
Intermediate Term Income Fund, Inc., Managed
Municipal Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real
Estate Securities Fund, Inc., Alex. Brown Cash
Reserve Fund, Inc. and North American
Government Bond Fund, Inc. (investment
companies). Formerly, Consultant, Wendell &
Stockel Associates, Inc. (consulting firm).
Lewis F. Pennock (55) Director Attorney, private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, Texas 77057
Ian W. Robinson (74) Director Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management
Tequesta, Florida 33469 Services, Inc. (provider of centralized management
services to telephone companies); Executive
Vice President, Bell Atlantic Corporation
(parent of seven telephone companies);
and Vice President and Chief Financial
Officer, Bell Telephone Company of
Pennsylvania and Diamond State Telephone Company.
Louis S. Sklar (58) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited Partnership
2800 Post Oak Blvd. (real estate development).
Houston, Texas 77056
</TABLE>
- --------
* A director who is an "interested person" of the Fund and A I M Advisors,
Inc. as defined in the 1940 Act.
5
<PAGE> 28
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s) During,
Name, Address and Age with Registrant At Least, the Past 5 years
- --------------------- --------------- --------------------------
<S> <C> <C>
***John J. Arthur (53) Senior Vice Director, Senior Vice President and Treasurer,
President and A I M Advisors, Inc.; and Vice President and
Treasurer Treasurer, A I M Management Group Inc., A I M
Capital Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc. and Fund Management
Company.
Gary T. Crum (50) Senior Vice Director and President, A I M Capital Management,
President Inc.; Director and Senior Vice President, A I M
Management Group Inc. and A I M Advisors, Inc.;
and Director, A I M Distributors, Inc. and AMVESCAP PLC.
***Carol F. Relihan (43) Senior Vice Director, Senior Vice President, General Counsel
President and and Secretary, A I M Advisors, Inc.; Vice President,
. Secretary General Counsel and Secretary,
A I M Management Group Inc.; Director, Vice
President and General Counsel, Fund
Management Company; General Counsel and Vice
President, A I M Fund Services, Inc.; and Vice
President A I M Capital Management, Inc. and
A I M Distributors, Inc.
Dana R. Sutton (39) Vice President and Vice President and Fund Controller, A I M
Assistant Advisors, Inc.; and Assistant Vice President and
Treasurer Assistant Treasurer, Fund Management Company.
Melville B. Cox (54) 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.
Jonathan C. Schoolar (36) Vice President Senior Vice President, A I M Capital Management,
Inc.; and Vice President, A I M Advisors, Inc.
</TABLE>
The Board of Directors has an Audit Committee, an Investments Committee,
and a Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit Committee
is responsible for meeting with the Fund'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 Fund's fund
accounting or its internal accounting controls, or for considering such matters
as may from time to time be set forth in a charter adopted by the Board of
Directors and such committee.
- --------
*** Mr. Arthur and Ms. Relihan are married to each other.
6
<PAGE> 29
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The
Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, or considering such matters as may from time to time be set
forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not interested
persons, reviewing from time to time the compensation payable to the
disinterested directors, or considering such matters as may from time to time be
set forth in a charter adopted by the board and such committee.
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with
each meeting of the Board of Directors or any Committee attended. Each director
of the Fund is compensated for his or her services according to a fee schedule
which recognizes the fact that such director also serves as a director or
trustee of certain other AIM Funds. Each such director receives a fee, allocated
among the AIM Funds for which he or she serves as a director or trustee, which
consists of an annual retainer component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued
for each director of the Fund:
================================================================================
DIRECTOR ESTIMATED RETIREMENT TOTAL
COMPENSATION BENEFITS COMPENSATION
FROM FUND(1) ACCRUED FROM ALL AIM
BY ALL AIM FUNDS(3)
FUNDS(2)
- --------------------------------------------------------------------------------
Charles T. Bauer $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------
Bruce L. Crockett 1,869 67,774 84,000
- --------------------------------------------------------------------------------
Owen Daly II 1,869 103,543 84,000
- --------------------------------------------------------------------------------
Jack Fields 1,240 0 71,000
- --------------------------------------------------------------------------------
Carl Frischling(4) 1,869 96,520 84,000
- --------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- --------------------------------------------------------------------------------
John F. Kroeger 1,869 94,132 82,500
- --------------------------------------------------------------------------------
Lewis F. Pennock 1,869 55,777 84,000
- --------------------------------------------------------------------------------
Ian Robinson 1,869 85,912 84,000
- --------------------------------------------------------------------------------
Louis S. Sklar 1,845 84,370 83,500
================================================================================
(1) The total amount of compensation deferred by all Directors of the Fund
during the fiscal year ended October 31, 1997, including interest earned
thereon, was $8,390.
7
<PAGE> 30
(2) During the fiscal year ended October 31, 1997, the total amount of expenses
allocated to the Fund in respect of such retirement benefits was $8,812. Data
reflects compensation for the calendar year ended December 31, 1997.
(3) Each Director serves as director or trustee of a total of 11 registered
investment companies advised by AIM (comprised of over 50 portfolios). Data
reflects compensation earned during the calendar year ended December 31, 1997.
(4) During the fiscal year ended October 31, 1997, the Fund paid $6,842 in legal
fees for services rendered by Kramer, Levin, Naftalis & Frankel. Mr. Frischling
is a partner in such firm.
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any of
the AIM Funds, A I M Management Group Inc., or any of its subsidiaries) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by A I M Advisors, Inc. ("AIM") or its
subsidiaries (the "Applicable AIM Funds"). Each eligible director is entitled to
receive an annual benefit from the Applicable AIM Funds commencing on the first
day of the calendar quarter coincident with or following his date of retirement
equal to 75% of the retainer paid or accrued by the Applicable AIM Funds for
such director during the twelve-month period immediately preceding the
director's retirement (including amounts deferred under a separate agreement
between the AIM Funds and the director) for the number of such Director's years
of service (not in excess of 10 years of service) completed with respect to any
of the Applicable AIM Funds. Such benefit is payable to each eligible director
in quarterly installments. If an eligible director dies after attaining the
normal retirement date but before receipt of any benefits under the Plan
commences, the director's surviving spouse (if any) shall receive a quarterly
survivor's benefit equal to 50% of the amount payable to the deceased director,
for no more than ten years beginning the first day of the calendar quarter
following the date of the director's death. Payments under the Plan are not
secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Fields, Frischling, Kroeger, Pennock,
Robinson and Sklar are 10, 10, 0, 20, 19, 16, 10 and 8 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
Annual Compensation Paid
By All AIM Funds
$80,000
==============================
Number of 10 $60,000
Years of 9 $54,000
Service with 8 $48,000
the AIM 7 $42,000
Funds 6 $36,000
5 $30,000
==============================
8
<PAGE> 31
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Fund, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of his deferral account shall be deemed to be
invested. Distributions from the deferring directors' 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 director's retirement benefits commence under the Plan. The Fund's
Board of Directors, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the deferring director's
termination of service as a director of the Fund. If a deferring director dies
prior to the distribution of amounts in his deferral account, the balance of the
deferral account will be distributed to his designated beneficiary in a single
lump sum payment as soon as practicable after such deferring director's death.
The Agreements are not funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors have the status of unsecured
creditors of the Fund and of each other AIM Fund from which they are deferring
compensation.
THE INVESTMENT ADVISOR
The Fund has entered into an Investment Advisory Agreement dated as of
February 28, 1997, (the "Advisory Agreement") with AIM. AIM is a wholly owned
subsidiary of A I M Management Group Inc. ("AIM Management"), 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. 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 business in the United States, Europe and the Pacific Region.
Certain of the directors and officers of AIM are also executive officers of the
Fund and their affiliations are shown under "Directors and Officers."
AIM and the Fund have adopted a Code of Ethics which requires investment
personnel and certain other employees (a) to pre-clear all 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 Directors reviews quarterly and annual reports (including information
on any substantial violations of the Code of Ethics). Sanctions for violations
of the Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
A I M Capital Management, Inc., ("AIM Capital") a wholly owned
subsidiary of AIM, is engaged in the business of providing investment advisory
services to investment companies, corporations, institutions and other accounts.
AIM Distributors, a registered broker-dealer and a wholly owned subsidiary of
AIM, acts as principal underwriter of other registered investment companies
advised or managed by AIM.
Pursuant to the terms of the Advisory Agreement, AIM: (a) supervises all
aspects of the operations of the Fund; (b) obtains and evaluates pertinent
information about significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether affecting the economy
generally or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund or the activities in which such issuers
engage, or with respect to securities which AIM considers desirable for
inclusion in the Fund; (c) determines which issuers and securities shall be
represented in the Fund's investment portfolio and
9
<PAGE> 32
regularly reports thereon to the Fund's Board of Directors; and (d) formulates
and implements continuing programs for the purchases and sales of the securities
of such issuers and regularly reports thereon to the Fund's Board of Directors;
and takes, on behalf of the Fund, all actions which appear to the Fund necessary
to carry into effect such purchase and sale programs and supervisory functions
as aforesaid, including but not limited to the placing of orders for the
purchase and sale of securities for the Fund. Subject to the approval of the
Board of Directors and the shareholders of the Fund, AIM may delegate to a
sub-advisor certain of its duties, provided that AIM shall continue to supervise
the performance of any such sub-advisor.
As compensation for its services, AIM receives an annual fee, calculated
daily and paid monthly, at the annual rate of 1.00% of the first $10 million of
the Fund's average daily net assets, 0.75% of the next $140 million of the
Fund's average daily net assets and 0.625% of the Fund's average daily net
assets in excess of $150 million. Although the advisory fee rate paid by the
Fund is higher than that paid by other investment companies, many of those
investment companies are a different size or have different objectives than the
Fund. The effective rate of fees and expenses paid by the Fund at its current
size is lower than that for other funds with similar investment objectives. The
Advisory Agreement provides that if, for any fiscal year of the Fund, the total
of all ordinary business expenses of the Fund, including all investment advisory
fees (but excluding brokerage commissions and fees, taxes and extraordinary
expenses) would exceed applicable expense limitations imposed by applicable
state securities laws, the amount of advisory fees payable to AIM will be
reduced by the amount of the excess. The amount of such reduction would be
deducted from monthly payments otherwise due to AIM for its annual advisory fee
during such fiscal year.
AIM may from to time waive or reduce its fee. Fee waivers or reductions,
other than those set forth in the Advisory Agreement, may be rescinded, however,
at any time without further notice to investors, provided, however, that the
discontinuance of each fee waiver will be approved by the Board of Directors of
AIM.
The Advisory Agreement became effective on February 28, 1997, and will
continue in effect until June 30, 1998, and from year to year thereafter only if
such continuance is specifically approved at least annually by (i) the Fund's
Board of Directors or the vote of a "majority of the outstanding voting
securities" of the Fund (as defined in the 1940 Act) and (ii) the affirmative
vote of a majority of the directors who are not parties to the agreement or
"interested persons" of any such party (the "Non-Interested Directors") by votes
cast in person at a meeting called for such purpose. The Fund or AIM may
terminate the Advisory Agreement on 60 days' written notice without penalty. The
Advisory Agreement terminates automatically in the event of assignment, as
defined in the 1940 Act.
The Advisory Agreement provides that upon the request of the Fund's
Board of Directors, AIM may perform, or arrange for the performance of, certain
accounting, shareholder servicing and other administrative services to the Fund
that are not required to be performed by AIM under the Advisory Agreement. For
such services, AIM is entitled to receive from the Fund reimbursement of its
costs or such reasonable compensation as may be agreed upon by AIM and the
Company's Board of Directors upon a finding by the Board of Directors that the
provision of such services is in the best interests of the Fund and its
shareholders.
The Board of Directors has made such a finding and, accordingly, has
entered into an Administrative Services Agreement dated February 28, 1997, with
AIM (the "Administrative Services Agreement"). Under the Administrative Services
Agreement, AIM currently provides the services of a principal financial officer
and his staff, who maintain the financial accounts and books and records of the
Fund, including the calculation of the daily net asset value of the Fund, and
prepare tax returns and financial statements for the Fund and also is reimbursed
for any expenses related to providing such services, as well as the services of
staff responding to various shareholder inquiries. The Administrative Services
Agreement became effective on February 28, 1997, and will continue in effect
until June 30, 1998, and from year to year thereafter only if such continuance
is specifically approved at least annually by (i) the Fund's Board of Directors
or the vote of a "majority of the outstanding voting securities" of the Fund (as
defined in the 1940 Act) and (ii) the affirmative vote of a majority of the
Non-Interested Directors by votes cast in person at a meeting called for such
purpose. In addition, a
10
<PAGE> 33
sub-contract between AIM and A I M Fund Services, Inc. ("AFS"), a registered
transfer agent and wholly owned subsidiary of AIM, provides that AFS may perform
certain shareholders services for the Fund which are not required to be
performed by AIM under the Advisory Agreement. Currently, AFS provides certain
shareholders services for the Fund. For such services, while AFS is entitled to
receive from AIM such reimbursement of its costs associated with providing those
services as may be approved by the Board of Directors, AFS does not presently
receive any such reimbursement.
During the fiscal years ended October 31, 1997, 1996 and 1995, AIM
received management and advisory fees from the Fund of $9,353,715,
$7,360,028 and $5,719,169, respectively. See "Expenses."
For the fiscal years ended October 31, 1997, 1996 and 1995, AIM was
reimbursed $67,450, $63,439 and $60,994, respectively, for costs associated with
performing administrative services.
THE SUB-ADVISOR
NationsBank of Texas, N.A. ("NationsBank Texas"), served as the Fund's
sub-advisor pursuant to a sub-advisory agreement dated October 18, 1993.
NationsBank Corp., a bank holding company ("NationsBank, Corp."), indirectly
holds 100% of the voting stock of NationsBank Texas. TradeStreet Investment
Associates, Inc. ("TradeStreet"), 101 South Tryon Street, Suite 1000, Charlotte,
North Carolina 28255, is a wholly owned subsidiary of NationsBank, Corp. and a
registered investment advisor. Effective April 1, 1996, TradeStreet assumed the
obligations of NationsBank Texas under its sub-advisory agreement with the Fund.
TradeStreet subsequently entered into a sub-advisory agreement with the Fund
dated February 28, 1997 (the "Sub-Advisory Agreement").
Pursuant to the terms of the Sub-Advisory Agreement, AIM has appointed
TradeStreet to provide certain investment advisory services to the Fund, subject
to the overall supervision by AIM and the Fund's Board of Directors. As
Sub-Advisor, TradeStreet shall: (a) obtain and evaluate pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Fund, and whether concerning the individual issuers whose securities are
included in the Fund or the activities in which such issuers engage, or with
respect to securities which it or AIM considers desirable for inclusion in the
Fund's investment portfolio; and (b) to the extent requested by AIM, determine
which issues and securities shall be represented in the Fund's investment
portfolio, formulate programs for the purchases and sales of such securities and
regularly report thereon to AIM. In performing these services, TradeStreet, is
required to comply with all applicable provisions of federal or state law,
including the applicable provisions of the 1940 Act and the Investment Advisers
Act of 1940, as amended (the "Advisers Act").
As compensation for its services, AIM pays TradeStreet an annual fee,
calculated daily and paid monthly, at an annual rate of 0.50% of the first $10
million of the Fund's average daily net assets, 0.35% of the next $140 million
of the Fund's average daily net assets and 0.225% of the Fund's average daily
net assets in excess of $150 million. TradeStreet has agreed to an adjustment to
the above contractual fee schedule so that it will accept a fee on the Fund's
average daily net assets in excess of $700 million of 0.15% of the Fund's
average daily net assets. The sub-advisor's fee is paid to TradeStreet by AIM
from the advisory fee which AIM receives from the Fund.
The Sub-Advisory Agreement became effective on February 28, 1997, and
will continue in effect until June 30, 1998, and from year to year thereafter
only if such continuance is specifically approved at least annually by (i) the
Fund's Board of Directors or a vote of "a majority of the outstanding voting
securities" of the Fund (as defined by the 1940 Act), and (ii) by the
affirmative vote of a majority of the Non-Interested Directors by votes cast in
person at a meeting called for such purpose.
For the period November 1, 1995 through March 31, 1996, and for the
fiscal year ended October 31, 1995, NationsBank Texas received fees from AIM of
$958,342 and $2,049,101, respectively. For the fiscal
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<PAGE> 34
year ended October 31, 1997 and for the period April 1, 1996 through the fiscal
year ended October 31, 1996, TradeStreet received fees from AIM of $2,921,391
and $1,454,982, respectively. See "Expenses."
EXPENSES
All of the ordinary business expenses incurred in the operations of the
Fund and the offering of its shares shall be borne by the Fund unless
specifically provided otherwise in the Advisory Agreement. These expenses borne
by the Fund include but are not limited to brokerage commissions, taxes, legal,
auditing, or governmental fees, the cost of preparing share certificates,
custodian, transfer and shareholder service agent costs, expenses of issue,
sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to directors' and shareholders'
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Fund in reports and
notices to shareholders, the fees and other expenses incurred by the Fund in
connection with membership in investment company organizations and the cost of
pricing copies of prospectuses and statements of additional information
distributed to the Fund's shareholders.
If, for any fiscal year, the total of all ordinary business expenses of
the Fund, including all investment advisory fees, but excluding brokerage
commissions and fees, taxes, interest and extraordinary expenses, such as
litigation, would exceed the applicable expense limitations imposed by state
securities regulations in any state in which the Fund's shares are qualified for
sale, as such limitations may be raised or lowered from time to time, the
aggregate of all such investment advisory fees shall be reduced by the amount of
such excess.
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company ("State Street Bank") acts as
transfer agent for the Fund's shares and as custodian for the Fund's portfolio
securities and cash. The transfer agent's administrative duties have been
delegated by State Street Bank to its partially-owned affiliate, Boston
Financial Data Services, Inc. ("BFDS"). State Street Bank and BFDS receive such
compensation from the Fund for their services in such capacities as are agreed
to from time to time by State Street Bank and the Fund. The address of State
Street Bank and of BFDS is P.O. Box 8300, Boston, Massachusetts 02266-8300.
REPORTS
At least semi-annually, the Fund will furnish shareholders with a list
of the investments held in the Fund's portfolio and its financial statements.
The annual financial statements will be audited by the Fund's independent
certified public accountants. The Board of Directors has selected KPMG Peat
Marwick LLP, 700 Louisiana, Houston, Texas 77002, as the Fund's independent
certified public accountants to audit the Fund's books and review the Fund's tax
returns.
TAX AND DIVIDEND INFORMATION
The following is only a summary of certain additional tax considerations
generally affecting the Fund 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 Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Because
shares of the Fund may be purchased by the general public only through Summit
Investors Plans, the following discussion is addressed only to individual
(rather than corporate) investors.
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<PAGE> 35
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The 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, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the 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 the 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 the 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 general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (i) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (ii) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option with respect thereto.
The Fund may be required to defer the recognition of a loss on the disposition
of an asset held as part of a straddle to the extent of any unrecognized gain on
the offsetting position.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the 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.
If for any taxable year the 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.
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<PAGE> 36
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail 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 must (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for any calendar year and (2) unless it has made
a taxable year election, exclude foreign currency gains and losses incurred
after October 31 of any year 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).
The 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 the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
FUND DISTRIBUTIONS
The 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.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if the Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carryovers) at the 35% corporate tax rate. If the 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 pro rata 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.
Distributions by the 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 the 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. 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 the 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.
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<PAGE> 37
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the Internal Revenue
Service ("IRS").
The 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 (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that he is not subject to backup withholding or
that it is an "exempt recipient."
SALE OR REDEMPTION OF FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the 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 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 the 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. Under the Taxpayer Relief Act of 1997, the IRS is
authorized to issue appropriate regulations to determine the tax rates
applicable to such recognized long-term capital gain. 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) generally will apply in
determining the holding period of shares. Long-term capital gains of
noncorporate 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 noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the
Fund, (ii) disposes of such shares less than 91 days after they are acquired and
(iii) subsequently acquires shares of the same 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 shareholder"), depends on
whether the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
will be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate) upon the gross amount of the dividend. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of the Fund, capital gain dividends and amounts retained by the Fund
that are designated as undistributed capital gains.
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If the income from the 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 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 shareholders, the 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.
Foreign persons who file a United States tax return after December 31,
1996, for a U.S. Tax refund and who are not eligible to obtain a social security
number must apply to the IRS for an individual taxpayer identification number,
using IRS Form W-7. For a copy of the IRS Form W-7 and accompanying
instructions, please contact your tax advisor.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of 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 Fund.
SHARE PURCHASES, REDEMPTIONS AND REPURCHASES
PURCHASES AND REDEMPTIONS
The terms of offering of Fund shares and the methods of accomplishing
redemption are set forth in full in the Fund's Prospectus and in the Summit
Investors Plans' Prospectus.
SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange (the "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 disposal of portfolio securities or the
valuation of the net assets of the Fund not reasonably practicable.
VALUATION OF SHARES
In accordance with the current rules and regulations of the SEC, the net
asset value of a Fund share is determined as of the close of trading of the NYSE
(generally 4:00 p.m. Eastern Time) on each day in which the NYSE is open for
trading. Net asset value is determined by dividing the value of the Fund's
securities,
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<PAGE> 39
cash and other assets (including accrued expenses but excluding capital and
surplus), by the number of shares outstanding. In the event the NYSE closes
early (i.e. before 4:00 p.m. Eastern Time) on a particular day, the net asset
value of a Fund share is determined as of the close of the NYSE on such day.
Determination of the Fund's net asset value per share is made in accordance with
generally accepted accounting principles. For purposes of determining net asset
value per share, futures and options contract closing prices which are available
15 minutes after the close of trading of the NYSE are generally used.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sale price on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at the
mean between the closing bid and asked prices on that day. Each security traded
in the over-the-counter market (but not including securities reported on the
NASDAQ National Market System) is valued at the mean between the last bid and
asked prices based upon quotes furnished by market makers for such securities.
Each security reported on the NASDAQ National Market System is valued at the
last sale price on the valuation date, or absent a last sales price, at the mean
between the closing bid and asked prices on that day. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the independent 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Fund's officers in a manner specifically authorized by
the Board of Directors of the Fund. Notwithstanding the above, short-term
obligations with maturities of 60 days or less are valued at amortized cost
which approximates market value.
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 the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or under the supervision of the Board of Directors.
THE DISTRIBUTION AGREEMENT
Information concerning the Fund's distributor, AIM Distributors, P.O.
Box 4264, Houston, Texas 77210-4264, and the continuous offering of the Fund's
shares is set forth in the Prospectus under the caption "Sales of Shares." The
Distribution Agreement provides that AIM Distributors will pay promotional
expenses, including the incremental costs of printing prospectuses, statements
of additional information, annual reports and other periodic reports for
distribution to persons who are not shareholders of the Fund and the costs of
preparing and distributing any other supplemental sales literature. AIM
Distributors has not undertaken to sell any specified number of shares of the
Fund. The Fund or AIM Distributors may terminate the Distribution Agreement on
60 days' written notice without penalty. The Distribution Agreement will
terminate automatically in the event of assignment.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
The Fund's investment objective and the methods by which the Fund seeks
to achieve that objective is set forth in the Prospectus under the caption
"Investment Program." It is the current policy of the Fund not to purchase or
own the common stock of any company which, in the opinion of AIM, derives a
substantial portion of its revenues from the manufacture of alcoholic beverages
or tobacco products or the operation of
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<PAGE> 40
gambling establishments. In the opinion of management based upon current
conditions, such policy will not have a significant effect on the investment
performance of the Fund. This policy may be modified or rescinded by the Fund's
Board of Directors without shareholder approval.
COMMON STOCKS
The Fund may 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 Fund may invest in preferred stocks. Preferred stock has a
preference over common stock in liquidation (and generally dividends as well)
but is subordinated to the liabilities of the issuer in all respects. As a
general rule the market value of preferred stock with a fixed dividend rate and
no conversion element varies inversely with interest rates and perceived credit
risk, while the market price of convertible preferred stock generally also
reflects some element of conversion value. Because preferred stock is junior to
debt securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar stated yield
characteristics. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Preferred stock also may be subject to optional or mandatory redemption
provisions.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. Convertible securities may be subject to redemption
at the option of the issuer at a price established in the convertible security's
governing instrument. Although the Fund will only purchase convertible
securities that AIM considers to have adequate protection parameters, including
an adequate capacity to pay interest and repay principal in a timely manner, it
invests without regard to corporate bond ratings.
CORPORATE DEBT SECURITIES
The Fund may invest in corporate debt securities. Corporations issue
debt securities of various types, including bonds and debentures (which are
long-term), notes (which may be short- or long-term), bankers acceptances
(indirectly secured borrowings to facilitate commercial transactions) and
commercial paper (short-term unsecured notes). These securities typically
provide for periodic payments of interest, at a rate which may be fixed or
adjustable, with payment of principal upon maturity and are generally not
secured by assets of the issuer or otherwise guaranteed. The values of fixed
rate income securities tend to vary inversely with changes in interest rates,
with longer-term securities generally being more volatile than shorter-term
securities. Corporate securities frequently are subject to call provisions that
entitle the issuer to repurchase such securities at a predetermined price prior
to their stated maturity. In the event that a security is called
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<PAGE> 41
during a period of declining interest rates, the Fund may be required to
reinvest the proceeds in securities having a lower yield. In addition, in the
event that a security was purchased at a premium over the call price, the Fund
will experience a capital loss if the security is called. Adjustable rate
corporate debt securities may have interest rate caps and floors.
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the United
States government or its agencies or instrumentalities. These include Treasury
securities (bills, notes, bonds and other debt securities) which differ only in
their interest rates, maturities and times of issuance. U.S. Government agency
and instrumentality securities include securities which are supported by the
full faith and credit of the U.S., securities that are supported by the right of
the agency to borrow from the U.S. Treasury, securities that are supported by
the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality and securities that are supported
only by the credit of such agencies. While the U.S. Government may provide
financial support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it always will do so. The U.S.
government, its' agencies and instrumentalities do not guarantee the market
value of their securities and consequently the values of such securities
fluctuate.
WARRANTS
The Fund may, from time to time, invest in warrants. Warrants are, in
effect, longer-term call options. They give the holder the right to purchase a
given number of shares of a particular company at specified prices within
certain periods of time. The purchaser of a warrant expects that the market
price of the security will exceed the purchase price of the warrant plus the
exercise price of the warrant, thus giving him a profit. Of course, since the
market price may never exceed the exercise price before the expiration date of
the warrant, the purchaser of the warrant risks the loss of the entire purchase
price of the warrant. Warrants generally trade in the open market and may be
sold rather than exercised. Warrants are sometimes sold in unit form with other
securities of an issuer. Units of warrants and common stock may be employed in
financing young, unseasoned companies. The purchase price of a warrant varies
with the exercise price of a warrant, the current market value of the underlying
security, the life of the warrant and various other investment factors.
FOREIGN SECURITIES
The Fund has reserved the investment flexibility to invest up to 20% of
its total assets in foreign securities. For purposes of computing such
limitation American Depository Receipts, European Depository Receipts and other
securities representing underlying securities of foreign issuers shall be
treated as foreign securities. Investments by the Fund in securities of foreign
corporations may involve considerations and risks that are different in certain
respects from an investment in securities of U.S. companies. Such risks include
possible imposition of withholding taxes on interest or dividends, possible
adoption of foreign governmental restrictions on repatriation of income or
capital invested, or other adverse political or economic developments.
Additionally, it may be more difficult to enforce the rights of a security
holder against a foreign corporation, and information about the operations of
foreign corporations may be more difficult to obtain and evaluate.
FOREIGN EXCHANGE TRANSACTIONS
Purchases and sales of foreign securities are usually made with foreign
currencies, and consequently the 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
(i.e. cash) basis at the spot rate prevailing in foreign exchange markets and
will result in currency conversion costs to the Fund. The Fund attempts to
purchase and sell foreign currencies on as favorable a basis as practicable;
however, some price spread on foreign exchange transactions (to cover service
charges) may be incurred, particularly when the 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
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<PAGE> 42
the Fund from transferring cash out of such countries, and the Fund may be
affected either favorably or unfavorably by fluctuations in relative exchange
rates while the Fund holds foreign currencies.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is
an instrument under which the Fund acquires ownership of a debt security and the
seller (usually a broker or a bank) agrees, at the time of the sale, to
repurchase the obligation at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of
bankruptcy or other default of a seller of a repurchase agreement, the Fund may
experience both delays in liquidating the underlying securities and losses,
including: (a) a possible decline in the value of the underlying security during
the period in which the Fund seeks to enforce its rights thereto; (b) a possible
subnormal level of income and lack of access to income during this period; and
(c) expenses of enforcing its rights. Repurchase agreements entered into by the
Fund are collateralized by United States Government securities and the value of
repurchase agreements 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.
RULE 144A SECURITIES
The 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 Fund, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Fund's Board of Directors, will consider whether securities purchased under
Rule 144A are illiquid and thus subject to the Fund's restriction of investing
no more than 15% of its assets in illiquid securities. Determination of whether
a Rule 144A security is liquid or not is a question of fact. In making this
determination AIM will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security. In
addition, AIM could consider the (i) frequency of trades and quotes, (ii) number
of dealers and potential purchasers, (iii) dealer undertakings to make a market,
and (iv) nature of the security and of market place trades (for example, the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). The liquidity of Rule 144A securities will also be
monitored by AIM and, if as a result of changed conditions, it is determined
that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid
securities will be reviewed to determine what, if any, action is required to
assure that the Fund does not invest more than 15% of its assets in illiquid
securities. Investing in Rule 144A securities could have the effect of
increasing the amount of the Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
FUTURES CONTRACTS
The Fund may purchase and sell stock index futures contracts in order to
hedge the value of its portfolio against changes in market conditions. In cases
of purchases of stock index futures contracts, an amount of liquid assets, equal
to the cost of the stock index futures contracts (less any related margin
deposits), will be segregated by the Fund's custodian to collateralize the
position and ensure that the use of such stock index futures contracts is
unleveraged. Unlike when the Fund purchases or sells a security, no price is
paid or received by the Fund upon the purchase or sale of a stock index futures
contract. Initially, the Fund will be required to deposit with its custodian for
the account of the broker a stated amount, as called for by the particular
contract, of cash or U.S. Treasury bills. This amount is known as "initial
margin." The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that stock index futures contract
margin does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will
20
<PAGE> 43
be made on a daily basis as the price of the stock index futures contract
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." For example, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment with respect to
that increase in value. Conversely, where the Fund has purchased a stock index
futures contract and the price of the underlying stock index has declined, that
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. At any time prior to expiration of the
stock index futures contract, the Fund may elect to close the position by taking
an opposite position which will operate to terminate the Fund's position in the
stock index futures contract. A final determination of variation margin is then
made, additional cash is required to be paid by or released to the Fund and the
Fund realizes a loss or gain.
Stock Index Futures Contracts
A stock index assigns relative values to the common stocks included in
the index and the index fluctuates with changes in the market values of the
common stocks so included. A stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures contracts
can be purchased or sold primarily with respect to broad based stock indices
such as the S&P's 500 Stock Index, the NYSE Composite Index, the American Stock
Exchange Major Market Index, the NASDAQ - 100 Stock Index and the Value Line
Stock Index. The stock indices listed above consist of a spectrum of stocks not
limited to any one industry such as utility stocks. Utility stocks, at most,
would be expected to comprise a minority of the stocks comprising the portfolio
of the index. The Fund will only enter into stock index futures contracts as a
hedge against changes resulting from market conditions in the values of the
securities held or which it intends to purchase. When the Fund anticipates a
significant market or market sector advance, the purchase of a stock index
futures contract affords a hedge against not participating in such advance.
Conversely, in anticipation of or in a general market or market sector decline
that adversely affects the market values of the Fund's portfolio of securities,
the Fund may sell stock index futures contracts.
RISKS AS TO FUTURES CONTRACTS AND RELATED CALL OPTIONS
There are several risks in connection with the use of stock index
futures contracts and related call options as hedging devices. One risk arises
because of the imperfect correlation between movements in the price of hedging
instruments and movements in the price of the stocks, which are the subject of
the hedge. If the price of a hedging instrument moves less than the price of the
stocks, which are the subject of the hedge, the hedge will not be fully
effective. If the price of a hedging instrument moves more than the price of the
stocks, the Fund will experience either a loss or gain on the hedging instrument
which will not be completely offset by movements in the price of the stocks,
which are the subject of the hedge. The use of call options on futures contracts
involves the additional risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the call option.
Successful use of hedging instruments by the Fund is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of particular stock indices. Because of possible
price distortions in the futures and options markets and because of the
imperfect correlation between movements in the prices of hedging instruments and
the investments being hedged, even a correct forecast by AIM of general market
trends may not result in a completely successful hedging transaction.
It is also possible that where the Fund has sold stock index futures
contracts to hedge its portfolio against a decline in the market, the market may
advance and the value of stocks or debt securities held in its portfolio may
decline. If this occurred, the Fund would lose money on the stock index futures
contracts and also experience a decline in the value of its portfolio
securities.
21
<PAGE> 44
Positions in futures contracts or options may be closed out only on an
exchange on which such contracts are traded. Although the Fund intends to
purchase or sell stock index futures contracts only on exchanges or boards of
trade where there appears to be an active market, there is no assurance that a
liquid market on an exchange or a board of trade will exist for any particular
contract at any particular time. If there is not a liquid market, it may not be
possible to close a stock index futures or option position at such time. In the
event of adverse price movements under those circumstances, the Fund would
continue to be required to make daily cash payments of maintenance margin on its
futures positions. The extent to which the Fund may engage in stock index
futures contracts will be limited by Internal Revenue Code requirements for
qualification as a regulated investment company and the Fund's intent to
continue to qualify as such. The result of a hedging program cannot be foreseen
and may cause the Fund to suffer losses which it would not otherwise sustain.
PORTFOLIO TRANSACTIONS AND BROKERAGE
General Brokerage Policy
AIM makes decisions to buy and sell securities for the Fund, selects
broker-dealers, effects the Fund's 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 Fund may not
pay the lowest commission or spread available. See "Section 28(e) Standards"
below.
Some of the securities in which the Fund invests are traded in
over-the-counter markets. In such transactions, the Fund deals directly with
dealers who make markets in the securities involved, except when better prices
are available elsewhere. Portfolio transactions placed through dealers who are
primary market makers are effected at net prices without commissions, but which
include compensation in the form of a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Fund) 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 Fund and other mutual funds advised by AIM or AIM Capital
(collectively, the "AIM Funds") in particular, including sales of the Fund and
of the other AIM Funds. In connection with (3) above, the Fund's 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 the
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 Fund may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of the Fund, provided the conditions of an exemptive order received
by the Fund from the SEC are met. In addition, the Fund may purchase or sell a
security from or to another AIM Fund provided the Fund follows procedures
adopted by the Boards of Directors/Trustees
22
<PAGE> 45
of the various AIM Funds, including the Fund. 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 Fund.
Occasionally, identical securities will be appropriate for investment by the
Fund 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, the Fund may
pay a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Fund's directors with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally or in
written form. Research services may also include the providing of custody
services, as well as the providing of equipment used to communicate research
information, the providing of specialized consultations with AIM personnel with
respect to computerized systems and data furnished to AIM as a component of
other research services, the arranging of meetings with management of
companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the broker-
dealers used by AIM tend to follow a broader universe of securities and other
matters than AIM's staff can follow. In addition, the research provides AIM
with a diverse perspective on financial markets. Research services provided to
AIM by broker-
23
<PAGE> 46
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
Fund. However, the Fund is 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 Fund 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.
As of October 31, 1997, the Fund held an amount of common stock issued
by Merrill Lynch & Co., Inc. and PaineWebber Group having a market value of
$9,647,500 and $7,865,375, respectively. As of October 31, 1997, the Fund was a
party to a repurchase agreement, having a market value of $77,247,953, with SBC
Warburg Inc., a regular broker of the Fund, as that term is defined in Rule
10b-1 under the 1940 Act.
Brokerage Commissions Paid
For the fiscal years ended October 31, 1997, 1996 and 1995, the Fund
paid brokerage commissions of $2,573,656, $3,138,280 and $3,896,038,
respectively. For the fiscal year ended October 31, 1997, AIM allocated certain
of the Fund's brokerage transactions to certain broker-dealers that provided AIM
with certain research, statistical and other information. Such transactions
amounted to $169,739,779 and the related brokerage commissions were $153,830.
No brokerage commissions were paid by the Fund to any broker who is an
affiliated person of the Fund, an affiliated person of such person or an
affiliated person of the Fund, the Fund's principal underwriter, or AIM.
Portfolio Turnover
The decrease in portfolio turnover rate from 1996 to 1997 resulted from
strong corporate earnings and thus a reduced need to restructure the Fund's
portfolio holdings.
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. These restrictions are designed to minimize certain
risks associated with investing in specified types of securities or engaging in
certain transactions and to limit the amount of the Fund's assets which may be
concentrated in any specific industry or issue. The most significant of these
investment restrictions applicable to the Fund's investment program are set
forth in the Prospectus under the caption "Investment Program -- Investment
Restrictions." In addition to those restrictions set forth in the Prospectus,
the Fund will not:
(1) Purchase or hold securities of any issuer if the Fund has knowledge
that the officers and directors of the Fund and its investment
advisor collectively own beneficially more than 5% of the outstanding
securities of such issuer. (Individual holdings of less than 1/2 of
1% will not be counted for the purpose of this restriction.)
(2) Borrow money or issue senior securities, except that the Fund may
borrow from banks for temporary or emergency purposes in amounts up
to 10% of the value of its total assets at the time of borrowing.
(This provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate abnormally heavy redemption
requests if they should occur and is not for leverage purposes.
Any borrowings by the Fund will be repaid prior to the purchase of
additional portfolio securities.)
(3) Underwrite securities issued by any other person.
(4) Invest in real estate or purchase oil, gas or mineral interests,
except that this restriction does not apply to marketable securities
secured by real estate or interests therein or issued by issuers
which invest in real estate or interests therein, or to securities
issued by companies engaged in the exploration, development,
production, refining, transporting and marketing of oil, gas or
minerals.
(5) Buy or sell commodities or commodity futures contracts.
(6) Make loans of money or securities other than (a) through the purchase
of securities in accordance with the Fund's investment program, and
(b) by entering into repurchase agreements; provided that the Fund
24
<PAGE> 47
may lend its portfolio securities so long as the value of securities
loaned by it does not exceed an amount equal to 33-1/3% of the Fund's
total assets.
(7) Purchase securities on margin, except to the extent necessary for the
clearance of its securities transactions.
(8) Make short sales of securities or maintain a short position in
securities unless at all times when a short position is open, the
Fund owns at least an equal amount of such securities or owns
securities convertible into or exchangeable for at least an equal
amount of such securities, and unless not more than 10% of the Fund's
total assets (taken at current value) is held as collateral for such
short sales at any one time.
(9) Invest in companies for the purpose of exercising control or
management except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or
exemptive order.
(10) Purchase or sell puts or purchase calls.
The foregoing investment restrictions are matters of fundamental policy
which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in "General Information --Organization and
Description of Common Stock" in the Prospectus. In addition to the foregoing
restrictions and subject to amendment by the Board of Directors of the Fund, the
Fund may not invest more than 5% of its total assets in financial futures
contracts or related call options.
25
<PAGE> 48
FINANCIAL STATEMENTS
FS
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Summit Fund, Inc:
We have audited the accompanying statement of assets and
liabilities of the AIM Summit Fund, Inc., including the
schedule of investments, as of October 31, 1997, the
related statement of operations for the year then ended,
the statement of changes in net assets for each of the
years in the two-year period then ended, and financial
highlights for each of the years in the four-year period
then ended, the ten months ended October 31, 1993, and
the year ended December 31, 1992. These financial
statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1997, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Summit
Fund, Inc. as of October 31, 1997, and the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the
years in the four-year period then ended, the ten months
ended October 31, 1993, and the year ended December 31,
1992, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 5, 1997
FS-1
<PAGE> 50
SCHEDULE OF INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-94.82%
AEROSPACE/DEFENSE-0.05%
Precision Castparts Corp. 13,000 $ 764,563
- ---------------------------------------------------------------
AIR FREIGHT-0.71%
CNF Transportation Inc. 57,300 2,557,012
- ---------------------------------------------------------------
Federal Express Corp.(a) 137,000 9,144,750
- ---------------------------------------------------------------
11,701,762
- ---------------------------------------------------------------
AIRLINES-1.01%
Southwest Airlines Co. 49,000 1,598,625
- ---------------------------------------------------------------
UAL Corp.(a) 173,000 15,159,125
- ---------------------------------------------------------------
16,757,750
- ---------------------------------------------------------------
AUTOMOBILES-0.60%
Ford Motor Co. 225,000 9,829,688
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.25%
First Union Corp. 84,000 4,121,250
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-1.58%
BankAmerica Corp. 140,000 10,010,000
- ---------------------------------------------------------------
Chase Manhattan Corp. 107,152 12,362,662
- ---------------------------------------------------------------
Citicorp 30,000 3,751,875
- ---------------------------------------------------------------
26,124,537
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.10%
AmSouth Bancorporation 35,000 1,682,188
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.17%
Panamerican Beverages, Inc.-Class A
(Mexico) 5,200 161,200
- ---------------------------------------------------------------
PepsiCo, Inc. 70,000 2,576,875
- ---------------------------------------------------------------
2,738,075
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.31%
Clear Channel Communications, Inc.(a) 41,800 2,758,800
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 55,000 2,303,125
- ---------------------------------------------------------------
5,061,925
- ---------------------------------------------------------------
CHEMICALS-0.39%
Rohm & Haas Co. 77,200 6,431,725
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.52%
Cytec Industries Inc.(a) 175,000 8,531,250
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-4.05%
ADC Telecommunications, Inc.(a) 200,000 6,625,000
- ---------------------------------------------------------------
Brightpoint, Inc.(a) 50,000 1,650,000
- ---------------------------------------------------------------
DSC Communications Corp.(a) 310,000 7,556,250
- ---------------------------------------------------------------
ECI Telecommunications Ltd. (Israel) 100,000 2,762,500
- ---------------------------------------------------------------
Lucent Technologies, Inc. 140,000 11,541,250
- ---------------------------------------------------------------
MARKET
SHARES VALUE
COMMUNICATIONS EQUIPMENT-(CONTINUED)
MasTech, Inc.(a) 14,300 $ 463,856
- ---------------------------------------------------------------
Nokia Oy A.B.-Class A-ADR (Finland) 110,000 9,707,500
- ---------------------------------------------------------------
Northern Telecom Ltd. (Canada) 60,000 5,381,250
- ---------------------------------------------------------------
PairGain Technologies, Inc.(a) 85,000 2,401,250
- ---------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson-ADR (Sweden) 190,900 8,447,325
- ---------------------------------------------------------------
Tellabs, Inc.(a) 190,800 10,303,200
- ---------------------------------------------------------------
66,839,381
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-4.33%
Comdisco, Inc. 72,500 2,288,281
- ---------------------------------------------------------------
Compaq Computer Corp. 350,000 22,312,500
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 123,700 3,672,344
- ---------------------------------------------------------------
Dell Computer Corp.(a) 404,800 32,434,600
- ---------------------------------------------------------------
Digital Equipment Corp.(a) 50,000 2,503,125
- ---------------------------------------------------------------
International Business Machines
Corp. 83,500 8,188,219
- ---------------------------------------------------------------
71,399,069
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.46%
3Com Corp.(a) 70,000 2,900,625
- ---------------------------------------------------------------
Bay Networks, Inc.(a) 278,600 8,810,725
- ---------------------------------------------------------------
Cisco Systems, Inc.(a) 70,800 5,807,813
- ---------------------------------------------------------------
Newbridge Networks Corp.(a) (Canada) 125,000 6,625,000
- ---------------------------------------------------------------
24,144,163
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.98%
Adaptec, Inc.(a) 109,000 5,279,687
- ---------------------------------------------------------------
EMC Corp.(a) 163,000 9,128,000
- ---------------------------------------------------------------
Iomega Corp.(a) 326,300 8,748,918
- ---------------------------------------------------------------
Quantum Corp.(a) 58,000 1,834,250
- ---------------------------------------------------------------
SMART Modular Technologies, Inc.(a) 25,000 1,243,750
- ---------------------------------------------------------------
Storage Technology Corp.(a) 110,000 6,455,625
- ---------------------------------------------------------------
32,690,230
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-6.35%
America Online, Inc.(a) 150,000 11,550,000
- ---------------------------------------------------------------
Avant! Corp.(a) 50,000 1,312,500
- ---------------------------------------------------------------
BMC Software, Inc.(a) 140,000 8,452,500
- ---------------------------------------------------------------
Cadence Design Systems, Inc.(a) 125,000 6,656,250
- ---------------------------------------------------------------
Computer Associates International,
Inc. 120,000 8,947,500
- ---------------------------------------------------------------
Computer Sciences Corp.(a) 21,000 1,489,687
- ---------------------------------------------------------------
Compuware Corp.(a) 280,000 18,515,000
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 50,000 1,693,750
- ---------------------------------------------------------------
HBO & Co. 294,200 12,797,700
- ---------------------------------------------------------------
McAfee Associates, Inc.(a) 30,000 1,492,500
- ---------------------------------------------------------------
Microsoft Corp.(a) 130,000 16,900,000
- ---------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 51
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Parametric Technology Co.(a) 80,000 $ 3,530,000
- ---------------------------------------------------------------
Security Dynamics Technologies,
Inc.(a) 70,000 2,371,250
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 109,211 3,624,440
- ---------------------------------------------------------------
Sterling Software, Inc.(a) 39,000 1,330,875
- ---------------------------------------------------------------
Symantec Corp.(a) 50,000 1,093,750
- ---------------------------------------------------------------
Tecnomatix Technologies Ltd.(a)
(Israel) 25,000 771,875
- ---------------------------------------------------------------
Wind River Systems(a) 60,000 2,302,500
- ---------------------------------------------------------------
104,832,077
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.04%
Blyth Industries, Inc.(a) 28,650 712,669
- ---------------------------------------------------------------
CONSUMER FINANCE-2.57%
FIRSTPLUS Financial Group, Inc.(a) 50,000 2,750,000
- ---------------------------------------------------------------
Green Tree Financial Corp. 200,000 8,425,000
- ---------------------------------------------------------------
Household International, Inc. 54,000 6,115,500
- ---------------------------------------------------------------
IMC Mortgage Co.(a) 82,500 1,433,437
- ---------------------------------------------------------------
MBNA Corp. 260,700 6,859,669
- ---------------------------------------------------------------
SLM Holding Corp. 120,200 16,873,075
- ---------------------------------------------------------------
42,456,681
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.93%
AmeriSource Health Corp.-Class A(a) 53,000 3,146,875
- ---------------------------------------------------------------
Cardinal Health, Inc. 81,000 6,014,250
- ---------------------------------------------------------------
McKesson Corp. 30,000 3,219,375
- ---------------------------------------------------------------
Sysco Corp. 75,000 3,000,000
- ---------------------------------------------------------------
15,380,500
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.22%
American Power Conversion Corp.(a) 66,000 1,798,500
- ---------------------------------------------------------------
Berg Electronics Corp.(a) 62,800 1,467,950
- ---------------------------------------------------------------
General Electric Co. 163,700 10,568,881
- ---------------------------------------------------------------
Kemet Corp.(a) 57,400 1,248,450
- ---------------------------------------------------------------
Philips Electronics N.V.-ADR-New
York Shares (Netherlands) 70,400 5,517,600
- ---------------------------------------------------------------
Sanmina Corp.(a) 30,000 2,242,500
- ---------------------------------------------------------------
SCI Systems, Inc.(a) 145,000 6,380,000
- ---------------------------------------------------------------
Solectron Corp.(a) 129,200 5,071,100
- ---------------------------------------------------------------
Symbol Technologies, Inc. 58,800 2,337,300
- ---------------------------------------------------------------
36,632,281
- ---------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION)-0.31%
Perkin-Elmer Corp. 59,000 3,687,500
- ---------------------------------------------------------------
Tektronix, Inc. 24,600 1,454,475
- ---------------------------------------------------------------
5,141,975
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-4.28%
ANADIGICS, Inc.(a) 50,000 1,850,000
- ---------------------------------------------------------------
Analog Devices, Inc.(a) 125,000 3,820,312
- ---------------------------------------------------------------
ASE Test Ltd.(a) (Taiwan) 10,000 547,500
- ---------------------------------------------------------------
MARKET
SHARES VALUE
ELECTRONICS (SEMICONDUCTORS)-(CONTINUED)
ASM Lithography Holding N.V.(a)
(Netherlands) 17,000 $ 1,245,250
- ---------------------------------------------------------------
Atmel Corp.(a) 100,000 2,587,500
- ---------------------------------------------------------------
Dallas Semiconductor Corp. 50,000 2,443,750
- ---------------------------------------------------------------
Intel Corp. 140,000 10,780,000
- ---------------------------------------------------------------
Linear Technology Corp. 129,000 8,110,875
- ---------------------------------------------------------------
Maxim Integrated Products,
Inc.(a) 100,000 6,625,000
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 166,100 6,623,237
- ---------------------------------------------------------------
National Semiconductor Corp.(a) 204,600 7,365,600
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 50,000 1,318,750
- ---------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR(a) (Taiwan 25,000 495,313
- ---------------------------------------------------------------
Texas Instruments, Inc. 110,000 11,735,625
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 50,000 2,168,750
- ---------------------------------------------------------------
Xilinx, Inc.(a) 85,100 2,904,038
- ---------------------------------------------------------------
70,621,500
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTORS)-1.57%
Applied Materials, Inc.(a) 298,400 9,959,100
- ---------------------------------------------------------------
BMC Industries, Inc. 29,800 959,187
- ---------------------------------------------------------------
KLA-Tencor Corp.(a) 150,000 6,590,625
- ---------------------------------------------------------------
Novellus Systems, Inc.(a) 50,000 2,225,000
- ---------------------------------------------------------------
Teradyne, Inc.(a) 165,100 6,180,931
- ---------------------------------------------------------------
25,914,843
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.24%
American Express Co. 50,000 3,900,000
- ---------------------------------------------------------------
Federal Home Loan Mortgage Corp. 156,000 5,908,500
- ---------------------------------------------------------------
Federal National Mortgage Association 104,600 5,066,562
- ---------------------------------------------------------------
MBIA, Inc. 14,000 836,500
- ---------------------------------------------------------------
MGIC Investment Corp. 260,000 15,681,250
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 43,200 2,116,800
- ---------------------------------------------------------------
Newcourt Credit Group, Inc. (Canada) 20,000 696,250
- ---------------------------------------------------------------
SunAmerica, Inc. 75,000 2,695,312
- ---------------------------------------------------------------
36,901,174
- ---------------------------------------------------------------
FOODS-0.24%
ConAgra, Inc. 132,000 3,976,500
- ---------------------------------------------------------------
FOOTWEAR-0.14%
Nike, Inc.-Class B 50,000 2,350,000
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-1.73%
Abbott Laboratories 61,500 3,770,719
- ---------------------------------------------------------------
American Home Products Corp. 65,000 4,818,125
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 77,000 6,756,750
- ---------------------------------------------------------------
Johnson & Johnson 94,600 5,427,675
- ---------------------------------------------------------------
Warner-Lambert Co. 54,700 7,832,356
- ---------------------------------------------------------------
28,605,625
- ---------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 52
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.31%
Dura Pharmaceuticals, Inc.(a) 100,000 $ 4,837,500
- ---------------------------------------------------------------
Elan Corp. PLC-ADR(a) (Ireland) 102,300 5,102,212
- ---------------------------------------------------------------
Mylan Laboratories, Inc. 80,000 1,755,000
- ---------------------------------------------------------------
Parexel International Corp.(a) 19,800 715,275
- ---------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Israel) 45,000 2,103,750
- ---------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 224,600 7,131,050
- ---------------------------------------------------------------
21,644,787
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-1.45%
Lilly (Eli) & Co. 50,000 3,343,750
- ---------------------------------------------------------------
Merck & Co., Inc. 90,000 8,032,500
- ---------------------------------------------------------------
Pfizer, Inc. 19,300 1,365,475
- ---------------------------------------------------------------
Schering-Plough Corp. 80,000 4,485,000
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(United Kingdom) 140,000 6,667,500
- ---------------------------------------------------------------
23,894,225
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.11%
Health Management Associates,
Inc.-Class A(a) 300,000 7,312,500
- ---------------------------------------------------------------
Tenet Health Care Corp.(a) 249,700 7,631,456
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 77,100 3,397,219
- ---------------------------------------------------------------
18,341,175
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-1.09%
Beverly Enterprises, Inc.(a) 100,000 1,493,750
- ---------------------------------------------------------------
Health Care and Retirement Corp.(a) 167,800 6,344,938
- ---------------------------------------------------------------
HEALTHSOUTH Corp.(a) 400,000 10,225,000
- ---------------------------------------------------------------
18,063,688
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.44%
Concentra Managed Care, Inc.(a) 90,000 2,936,250
- ---------------------------------------------------------------
PhyCor, Inc.(a) 105,000 2,421,563
- ---------------------------------------------------------------
Wellpoint Health Networks, Inc.(a) 40,000 1,830,000
- ---------------------------------------------------------------
7,187,813
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-2.65%
Arterial Vascular Engineering, Inc.(a) 59,200 3,145,000
- ---------------------------------------------------------------
Baxter International Inc. 81,700 3,778,625
- ---------------------------------------------------------------
Becton, Dickinson & Co. 50,000 2,303,125
- ---------------------------------------------------------------
Dentsply International, Inc. 47,200 1,339,300
- ---------------------------------------------------------------
Guidant Corp. 340,000 19,550,000
- ---------------------------------------------------------------
Quintiles Transnational Corp.(a) 26,700 1,935,750
- ---------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 11,400 785,175
- ---------------------------------------------------------------
Stryker Corp. 100,000 3,718,750
- ---------------------------------------------------------------
Sybron International Corp.(a) 100,000 4,012,500
- ---------------------------------------------------------------
US Surgical Corp. 120,000 3,232,500
- ---------------------------------------------------------------
43,800,725
- ---------------------------------------------------------------
MARKET
SHARES VALUE
HEALTH CARE (SPECIALIZED SERVICES)-1.03%
FPA Medical Management, Inc.(a) 70,500 $ 1,700,812
- ---------------------------------------------------------------
Lincare Holdings, Inc.(a) 120,000 6,435,000
- ---------------------------------------------------------------
Omnicare, Inc. 159,900 4,447,219
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 52,400 907,175
- ---------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 112,667 3,471,542
- ---------------------------------------------------------------
16,961,748
- ---------------------------------------------------------------
HOMEBUILDING-0.05%
Clayton Homes, Inc. 46,300 761,056
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.70%
Fort James Corp. 197,225 7,827,367
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 54,000 3,672,000
- ---------------------------------------------------------------
11,499,367
- ---------------------------------------------------------------
HOUSEWARES-0.09%
Central Garden and Pet Co.(a) 55,000 1,443,750
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.09%
AFLAC Inc. 31,200 1,587,300
- ---------------------------------------------------------------
Conseco Inc. 79,600 3,472,550
- ---------------------------------------------------------------
Equitable Companies, Inc. 254,000 10,461,625
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 80,000 2,435,000
- ---------------------------------------------------------------
17,956,475
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.55%
American International Group, Inc. 51,100 5,215,394
- ---------------------------------------------------------------
CIGNA Corp. 50,000 7,762,500
- ---------------------------------------------------------------
Travelers Group, Inc. 180,600 12,642,000
- ---------------------------------------------------------------
25,619,894
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.73%
Allstate Corp. 72,900 6,046,144
- ---------------------------------------------------------------
CapMAC Holdings, Inc. 24,100 723,000
- ---------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 141,800 5,335,225
- ---------------------------------------------------------------
12,104,369
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-1.05%
Merrill Lynch & Co., Inc. 140,000 9,467,500
- ---------------------------------------------------------------
PaineWebber Group Inc. 178,000 7,865,375
- ---------------------------------------------------------------
17,332,875
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-1.22%
Franklin Resources, Inc. 77,000 6,920,375
- ---------------------------------------------------------------
T. Rowe Price Associates 200,000 13,250,000
- ---------------------------------------------------------------
20,170,375
- ---------------------------------------------------------------
IRON & STEEL-0.50%
USX-US Steel Group, Inc. 244,000 8,296,000
- ---------------------------------------------------------------
</TABLE>
FS-4
<PAGE> 53
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LEISURE TIME (PRODUCTS)-0.13%
Harley-Davidson, Inc. 78,400 $ 2,175,600
- ---------------------------------------------------------------
LODGING-HOTELS-0.63%
Carnival Corp. -- Class A 80,000 3,880,000
- ---------------------------------------------------------------
Choice Hotels International, Inc.(a) 54,000 948,375
- ---------------------------------------------------------------
Host Marriott Corp.(a) 195,200 4,074,800
- ---------------------------------------------------------------
Promus Hotel Corp.(a) 35,000 1,373,750
- ---------------------------------------------------------------
Sunburst Hospitality Corp.(a) 18,000 182,250
- ---------------------------------------------------------------
10,459,175
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-1.13%
Caterpillar Inc. 110,000 5,637,500
- ---------------------------------------------------------------
Deere & Co. 72,000 3,789,000
- ---------------------------------------------------------------
Dover Corp. 37,600 2,538,000
- ---------------------------------------------------------------
Ingersoll-Rand Co. 172,500 6,716,719
- ---------------------------------------------------------------
18,681,219
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.60%
Eaton Corp. 95,000 9,179,375
- ---------------------------------------------------------------
Hillenbrand Industries, Inc. 41,800 1,786,950
- ---------------------------------------------------------------
Pentair, Inc. 19,200 741,600
- ---------------------------------------------------------------
Premark International, Inc. 285,000 7,712,813
- ---------------------------------------------------------------
Thermo Electron Corp.(a) 230,250 8,591,203
- ---------------------------------------------------------------
Tyco International Ltd. 100,000 3,775,000
- ---------------------------------------------------------------
United Technologies Corp. 158,000 11,060,000
- ---------------------------------------------------------------
42,846,941
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.32%
Cognex Corp.(a) 55,000 1,471,250
- ---------------------------------------------------------------
Diebold, Inc. 84,750 3,734,297
- ---------------------------------------------------------------
5,205,547
- ---------------------------------------------------------------
NATURAL GAS-0.74%
Columbia Gas System, Inc. 114,600 8,279,850
- ---------------------------------------------------------------
NICOR, Inc. 100,000 3,856,250
- ---------------------------------------------------------------
12,136,100
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.28%
Danka Business Systems PLC-ADR
(United Kingdom) 125,000 4,625,000
- ---------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-1.03%
Pennzoil Co. 109,000 8,066,000
- ---------------------------------------------------------------
USX-Marathon Group 250,000 8,937,500
- ---------------------------------------------------------------
17,003,500
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-1.37%
British Petroleum Co. PLC-ADR
(United Kingdom) 140,000 12,285,000
- ---------------------------------------------------------------
Exxon Corp. 65,000 3,993,438
- ---------------------------------------------------------------
MARKET
SHARES VALUE
OIL (INTERNATIONAL INTEGRATED)-(CONTINUED)
Texaco, Inc. 110,000 $ 6,263,125
- ---------------------------------------------------------------
22,541,563
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-9.23%
Baker Hughes, Inc. 200,000 9,187,500
- ---------------------------------------------------------------
BJ Services Co.(a) 120,000 10,170,000
- ---------------------------------------------------------------
Camco International, Inc. 135,000 9,753,750
- ---------------------------------------------------------------
Cooper Cameron Corp.(a) 100,000 7,225,000
- ---------------------------------------------------------------
Diamond Offshore Drilling, Inc. 200,000 12,450,000
- ---------------------------------------------------------------
ENSCO International, Inc. 140,000 5,888,750
- ---------------------------------------------------------------
EVI, Inc.(a) 149,100 9,570,356
- ---------------------------------------------------------------
Falcon Drilling Company, Inc.(a) 350,000 12,731,250
- ---------------------------------------------------------------
Global Industries Ltd.(a) 95,000 1,911,875
- ---------------------------------------------------------------
Global Marine, Inc.(a) 60,000 1,867,500
- ---------------------------------------------------------------
Halliburton Co. 65,000 3,875,625
- ---------------------------------------------------------------
Input/Output, Inc.(a) 176,800 4,740,450
- ---------------------------------------------------------------
Marine Drilling Companies, Inc.(a) 150,000 4,443,750
- ---------------------------------------------------------------
Nabors Industries, Inc.(a) 170,000 6,991,250
- ---------------------------------------------------------------
Precision Drilling Corp.(a)
(Canada) 85,000 2,613,750
- ---------------------------------------------------------------
Pride International, Inc.(a) 200,000 6,600,000
- ---------------------------------------------------------------
Rowan Companies, Inc.(a) 132,300 5,143,162
- ---------------------------------------------------------------
Schlumberger Ltd. 110,000 9,625,000
- ---------------------------------------------------------------
Smith International, Inc.(a) 140,800 10,736,000
- ---------------------------------------------------------------
Varco International, Inc.(a) 275,000 16,757,813
- ---------------------------------------------------------------
152,282,781
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.66%
Apache Corp. 150,000 6,300,000
- ---------------------------------------------------------------
Burlington Resources, Inc. 41,100 2,011,331
- ---------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 200,000 2,612,500
- ---------------------------------------------------------------
10,923,831
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.37%
Valero Energy Corp. 200,000 6,025,000
- ---------------------------------------------------------------
PERSONAL CARE-0.79%
Avon Products, Inc. 77,400 5,069,700
- ---------------------------------------------------------------
Gillette Co. 55,000 4,898,438
- ---------------------------------------------------------------
Perrigo Co.(a) 64,800 996,300
- ---------------------------------------------------------------
Rexall Sundown, Inc.(a) 96,200 2,104,375
- ---------------------------------------------------------------
13,068,813
- ---------------------------------------------------------------
PHOTOGRAPH/IMAGING-0.35%
Xerox Corp. 73,000 5,789,812
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.14%
AES Corp.(a) 60,000 2,377,500
- ---------------------------------------------------------------
RESTAURANTS-0.55%
CKE Restaurants, Inc. 75,000 2,995,312
- ---------------------------------------------------------------
</TABLE>
FS-5
<PAGE> 54
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RESTAURANTS-(CONTINUED)
Cracker Barrel Old Country Store, Inc. 60,000 $ 1,770,000
- ---------------------------------------------------------------
Starbucks Corp.(a) 130,000 4,290,000
- ---------------------------------------------------------------
9,055,312
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.87%
CompUSA, Inc.(a) 208,000 6,812,000
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 121,300 3,616,256
- ---------------------------------------------------------------
Tech Data Corp.(a) 89,200 3,969,400
- ---------------------------------------------------------------
14,397,656
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.71%
Federated Department Stores, Inc.(a) 33,600 1,478,400
- ---------------------------------------------------------------
Fred Meyer, Inc.(a) 140,000 3,998,750
- ---------------------------------------------------------------
Kohl's Corp.(a) 25,000 1,678,125
- ---------------------------------------------------------------
Nordstrom, Inc. 75,000 4,593,750
- ---------------------------------------------------------------
11,749,025
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.93%
Consolidated Stores Corp.(a) 223,187 8,899,582
- ---------------------------------------------------------------
Dollar General Corp. 47,460 1,569,146
- ---------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 45,000 1,822,500
- ---------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 80,000 3,100,000
- ---------------------------------------------------------------
15,391,228
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.69%
CVS Corp. 65,580 4,020,874
- ---------------------------------------------------------------
Rite Aid Corp. 124,000 7,362,500
- ---------------------------------------------------------------
11,383,374
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.66%
Kroger Co.(a) 302,600 9,872,325
- ---------------------------------------------------------------
Safeway, Inc.(a) 300,657 17,475,688
- ---------------------------------------------------------------
27,348,013
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-1.56%
Costco Companies, Inc.(a) 250,000 9,625,000
- ---------------------------------------------------------------
Dayton Hudson Corp. 214,500 13,473,281
- ---------------------------------------------------------------
Wal-Mart Stores, Inc. 74,900 2,630,863
- ---------------------------------------------------------------
25,729,144
- ---------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.26%
CDW Computer Centers, Inc.(a) 68,000 4,216,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-1.74%
Michaels Stores, Inc.(a) 70,000 2,104,375
- ---------------------------------------------------------------
Office Depot, Inc.(a) 297,400 6,133,875
- ---------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 44,000 1,144,000
- ---------------------------------------------------------------
Staples, Inc.(a) 248,600 6,525,750
- ---------------------------------------------------------------
Tiffany & Co. 38,700 1,528,650
- ---------------------------------------------------------------
Toys "R" Us, Inc.(a) 100,000 3,406,250
- ---------------------------------------------------------------
Viking Office Products, Inc.(a) 140,000 3,351,250
- ---------------------------------------------------------------
MARKET
SHARES VALUE
RETAIL (SPECIALTY)-(CONTINUED)
Williams-Sonoma, Inc.(a) 28,000 $ 1,123,500
- ---------------------------------------------------------------
Woolworth Corp.(a) 180,000 3,420,000
- ---------------------------------------------------------------
28,737,650
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.64%
Gap, Inc. 41,000 2,180,688
- ---------------------------------------------------------------
TJX Companies, Inc. 284,000 8,413,500
- ---------------------------------------------------------------
10,594,188
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-1.59%
Ahmanson (H.F.) & Co. 325,000 19,175,000
- ---------------------------------------------------------------
Dime Bancorp, Inc. 25,000 600,000
- ---------------------------------------------------------------
GreenPoint Financial Corp. 100,000 6,437,500
- ---------------------------------------------------------------
26,212,500
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.28%
Interpublic Group of Companies,
Inc. 58,500 2,778,750
- ---------------------------------------------------------------
Omnicom Group, Inc. 25,000 1,765,625
- ---------------------------------------------------------------
4,544,375
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.65%
Cerner Corp.(a) 170,000 4,122,500
- ---------------------------------------------------------------
HFS, Inc.(a) 100,000 7,050,000
- ---------------------------------------------------------------
Service Corp. International 460,000 14,001,250
- ---------------------------------------------------------------
Stewart Enterprises, Inc.- Class A 49,900 2,070,850
- ---------------------------------------------------------------
27,244,600
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.10%
SunGard Data Systems Inc.(a) 67,800 1,601,775
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.18%
CSG Systems International, Inc.(a) 44,400 1,739,925
- ---------------------------------------------------------------
DST Systems, Inc.(a) 67,500 2,383,594
- ---------------------------------------------------------------
Equifax, Inc. 177,000 5,498,062
- ---------------------------------------------------------------
Fiserv, Inc.(a) 88,500 3,960,375
- ---------------------------------------------------------------
National Data Corp. 70,000 2,585,625
- ---------------------------------------------------------------
Paychex, Inc. 55,350 2,110,219
- ---------------------------------------------------------------
PMT Services, Inc.(a) 70,000 1,128,750
- ---------------------------------------------------------------
19,406,550
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.24%
AccuStaff, Inc.(a) 135,440 3,868,505
- ---------------------------------------------------------------
Kelly Services, Inc.-Class A 2,700 95,850
- ---------------------------------------------------------------
3,964,355
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.11%
Corrections Corp. of America(a) 60,000 1,830,000
- ---------------------------------------------------------------
SPECIALTY PRINTING-0.09%
Gartner Group, Inc.(a) 50,000 1,412,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.91%
LCI International, Inc.(a) 100,000 2,587,500
- ---------------------------------------------------------------
</TABLE>
FS-6
<PAGE> 55
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)-(CONTINUED)
MCI Communications Corp. 125,000 $ 4,437,500
- ---------------------------------------------------------------
WorldCom, Inc.(a) 238,700 8,026,288
- ---------------------------------------------------------------
15,051,288
- ---------------------------------------------------------------
TELEPHONE-0.67%
Bell Atlantic Corp. 30,100 2,404,238
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 323,200 8,726,400
- ---------------------------------------------------------------
11,130,638
- ---------------------------------------------------------------
TEXTILES (APPAREL)-1.23%
Jones Apparel Group, Inc.(a) 103,700 5,275,737
- ---------------------------------------------------------------
Liz Claiborne, Inc. 245,000 12,418,438
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 100,000 2,662,500
- ---------------------------------------------------------------
20,356,675
- ---------------------------------------------------------------
TEXTILES (SPECIALTY)-0.15%
Unifi, Inc. 62,300 2,394,656
- ---------------------------------------------------------------
TRUCKS & PARTS-0.48%
Cummins Engine Co., Inc. 131,500 8,013,281
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.57%
Browning-Ferris Industries, Inc. 108,000 3,510,000
- ---------------------------------------------------------------
WASTE MANAGEMENT-(CONTINUED)
USA Waste Services, Inc.(a) 159,125 $ 5,887,625
- ---------------------------------------------------------------
9,397,625
- ---------------------------------------------------------------
Total Common Stocks 1,564,726,493
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
CONVERTIBLE CORPORATE BONDS-0.22%
COMPUTER (PERIPHERALS)-0.12%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 (Acquired
09/12/97; Cost $1,963,721)(b) $ 1,450,000 2,012,383
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.10%
Loews Corp., Conv. Sub. Deb.,
3.125%, 09/15/07 1,400,000 1,597,610
- ---------------------------------------------------------------
Total Convertible Corporate
Bonds 3,609,993
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-4.68%(c)
SBC Warburg Inc.,
5.65%, 11/03/97(d) 77,247,953 77,247,953
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.72% 1,645,584,439
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.28% 4,649,597
- ---------------------------------------------------------------
NET ASSETS-100.00% $1,650,234,036
===============================================================
</TABLE>
Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debentures
Sub. - Subordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of this security has been determined in
accordance with procedures established by the Board of Directors. The market
value of this security at 10/31/97 was $2,012,383 which represented 0.12% of
the Fund's net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investments advisor or its affiliates.
(d) Joint repurchase agreement entered into 10/31/97 with a maturing value of
$350,164,792. Collateralized by $355,329,000 U.S. Government agency
obligations, 7.00% to 9.875% due 11/15/15 to 10/01/27 with an aggregate
market value at 10/31/97 of $359,463,470.
See Notes to Financial Statements.
FS-7
<PAGE> 56
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,125,824,040) $1,645,584,439
- -------------------------------------------------------------
Receivables for:
Investments sold 7,416,232
- -------------------------------------------------------------
Capital stock sold 124,990
- -------------------------------------------------------------
Dividends and interest 647,554
- -------------------------------------------------------------
Investment for deferred compensation plan 27,503
- -------------------------------------------------------------
Other assets 21,985
- -------------------------------------------------------------
Total assets 1,653,822,703
- -------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,270,696
- -------------------------------------------------------------
Capital stock reacquired 118,988
- -------------------------------------------------------------
Deferred compensation 27,503
- -------------------------------------------------------------
Accrued advisory fees 940,205
- -------------------------------------------------------------
Accrued administrative service fees 5,088
- -------------------------------------------------------------
Accrued directors' fees 5,680
- -------------------------------------------------------------
Accrued operating expenses 220,507
- -------------------------------------------------------------
Total liabilities 3,588,667
- -------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,650,234,036
=============================================================
Capital stock, $.01 par value per share:
Authorized 1,000,000,000
- -------------------------------------------------------------
Outstanding 108,895,887
- -------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 15.15
=============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $106,713 foreign withholding
tax) $ 9,871,106
- ------------------------------------------------------------
Interest 1,733,705
- ------------------------------------------------------------
Total investment income 11,604,811
- ------------------------------------------------------------
EXPENSES:
Advisory fees 9,353,715
- ------------------------------------------------------------
Administrative service fees 67,450
- ------------------------------------------------------------
Custodian fees 163,248
- ------------------------------------------------------------
Transfer agent fees 46,321
- ------------------------------------------------------------
Directors' fees 16,639
- ------------------------------------------------------------
Other 365,045
- ------------------------------------------------------------
Total expenses 10,012,418
- ------------------------------------------------------------
Less: Expenses paid indirectly (16,363)
- ------------------------------------------------------------
Net expenses 9,996,055
- ------------------------------------------------------------
Net investment income 1,608,756
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 151,798,786
- ------------------------------------------------------------
Net unrealized appreciation of investment
securities 212,044,735
- ------------------------------------------------------------
Net gain on investment securities 363,843,521
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $365,452,277
============================================================
</TABLE>
See Notes to Financial Statements.
FS-8
<PAGE> 57
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,608,756 $ 3,291,716
- ----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities and
futures contracts 151,798,786 114,141,332
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 212,044,735 50,514,049
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 365,452,277 167,947,097
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (3,131,614) (2,276,042)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains (114,611,563) (74,181,022)
- ----------------------------------------------------------------------------------------------
Net equalization credits 2,437,968 2,660,812
- ----------------------------------------------------------------------------------------------
Net increase from capital stock transactions 139,078,724 116,846,774
- ----------------------------------------------------------------------------------------------
Net increase in net assets 389,225,792 210,997,619
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,261,008,244 1,050,010,625
- ----------------------------------------------------------------------------------------------
End of period $1,650,234,036 $1,261,008,244
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 956,102,084 $ 817,023,360
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 23,591,883 22,676,773
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities and futures contracts 150,779,670 113,592,447
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 519,760,399 307,715,664
- ----------------------------------------------------------------------------------------------
$1,650,234,036 $1,261,008,244
==============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Summit Fund, Inc. (the "Fund") is a Maryland corporation registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is capital
growth.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at the last sales price on the exchange on which
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by an independent pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as yield,
type of issue, coupon rate and maturity date. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the Fund's
officers in a manner specifically authorized by the Board of Directors of the
Fund. Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
C. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to
FS-9
<PAGE> 58
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
D. Equalization -- The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
repurchases of Fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
income when the transaction is recorded so that the undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares.
E. Stock Index Futures Contracts -- The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and that a change in the value of contracts may not correlate with changes in
the value of the securities being hedged.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with A I M Advisors,
Inc. ("AIM"). Under the terms of the advisory agreement, the Fund pays AIM a fee
at the annual rate of 1.0% of the first $10 million of the Fund's average daily
net assets, 0.75% of the next $140 million of the Fund's average daily net
assets and 0.625% of the Fund's average daily net assets in excess of $150
million. Under the terms of a sub-advisory agreement between AIM and TradeStreet
Investment Associates, Inc. ("TradeStreet"), AIM pays TradeStreet a fee at an
annual rate of 0.50% of the first $10 million of the Fund's average daily net
assets, 0.35% of the next $140 million of the Fund's average daily net assets,
0.225% of the next $550 million of the Fund's average daily net assets and 0.15%
of the Fund's average daily net assets in excess of $700 million.
The Fund, pursuant to an administrative services agreement with AIM, has
agreed to reimburse AIM for certain costs incurred in providing accounting
services to the Fund. During the year ended October 31, 1997, the Fund
reimbursed AIM $67,450 for such services.
During the year ended October 31, 1997, the Fund paid legal fees of $6,842 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board
of Directors. A member of that firm is a director of the Fund.
Substantially all shares of the Fund are held of record by State Street Bank &
Trust Company as custodian for Summit Investors Plans, a unit investment trust
that is sponsored by A I M Distributors, Inc. (an affiliated company of AIM).
Certain officers and directors of the Fund are officers of AIM and A I M
Distributors, Inc.
NOTE 3-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund. For the year ended
October 31, 1997, the Fund's expenses were reduced by $5,684. The Fund received
reductions in custodian fees of $10,679 under an expense offset arrangement. The
effect of the above arrangements resulted in reductions of the Fund's total
expenses of $16,363 during the year ended October 31, 1997.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Fund may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lesser of i) $325,000,000 or ii) the limit set by
its prospectus for borrowings. During the year ended October 31, 1997, the Fund
did not borrow under the line of credit agreement. The funds which are party to
the line of credit are charged a commitment fee of 0.05% on the unused balance
of the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1997 was
$1,250,840,627 and $1,266,091,305, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1997, on a tax basis, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $534,245,225
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (17,810,567)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $516,434,658
=========================================================
</TABLE>
* Cost of investments for tax purposes is $1,129,149,781.
FS-10
<PAGE> 59
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding for the year ended October 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 8,716,348 $114,553,393 9,230,433 $108,559,927
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
Issued as reinvestment of dividends 9,816,281 113,770,753 6,936,341 74,080,187
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
Reacquired (6,706,799) (89,245,422) (5,576,722) (65,793,340)
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
11,825,830 $139,078,724 10,590,052 $116,846,774
========== ============ ========== ============
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the four-year period ended October 31,
1997, the ten months ended October 31, 1993 and the year ended December 31,
1992.
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
------------------------------------------------------------- ------------
1997 1996 1995 1994 1993 1992
---------- --------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.99 $ 12.14 $ 9.78 $ 10.46 $ 9.64 $ 10.09
- --------------------------------------------- ---------- --------- --------- -------- -------- --------
Income from investment operations:
Net investment income 0.02 0.04 0.04 0.10 0.09 0.11
- --------------------------------------------- ---------- --------- --------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 3.34 1.69 2.81 (0.04) 0.73 0.35
- --------------------------------------------- ---------- --------- --------- -------- -------- --------
Total from investment operations 3.36 1.73 2.85 0.06 0.82 0.46
- --------------------------------------------- ---------- --------- --------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.10) (0.10) -- (0.11)
- --------------------------------------------- ---------- --------- --------- -------- -------- --------
Distributions from net realized gains (1.17) (0.85) (0.39) (0.64) -- (0.80)
- --------------------------------------------- ---------- --------- --------- -------- -------- --------
Total distributions (1.20) (0.88) (0.49) (0.74) -- (0.91)
- --------------------------------------------- ---------- --------- --------- -------- -------- --------
Net asset value, end of period $ 15.15 $ 12.99 $ 12.14 $ 9.78 $ 10.46 $ 9.64
============================================ ========== ========== ========== ======== ======== ========
Total return(a) 28.53% 15.61% 31.03% 0.61% 8.51% 4.50%
============================================ ========== ========== ========== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,650,234 $1,261,008 $1,050,011 $765,073 $705,580 $604,329
============================================ ========== ========== ========== ======== ======== ========
Ratio of expenses to average net assets 0.68%(b)(c) 0.70% 0.71% 0.72% 0.79%(d) 0.76%
============================================ ========== ========== ========== ======== ======== ========
Ratio of net investment income to average
net assets 0.11%(b) 0.29% 0.33% 1.04% 1.13%(d) 1.09%
============================================ ========== ========== ========== ======== ======== ========
Portfolio turnover rate 88.23% 118.34% 126.00% 121.69% 115.76% 97.41%
============================================ ========== ========== ========== ======== ======== ========
Average brokerage commission rate paid(e) $ 0.0608 $ 0.0643 N/A N/A N/A N/A
============================================ ========== ========== ========== ======== ======== ========
</TABLE>
(a) For periods less than one year, total return is not annualized.
(b) Ratios are based on average net assets of $1,462,594,326.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid
expenses, the ratio of expenses to average net assets would have been the
same.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
FS-11
