<PAGE> 1
AIM SUMMIT FUND
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AIM Summit Fund seeks to provide growth of capital.
PROSPECTUS AIM --Registered Trademark--
JULY 24, 2000
Shares of the fund are offered to
and may be purchased by the general
public primarily through AIM Summit
Investors Plans I and AIM Summit
Investors Plans II (the plans), each
a unit investment trust. Details of
the plans, including the applicable
creation and sales charges and the
custodian charges, are found in each
plan's respective Prospectus. You
should read both this Prospectus and
the Prospectus of your plan and keep
these Prospectuses for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
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AIM SUMMIT FUND
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES A-1
- - - - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND A-1
- - - - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION A-2
- - - - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns A-2
Performance Table A-2
FEE TABLE AND EXPENSE EXAMPLE A-3
- - - - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table A-3
Expense Example A-3
FUND MANAGEMENT A-4
- - - - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor A-4
Advisor Compensation A-4
Portfolio Managers A-4
OTHER INFORMATION A-4
- - - - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions A-4
FINANCIAL HIGHLIGHTS A-5
- - - - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-6
- - - - - - - - - - - - - - - - - - - - - - - - - - -
Pricing of Shares A-6
Sales of Shares A-6
Redemption of Shares A-6
Taxes A-7
Open Account A-7
Distribution and Service (12b-1) Fees A-7
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor,
AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos,
La Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
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AIM SUMMIT FUND
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INVESTMENT OBJECTIVE AND STRATEGIES
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The fund's investment objective is growth of capital.
The fund seeks to meet this objective by investing primarily in common stocks
of companies that the portfolio managers believe have the potential for growth
in earnings, including small-sized growth companies, and in common stocks
believed to be undervalued relative to other available investments. The fund may
also invest up to 20% of its total assets in foreign securities, including
securities of companies located in developing countries, i.e., those that are in
the initial stages of their industrial cycles. Any percentage limitations with
respect to assets of the fund are applied at the time of purchase.
The portfolio managers purchase securities of companies that they believe have
the potential for growth. The portfolio managers consider whether to sell a
particular security when they believe the security no longer has that potential.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. This is
especially true with respect to equity securities of smaller companies, whose
prices may go up and down more than the prices of equity securities of larger,
more-established companies. Also, since equity securities of smaller companies
may not be traded as often as equity securities of larger, more-established
companies, it may be difficult or impossible for the fund to sell securities at
a desirable price.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, relatively low market liquidity, the relative
lack of information about these companies and the potential lack of strict
financial and accounting controls and standards.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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AIM SUMMIT FUND
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PERFORMANCE INFORMATION
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The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's shares
from year to year.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1990........................................ 0.93%
1991........................................ 43.64%
1992........................................ 4.50%
1993........................................ 8.28%
1994........................................ -2.82%
1995........................................ 35.14%
1996........................................ 19.87%
1997........................................ 24.22%
1998........................................ 34.45%
1999........................................ 50.76%
</TABLE>
The fund's shares' year-to-date total return as of June 30, 2000 was 4.00%.
During the periods shown in the bar chart, the highest quarterly return was
37.12% (quarter ended December 31, 1999) and the lowest quarterly return was
-13.37% (quarter ended September 30, 1990).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares of the fund 50.76% 32.47% 20.59% 16.88% 11/01/82
S & P 500(1) 21.03% 28.54% 18.19% 18.55%(2) 10/31/82(2)
------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(2) The average annual total return given is since the date closest to the
inception date of the fund.
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AIM SUMMIT FUND
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FEE TABLE AND EXPENSE EXAMPLE
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FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
----------------------------------------------------
(expenses that are deducted
from fund assets)
----------------------------------------------------
<S> <C>
Management Fees 0.63%
Distribution and/or Service (12b-1) Fees(1) 0.10%
Other Expenses 0.12%
Total Annual Fund Operating Expenses 0.85%
----------------------------------------------------
</TABLE>
(1) The Distribution and/or Service Fees applicable to shares of the fund are
0.30%, however AIM Distributors has contractually agreed to waive
0.20% of these Distribution and/or Service Fees applicable to shares
of the fund beneficially owned through AIM Summit Investors Plans I.
Accruing fees at two different rates results in a blended rate, which will
increase as a percentage of average daily net assets of the fund as
additional shares of the fund are acquired outside AIM Summit Investors
Plans I.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------
<S> <C> <C> <C> <C>
Shares $107 $334 $579 $1,283
-----------------------------------------------------
</TABLE>
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AIM SUMMIT FUND
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FUND MANAGEMENT
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THE ADVISOR
A I M Advisors, Inc. (the advisor), 11 Greenway Plaza, Suite 100, Houston, TX
77046, serves as the fund's investment advisor and is responsible for its
day-to-day management. The advisor supervises all aspects of the fund's
operations and provides investment advisory services to the fund, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976,
and together with its subsidiaries, advises or manages over 120 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1999, the advisor received compensation
of 0.63% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- David P. Barnard, Senior Portfolio Manager, who has been responsible for the
fund since 1995 and has been associated with the advisor and/or its affiliates
since 1982.
- Bret W. Stanley, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1998. From 1994 to 1998, he was Vice President and portfolio manager
with Van Kampen American Capital Asset Management, Inc.
OTHER INFORMATION
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
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AIM SUMMIT FUND
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FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the six-month period ended April 30, 2000 is unaudited.
The information for the five years ended October 31, 1999 has been audited by
KPMG LLP, whose report, along with the fund's financial statements, is included
in the fund's annual report, which is available upon request.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.17 $ 14.96 $ 15.15 $ 12.99 $ 12.14 $ 9.78
Income from investment operations:
Net investment income (loss) (0.01) -- 0.03 0.02 0.04 0.04
Net gains on securities (both realized and
unrealized) 5.42 6.16 1.23 3.34 1.69 2.81
Total from investment operations 5.41 6.16 1.26 3.36 1.73 2.85
Less distributions:
Dividends from net investment income -- (0.04) (0.02) (0.03) (0.03) (0.10)
Distributions from net realized gains (3.17) (0.91) (1.43) (1.17) (0.85) (0.39)
Total distributions (3.17) (0.95) (1.45) (1.20) (0.88) (0.49)
Net asset value, end of period $ 22.41 $ 20.17 $ 14.96 $ 15.15 $ 12.99 $ 12.14
Total return(a) 28.76% 42.79% 9.49% 28.53% 15.61% 31.03%
-----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $3,342,379 $2,623,901 $1,830,032 $1,650,234 $1,261,008 $1,050,011
Ratio of expenses to average net assets 0.66%(b) 0.67% 0.67% 0.68% 0.70% 0.71%
Ratio of net investment income (loss) to
average net assets (0.05)%(b) (0.01)% 0.23% 0.11% 0.29% 0.33%
Portfolio turnover rate 60% 92% 83% 88% 118% 126%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $3,318,470,172.
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AIM SUMMIT FUND
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SHAREHOLDER INFORMATION
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PRICING OF SHARES
The fund prices its shares based on its net asset value. The fund values
portfolio securities for which market quotations are readily available at market
value. The fund values short-term investments maturing within 60 days at
amortized cost, which approximates market value. The fund values all other
securities and assets at their fair value. Securities and other assets quoted in
foreign currencies are valued in U.S. dollars based on the prevailing exchange
rates on that day. In addition, if between the time trading ends on a particular
security and the close of the customary trading session of the New York Stock
Exchange (NYSE), events occur that materially affect the value of the security,
the fund may value the security at its fair value as determined in good faith by
or under the supervision of the fund's Board of Trustees. The effect of using
fair value pricing is that the fund's net asset value will be subject to the
judgment of the Board of Trustees or its designee instead of being determined by
the market. Because the fund may invest in securities that are primarily listed
on foreign exchanges, the value of the fund's shares may change on days when you
will not be able to purchase or redeem shares.
The fund determines the net asset value of its shares on each day the NYSE is
open for business, as of the close of the customary trading session or any
earlier NYSE closing time that day. The fund prices purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form.
SALES OF SHARES
The fund will not offer its shares to the general public except through the
plans. However, the following persons may purchase shares of the fund directly
through the fund's sponsor, A I M Distributors, Inc. (the distributor) 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 A I M Management Group Inc. (AIM Management) or
its affiliates, or of any investment company managed or advised by the advisor;
or (b) any employee benefit plan established for employees of AIM Management or
its affiliates. The fund reserves the right to reject any purchase order. The
terms of offering of the plans are contained in each plan's respective
Prospectus.
REDEMPTION OF SHARES
The following discussion relates only to those investors who hold shares of the
fund directly. Planholders should consult their plan's Prospectus for the
requirements for redemption of fund shares held in a plan.
You may redeem your shares of the fund at any time without charge, either by a
written request to A I M Fund Services, Inc. (the transfer agent), or by calling
the transfer agent at (800) 959-4246, subject to the restrictions specified
below. Upon receipt by the transfer agent 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 the transfer agent, P.O. Box 4739,
Houston, TX 77210-4739.
Written requests for redemption must include: (1) original signatures of all
registered owners; (2) your account number; (3) if the transfer agent does not
hold your shares, endorsed share certificates or share certificates accompanied
by an executed stock power; and (4) signature guarantees, if necessary (see
below). The transfer agent may require that you provide additional information,
such as corporate resolutions or powers of attorney, if applicable.
The transfer agent requires a signature guarantee when you redeem by mail and:
(1) the amount is greater than $50,000; (2) you request that payment be made to
someone other than the name registered on the account; (3) you request that
payment be sent somewhere other than the bank of record on the account; or (4)
you request that payment be sent to a new address or an address that changed in
the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
You may also request redemptions by telephone by calling the transfer agent at
(800) 959-4246. You will be allowed to redeem by telephone if (1) the proceeds
are to be mailed to the address on record with us or transferred electronically
to a pre-authorized checking account; (2) the address on record with us has not
been changed within the last 30 days; (3) you do not hold physical share
certificates; (4) you can provide proper identification information; (5) the
proceeds of the redemption do not exceed $50,000; and (6) you have not
previously declined the telephone redemption privilege. Certain accounts,
including retirement accounts and 403(b) plans, may not redeem by telephone. The
transfer agent must receive your call during the hours the NYSE is open for
business in order to effect the redemption at that day's closing price.
The transfer agent normally will send out checks within one business day, and
in any event no more than seven days, after it accepts your request to redeem.
If you redeem shares recently purchased by check, you will be required to wait
up to ten business days before we will send your redemption proceeds. This delay
is necessary to ensure that the purchase check has cleared. The fund may
postpone the right of redemption only under unusual circumstances, as allowed by
the Securities and Exchange Commission, such as when the NYSE restricts or
suspends trading.
If you mail the transfer agent a request in good order to redeem your shares,
it will mail you a check in the amount of the redemption proceeds to the address
on record. If your request is not in good order, you may have to provide the
transfer
A-6
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AIM SUMMIT FUND
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agent with additional documentation in order to redeem your shares.
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. The transfer agent uses
reasonable procedures to confirm that instructions communicated by telephone are
genuine and are not liable for telephone instructions that are reasonably
believed to be genuine.
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. The transfer agent will redeem enough shares from your account
to cover the amount withdrawn. You must have an account balance of at least
$5,000 to establish a Systematic Withdrawal Plan. You can stop this plan at any
time by giving ten days prior notice to the transfer agent.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions. Every year, an account statement showing the amount of
dividends and distributions you received from the fund during the prior year
will be sent to you. Any long-term or short-term capital gains realized from
redemptions of shares of the fund will be subject to federal income tax.
The foreign, state and local tax consequences of investing in shares of the
fund may differ materially from the federal income tax consequences described
above. You should consult your tax advisor before investing.
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 the transfer agent 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 the
transfer agent after each acquisition or redemption of fund shares, and after
each dividend or capital gains distribution.
DISTRIBUTION AND SERVICE (12b-1) FEES
The fund has adopted a 12b-1 plan that allows the fund to pay distribution fees
to the distributor for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the fund pays these fees out of its assets
on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
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AIM SUMMIT FUND
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OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 995-4246
-----------------------------------------------------
</TABLE>
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
-----------------------------------
AIM Summit Fund
SEC 1940 Act file number: 811-3443
-----------------------------------
[AIM LOGO APPEARS HERE] SUM2-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 11
STATEMENT OF ADDITIONAL INFORMATION
AIM SUMMIT FUND
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 FUND SERVICES, INC., P.O. BOX 4739,
HOUSTON, TEXAS 77210-4739.
--------------
STATEMENT OF ADDITIONAL INFORMATION DATED JULY 24, 2000,
RELATING TO THE PROSPECTUS DATED JULY 24, 2000,
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION......................................................................................................1
PERFORMANCE INFORMATION...........................................................................................1
Total Return Quotations..................................................................................3
GENERAL INFORMATION ABOUT THE FUND................................................................................4
The Fund and its Shares..................................................................................4
PORTFOLIO TRANSACTIONS AND BROKERAGE..............................................................................5
MANAGEMENT OF THE FUND............................................................................................8
Trustees and Officers....................................................................................8
The Investment Advisor..................................................................................14
Administrator...........................................................................................15
Expenses................................................................................................15
Transfer Agent and Custodian............................................................................16
Audit Reports...........................................................................................16
INVESTMENT STRATEGIES AND RISKS..................................................................................16
Investment Program......................................................................................16
Common Stocks...........................................................................................17
Preferred Stocks........................................................................................17
Convertible Securities..................................................................................18
Corporate Debt Securities...............................................................................18
U.S. Government Securities..............................................................................18
Real Estate Investment Trusts (REITs)...................................................................18
Warrants................................................................................................19
Lending of Fund Securities..............................................................................19
Interfund Loans.........................................................................................19
Short Sales.............................................................................................19
Foreign Securities......................................................................................20
Foreign Exchange Transactions...........................................................................21
Margin Transactions.....................................................................................21
Repurchase Agreements...................................................................................21
Rule 144A Securities....................................................................................22
Illiquid Securities.....................................................................................22
Equity-Linked Derivatives...............................................................................22
Investment in Other Investment Companies................................................................23
Temporary Defensive Investments.........................................................................23
Portfolio Turnover......................................................................................23
OPTIONS, FUTURES AND CURRENCY STRATEGIES.........................................................................23
Introduction............................................................................................23
General Risks of Options, Futures and Currency Strategies...............................................24
Cover...................................................................................................24
Writing Call Options....................................................................................25
Writing Put Options.....................................................................................25
Purchasing Put Options..................................................................................26
Purchasing Call Options.................................................................................26
Over-The-Counter Options................................................................................26
Index Options...........................................................................................27
Limitations on Options..................................................................................27
Interest Rate, Currency and Stock Index Futures Contracts...............................................27
Options on Futures Contracts............................................................................28
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C>
Forward Contracts.......................................................................................28
Limitations on Use of Futures, Options on Futures and Certain Call Options on Currencies................29
INVESTMENT RESTRICTIONS..........................................................................................29
Fundamental Restrictions................................................................................29
Non-Fundamental Restrictions............................................................................30
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................31
Reinvestment of Dividends and Distributions.............................................................31
Qualification as a Regulated Investment Company.........................................................31
Determination of Taxable Income of a Regulated Investment Company.......................................32
Excise Tax on Regulated Investment Companies............................................................33
Fund Distributions......................................................................................33
Sale or Redemption of Fund Shares.......................................................................34
Foreign Shareholders....................................................................................35
Effect of Future Legislation; Local Tax Considerations..................................................35
SHARE PURCHASES, REDEMPTIONS AND REPURCHASES.....................................................................36
Purchases and Redemptions...............................................................................36
Suspension of Right of Redemption.......................................................................36
Valuation of Shares.....................................................................................36
The Distribution Plan...................................................................................37
The Distribution Agreement..............................................................................39
MISCELLANEOUS INFORMATION........................................................................................39
Shareholder Inquiries...................................................................................39
Legal Matters...........................................................................................39
FINANCIAL STATEMENTS.............................................................................................FS
</TABLE>
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<PAGE> 14
INTRODUCTION
AIM Summit Fund (the "Fund") is a mutual fund. The rules and
regulations of the Securities and Exchange Commission (the "SEC") require all
mutual funds to furnish prospective investors certain information concerning the
activities of the fund being considered for investment. The information for the
Fund is included in a Prospectus dated July 24, 2000, which may be obtained
without charge by written request to A I M Distributors, Inc. ("AIM
Distributors"). Investors may also call A I M Fund Services, Inc. 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
All advertisements of the Fund will disclose the maximum creation and
sales charges, imposed by AIM Summit Investors Plans I ("Plans I") and AIM
Summit Investors Plans II ("Plans II") (Plans I and Plans II are collectively
referred to as "Plans"), as applicable, and other fees (collectively, the "Sales
Charges") on purchases of shares of the Fund. 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. 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.
From time to time, A I M Advisors, Inc. ("AIM") or its affiliates may
waive all or a portion of their fees and/or assume certain expenses of the Fund.
Voluntary fee waivers or reductions or commitments to assume expenses may be
rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions or commitments to assume expenses, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions or reimbursement of expenses set
forth in the Fee Table in the Prospectus may not be terminated or amended to the
Fund's detriment during the period stated in the agreement between AIM and the
Fund. Fee waivers or reductions or commitments to reduce expenses will have the
effect of increasing the Fund's yield and total return.
The performance of the Fund will vary from time to time and past
results are not necessarily indicative of future results. The Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in the Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in the Fund.
Total return is calculated in accordance with a standardized formula
for computation of annualized total return. Standardized total return for the
shares of the Fund 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.
1
<PAGE> 15
Total return figures for the Fund are neither fixed nor guaranteed, and
no principal is insured. 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:
<TABLE>
<S> <C> <C>
Barron's Fortune USA Today
Bloomberg Investor's Business Daily U.S. News & World Report
Business Week Money Wall Street Journal
Economist Mutual Fund Forecaster Washington Post
Financial World Mutual Fund Magazine CNN
Forbes New York Times CNBC
</TABLE>
The Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
<TABLE>
<S> <C>
Bank Rate Monitor Mutual Fund Values (Morningstar)
CDA Weisenberger Ibbotson Associates
Donoghue's Lipper Inc.
</TABLE>
The Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
<TABLE>
<S> <C>
Standard & Poor's 500 Stock Index Russell 3000
Dow Jones Industrial Average NASDAQ
Consumer Price Index
</TABLE>
The Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10-year Treasury Notes
30-year Treasury Bonds
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, or 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.
Additional performance information is contained in the Fund's Annual
Report to Shareholders, which is available upon request without charge.
2
<PAGE> 16
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-year,
five-year and ten-year periods ended April 30, 2000, was 35.20%, 29.50% and
21.11%, respectively. These average annual total returns do include the
reinvestment of dividends and capital gains, but do not include the effect of
paying the separate Creation and Sales Charges and Custodian Fees associated
with the purchase of the Fund through the 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 the Plans. Investors
should consult the Prospectus of Plans I or Plans II, as applicable, for
complete information regarding Creation and Sales Charges and Custodian Fees.
The average annual total return for the Fund, for the one-year,
five-year and ten-year periods ended April 30, 2000, was 23.71%, 27.22% and
20.04%, respectively. These average annual total returns include the
reinvestment of dividends and capital gains, and the effects of the separate
Creation and Sales Charges and Custodian Fees assessed through Plans I. The
average annual total returns assume an initial $1,000 lump sum investment at the
beginning of each period shown with no subsequent Plans I 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 Plans I 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:
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:
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.
ERV = ending redeemable value of a hypothetical
$1,000 payment at the end of the stated
period.
3
<PAGE> 17
GENERAL INFORMATION ABOUT THE FUND
THE FUND AND ITS SHARES
The Fund currently is organized as a Delaware business trust under an
Agreement and Declaration of Trust, dated December 6, 1999 (the "Trust
Agreement"). The Fund was previously organized as AIM Summit Fund, Inc. ("ASF"),
a Maryland corporation. Pursuant to an Agreement and Plan of Reorganization, ASF
was reorganized as the Fund on July 24, 2000. The Fund is registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end, diversified
management investment company.
The Fund offers one series of shares. Under the Trust Agreement, the
Board of Trustees is authorized to create new series of shares without the
necessity of a vote of shareholders of the Fund.
Pursuant to the July 24, 2000 Agreement and Plan of Reorganization, the
Fund succeeded to the assets and assumed the liabilities of ASF. Prior to the
reorganization, the Class II Shares of the Fund were reclassified and changed
into Class I Shares. All historical financial and other information contained in
this Statement of Additional Information for periods prior to July 24, 2000
relating to the Fund is that of ASF and the Class I Shares of ASF.
Shares of beneficial interest of the Fund are redeemable at their new
asset value at the option of the shareholder or at the option of the Fund in
certain circumstances. For information concerning the methods of redemption,
investors should consult the Prospectus under the caption "Redemption of
Shares."
Each share of the Fund represents an equal proportionate interest in
the Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Board. Upon any liquidation of the
Fund, shareholders are entitled to share pro rata in the net assets belonging to
the Fund available for distribution after satisfaction of outstanding
liabilities of the Fund.
The Fund is not required to hold annual or regular meetings of
shareholders. Meetings of shareholders of the Fund will be held from time to
time to consider matters requiring a vote of such shareholders in accordance
with the requirements of the 1940 Act, state law or the provisions of the Trust
Agreement. It is not expected that shareholder meetings will be held annually.
Shareholders of the Fund are entitled to one vote per share (with
proportionate voting for fractional shares). When issued, shares of the fund are
fully paid and nonassessable, have no preemptive or subscription rights, and are
fully transferable. Shares do not have cumulative voting rights, which means
that in situations in which shareholders elect trustees, holders of more than
50% of the shares voting for the election of trustees can elect all of the
trustees of the Fund, and the holders of less than 50% of the shares voting for
the election of trustees will not be able to elect any trustees.
The Trust Agreement provides that the trustees of the Fund shall hold
office during the existence of the Fund, except as follows: (a) any trustee may
resign or retire; (b) any trustee may be removed by a vote of at least
two-thirds of the outstanding shares of the Fund, or at any time by written
instrument signed by at least two-thirds of the trustees and specifying when
such removal becomes effective; or (c) any trustee who has died or become
incapacitated and is unable to serve may be retired by a written instrument
signed by a majority of the trustees and specifying the date of his or her
retirement.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations or liability extended to shareholders of
private for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Fund to the extent the courts of another state which does not
recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Fund or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Fund. The Trust Agreement provides for indemnification out
of the property of the Fund for all losses and expenses of any shareholder of
the Fund held liable on account of being or having been a shareholder. Thus, the
risk of
4
<PAGE> 18
a shareholder incurring financial loss due to shareholder liability is limited
to circumstances in which the Fund would be unable to meet its obligations and
wherein the complaining party was held not to be bound by the disclaimer.
The Trust Agreement further provides that the trustees and officers
will not be liable for any act, omission or obligation of the Fund or any
trustee or officer. However, nothing in the Trust Agreement protects a trustee
or officer against any liability to the Fund or to the shareholders to which a
trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office with the Fund. The Trust Agreement provides for
indemnification by the Fund of the trustees, officers, employees and agents of
the Fund, if it is determined that such person acted in good faith and
reasonably believed: (1) in the case of conduct in his or her official capacity
for the Fund, that his or her conduct was in the Fund's best interests, (2) in
all other cases, that his or her conduct was at least not opposed to the Fund's
best interests and (3) in a criminal proceeding, that he or she had no reason to
believe that his or her conduct was unlawful. The Trust Agreement also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
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 A I M
Capital Management, Inc. (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.
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 an AIM 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 or account (and may invest in
affiliated money market funds) provided the Fund follows procedures adopted by
the Boards of Directors/Trustees 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.
5
<PAGE> 19
Allocation of Portfolio Transactions
AIM and its affiliates manage numerous 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.
Allocation of IPO Securities Transactions
From time to time, certain of the AIM Funds or other accounts managed
by AIM may become interested in participating in security distributions that are
available in an IPO, and occasions may arise when purchases of such securities
by one AIM Fund or account may also be considered for purchase by one or more
other AIM Funds or accounts. In such cases, it shall be AIM's practice to
specifically combine or otherwise bunch indications of interest for IPO
securities for all AIM Funds and accounts participating in purchase transactions
for that security, and to allocate such transactions in accordance with the
following procedures:
AIM will determine the eligibility of each AIM Fund and account that seeks
to participate in a particular IPO by reviewing a number of factors, including
suitability of the investment with the AIM Fund's or account's investment
objective, policies and strategies, the liquidity of the AIM Fund or account if
such investment is purchased, and whether the portfolio manager intends to hold
the security as a long-term investment. The allocation of limited supply
securities issued in IPOs will be made to eligible AIM Funds and accounts in a
manner designed to be fair and equitable for the eligible AIM Funds and
accounts, and so that there is equal allocation of IPOs over the longer term.
Where multiple funds or accounts are eligible, rotational participation may
occur, based on the extent to which an AIM Fund or account has participated in
previous IPOs as well as the size of the AIM Fund or account. Each eligible AIM
Fund and account with an asset level of less than $500 million, will be placed
in one of three tiers, depending upon its asset level. The AIM Funds and
accounts in the tier containing funds and accounts with the smallest asset
levels will participate first, each receiving a 40 basis point allocation
(rounded to the nearest share round lot that approximates 40 basis points) (the
"Allocation"), based on that AIM Fund's or account's net assets. This process
continues until all of the AIM Funds and accounts in the three tiers receive
their Allocations, or until the shares are all allocated. Should securities
remain after this process, eligible AIM Funds and accounts will receive their
Allocations on a straight pro rata basis. For the tier of AIM Funds and accounts
not receiving a full Allocation, the Allocation may be made only to certain AIM
Funds or accounts so that each may receive close to or exactly 40 basis points.
When any AIM Fund and/or account with substantially identical investment
objectives and policies participate in syndicates, they will do so in amounts
that are substantially proportionate to each other. In these cases, the net
assets of the largest AIM Fund will be used to determine in which tier, as
described in the paragraph above, such group of AIM Funds or accounts will be
placed. If no AIM Fund is participating, then the net assets of the largest
account will be used to determine tier placement. The price per share of
securities purchased in such syndicate transactions will be the same for each
AIM Fund and account.
6
<PAGE> 20
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 trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of custody services, as well as the providing of equipment used to
communicate research information, the providing of specialized consultations
with AIM personnel with respect to computerized systems and data furnished to
AIM as a component of other research services, the arranging of meetings with
management of companies, and the providing of access to consultants who supply
research information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the 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.
Transaction With Regular Brokers
As of October 31, 1999, the Fund held an amount of common stock issued
by Morgan Stanley Dean Witter & Co., Inc. and Lehman Brothers Holdings, Inc.
having a market value of $16,988,125 and $2,947,500, respectively. Both are
regular brokers 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, 1999, 1998 and 1997, the Fund
paid brokerage commissions of $3,472,778, $3,027,892 and $2,573,656,
respectively. For the fiscal year ended October 31, 1999, 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 $625,053,096 and the related brokerage commissions were $536,125.
7
<PAGE> 21
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.
MANAGEMENT OF THE FUND
The overall management of the business and affairs of the Fund is
vested with the Board of Trustees. The Board of Trustees 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,
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, restrictions and policies of the Fund and to the general
supervision of the Fund's Board of Trustees. Certain trustees and officers of
the Fund are affiliated with AIM and A I M Management Group Inc. ("AIM
Management") the parent company of AIM.
TRUSTEES AND OFFICERS
The trustees 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 AIM Funds. Unless
otherwise indicated, the address of each trustee and officer is 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
<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 (81) Chairman and Trustee Director and Chairman, A I M 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 Executive Vice
Chairman of AMVESCAP PLC.
----------------------------------- ---------------------- ------------------------------------------------------------
Bruce L. Crockett, (56) Trustee Director, ACE Limited (insurance company). Formerly
906 Frome Lane Director, President and Chief Executive Officer, COMSAT
McLean, VA 22102 Corporation; and Chairman, Board of Governors of INTELSAT
(international communications company).
----------------------------------- ---------------------- ------------------------------------------------------------
Owen Daly II (75) Trustee Formerly, Director, Cortland Trust Inc. (investment
Six Blythewood Road company), CF & I Steel Corp., Monumental Life Insurance
Baltimore, MD 21210 Company and Monumental General Insurance Company; and
Chairman of the Board of Equitable Bancorporation
----------------------------------- ---------------------- ------------------------------------------------------------
</TABLE>
--------
* A trustee who is an "interested person" of the Fund and AIM as defined
in the 1940 Act. Mr. Bauer has notified the Board that he intends to
retire from his positions as an officer and trustee of the Fund
effective September 30, 2000. The Board does not presently intend to
fill the vacancy that will result from Mr. Bauer's retirement.
Effective September 30, 2000, Mr. Graham will succeed Mr. Bauer as
Chairman of the Board.
8
<PAGE> 22
<TABLE>
<CAPTION>
----------------------------------- ---------------------- ---------------------------------------------------------
<S> <C> <C>
Edward K. Dunn, Jr. (65) Trustee Chairman of the Board of Directors, Mercantile Mortgage
2 Hopkins Plaza, 8th Floor, Corp. Formerly, Vice Chairman of the Board of Directors,
Suite 805 President and Chief Operating Officer, Mercantile - Safe
Baltimore, MD 21201 Deposit & Trust Co.; and President, Mercantile
Bankshares.
----------------------------------- ---------------------- ------------------------------------------------------------
Jack Fields (48) Trustee Chief Executive Officer, Texana Global, Inc. (foreign
434 New Jersey Avenue, S.E. trading company) and Twenty-First Century Group, Inc.
Washington, D.C. 20003 (governmental affairs company). Formerly, Member of the
U.S. House of Representatives.
----------------------------------- ---------------------- ------------------------------------------------------------
**Carl Frischling (63) Trustee Partner, Kramer Levin Naftalis & Frankel LLP (law firm).
919 Third Avenue
New York, NY 10022
----------------------------------- ---------------------- ------------------------------------------------------------
***Robert H. Graham (53) Trustee and Director, President and Chief Executive Officer, A I M
President Management Group Inc.; Director and President, A I M
Advisors, Inc.; Director and Senior Vice President, A I M
Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and Fund Management Company; and
Director and CEO, Managed Products, AMVESCAP PLC.
----------------------------------- ---------------------- ------------------------------------------------------------
Prema Mathai-Davis (49) Trustee Formerly, Chief Executive Officer, YWCA of the USA.
370 East 76th Street
New York, NY 10021
----------------------------------- ---------------------- ---------------------------------------------------------
Lewis F. Pennock (57) Trustee Partner, Pennock & Cooper (law firm).
6363 Woodway, Suite 825
Houston, Texas 77057
----------------------------------- ---------------------- ---------------------------------------------------------
Louis S. Sklar (60) Trustee Executive Vice President, Development and Operations,
The Williams Tower, Hines Interests Limited Partnership (real estate
50th Floor development).
2800 Post Oak Blvd.
Houston, Texas 77056
----------------------------------- ---------------------- ---------------------------------------------------------
Gary T. Crum (52) Senior Vice Director and President, A I M Capital Management, Inc.;
President Director and Executive Vice President, A I M Management
Group Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director, A I M Distributors, Inc. and
AMVESCAP PLC.
----------------------------------- ---------------------- ---------------------------------------------------------
</TABLE>
--------
** A trustee who is an "interested person" of the Fund as defined in the
1940 Act.
*** A trustee who is an "interested person" of the Fund and AIM as defined
in the 1940 Act.
9
<PAGE> 23
<TABLE>
<S> <C> <C>
----------------------------------- ---------------------- ---------------------------------------------------------
Carol F. Relihan (45) Senior Vice Director, Senior Vice President, General Counsel and
President and Secretary, A I M Advisors, Inc.; Senior 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 (41) Vice President Vice President and Fund Controller, A I M Advisors, Inc.;
and Treasurer and Assistant Vice President and Assistant Treasurer,
Fund Management Company.
----------------------------------- ---------------------- ---------------------------------------------------------
Melville B. Cox (56) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and Fund
Management Company.
----------------------------------- ---------------------- ---------------------------------------------------------
Edgar M. Larsen (60) Vice President Vice President, A I M Capital Management, Inc.
----------------------------------- ---------------------- ---------------------------------------------------------
</TABLE>
The standing committees of the Board of Trustees are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock and Sklar and Dr. Mathai-Davis. The
Audit Committee is responsible for: (i) considering management's recommendations
of independent accountants for the Fund and evaluating such accountants'
performance, costs and financial stability; (ii) with AIM, reviewing and
coordinating audit plans prepared by the Fund's independent accountants and
management's internal audit staff; and (iii) reviewing financial statements
contained in periodic reports to shareholders with the Fund's independent
accountants and management.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock and Sklar (Chairman) and Dr.
Mathai-Davis. The Investments Committee is responsible for: (i) overseeing AIM's
investment related compliance systems and procedures to ensure their continued
adequacy; and (ii) considering and acting, on an interim basis between meetings
of the full Board of Trustees, on investment related matters requiring Board of
Trustees' consideration, including dividends and distributions, brokerage
policies and pricing matters.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock and Sklar and Dr. Mathai-Davis.
The Nominating and Compensation Committee is responsible for: (i) considering
and nominating individuals to stand for election as independent trustees as long
as the Fund maintains a distribution plan pursuant to Rule 12b-1 under the 1940
Act; (ii) reviewing from time to time the compensation payable to the
independent trustees; and (iii) making recommendations to the Board of Trustees
regarding matters related to compensation, including deferred compensation plans
and retirement plans for the independent trustees.
The Nominating and Compensation Committee will consider nominees
recommended by a shareholder to serve as trustees, provided (i) that such person
is a shareholder of record at the time he or she submits such names and is
entitled to vote at the meeting of shareholders at which trustees will be
elected, and (ii) that the Nominating and Compensation Committee or the Board,
as applicable, shall make the final determination of persons to be nominated.
10
<PAGE> 24
All of the Trust's trustees also serve as directors or trustees of some
or all of the investment companies managed or advised by AIM. All of the Fund's
executive officers hold similar offices with some or all of the other investment
companies managed or advised by AIM.
Remuneration of Trustees
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any Committee attended. Each trustee of
the Fund is compensated for his or her services according to a fee schedule
which recognizes the fact that such trustee also serves as a director or trustee
of other AIM Funds. Each such trustee receives a fee, allocated among the AIM
Funds for which he or she serves as a director or trustee, which consists of an
annual retainer component and a meeting fee component.
11
<PAGE> 25
Set forth below is information regarding compensation paid or accrued
for each trustee of the Fund:
<TABLE>
<CAPTION>
=================================================================================================
RETIREMENT
BENEFITS TOTAL
ESTIMATED ACCRUED COMPENSATION
COMPENSATION FROM BY ALL AIM FROM ALL AIM
TRUSTEE FUND(1) FUNDS(2) FUNDS(3)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
-------------------------------------------------------------------------------------------------
Bruce L. Crockett 2,045 37,485 103,500
-------------------------------------------------------------------------------------------------
Owen Daly II 2,045 122,898 103,500
-------------------------------------------------------------------------------------------------
Edward K. Dunn 2,045 55,565 103,500
-------------------------------------------------------------------------------------------------
Jack Fields 2,004 15,826 101,500
-------------------------------------------------------------------------------------------------
Carl Frischling(4) 2,035 97,791 103,500
-------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
-------------------------------------------------------------------------------------------------
John F. Kroeger(5) 0 40,461 0
-------------------------------------------------------------------------------------------------
Prema Mathai-Davis 2,045 11,870 101,500
-------------------------------------------------------------------------------------------------
Lewis F. Pennock 2,035 45,766 103,500
-------------------------------------------------------------------------------------------------
Ian Robinson(6) 858 94,442 25,000
-------------------------------------------------------------------------------------------------
Louis S. Sklar 2,035 90,232 101,500
=================================================================================================
</TABLE>
----------
(1) The total amount of compensation deferred by all directors of the Fund's
predecessor during the fiscal year ended October 31, 1999, including earnings
thereon, was $13,529.
(2) During the fiscal year ended October 31, 1999, the total amount of expenses
allocated to the Fund's predecessor in respect of such retirement benefits was
$13,895. Data reflects compensation for the calendar year ended December 31,
1999.
(3) Each trustee serves as director or trustee of at least 12 registered
investment companies advised by AIM. Data reflects total compensation earned
during the calendar year ended December 31, 1999.
(4) During the fiscal year ended October 31, 1999, the Fund's predecessor paid
$8,316 in legal fees to Mr. Frischling's law firm, Kramer Levin Naftalis &
Frankel LLP, for services rendered to the independent directors of the Fund's
predecessor.
(5) Mr. Kroeger was a director of the Fund's predecessor until June 11, 1998.
Mr. Kroeger passed away on November 26, 1998. Mr. Kroeger's widow will receive
his pension as described below under "AIM Fund Retirement Plan for Eligible
Directors/Trustees."
(6) Mr. Robinson was a director of the Fund's predecessor until March 12, 1999,
when he retired.
12
<PAGE> 26
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of
the AIM Funds, AIM Management, or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board of Trustees. Pursuant to the
Plan, a trustee becomes eligible to retire and to receive full benefits under
the Plan when he or she has attained age 65 and has completed at least five
years of continuous service with one or more of the regulated investment
companies managed, administered or distributed by AIM or its affiliates (the
"Applicable AIM Funds"). Each eligible trustee is entitled to receive an annual
benefit from the Applicable AIM Funds commencing on the first day of the
calendar quarter coincident with or following his or her date of retirement
equal to a maximum of 75% of the annual retainer paid or accrued by the
Applicable AIM Funds for such trustee during the twelve-month period immediately
preceding the trustee's retirement (including amounts deferred under a separate
agreement between the Applicable AIM Funds and the trustee) and based on the
number of such trustee's years of service (not in excess of 10 years of service)
completed with respect to any of the Applicable AIM Funds. Such benefit is
payable to each eligible trustee in quarterly installments. If an eligible
trustee dies after attaining the normal retirement date but before receipt of
all benefits under the Plan, the trustee's surviving spouse (if any) shall
receive a quarterly survivor's benefit equal to 50% of the amount payable to the
deceased trustee for no more than ten years beginning the first day of the
calendar quarter following the date of the trustee's death. Payments under the
Plan are not secured or funded by any Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock,
Robinson, and Sklar and Dr. Mathai-Davis are 13, 13, 2, 3, 23, 20, 18, 11, 10
and 1 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
===============================================================
Annual Retirement
Number of Years of Compensation Paid By
Service With the All Applicable AIM
Applicable AIM Funds Funds
===============================================================
<S> <C>
10 $67,500
---------------------------------------------------------------
9 $60,750
---------------------------------------------------------------
8 $54,000
---------------------------------------------------------------
7 $47,250
---------------------------------------------------------------
6 $40,500
---------------------------------------------------------------
5 $33,750
===============================================================
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis,
(the "Deferring Trustees") have each executed a Deferred Compensation Agreement
(collectively, the "Compensation Agreements"). Pursuant to the Compensation
Agreements, the Deferring Trustees may elect to defer receipt of up to 100% of
their compensation payable by the Fund, and such amounts are placed into a
deferral account. Currently, the Deferring Trustees may select various AIM Funds
in which all or part of his or her deferral account shall be deemed to be
invested. Distributions from the Deferring Trustees' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Compensation Agreement) beginning on the
date the Deferring Trustees' retirement benefits commence under the Plan. The
Fund's Board of Trustees, in its sole discretion, may accelerate or extend the
distribution
13
<PAGE> 27
of such deferral accounts after the Deferring Trustee's termination of service
as a trustee of the Fund. If a Deferring Trustee dies prior to the distribution
of amounts in his or her deferral account, the balance of the deferral account
will be distributed to his or her designated beneficiary in a single lump sum
payment as soon as practicable after such Deferring Trustee's death. The
Compensation Agreements are not funded and, with respect to the payments of
amounts held in the deferral accounts, the Deferring Trustees have the status of
unsecured creditors of the Fund and of each other AIM Fund from which they are
deferring compensation.
THE INVESTMENT ADVISOR
AIM serves as the investment advisor to the Fund pursuant to a Master
Investment Advisory Agreement dated July 24, 2000 (the "Advisory Agreement").
AIM was organized in 1976, and together with its subsidiaries, advises, manages
or administers over 120 investment portfolios encompassing a broad range of
investment objectives. AIM is a wholly owned subsidiary of AIM Management, a
holding company that has been engaged in the financial services business since
1976. The address of AIM is 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173. AIM Management is an indirect wholly owned subsidiary of AMVESCAP
PLC, 11 Devonshire Square, London EC2M 4YR, England. AMVESCAP PLC and its
subsidiaries are an independent investment management group engaged in
institutional investment management and retail fund businesses 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 "Trustees 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) file reports
regarding such transactions; (c) refrain from personally engaging in (i)
short-term trading of a security, (ii) transactions involving a security within
seven days of an AIM Fund transaction involving the same security (subject to a
de minimis exception) and (iii) transactions involving securities being
considered for investment by an AIM Fund (subject to the de minimis exception);
and (d) abide by certain other provisions of the Code of Ethics. The de minimis
exception under the Code of Ethics covers situations where there is no material
conflict of interest because of the large market capitalization of a security
and the relatively small number of shares involved in a personal transaction.
The Code of Ethics also generally prohibits AIM employees who are registered
with the NASD from purchasing securities in initial public offerings. Personal
trading reports are periodically reviewed by AIM, and the Board of Trustees
reviews quarterly and annual reports (which summarize any significant violations
of the Code of Ethics). Sanctions for violating the Code of Ethics may include
censure, monetary penalties, suspension or termination of employment.
A prior investment advisory agreement with similar terms to the
Advisory Agreement was in effect prior to July 24, 2000. The Advisory Agreement
will remain in effect until June 30, 2001, and continue from year to year only
if such continuance is specifically approved at least annually by the Fund's
Board of Trustees and by the affirmative vote of a majority of the trustees who
are not parties to the Agreement or "interested persons" of any such party 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 its "assignment," as
defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM supervises all
aspects of the Fund's operations and provides investment advisory services to
the Fund.
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions, may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in the
Prospectus may not be terminated or amended to the Fund's detriment during the
period stated in the agreement between AIM and the Fund.
As compensation for its advisory services under the Advisory Agreement,
AIM receives a fee from the Fund, 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, plus 0.75% of the next $140 million of the Fund's average daily net
assets plus 0.625% of the Fund's average daily net assets in excess of $150
million. Pursuant to the investment advisory agreement in effect prior to July
24, 2000 which provided for the same level of compensation to AIM as is provided
for under the Advisory Agreement, for the fiscal years ended October 31, 1999,
1998 and 1997, the
14
<PAGE> 28
fees paid by the Fund to AIM were $15,096,393, $11,372,220 and $9,353,715,
respectively (after giving effect to fee waivers for the fiscal years ended
October 31, 1999, 1998 and 1997, respectively).
In addition, if the Fund engages in securities lending, AIM will
provide the Fund investment advisory services and related administrative
services. The Advisory Agreement describes the administrative services to be
rendered by AIM if the Fund engages in securities lending activities as well the
compensation AIM may receive for such administrative services. Services to be
provided include: (a) overseeing participation in the securities lending program
to ensure compliance with all applicable regulatory and investment guidelines;
(b) assisting the securities lending agent or principal (the agent) in
determining which specific securities are available for loan; (c) monitoring the
agent to ensure that securities loans are effected in accordance with AIM's
instructions and with procedures adopted by the Board of Trustees; (d) preparing
appropriate periodic reports for, and seeking appropriate approvals from, the
Board of Trustees with respect to securities lending activities; (e) responding
to agent inquiries; and (f) performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, the Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
the Fund from such activities. AIM currently intends to waive such fee, and has
agreed to seek the Board of Trustees' approval prior to its receipt of all or a
portion of such fee.
Prior to July 1, 1999, TradeStreet Investment Associates, Inc.
("TradeStreet"), 101 South Tryon Street, Suite 1000, Charlotte, North Carolina
28255, served as the Fund's sub-advisor. Trade Street is a wholly owned
subsidiary of NationsBank, N.A. and a registered investment advisor.
For the period November 1, 1998 through July 1, 1999 and the fiscal
years ended October 31, 1998 and 1997, TradeStreet received sub-advisory fees
from AIM of $2,774,130, $3,405,833 and $2,921,391, respectively.
See "Expenses."
ADMINISTRATOR
AIM also acts as the Fund's administrator pursuant to a Master
Administrative Service Agreement between AIM and the Fund (the "Administrative
Services Agreement").
Under the Administrative Services Agreement, AIM performs, or arranges
for the performance of, accounting and other administrative services for the
Fund. As full compensation for the performance of such services, AIM is
reimbursed for any personnel and other costs (including applicable office space,
facilities and equipment) of furnishing the services of a principal officer of
the Fund and of persons working under her supervision for maintaining the
financial accounts and books and records of the Fund, including calculation of
the Fund's daily net asset value, and preparing tax returns and financial
statements for the Fund. The method of calculating such reimbursements must be
annually approved, and the amounts paid will be periodically reviewed, by the
Fund's Board of Trustees.
Pursuant to the administrative services agreements in effect prior to
July 24, 2000, AIM received reimbursements for the fiscal years ended October
31, 1999, 1998 and 1997 in the amounts of $114,068, $72,766 and $67,450,
respectively, from the Fund.
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 trustees' 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.
15
<PAGE> 29
TRANSFER AGENT AND CUSTODIAN
A I M Fund Services, Inc. ("AFS"), a wholly owned subsidiary of AIM,
serves as transfer agent and dividend disbursing agent for the shares of the
Fund pursuant to a Transfer Agency and Service Agreement These services do not
include any supervisory function over management or provide any protection
against any possible depreciation of assets. The Fund pays the AFS such
compensation as may be agreed upon from time to time. The address of AFS is 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
State Street Bank and Trust Company ("State Street Bank") acts as
custodian for the Fund's portfolio securities and cash. State Street Bank
receives such compensation from the Fund for its services in such capacity as is
agreed to from time to time by the Fund. The address of State Street Bank is
P.O. Box 8300, Boston, Massachusetts 02266-8300. State Street Bank maintains the
portfolio securities owned by the Fund, administers the purchases and sales of
portfolio securities, collects interest and other distributions made on
securities held by the Fund and performs other ministerial duties.
AUDIT REPORTS
The Fund will furnish shareholders semi-annually 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 Trustees has selected KPMG 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.
INVESTMENT STRATEGIES AND RISKS
INVESTMENT PROGRAM
The Fund's investment objective and the principal features of the
Fund's investment program and the principal risks associated with that
investment program are set forth in the Prospectus under the caption "Investment
Objective and Strategies" and "Principal Risks of Investing in the Fund." 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 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 Trustees without shareholder approval.
Set forth in this section is a description of the Fund's investment
policies, strategies and practices. The investment objective of the Fund is
fundamental and may not be changed by the Board of Trustees without shareholder
approval. The Fund's investment policies, strategies and practices are
non-fundamental. The Board of Trustees of the Fund reserves the right to change
any of these non-fundamental investment policies, strategies or practices
without shareholder approval. However, shareholders will be notified before any
material change in the investment policies becomes effective. The Fund has
adopted certain investment restrictions, some of which are fundamental and
cannot be changed without shareholder approval. See "Investment Restrictions" in
this Statement of Additional Information.
Any percentage limitations with respect to assets of the Fund will be
applied at the time of purchase. A later change in percentage resulting from
changes in asset values will not be considered a violation of the percentage
limitations. The percentage limitations applicable to borrowings will be
applied in accordance with applicable provisions of the 1940 Act and the rules
and regulations promulgated thereunder which specifically limit the Fund's
borrowing abilities.
Consistent with the Fund's objective of capital growth, the Fund's
assets will tend to be fully invested in:
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
16
<PAGE> 30
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 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 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 capabilities than is the case with other types of securities
in which the Fund may invest.
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 to 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.
As of June 19, 2000, 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 June 19, 2000, the directors and officers of the Fund as a
group owned beneficially less than 1% of the Fund's outstanding shares.
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.
17
<PAGE> 31
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 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.
REAL ESTATE INVESTMENT TRUSTS ("REITs")
The Fund may invest in equity and/or debt securities issued by REITs.
Such investments will not exceed 25% of the total assets of the Fund.
REITs are trusts which sell equity or debt securities to investors and
use the proceeds to invest in real estate or interests therein. A REIT may focus
on particular projects, such as apartment complexes, or geographic regions, such
as the Southeastern United States, or both.
To the extent that the Fund has the ability to invest in REITs, the
Fund could conceivably own real estate directly as a result of a default on the
securities it owns. The Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic condition, adverse change in
18
<PAGE> 32
the climate for real estate, environmental liability risks, increases in
property taxes and operating expense, changes in zoning laws, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the
appeal of properties to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to maintain
exemption from the 1940 Act. Changes in interest rates may also affect the value
of debt securities held by the Fund. By investing in REITs indirectly through
the Fund, a shareholder will bear not only his/her proportionate share of the
expenses of the Fund, but also, indirectly, similar expenses of the REITs.
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.
LENDING OF FUND SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend
its portfolio securities (principally to broker-dealers) to the extent of
one-third of its respective total assets. Such loans would be callable at any
time and will be continuously secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash, letters of credit, or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. The Fund would continue to receive the income
on loaned securities and would, at the same time, earn interest on the loan
collateral or on the investment of the loan collateral if it were cash. Any cash
collateral pursuant to these loans would be invested in short-term money market
instruments or affiliated money market funds. Where voting or consent rights
with respect to loaned securities pass to the borrower, the Fund will follow the
policy of calling the loan, in whole or in part as may be appropriate, to permit
the exercise of such voting or consent rights if the matters involved are
expected to have a material effect on the Fund's investment in the loaned
securities. Lending securities entails a risk of loss to the Fund if and to the
extent that the market value of the securities loaned were to increase and the
lender did not increase the collateral accordingly.
INTERFUND LOANS
The Fund may lend up to 33-1/3% of its total assets to another AIM
Fund, on such terms and conditions as the SEC may require in an exemptive order.
An application for exemptive relief has been filed with the SEC on behalf of the
Fund and others. The Fund may also borrow from another AIM Fund to satisfy
redemption requests or to cover unanticipated cash shortfalls due to a delay in
the delivery of cash to the Fund's custodian or improper delivery instructions
by a broker effectuating a transaction.
SHORT SALES
The Fund may from time to time make short sales of securities which it
owns or which it has the right to acquire through the conversion or exchange of
other securities it owns. In a short sale, the Fund does not immediately deliver
the securities sold and does not receive the proceeds from the sale. The Fund is
said to have a short position in the securities sold until it delivers the
securities sold, at which time it receives the proceeds of the sale. The Fund
will neither make short sales of securities nor maintain a short position
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unless, at all times when a short position is open, the Fund owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short. This is a technique known
as selling short "against the box." To secure its obligation to deliver the
securities sold short, the Fund will deposit in escrow in a separate account
with its custodian, an equal amount of the securities sold short or securities
convertible into or exchangeable for such securities. In no event may more than
10% of the Fund's total assets be deposited or pledged as collateral for short
sales at any one time.
Since the Fund ordinarily will want to continue to receive interest and
dividend payments on securities in its portfolio which are convertible into the
securities sold short, the Fund will normally close out a short position by
purchasing and delivering an equal amount of the securities sold short, rather
than by delivering securities which it already holds.
The Fund will make a short sale, as a hedge, when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund or a security convertible into or exchangeable for such
security, or when the Fund does not want to sell the security it owns, because
among other reasons, it wishes to defer recognition of gain or loss for federal
income tax purposes. In such case, any future losses in the Fund's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the conversion premium. In determining the number of shares to be sold short
against the Fund's position in a convertible security, the anticipated
fluctuation in the conversion premium is considered. The Fund may also make
short sales to generate additional income from the investment of the cash
proceeds of short sales.
FOREIGN SECURITIES
The Fund has reserved the investment flexibility to 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 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
Depositary Receipts ("ADRs"), European Depositary 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.
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
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<PAGE> 34
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.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a
common European currency known as the "euro" and each member's local currency
became a denomination of the euro. It is anticipated that each participating
country will replace its local currency with the euro on July 1, 2002. Any other
European country that is a member of the European Union and satisfies the
criteria for participation in the EMU may elect to participate in the EMU and
may supplement its existing currency with the euro. The anticipated replacement
of existing currencies with the euro on July 1, 2002 could cause market
disruptions before or after July 1, 2002 and could adversely affect the value of
securities held by the Fund.
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 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.
MARGIN TRANSACTIONS
The Fund will not purchase any security on margin, except that it may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. The payment by the Fund of initial
or variation margin in connection with futures or related options transactions
will not be considered the purchase of a security on margin.
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
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losses, including: (a) a possible decline in the value of the underlying
security during the period in which the Fund seeks to enforce its rights
thereto; (b) a possible subnormal level of income and lack of access to income
during this period; and (c) expenses of enforcing its rights. A repurchase
agreement is collateralized by the security acquired by the Fund and its value
is marked to market daily in order to minimize the Fund's risk. Repurchase
agreements usually are for short periods, such as one or two days, but may be
entered into for longer periods of time. Repurchase agreements are not included
in the Fund's restrictions on lending. Repurchase agreements are considered to
be loans by the Fund under the 1940 Act.
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 Trustees 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.
RULE 144A SECURITIES
The Fund may purchase privately placed securities that are eligible for
purchase and sale pursuant to Rule 144A under the Securities Act of 1933 (the
"1933 Act"). This Rule permits certain qualified institutional buyers, such as
the Fund, to trade in securities that have not been registered under the 1933
Act. AIM, under the supervision of the Fund's Board of Trustees, 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.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities that are
illiquid, including restricted securities that are illiquid. Illiquid securities
include securities that 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.
Although securities which may be resold only to "qualified
institutional buyers" in accordance with the provisions of Rule 144A under the
Securities Act of 1933 are unregistered securities, the Fund may purchase Rule
144A securities without regard to the 15% limitation described above provided
that a determination is made that such securities have a readily available
trading market.
EQUITY-LINKED DERIVATIVES
The Fund may invest in equity-linked derivative products designed to
replicate the composition and performance of particular indices. Examples of
such products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optomised Portfolios as Listed Securities
("OPALS"). Investments in equity-linked derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the equity-linked derivatives will equal the underlying value
of the basket of securities purchased to replicate
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a particular index or that such basket will replicate the index. Investments in
equity-linked derivatives may constitute investments in other investment
companies. See "Investment in Other Investment Companies."
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund may invest in other investment companies to the extent
permitted by the 1940 Act, and rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC. The following restrictions
apply to investments in other investment companies other than Affiliated Money
Market Funds (defined below): (i) the Fund may not purchase more than 3% of the
total outstanding voting stock of another investment company; (ii) the Fund may
not invest more than 5% of its total assets in securities issued by another
investment company; and (iii) the Fund may not invest more than 10% of its total
assets in securities issued by other investment companies other than Affiliated
Money Market Funds. With respect to the Fund's purchase of shares of another
investment company, including Affiliated Money Market Funds, the Fund will
indirectly bear its proportionate share of the advisory fees and other operating
expenses of such investment company. The Fund has obtained an exemptive order
from the SEC allowing it to invest uninvested cash balances and cash collateral
received in connection with securities lending in money market funds that have
AIM or an affiliate of AIM as an investment advisor (the "Affiliated Money
Market Funds"), provided that, with respect to uninvested cash balances,
investments in Affiliated Money Market Funds do not exceed 25% of the total
assets of the investing Fund.
TEMPORARY DEFENSIVE INVESTMENTS
In anticipation of or in response to adverse market conditions, for
cash management purposes, or for defensive purposes, the Fund may temporarily
hold all or a portion of its assets in cash, money market instruments, bonds, or
other debt securities. The Fund may also invest up to 25% of its total assets in
Affiliated Money Market Funds for these purposes.
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 in the Prospectus. 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 the Fund, the portion of the Fund's distributions constituting taxable
capital gains may increase.
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.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
The Fund may use forward contracts, futures contracts, options on
securities, options on indices, options on currencies, and options on futures
contracts to attempt to hedge against the overall level of investment and
currency risk normally associated with the Fund's investments. These instruments
are often referred to as "derivatives," which may be defined as financial
instruments whose performance is derived, at least in part, from the performance
of another asset (such as a security, currency or an index of securities).
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GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use by the Fund of options, futures contracts and forward currency
contracts involves special considerations and risks, as described below. Risks
pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as a option contract) and the
price movements of the investments being hedged. For example, if a "protective
put" is used to hedge a potential decline in a security and the security does
decline in price, the put option's increased value may not completely offset the
loss in the underlying security. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as changing
interest rates, market liquidity, and speculative or other pressures on the
markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract, forward contract or option thereon at
any particular time.
(5) As described below, the Fund is required to maintain assets as
"cover," and might be required to maintain segregated accounts or make margin
payments when it takes positions in instruments involving obligations to third
parties. If the Fund were unable to close out its positions in such instruments,
it might be required to continue to maintain such assets or accounts or make
such payments until the position expired or matured. The requirements might
impair the Fund's ability to sell a portfolio security or make an investment at
a time when it would otherwise be favorable to do so, or require that the Fund
sell a portfolio security at a disadvantageous time.
(6) There is no assurance that the Fund will use hedging transactions.
For example, if the Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
COVER
Transactions using forward contracts, futures contracts and options
(other than options purchased by the Fund) expose the Fund to an obligation to
another party. The Fund will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, currencies, or
other options, forward contracts or futures contracts or (2) cash, liquid assets
and/or short-term debt securities with a value sufficient at all times to cover
its potential obligations not covered as provided in (1) above. The Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities. To the extent that a
futures contract, forward contract or option is deemed to be illiquid, the
assets used to "cover" the Fund's obligation will also be treated as illiquid
for purposes of determining the Fund's maximum allowable investment in illiquid
securities.
Even though options purchased by the Fund does not expose the Fund to
an obligation to another party, but rather provide the Fund with a right to
exercise, the Fund intends to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, the Fund will treat the
market value of the option (i.e., the amount at risk to the Fund) as illiquid,
but will not treat the assets used as cover on such transactions as illiquid.
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Assets used as cover cannot be sold while the position in the
corresponding forward contract, futures contract or option is open, unless they
are replaced with other appropriate assets. If a large portion of the Fund's
assets is used for cover or otherwise set aside, it could affect portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
WRITING CALL OPTIONS
The Fund may write (sell) covered call options on securities, futures
contracts, forward contracts, indices and currencies. As the writer of a call
option, the Fund would have the obligation to deliver the underlying security,
cash or currency (depending on the type of derivative) to the holder (buyer) at
a specified price (the exercise price) at any time until (American style) or on
(European style) a certain date (the expiration date). So long as the obligation
of the Fund continues, it may be assigned an exercise notice, requiring it to
deliver the underlying security, cash or currency against payment of the
exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the Fund effects a closing purchase
transaction by purchasing an option identical to that previously sold.
When writing a call option the Fund, in return for the premium, gives
up the opportunity for profit from a price increase in the underlying security,
contract or currency above the exercise price, and retains the risk of loss
should the price of the security, contract or currency decline. Unlike one who
owns securities, contracts or currencies not subject to an option, the Fund has
no control over when it may be required to sell the underlying securities,
contracts or currencies, since most options may be exercised at any time prior
to the option's expiration. If a call option that the Fund has written expires,
it will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security, contract or
currency during the option period. If the call option is exercised, the Fund
will realize a gain or loss from the sale of the underlying security, contract
or currency, which will be increased or offset by the premium received.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option.
Closing transactions may be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security, contract or currency
from being called or to permit the sale of the underlying security, contract or
currency. Furthermore, effecting a closing transaction will permit the Fund to
write another call option on the underlying security, contract or currency with
either a different exercise price or expiration date, or both.
WRITING PUT OPTIONS
The Fund may write (sell) covered put options on securities, futures
contracts, forward contracts, indices and currencies. As the writer of a put
option, the Fund would have the obligation to buy the underlying security,
contract or currency (depending on the type of derivative) at the exercise price
at any time until (American style) or on (European style) the expiration date.
This obligation terminates upon the expiration of the put option, or such
earlier time at which the Fund effects a closing purchase transaction by
purchasing an option identical to that previously sold.
The Fund would write a put option at an exercise price that, reduced by
the premium received on the option, reflects the lower price it is willing to
pay for the underlying security, contract or currency. The risk in such a
transaction would be that the market price of the underlying security, contract
or currency would decline below the exercise price less the premium received.
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PURCHASING PUT OPTIONS
The Fund may purchase covered put options on securities, futures
contracts, forward contracts, indices and currencies. As the holder of a put
option, the Fund would have the right to sell the underlying security, contract
or currency at the exercise price at any time until (American style) or on
(European style) the expiration date. The Fund may enter into closing sale
transactions with respect to such options, exercise such option or permit such
option to expire.
The Fund may purchase a put option on an underlying security, contract
or currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The premium
paid for the put option and any transaction costs would reduce any profit
realized when the security, contract or currency is delivered upon exercise of
said option. Conversely, if the underlying security, contract or currency does
not decline in value, the option may expire worthless and the premium paid for
the protective put would be lost.
The Fund may also purchase put options on underlying securities,
contracts or currencies against which it has written other put options. For
example, where the Fund has written a "put option" on an underlying security,
rather than entering a closing transaction of the written option, it may
purchase a put option with a different exercise price and/or expiration date
that would eliminate some or all of the risk associated with the written put.
Used in combinations, these strategies are commonly referred to as put spreads.
Likewise, the Fund may write call options on underlying securities, contracts or
currencies against which it has purchased protective put options. This strategy
is commonly referred to as a "collar".
PURCHASING CALL OPTIONS
The Fund may purchase covered call options on securities, futures
contracts, forward contracts, indices and currencies. As the holder of a call
option, the Fund would have the right to purchase the underlying security,
contract or currency at the exercise price at any time until (American style) or
on (European style) the expiration date. The Fund may enter into closing sale
transactions with respect to such options, exercise such options or permit such
options to expire.
Call options may be purchased by the Fund for the purpose of acquiring
the underlying security, contract or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable the Fund to acquire the
security, contract or currency at the exercise price of the call option plus the
premium paid. So long as it holds such a call option, rather than the underlying
security or currency itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security, contract or currency
and, in such event, could allow the call option to expire, incurring a loss only
to the extent of the premium paid for the option.
The Fund may also purchase call options on underlying securities,
contracts or currencies against which it has written other call options. For
example, where the Fund has written a call option on an underlying security,
rather than entering a closing transaction of the written option, it may
purchase a call option with a different exercise price and/or expiration date
that would eliminate some or all of the risk associated with the written call.
Used in combinations, these strategies are commonly referred to as "call
spreads."
OVER-THE-COUNTER OPTIONS
Options may be either listed on an exchange or traded in
over-the-counter ("OTC") markets. Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. The Fund will not purchase an OTC option unless it
believes that daily valuations for such options are readily obtainable. OTC
options differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of an average
of the last bid prices obtained from dealers, unless a quotation from only one
dealer is available, in which case only that dealer's price will be used. In the
case of OTC options, there can be no assurance that a liquid secondary
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market will exist for any particular option at any specific time. Although the
Fund will enter into OTC options only with dealers that are expected to be
capable of entering into closing transactions with it, there is no assurance
that the Fund will in fact be able to close out an OTC option position at a
favorable price prior to expiration. In the event of insolvency of the dealer,
the Fund might be unable to close out an OTC option position at any time prior
to its expiration.
The staff of the SEC considers purchased OTC options (i.e., the market
value of the option) to be illiquid securities. The Fund may sell OTC options
and, in connection therewith, segregate assets or cover its obligations with
respect to OTC options written by it. The assets used as cover for OTC options
written by the Fund will be considered illiquid unless the OTC options are sold
to qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities
or futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call or put times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when the Fund writes a
call on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. The Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
LIMITATIONS ON OPTIONS
The Fund will not write call options if, immediately after such sale,
the aggregate value of securities or obligations underlying the outstanding
options exceeds 20% of the Fund's total assets. The Fund will not purchase
options if, at any time of the investment, the aggregate premiums paid for the
options will exceed 5% of the Fund's total assets.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
The Fund may enter into interest rate, currency or stock index futures
contracts (collectively, "Futures" or "Futures Contracts") as a hedge against
changes in prevailing levels of interest rates, currency exchange rates or stock
price levels, respectively, in order to establish more definitely the effective
return on securities or currencies held or intended to be acquired by it. The
Fund's hedging may include sales of Futures as an offset against the effect of
expected increases in interest rates, and decreases in currency exchange rates
and stock prices, and purchases of Futures as an offset against the effect of
expected declines in interest rates, and increases in currency exchange rates or
stock prices.
A Futures Contract is a two party agreement to buy or sell a specified
amount of a specified security or currency (or delivery of a cash settlement
price, in the case of an index future) for a specified price at a designated
date, time and place. A stock index future provides for the delivery, at a
designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading on the contract and the price agreed upon in the Futures Contract; no
physical delivery of stocks comprising the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Future is outstanding.
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The Fund will only enter into Futures Contracts that are traded (either
domestically or internationally) on futures exchanges and are standardized as to
maturity date and underlying financial instrument. Futures exchanges and trading
thereon in the United States are regulated under the Commodity Exchange Act and
by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges
and trading thereon are not regulated by the CFTC and are not subject to the
same regulatory controls. For a further discussion of the risks associated with
investments in foreign securities, see "Foreign Securities" in this Statement of
Additional Information.
Closing out an open Future is effected by entering into an offsetting
Future for the same aggregate amount of the identical financial instrument or
currency and the same delivery date. There can be no assurance, however, that
the Fund will be able to enter into an offsetting transaction with respect to a
particular Future at a particular time. If the Fund is not able to enter into an
offsetting transaction, it will continue to be required to maintain the margin
deposits on the Future.
The Fund's Futures transactions will be entered into for hedging
purposes only; that is, Futures will be sold to protect against a decline in the
price of securities or currencies that the Fund owns, or Futures will be
purchased to protect the Fund against an increase in the price of securities or
currencies it has committed to purchase or expects to purchase.
"Margin" with respect to Futures is the amount of funds that must be
deposited by the Fund in order to initiate Futures trading and maintain its open
positions in Futures. A margin deposit made when the Futures Contract is entered
("initial margin") is intended to ensure the Fund's performance under the
Futures Contract. The margin required for a particular Future is set by the
exchange on which the Future is traded and may be significantly modified from
time to time by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Fund entered into the Futures Contract
will be made on a daily basis as the price of the underlying security, currency
or index fluctuates making the Futures more or less valuable, a process known as
marking-to-market.
If the Fund were unable to liquidate a Future or an option on a Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the Future or option or to maintain cash or securities in a segregated
account.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account.
FORWARD CONTRACTS
A forward contract is an obligation, usually arranged with a commercial
bank or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. The Fund
either may accept or make delivery of the currency at the maturity of the
forward contract. The Fund may also, if its contra party agrees prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. Forward contracts are traded over-the-counter, and not on
organized commodities or securities exchanges. As a result, it may be more
difficult to value such contracts, and it may be difficult to enter into closing
transactions.
The Fund may engage in forward currency transactions in anticipation
of, or to protect itself against, fluctuations in exchange rates. The Fund may
enter into forward contracts with respect to a specific purchase
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or sale of a security, or with respect to its portfolio positions generally.
When the Fund purchases a security denominated in a foreign currency for
settlement in the near future, it may immediately purchase in the forward market
the currency needed to pay for and settle the purchase. By entering into a
forward contract with respect to the specific purchase or sale of a security
denominated in a foreign currency, the Fund can secure an exchange rate between
the trade and settlement dates for that purchase or sale transaction. This
practice is sometimes referred to as "transaction hedging." Position hedging is
the purchase or sale of foreign currency with respect to portfolio security
positions denominated or quoted in a foreign currency.
The cost to the Fund of engaging in forward contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. The use
of forward contracts does not eliminate fluctuations in the prices of the
underlying securities the Fund owns or intends to acquire, but it does establish
a rate of exchange in advance. In addition, while forward contract sales limit
the risk of loss due to a decline in the value of the hedged currencies, they
also limit any potential gain that might result should the value of the
currencies increase.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that the Fund enters into Futures Contracts, options on
Futures Contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the total assets of the Fund, after taking into account unrealized
profits and unrealized losses on any contracts it has entered into. This
guideline may be modified by the Board of Trustees, without a shareholder vote.
This limitation does not limit the percentage of the Fund's assets at risk to
5%.
INVESTMENT RESTRICTIONS
The Fund is subject to the following investment restrictions, which may
be changed only by a vote of a majority of the Fund's outstanding shares.
Fundamental restrictions may be changed only by a vote of the lesser of (i) 67%
or more of the Fund's shares present at a meeting if the holders of more than
50% of the outstanding shares are present in person or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares.
FUNDAMENTAL RESTRICTIONS
(1) The Fund is a "diversified company" as defined in the 1940
Act. The Fund will not purchase the securities of any issuer if, as a
result, the Fund would fail to be a diversified company within the
meaning of the 1940 Act, and the rules and regulations promulgated
thereunder, as such statute, rules and regulations are amended from time
to time or are interpreted from time to time by the SEC staff
(collectively, the "1940 Act Laws and Interpretations") or except to the
extent that the Fund may be permitted to do so by exemptive order or
similar relief (collectively, with the 1940 Act Laws and
Interpretations, the "1940 Act Laws, Interpretations and Exemptions").
In complying with this restriction, however, the Fund may purchase
securities of other investment companies to the extent permitted by the
1940 Act Laws, Interpretations and Exemptions.
(2) The Fund may not borrow money or issue senior securities,
except as permitted by the 1940 Act Laws, Interpretations and
Exemptions.
(3) The Fund may not underwrite the securities of other
issuers. This restriction does not prevent the Fund from engaging in
transactions involving the acquisition, disposition or resale of its
portfolio securities, regardless of whether the Fund may be considered
to be an underwriter under the Securities Act of 1933.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940
Act Laws, Interpretations and Exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This
restriction does not limit the
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Fund's investments in (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or (ii) tax-exempt
obligations issued by governments or political subdivisions of
governments. In complying with this restriction, the Fund will not
consider a bank-issued guaranty or financial guaranty insurance as a
separate security.
(5) The Fund may not purchase real estate or sell real estate
unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from investing
in issuers that invest, deal, or otherwise engage in transactions in
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell
physical commodities unless acquired as a result of ownership of
securities or other instruments. This restriction does not prevent the
Fund from engaging in transactions involving futures contracts and
options thereon or investing in securities that are secured by physical
commodities.
(7) The Fund may not make personal loans or loans of its
assets to persons who control or are under common control with the Fund,
except to the extent permitted by 1940 Act Laws, Interpretations and
Exemptions. This restriction does not prevent the Fund from, among other
things, purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker-dealers or institutional
investors, or investing in loans, including assignments and
participation interests.
The investment restrictions set forth above provide the Fund with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though the Fund has this flexibility, the Board of Trustees has
adopted non-fundamental restrictions for the Fund relating to certain of these
restrictions which the advisor must follow in managing the Fund. Any changes to
these non-fundamental restrictions, which are set forth below, require the
approval of the Board of Trustees.
NON-FUNDAMENTAL RESTRICTIONS
The following non-fundamental investment restrictions apply to the
Fund. They may be changed for the Fund without approval of the Fund's voting
securities. Any investment restriction that involves a maximum or minimum
percentage of securities or assets shall not be considered to be violated unless
an excess over or a deficiency under the percentage occurs immediately after,
and is caused by, an acquisition or disposition of securities or utilization of
assets by the Fund.
(1) In complying with the fundamental restriction regarding
issuer diversification, the Fund will not, with respect to 75% of its
total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities), if, as a result, (i) more than 5% of the
Fund's total assets would be invested in the securities of that issuer
or (ii) the Fund would hold more than 10% of the outstanding voting
securities of that issuer. The Fund may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the 1940 Act
and (ii) invest its assets in securities of other money market Funds and
lend money to other investment companies or their series portfolios that
have AIM or an affiliate of AIM as an investment advisor (an "AIM
Advised Fund"), subject to the terms and conditions of any exemptive
orders issued by the SEC.
(2) In complying with the fundamental restriction regarding
borrowing money and issuing senior securities, the Fund may borrow money
in an amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
borrow from banks, broker-dealers or an AIM Advised Fund. The Fund may
not borrow for leveraging, but may borrow for temporary or emergency
purposes, in anticipation of or in response to adverse market
conditions, or for cash management purposes. The Fund may not purchase
additional securities when any borrowings from banks exceed 5% of the
Fund's total assets.
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(3) In complying with the fundamental restriction regarding
industry concentration, the Fund may invest up to 25% of its total
assets in the securities of issuers whose principal business activities
are in the same industry.
(4)In complying with the fundamental restriction with regard
to making loans, the Fund may lend up to 33 1/3% of its total assets and
may lend money to another AIM Advised Fund, on such terms and conditions
as the SEC may require in an exemptive order.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
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, 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 BFDS, P.O. Box 8300, Boston, Massachusetts 02266-8300,
Attention: AIM Summit Fund, 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.
No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here is not
intended as a substitute for careful tax planning. Because shares of the Fund
may be purchased by individual investors through the Plans, the following
discussion is addressed only to individual (rather than corporate) investors.
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").
The Fund may use "equalization accounting" in determining the portion
of its net investment income and capital gain net income that has been
distributed. If the Fund elects to use equalization accounting, it will allocate
a portion of its realized investment income and capital gains to redemptions of
Fund shares and will correspondingly reduce the amount of such income and gains
that it distributes in cash. However, the Fund
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intends to make cash distributions for each taxable year in an aggregate amount
that is sufficient to satisfy the Distribution Requirement without taking into
account its use of equalization accounting. The Internal Revenue Service has not
published any guidance concerning the methods to be used in allocating
investment income and capital gains to redemptions of shares. In the event that
the Internal Revenue Service determines that the Fund is using an improper
method of allocation and has underdistributed its net investment income and
capital gain net income for any taxable year, the Fund may be liable for
additional federal income tax.
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.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY
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 unless the
Fund made an election to accrue market discount into income. In addition, under
the rules of the Internal Revenue Code Section 988, gain or loss recognized on
the disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes in
foreign currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract or of foreign currency itself, will
generally be treated as ordinary income or loss. The Fund may make an election
(under Code Section 988(a)(1)(b)) to treat gain or loss recognized on the
disposition of a foreign currency forward contract as a capital gain or loss.
The election is made on an instrument by instrument basis.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (a) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (b) the asset is otherwise held by the Fund as part of a "straddle", or
(c) the asset is stock and the Fund grants certain call options with respect
thereto. In addition, 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. Any gain recognized by the
Fund on the lapse of, or any gain or loss recognized by the Fund from a closing
transaction with respect to, an option written by the Fund will generally be
treated as a short-term capital gain or loss. In the case of covered options,
gain or loss may be long-term.
Some of the forward foreign currency exchange contracts, options and
futures contracts that the Fund may enter into will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, regardless of whether a taxpayer's obligations (or rights) under
such contracts have terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is deemed to be
60% long-term (taxable at a
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maximum rate of 20% for non-corporate shareholders) and 40% short-term gain or
loss. However, in the case of Section 1256 contracts that are forward foreign
currency exchange contracts, the net gain or loss is separately determined and
(as discussed above) generally treated as ordinary income or loss. The Fund may
make an election on Section 1256 contracts that are forward foreign currency
exchange contracts and receive capital gain treatment. The election is made on
an instrument by instrument basis.
Other hedging transactions that may be engaged in by the Fund (such as
short sales "against the box") may be subject to special tax treatment as
"constructive sales" under Section 1259 of the Code if the Fund holds certain
"appreciated financial positions" (defined generally as any interest (including
a futures or forward contract, short sale or option) with respect to stock,
certain debt instruments, or partnership interests if there would be a gain were
such interest sold, assigned, or otherwise terminated at its fair market value).
Upon entering into a constructive sales transaction with respect to an
appreciated financial position, the Fund will be deemed to have constructively
sold such appreciated financial position and will recognize gain as if such
position were sold, assigned, or otherwise terminated at its fair market value
on the date of such constructive sale (and will generally take into account any
gain for the taxable year which includes such date).
Because application of the rules governing Section 1256 contracts and
constructive sales may affect the character of gains or losses and/or accelerate
the recognition of gains or losses from the affected investment positions, the
amount which must be distributed to shareholders and which will be taxed to
shareholders as ordinary income or long-term capital gain may be increased as
compared to a fund that did not engage in transactions involving Section 1256
contracts or constructive sales.
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 or
again be subject to the 4% excise tax. 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 short-term 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,
in the event that the Internal Revenue Service determines that the Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), the Fund may be liable for excise tax. Moreover, 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 (net long-term capital gain over net short-term loss) 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 (taxable at a maximum rate
of 20% to non-corporate shareholders), regardless of the length of time the
shareholder has held his shares or whether such gain was recognized by the Fund
prior to
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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.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known.
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.
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 he 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. Except to the extent otherwise provided in future
Treasury regulations, any long-term capital gain recognized by a non-corporate
shareholder will be subject to tax at a maximum rate of 20%. However, any
capital loss arising from the sale or redemption of shares held for six months
or less will be treated as a long-term capital loss to the extent of the amount
of capital gain dividends received on such shares. For this purpose, the special
holding period rules of Code Section 246(c)(3) and (4) 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
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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.
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 June 28, 2000. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation 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.
35
<PAGE> 49
SHARE PURCHASES, REDEMPTIONS AND REPURCHASES
PURCHASES AND REDEMPTIONS
The terms of offering of shares of the Fund and the methods of
accomplishing redemption are set forth in full in the Fund's Prospectus and in
the Plans I or Plans II 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 once daily as of the close of the
customary trading session 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, 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 trading on 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 the
customary trading session 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 closing bid price on that day, prior to the determination of net
asset value. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued on
the basis of prices provided by independent pricing services. Each security
reported on the NASDAQ National Market System is valued at the last sale price
on the valuation date, or absent a last sales price, at the closing bid price on
that day, option contracts are valued at the mean between the closing bid and
asked prices on the exchange where the contracts are principally traded; and
futures contracts are valued at final settlement price quotations from the
primary exchange on which they are traded. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an independent
pricing service. Prices provided by the independent pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as dividend rate, yield, type of issue, coupon rate and
maturity. Securities for which market quotations are not readily available or
for which market quotations are not reflective of fair market value 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 Trustees 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 Trustees.
36
<PAGE> 50
THE DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act (the "Distribution Plan"). The Distribution Plan provides that the
Fund pay 0.30% per annum of its average daily net assets as compensation to AIM
Distributors for payments made to others who provide shareholder services and
for marketing and distribution activities which are primarily intended to result
in the sale of the shares of the Fund. AIM Distributors has contractually
agreed, however, to waive a portion of the fees otherwise payable to it under
the Distribution Plan, based upon the extent to which shares of the Fund are
held by Plans I. As a result of this waiver, Distribution Plan fees will accrue
at the rate of 0.10% per annum of the average daily net assets of shares held by
Plans I, and will accrue at the rate of 0.30% per annum of the average daily net
assets of the shares of the fund held by all other shareholders. Accruing fees
at two different rates will result in a "blended" distribution fee that will be
payable from all assets of the Fund. AIM Distributors may not revoke or revise
its contractual waiver of distribution fees without approval of shareholders of
the Fund.
The Distribution Plan is designed to implement a program which provides
for periodic payments to selected dealers who furnish continuing personal
shareholder services to their customers who purchase and own the shares of the
Fund and to compensate AIM Distributors for promotional and other sales-related
costs.
AIM Distributors may enter into agreements ("Shareholder Service
Agreements") with investment dealers selected from time to time by AIM
Distributors for the provision of distribution assistance in connection with the
sale of the shares of the Fund to such dealers' customers, and for the provision
of continuing personal shareholder services to customers who may from time to
time directly or beneficially own shares of the Fund. The distribution
assistance and continuing personal shareholder services to be rendered by
dealers under the Shareholder Service Agreements may include, but shall not be
limited to, the following: distributing sales literature; answering routine
customer inquiries concerning the Fund; assisting customers in changing dividend
options, account designations and addresses, and in enrolling in any of several
special investment plans offered in connection with the purchase of the shares
of the Fund; assisting in the establishment and maintenance of customer accounts
and records and in the processing of purchase and redemption transactions;
investing dividends and any capital gains distributions automatically in shares
of the Fund; and providing such other information and services as the Fund or
the customer may reasonably request.
Distribution activities appropriate for financing under the Distribution
Plan include, but are not limited to, the following: printing of prospectuses
and statements of additional information and reports for other than existing
shareholders; overhead; preparation and distribution of advertising material and
sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Distribution Plan.
Under a Shareholder Service Agreement, the Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement generally will be calculated at the end of each payment period
for each business day of the Fund during such period at the annual rate of 0.25%
of the average daily net asset value of the Fund's shares purchased. Fees
calculated in this manner shall be paid only to those selected dealers or other
institutions who are dealers or institutions of record at the close of business
on the last business day of the applicable payment period for the account in
which the shares of the Fund are held.
The Distribution Plan is subject to limitations imposed by NASD
Regulation, Inc. If a dealer or financial institution provides personal services
to a beneficial owner of Class I Shares, the payments the dealer or financial
institution receives for those services pursuant to the Distribution Plan are
characterized as services fees. Service fees received by a dealer or financial
institution may not exceed 0.25% per annum of the average net assets of the fund
attributable to its customers. Any fees the dealer or financial institution
receives in excess of that amount are characterized as asset-based sales
charges. AIM Distributors does not act as principal, but rather as agent for the
Fund, in making dealer incentive and shareholder servicing payments under the
Distribution Plan. These payments are an obligation of the Fund and not of AIM
Distributors.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for the Fund. Voluntary fee waivers or reductions may be rescinded
at any time without further notice to investors. During
37
<PAGE> 51
periods of voluntary fee waivers or reductions, AIM Distributors will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Table in the
Prospectus may not be terminated or amended to the Fund's detriment during the
period stated in the agreement between AIM Distributors and the Fund.
The Distribution Plan requires AIM Distributors to provide the Board of
Trustees at least quarterly with a written report of the amounts expended
pursuant to the Distribution Plan and the purposes for which such expenditures
were made. The Board of Trustees reviews these reports in connection with their
decisions with respect to the Distribution Plan.
For the period July 19, 1999 (date sales of shares of the Fund subject
to the Distribution Plan commenced) to October 31, 1999, the Fund's predecessor
paid AIM Distributors under the Distribution Plan $195, or an amount equal to
0.30%, of the shares of the Fund subject to the Distribution Plan's average
daily net assets on an annualized basis.
An estimate by category of actual fees paid by the Fund's predecessor
during the period July 19, 1999 (date sales of shares of the Fund subject to the
Distribution Plan commenced) through October 31, 1999, were allocated as
follows:
<TABLE>
<S> <C>
Advertising $24
Printing and mailing prospectuses, semi-annual 2
reports and annual reports (other than to current
shareholders)
Seminars 0
Compensation to Underwriters to partially 0
offset other marketing expenses
Compensation to Dealers including 6
finder's fees
Compensation to Sales Personnel 0
Annual Report Total 32
</TABLE>
As required by Rule 12b-1, the Distribution Plan and related form of
Shareholder Service Agreement were approved by the Board of Trustees, including
a majority of the trustees who are not "interested persons" (as defined in the
1940 Act) of the Fund and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreements related to the
Distribution Plan ("Non-Interested Trustees"). In approving the Distribution
Plan in accordance with the requirements of Rule 12b-1, the trustees considered
various factors and determined that there is a reasonable likelihood that the
Distribution Plan would benefit the Fund and its respective shareholders.
The Distribution Plan does not obligate the Fund to reimburse AIM
Distributors for the actual expenses AIM Distributors may incur in fulfilling
its obligations under the Distribution Plan. Thus, even if AIM Distributors'
actual expenses exceed the fee payable to AIM Distributors thereunder at any
given time, the Fund will not be obligated to pay more than that fee. If AIM
Distributors' expenses are less than the fee it receives, AIM Distributors will
retain the full amount of the fee.
Unless the Distribution Plan is terminated earlier in accordance with
its terms, the Distribution Plan continues as long as such continuance is
specifically approved at least annually by the Board of Trustees, including a
majority of the Non-Interested Trustees.
The Distribution Plan may be terminated by the vote of a majority of the
Non-Interested Trustees, or by the majority of the outstanding voting
securities.
Any change in the Distribution Plan that would increase materially the
distribution expenses paid by the Fund's shareholders requires shareholder
approval; otherwise, it may be amended by the trustees, including
38
<PAGE> 52
a majority of the Non-Interested Trustees, by votes cast in person at a meeting
called for the purpose of voting upon such amendment. As long as the
Distribution Plan is in effect, the selection or nomination of the
Non-Interested Trustees is committed to the discretion of the Non-Interested
Trustees.
THE DISTRIBUTION AGREEMENT
The Fund has entered into a Distribution Agreement (the "Distribution
Agreement") with AIM Distributors, Inc. ("AIM Distributors"), a registered
broker-dealer and a wholly owned subsidiary of AIM, under which the Fund will
issue shares at net asset value primarily to State Street Bank, as custodian for
the Plans. The address of AIM Distributors is P.O. Box 4264, Houston, Texas
77210-4264. AIM Distributors acts as sponsor and principal underwriter of the
Plans. AIM Distributors does not receive any fee from the Fund pursuant to the
Distribution Agreement. 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 its
assignment. Certain trustees and officers of the Fund are affiliated with AIM
Distributors and AIM Management.
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be
directed to A I M Fund Services, Inc. by calling (800) 995-4246.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, Pennsylvania 19103, serves as counsel to the Fund and
passes upon legal matters for the Fund.
39
<PAGE> 53
FINANCIAL STATEMENTS
FS
<PAGE> 54
SCHEDULE OF INVESTMENTS
April 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-97.27%
BANKS (MAJOR REGIONAL)-0.42%
FleetBoston Financial Corp. 400,000 $ 14,175,000
---------------------------------------------------------------
BANKS (MONEY CENTER)-0.86%
Bank of America Corp. 590,000 28,910,000
---------------------------------------------------------------
BIOTECHNOLOGY-3.40%
Amgen Inc.(a) 440,000 24,640,000
---------------------------------------------------------------
Chiron Corp.(a) 400,000 18,100,000
---------------------------------------------------------------
Genzyme Corp.(a) 500,000 24,406,250
---------------------------------------------------------------
Immunex Corp.(a) 400,000 15,750,000
---------------------------------------------------------------
Invitrogen Corp.(a) 100,000 6,237,500
---------------------------------------------------------------
PE Corp.-Celera Genomics Group(a) 300,000 24,750,000
---------------------------------------------------------------
113,883,750
---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-13.28%
CIENA Corp.(a) 230,000 28,433,750
---------------------------------------------------------------
COLT Telecom Group PLC (United
Kingdom)(a) 214,200 9,105,271
---------------------------------------------------------------
Corning Inc. 200,000 39,500,000
---------------------------------------------------------------
JDS Uniphase Corp.(a) 1,850,000 191,821,875
---------------------------------------------------------------
Juniper Networks, Inc.(a) 100,000 21,268,750
---------------------------------------------------------------
Motorola, Inc. 200,000 23,812,500
---------------------------------------------------------------
Nokia Oyj-ADR (Finland) 1,200,000 68,250,000
---------------------------------------------------------------
Scientific-Atlanta, Inc. 350,000 22,771,875
---------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson-ADR (Sweden) 450,000 39,796,875
---------------------------------------------------------------
444,760,896
---------------------------------------------------------------
COMPUTERS (HARDWARE)-1.19%
Dell Computer Corp.(a) 350,000 17,543,750
---------------------------------------------------------------
Sun Microsystems, Inc.(a) 243,000 22,340,812
---------------------------------------------------------------
39,884,562
---------------------------------------------------------------
COMPUTERS (NETWORKING)-6.32%
Cisco Systems, Inc.(a) 1,900,000 131,723,437
---------------------------------------------------------------
Exodus Communications, Inc.(a) 430,000 38,028,125
---------------------------------------------------------------
VeriSign, Inc.(a) 300,000 41,812,500
---------------------------------------------------------------
211,564,062
---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-3.10%
EMC Corp.(a) 640,000 88,920,000
---------------------------------------------------------------
Network Appliance, Inc.(a) 200,000 14,787,500
---------------------------------------------------------------
103,707,500
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE &
SERVICES)-15.38%
Adobe Systems, Inc. 200,000 $ 24,187,500
---------------------------------------------------------------
Allaire Corp.(a) 150,000 8,259,375
---------------------------------------------------------------
BEA Systems, Inc.(a) 1,400,000 67,550,000
---------------------------------------------------------------
BroadVision, Inc.(a) 300,000 13,181,250
---------------------------------------------------------------
Computer Associates International,
Inc. 690,000 38,510,625
---------------------------------------------------------------
eBay, Inc.(a) 140,000 22,286,250
---------------------------------------------------------------
InfoSpace.com, Inc.(a) 400,000 28,725,000
---------------------------------------------------------------
Inktomi Corp.(a) 300,000 46,181,250
---------------------------------------------------------------
Intuit Inc.(a) 450,000 16,171,875
---------------------------------------------------------------
Microsoft Corp.(a) 670,000 46,732,500
---------------------------------------------------------------
Oracle Corp.(a) 1,170,000 93,526,875
---------------------------------------------------------------
Siebel Systems, Inc.(a) 110,000 13,516,250
---------------------------------------------------------------
VERITAS Software Corp.(a) 525,000 56,314,453
---------------------------------------------------------------
WatchGuard Technologies, Inc.(a) 100,000 4,818,750
---------------------------------------------------------------
Yahoo! Inc.(a) 270,000 35,167,500
---------------------------------------------------------------
515,129,453
---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.86%
McKesson HBOC, Inc. 1,710,000 28,856,250
---------------------------------------------------------------
ELECTRIC COMPANIES-1.16%
Niagara Mohawk Holdings Inc.(a) 1,435,000 19,910,625
---------------------------------------------------------------
Texas Utilities Co. 560,000 18,865,000
---------------------------------------------------------------
38,775,625
---------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.32%
EchoStar Communications Corp.(a) 285,000 18,150,937
---------------------------------------------------------------
General Electric Co. 150,000 23,587,500
---------------------------------------------------------------
Koninklijke (Royal) Philips
Electronics N.V.-ADR
(Netherlands) 804,000 35,878,500
---------------------------------------------------------------
77,616,937
---------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.64%
Kycocera Corp.-ADR (Japan) 130,000 21,588,125
---------------------------------------------------------------
ELECTRONICS (DEFENSE)-1.29%
General Motors Corp.-Class H(a) 450,000 43,340,625
---------------------------------------------------------------
</TABLE>
FS-1
<PAGE> 55
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS
(INSTRUMENTATION)-1.61%
Alpha Industries, Inc.(a) 460,000 $ 23,920,000
---------------------------------------------------------------
PE Corp-PE Biosystems Group 500,000 30,000,000
---------------------------------------------------------------
53,920,000
---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-6.82%
Advanced Micro Devices, Inc.(a) 200,000 17,550,000
---------------------------------------------------------------
Analog Devices, Inc.(a) 200,000 15,362,500
---------------------------------------------------------------
Broadcom Corp.-Class A(a) 200,000 34,475,000
---------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 200,000 12,962,500
---------------------------------------------------------------
Microchip Technology, Inc.(a) 180,000 11,171,250
---------------------------------------------------------------
PMC-Sierra, Inc. (Canada)(a) 400,000 76,750,000
---------------------------------------------------------------
SDL, Inc.(a) 100,000 19,500,000
---------------------------------------------------------------
Texas Instruments Inc. 250,000 40,718,750
---------------------------------------------------------------
228,490,000
---------------------------------------------------------------
ENTERTAINMENT-0.65%
Walt Disney Co. (The) 500,000 21,656,250
---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.73%
American Express Co. 44,000 6,602,750
---------------------------------------------------------------
Citigroup Inc. 575,000 34,176,562
---------------------------------------------------------------
Freddie Mac 480,000 22,050,000
---------------------------------------------------------------
MGIC Investment Corp. 600,000 28,687,500
---------------------------------------------------------------
91,516,812
---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-0.43%
Warner-Lambert Co. 125,000 14,226,562
---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.38%
Genetech, Inc.(a) 110,000 12,870,000
---------------------------------------------------------------
HEALTH CARE (HOSPITAL
MANAGEMENT)-1.70%
Health Management Associates,
Inc.-Class A(a) 3,564,000 56,801,250
---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.41%
Manor Care, Inc.(a) 1,146,300 13,683,956
---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-1.62%
Oxford Health Plans, Inc.(a) 470,000 8,930,000
---------------------------------------------------------------
UnitedHealth Group Inc. 680,000 45,347,500
---------------------------------------------------------------
54,277,500
---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.64%
Beckman Coulter, Inc. 330,000 21,388,125
---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.50%
AXA Financial, Inc. 508,000 16,573,500
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE)-0.86%
American International Group, Inc. 261,937 $ 28,731,215
---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.78%
XL Capital Ltd.-Class A 550,000 26,193,750
---------------------------------------------------------------
INSURANCE BROKERS-1.04%
Aon Corp. 1,285,000 34,775,312
---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.71%
Morgan Stanley Dean Witter & Co. 308,000 23,639,000
---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.95%
Mattel, Inc. 2,590,000 31,727,500
---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.94%
Parker-Hannifin Corp. 678,000 31,527,000
---------------------------------------------------------------
NATURAL GAS-0.81%
Dynegy Inc.-Class A 415,000 27,156,563
---------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-4.71%
BJ Services Co.(a) 400,000 28,100,000
---------------------------------------------------------------
Diamond Offshore Drilling, Inc. 470,000 18,946,875
---------------------------------------------------------------
ENSCO International Inc. 730,000 24,226,875
---------------------------------------------------------------
Schlumberger Ltd. 439,000 33,610,938
---------------------------------------------------------------
Transocean Sedco Forex Inc. 1,125,336 52,890,792
---------------------------------------------------------------
157,775,480
---------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-0.48%
BP Amoco PLC-ADR (United Kingdom) 232,880 11,876,880
---------------------------------------------------------------
USX-Marathon Group 175,500 4,091,344
---------------------------------------------------------------
15,968,224
---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.75%
Georgia-Pacific Group 380,000 13,965,000
---------------------------------------------------------------
International Paper Co. 305,000 11,208,750
---------------------------------------------------------------
25,173,750
---------------------------------------------------------------
RAILROADS-2.36%
Kansas City Southern Industries,
Inc. 1,100,000 79,062,500
---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-0.49%
Starwood Hotels & Resorts
Worldwide, Inc. 575,000 16,351,563
---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.21%
Best Buy Co., Inc.(a) 500,000 40,375,000
---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.60%
Federated Department Stores,
Inc.(a) 590,000 20,060,000
---------------------------------------------------------------
RETAIL (FOOD CHAINS)-2.07%
Albertson's, Inc. 1,070,000 34,841,875
---------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 56
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (FOOD CHAINS)-(CONTINUED)
Kroger Co. (The)(a) 1,856,000 $ 34,452,000
---------------------------------------------------------------
69,293,875
---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.89%
Target Corp. 200,000 13,312,500
---------------------------------------------------------------
Wal-Mart Stores, Inc. 300,000 16,612,500
---------------------------------------------------------------
29,925,000
---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-0.41%
Omnicom Group, Inc. 150,000 13,659,375
---------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-1.51%
Ariba, Inc.(a) 440,000 32,642,500
---------------------------------------------------------------
IMS Health, Inc. 1,040,000 17,745,000
---------------------------------------------------------------
50,387,500
---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-2.13%
Brocade Communications Systems,
Inc.(a) 450,000 55,800,000
---------------------------------------------------------------
SunGard Data Systems, Inc.(a) 450,000 15,553,125
---------------------------------------------------------------
71,353,125
---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.40%
Equifax, Inc. 500,000 12,218,750
---------------------------------------------------------------
First Data Corp. 712,000 34,665,500
---------------------------------------------------------------
46,884,250
---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-1.30%
Phone.com, Inc.(a) 150,000 12,600,000
---------------------------------------------------------------
Western Wireless Corp.-Class A(a) 625,000 31,054,688
---------------------------------------------------------------
43,654,688
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG
DISTANCE)-0.54%
KPNQwest N.V. (Netherlands)(a) 150,000 $ 6,037,500
---------------------------------------------------------------
WinStar Communications, Inc.(a) 300,000 11,962,500
---------------------------------------------------------------
18,000,000
---------------------------------------------------------------
TELEPHONE-1.74%
Allegiance Telecom, Inc.(a) 32,700 2,313,525
---------------------------------------------------------------
Bell Atlantic Corp. 200,000 11,850,000
---------------------------------------------------------------
Qwest Communications
International, Inc.(a) 650,000 28,193,750
---------------------------------------------------------------
US West, Inc. 225,000 16,017,188
---------------------------------------------------------------
58,374,463
---------------------------------------------------------------
WASTE MANAGEMENT-0.88%
Waste Management, Inc. 1,861,000 29,543,375
---------------------------------------------------------------
Total Common Stocks & Other
Equity Interests (Cost
$2,182,133,942) 3,257,189,248
---------------------------------------------------------------
MONEY MARKET FUNDS-2.76%
STIC Liquid Assets Portfolio(b) 46,251,612 46,251,612
---------------------------------------------------------------
STIC Prime Portfolio(b) 46,251,612 46,251,612
---------------------------------------------------------------
Total Money Market Funds (Cost
$92,503,224) 92,503,224
---------------------------------------------------------------
TOTAL INVESTMENTS-100.03% (Cost
$2,274,637,166) 3,349,692,472
---------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.03%) (997,083)
---------------------------------------------------------------
NET ASSETS-100.00% $3,348,695,389
---------------------------------------------------------------
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-3
<PAGE> 57
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,274,637,166) $3,349,692,472
-------------------------------------------------------------
Receivables for:
Investments sold 5,643,231
-------------------------------------------------------------
Capital stock sold 125,523
-------------------------------------------------------------
Dividends and interest 1,457,367
-------------------------------------------------------------
Investment for deferred compensation plan 57,806
-------------------------------------------------------------
Other assets 24,851
-------------------------------------------------------------
Total assets 3,357,001,250
-------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 5,909,647
-------------------------------------------------------------
Capital stock reacquired 466,879
-------------------------------------------------------------
Deferred compensation 57,806
-------------------------------------------------------------
Accrued advisory fees 1,713,684
-------------------------------------------------------------
Accrued administrative services fees 15,907
-------------------------------------------------------------
Accrued distribution fees-Class II 1,400
-------------------------------------------------------------
Accrued transfer agent fees 73,830
-------------------------------------------------------------
Accrued operating expenses 66,708
-------------------------------------------------------------
Total liabilities 8,305,861
-------------------------------------------------------------
Net assets applicable to shares outstanding $3,348,695,389
=============================================================
NET ASSETS:
Class I $3,342,378,937
=============================================================
Class II $ 6,316,452
=============================================================
Capital stock, $0.01 par value per share:
Class I:
Authorized 1,000,000,000
-------------------------------------------------------------
Outstanding 149,175,952
-------------------------------------------------------------
Class II:
Authorized 1,000,000,000
-------------------------------------------------------------
Outstanding 283,803
-------------------------------------------------------------
Class I
Net asset value price per share $ 22.41
=============================================================
Class II
Net asset value price per share $ 22.26
=============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 2000
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $126,974 foreign withholding
tax) $ 9,983,272
------------------------------------------------------------
Interest 40,611
------------------------------------------------------------
Total investment income 10,023,883
------------------------------------------------------------
EXPENSES:
Advisory fees 10,443,626
------------------------------------------------------------
Administrative services fees 100,896
------------------------------------------------------------
Custodian fees 87,506
------------------------------------------------------------
Distribution fees-Class II 1,813
------------------------------------------------------------
Transfer agent fees 152,256
------------------------------------------------------------
Directors' fees 8,380
------------------------------------------------------------
Other 180,477
------------------------------------------------------------
Total expenses 10,974,954
------------------------------------------------------------
Less: Expenses paid indirectly (12,043)
------------------------------------------------------------
Expenses reimbursed (49,427)
------------------------------------------------------------
Net expenses 10,913,484
------------------------------------------------------------
Net investment income (loss) (889,601)
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 597,483,047
------------------------------------------------------------
Foreign currencies 69,511
------------------------------------------------------------
Option contracts written 262,376
------------------------------------------------------------
597,814,934
------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 157,740,161
------------------------------------------------------------
Foreign currencies (780)
------------------------------------------------------------
157,739,381
------------------------------------------------------------
Net gain from investment securities and
foreign currencies 755,554,315
------------------------------------------------------------
Net increase in net assets resulting from
operations $754,664,714
=============================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 58
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2000 and the year ended October 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (889,601) $ (139,035)
----------------------------------------------------------- -------------- --------------
Net realized gain from investment securities foreign
currencies and options contracts 597,814,934 418,534,180
----------------------------------------------------------- -------------- --------------
Change in net unrealized appreciation of investment
securities and foreign currencies 157,739,381 367,176,021
----------------------------------------------------------- -------------- --------------
Net increase in net assets resulting from operations 754,664,714 785,571,166
----------------------------------------------------------- -------------- --------------
Distributions to shareholders from net investment
income-Class I -- (4,242,441)
----------------------------------------------------------- -------------- --------------
Distributions to shareholders from net realized gains:
----------------------------------------------------------- -------------- --------------
Class I (413,691,755) (112,082,098)
----------------------------------------------------------- -------------- --------------
Class II (242,396) --
----------------------------------------------------------- -------------- --------------
Share transactions-net:
----------------------------------------------------------- -------------- --------------
Class I 377,748,329 124,655,784
----------------------------------------------------------- -------------- --------------
Class II 5,601,488 680,370
----------------------------------------------------------- -------------- --------------
Net increase in net assets 724,080,380 794,582,781
----------------------------------------------------------- -------------- --------------
NET ASSETS:
Beginning of period 2,624,615,009 1,830,032,228
----------------------------------------------------------- -------------- --------------
End of period $3,348,695,389 $2,624,615,009
=========================================================== ============== ==============
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,673,670,573 $1,290,320,756
----------------------------------------------------------- -------------- --------------
Undistributed net investment income (loss) (983,895) (94,294)
----------------------------------------------------------- -------------- --------------
Undistributed net realized gain from investment
securities, foreign currencies and option contracts 600,954,185 417,073,402
----------------------------------------------------------- -------------- --------------
Net unrealized appreciation of investment securities and
foreign currencies 1,075,054,526 917,315,145
----------------------------------------------------------- -------------- --------------
$3,348,695,389 $2,624,615,009
=========================================================== ============== ==============
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
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 (the "1940 Act"), as a
diversified, open-end management investment company. The Fund consists of two
classes of shares: Class I shares and Class II shares. Class II shares commenced
sales on July 19, 1999. The Fund's investment objective is growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price as of the close of the
customary trading session on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at
the closing bid price on that day. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the closing bid price. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued based upon quotes furnished by
independent sources and are valued at the last bid price in the case of
equity securities and in the case of debt obligations, the mean between the
last bid and asked prices. Securities for which market quotations are not
readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors of
the Company. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed
each day at various times prior to the close of the NYSE. The values of
such securities used in computing the net asset value of the Fund's shares
are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the
customary trading session of the NYSE which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good faith
by or under the supervision of the Board of Directors.
B. Securities Transactions and Investment Income -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date.
C. Distributions -Distributions from income and net realized capital gains,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. Covered Call Options -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying
FS-6
<PAGE> 60
security. Options written by the Fund normally will have expiration dates
between three and nine months from the date written. The exercise price of
a call option may be below, equal to, or above the current market value of
the underlying security at the time the option is written. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. The purchaser of a call option has the
right to acquire the security which is the subject of the call option at any
time during the option period. During the option period, in return for the
premium paid by the purchaser of the option, the Fund has given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security increase, but has retained the risk of loss
should the price of the underlying security decline. During the option period,
the Fund may be required at any time to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the expiration
of the option period or at such earlier time at which the Fund effects a closing
purchase transaction by purchasing (at a price which may be higher than that
received when the call option was written) a call option identical to the one
originally written.
H. Bond Premiums -- It is the policy of the Fund not to amortize market
premiums on bonds for financial reporting purposes.
I. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one
class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.00% of
the first $10 million of the Fund's average daily net assets, plus 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. AIM has contractually
agreed to limit the Class II expenses (excluding interest, taxes, dividends on
short sales, extraordinary items and increases in expenses due to offset
arrangements, if any) to the maximum annual rate of 1.50% of the average daily
net assets of the Fund's Class II shares. During the six months ended April 30,
2000, AIM reimbursed expenses of $49,427.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended April 30, 2000, AIM
was paid $100,896 for such services.
Effective March 13, 2000, the Fund, pursuant to a transfer agency and service
agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for
providing transfer agency and shareholder services to the Fund.
The Fund has entered into a Distribution Agreement with A I M Distributors,
Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Fund has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class II shares (the "Distribution Plan"). The Fund, pursuant to the
Distribution Plan, pays AIM Distributors compensation at the annual rate of
0.30% of the Fund's average daily net assets of Class II shares. Of this amount,
the Fund may pay a service fee of 0.25% of the average daily net assets of Class
II shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own Class II
shares of the Fund. Any amounts not paid as a service fee under the Distribution
Plan would constitute an asset-based sales charge. The Distribution Plan also
imposes a cap on the total sales charges, including asset-based sales charges
that may be paid by the Class II shares. During the six months ended April 30,
2000, the Class II shares paid AIM Distributors $1,813 as compensation under the
Plan.
During the six months ended April 30, 2000, the Fund paid legal fees of $3,049
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Company's directors. A member of that firm is a director of the Company.
Substantially all shares of the Fund are held of record by State Street Bank
and Trust Company as custodian for AIM Summit Investors Plans I and II, unit
investments trusts that are sponsored by AIM Distributors.
Certain officers and directors of the Fund are officers of AIM and AIM
Distributors.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 2000, the Fund received reductions in
custodian fees of $12,043 under an expense offset arrangement. The effect of the
above arrangement resulted in a reduction of the Fund's total expenses of
$12,043 during the six months ended April 30, 2000.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid to directors who are not an
"interested person" of AIM. The Company invests directors' fees, if so elected
by a director, in mutual fund shares in accordance with a deferred compensation
plan.
FS-7
<PAGE> 61
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the six
months ended April 30, 2000, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended April 30, 2000 was
$1,874,305,552 and $1,917,740,975, respectively.
The amount of unrealized appreciation of investment securities, for tax
purposes, as of April 30, 2000 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,079,423,416
------------------------------------------------------------ --------------
Aggregate unrealized (depreciation) of investment securities (9,176,181)
------------------------------------------------------------ --------------
Net unrealized appreciation of investment securities $1,070,247,235
============================================================ ==============
</TABLE>
Cost of investments for tax purposes is $2,279,445,237.
NOTE 7-CALL OPTION CONTRACTS
Transactions in call options written during the six months ended April 30, 2000
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period -- $ --
---------------------------------------------------- ------- ---------
Written 1,300 577,573
---------------------------------------------------- ------- ---------
Closed (1,300) (577,573)
---------------------------------------------------- ------- ---------
End of period -- --
==================================================== ======= =========
</TABLE>
NOTE 8-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended April 30, 2000
and the year ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 2000 OCTOBER 31, 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class I 12,595,886 $272,947,905 13,483,892 $237,827,156
------------------------------------------------------- ----------- ------------ ----------- ------------
Class II* 255,089 5,773,271 36,977 708,414
------------------------------------------------------- ----------- ------------ ----------- ------------
Issued as reinvestment of dividends:
Class I 19,231,825 383,484,063 7,006,133 112,308,495
------------------------------------------------------- ----------- ------------ ----------- ------------
Class II* 12,205 242,395 -- --
------------------------------------------------------- ----------- ------------ ----------- ------------
Reacquired:
Class I (12,770,259) (278,683,639) (12,707,834) (225,479,867)
------------------------------------------------------- ----------- ------------ ----------- ------------
Class II* (18,995) (414,178) (1,473) (28,044)
------------------------------------------------------- ----------- ------------ ----------- ------------
19,305,751 $383,349,817 7,817,695 $125,336,154
======================================================= =========== ============ =========== ============
</TABLE>
* Class II shares commenced sales on July 19, 1999.
FS-8
<PAGE> 62
NOTE 9-FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS I CLASS II
-------------------------------------------------------------------------- ----------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, ENDED
APRIL 30, ----------------------------------------------------------- APRIL 30,
2000 1999 1998 1997 1996 1995 2000
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.17 $ 14.96 $ 15.15 $ 12.99 $ 12.14 $ 9.78 $ 20.12
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Income from investment operations:
Net investment income (loss) (0.01) -- 0.03 0.02 0.04 0.04 (0.05)
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Net gains (losses) on securities
(both realized and unrealized) 5.42 6.16 1.23 3.34 1.69 2.81 5.36
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Total from investment operations 5.41 6.16 1.26 3.36 1.73 2.85 5.31
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Less distributions:
Dividends from net investment income -- (0.04) (0.02) (0.03) (0.03) (0.10) --
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Distributions from net realized
gains (3.17) (0.91) (1.43) (1.17) (0.85) (0.39) (3.17)
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Total distributions (3.17) (0.95) (1.45) (1.20) (0.88) (0.49) (3.17)
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Net asset value, end of period $ 22.41 $ 20.17 $ 14.96 $ 15.15 $ 12.99 $ 12.14 $ 22.26
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Total return(a) 28.76% 42.79% 9.49% 28.53% 15.61% 31.03% 28.29%
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $3,342,379 $2,623,901 $1,830,032 $1,650,234 $1,261,008 $1,050,011 $ 6,316
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Ratio of expenses to average net
assets: 0.66%(b) 0.67% 0.67% 0.68% 0.70% 0.71% 1.50%(b)(c)
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Ratio of net investment income (loss)
to average net assets (0.05)%(b) (0.01)% 0.23% 0.11% 0.29% 0.33% (0.89)%(b)
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Portfolio turnover rate 60% 92% 83% 88% 118% 126% 60%
====================================== ========== ========== ========== ========== ========== ========== =========
<CAPTION>
CLASS II
-------------
JULY 19, 1999
(DATE SALES
COMMENCED) TO
OCTOBER 31,
1999
-------------
<S> <C>
Net asset value, beginning of period $20.68
-------------------------------------- ------
Income from investment operations:
Net investment income (loss) --
-------------------------------------- ------
Net gains (losses) on securities
(both realized and unrealized) (0.56)
-------------------------------------- ------
Total from investment operations (0.56)
-------------------------------------- ------
Less distributions:
Dividends from net investment income --
-------------------------------------- ------
Distributions from net realized
gains --
-------------------------------------- ------
Total distributions --
-------------------------------------- ------
Net asset value, end of period $20.12
-------------------------------------- ------
Total return(a) (2.71)%
-------------------------------------- ------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $ 714
-------------------------------------- ------
Ratio of expenses to average net
assets: 1.46%(d)
-------------------------------------- ------
Ratio of net investment income (loss)
to average net assets (0.80)%(d)
-------------------------------------- ------
Portfolio turnover rate 92%
====================================== ======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $3,318,470,172 and
$3,300,653 for Class I and Class II, respectively.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursement was
4.51% (annualized).
(d) Annualized.
NOTE 10-SUBSEQUENT EVENTS
At a Special Meeting of shareholders on Wednesday, May 3, 2000, the following
proposals were passed to be effective at the end of July 2000 or soon
thereafter.
(a) Approval of the adoption of a Distribution Plan for the Class I shares of
the fund pursuant to Rule 12b-1 under the Investment Company Act of 1940.
(b) Approval of a Plan of Recapitalization pursuant to which the Charter of the
fund will be amended to reclassify the Class II shares of the fund as Class
I shares of the fund.
FS-9
<PAGE> 63
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, 1999, the
related statement of operations for the year then ended,
the statement of changes in net assets for each of the
years in the two-year period then ended, and financial
highlights for each of the years in the five-year period
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1999, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Summit
Fund, Inc. as of October 31, 1999, and the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the
years in the five-year period then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
December 3, 1999
Houston, Texas
FS-10
<PAGE> 64
SCHEDULE OF INVESTMENTS
October 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-96.11%
AUTO PARTS & EQUIPMENT-0.13%
SPX Corp.(a) 40,000 $ 3,390,000
---------------------------------------------------------------
AUTOMOBILES-0.99%
Ford Motor Co. 225,000 12,346,875
---------------------------------------------------------------
Porsche A.G., Pfd. (Germany) 5,000 13,624,047
---------------------------------------------------------------
25,970,922
---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.80%
Fleet Boston Corp. 400,000 17,450,000
---------------------------------------------------------------
Northern Trust Corp. 36,000 3,476,250
---------------------------------------------------------------
20,926,250
---------------------------------------------------------------
BANKS (MONEY CENTER)-0.44%
Chase Manhattan Corp. (The) 133,500 11,664,562
---------------------------------------------------------------
BIOTECHNOLOGY-2.39%
Amgen, Inc.(a) 220,000 17,545,000
---------------------------------------------------------------
Biogen, Inc.(a) 350,000 25,943,750
---------------------------------------------------------------
Celera Genomics(a) 5,950 232,794
---------------------------------------------------------------
Genzyme Corp.(a) 500,000 19,125,000
---------------------------------------------------------------
62,846,544
---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.84%
AT&T Corp.-Liberty Media
Group-Class A(a) 250,000 9,921,875
---------------------------------------------------------------
Comcast Corp.-Class A 200,000 8,425,000
---------------------------------------------------------------
USA Networks, Inc.(a) 80,500 3,627,531
---------------------------------------------------------------
21,974,406
---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-11.99%
General Instrument Corp.(a) 250,000 13,453,125
---------------------------------------------------------------
JDS Uniphase Corp.(a) 660,000 110,137,500
---------------------------------------------------------------
Lucent Technologies Inc. 500,000 32,125,000
---------------------------------------------------------------
Motorola, Inc. 700,000 68,206,250
---------------------------------------------------------------
Nokia Oyj-ADR (Finland) 400,000 46,225,000
---------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson-ADR (Sweden) 600,000 25,650,000
---------------------------------------------------------------
Tellabs, Inc.(a) 300,000 18,975,000
---------------------------------------------------------------
314,771,875
---------------------------------------------------------------
COMPUTERS (HARDWARE)-2.39%
International Business Machines
Corp. 475,000 46,728,125
---------------------------------------------------------------
Sun Microsystems, Inc.(a) 150,000 15,871,875
---------------------------------------------------------------
62,600,000
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (NETWORKING)-4.67%
Cisco Systems, Inc.(a) 1,200,000 $ 88,800,000
---------------------------------------------------------------
Exodus Communications, Inc.(a) 250,000 21,500,000
---------------------------------------------------------------
VeriSign, Inc.(a) 100,000 12,350,000
---------------------------------------------------------------
122,650,000
---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-3.68%
Adaptec, Inc.(a) 527,000 23,715,000
---------------------------------------------------------------
EMC Corp.(a) 1,000,000 73,000,000
---------------------------------------------------------------
96,715,000
---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-17.42%
America Online, Inc.(a) 860,000 111,531,250
---------------------------------------------------------------
Computer Associates
International, Inc. 540,000 30,510,000
---------------------------------------------------------------
eBay, Inc.(a) 250,000 33,781,250
---------------------------------------------------------------
Electronics for Imaging, Inc.(a) 300,000 12,093,750
---------------------------------------------------------------
Inktomi Corp.(a) 330,000 33,474,375
---------------------------------------------------------------
Intuit, Inc.(a) 600,000 17,475,000
---------------------------------------------------------------
Lycos, Inc.(a) 430,000 23,005,000
---------------------------------------------------------------
Microsoft Corp.(a) 1,040,000 96,265,000
---------------------------------------------------------------
RealNetworks, Inc.(a) 200,000 21,937,500
---------------------------------------------------------------
Unisys Corp.(a) 450,000 10,912,500
---------------------------------------------------------------
VERITAS Software Corp.(a) 200,000 21,575,000
---------------------------------------------------------------
Yahoo! Inc.(a) 250,000 44,765,625
---------------------------------------------------------------
457,326,250
---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.54%
McKesson HBOC, Inc. 710,000 14,244,375
---------------------------------------------------------------
ELECTRIC COMPANIES-2.05%
Illinova Corp. 415,000 13,202,187
---------------------------------------------------------------
Niagara Mohawk Holdings, Inc.(a) 1,185,000 18,811,875
---------------------------------------------------------------
Texas Utilities Co. 560,000 21,700,000
---------------------------------------------------------------
53,714,062
---------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.80%
American Power Conversion
Corp.(a) 200,000 4,487,500
---------------------------------------------------------------
General Electric Co. 150,000 20,334,375
---------------------------------------------------------------
Koninklijke (Royal) Philips
Electronics N.V.-ADR
(Netherlands) 178,000 18,500,875
---------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 65
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-(CONTINUED)
Sanmina Corp.(a) 45,000 $ 4,052,812
---------------------------------------------------------------
47,375,562
---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-0.70%
Alpha Industries, Inc.(a) 100,000 5,525,000
---------------------------------------------------------------
PE Corp-PE Biosystems Group 23,800 1,544,025
---------------------------------------------------------------
Waters Corp.(a) 212,000 11,262,500
---------------------------------------------------------------
18,331,525
---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-6.36%
Analog Devices, Inc.(a) 150,000 7,968,750
---------------------------------------------------------------
Broadcom Corp.-Class A(a) 380,000 48,568,750
---------------------------------------------------------------
Maxim Integrated Products,
Inc.(a) 157,000 12,393,187
---------------------------------------------------------------
Microchip Technology, Inc.(a) 134,300 8,947,737
---------------------------------------------------------------
PMC-Sierra, Inc.(a) 600,000 56,550,000
---------------------------------------------------------------
Texas Instruments, Inc. 260,000 23,335,000
---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 200,000 9,175,000
---------------------------------------------------------------
166,938,424
---------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.30%
McDermott International, Inc. 435,000 7,884,375
---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.14%
KLA-Tencor Corp.(a) 45,000 3,563,437
---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.54%
American Express Co. 44,000 6,776,000
---------------------------------------------------------------
Associates First Capital
Corp.-Class A 117,938 4,304,737
---------------------------------------------------------------
Citigroup, Inc. 510,000 27,603,750
---------------------------------------------------------------
Fannie Mae 104,600 7,400,450
---------------------------------------------------------------
Freddie Mac 280,000 15,137,500
---------------------------------------------------------------
MGIC Investment Corp. 530,000 31,667,500
---------------------------------------------------------------
92,889,937
---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-0.20%
Abbott Laboratories 127,000 5,127,625
---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.24%
Watson Pharmaceuticals, Inc.(a) 200,000 6,350,000
---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-0.90%
Lilly (Eli) & Co. 76,800 5,289,600
---------------------------------------------------------------
Pfizer, Inc. 270,000 10,665,000
---------------------------------------------------------------
Schering-Plough Corp. 155,200 7,682,400
---------------------------------------------------------------
23,637,000
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL
MANAGEMENT)-1.03%
Health Management Associates,
Inc.-Class A(a) 3,060,000 $ 27,157,500
---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.47%
Manor Care, Inc.(a) 780,000 12,285,000
---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-1.04%
United Healthcare Corp. 530,000 27,394,375
---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.74%
Beckman Coulter, Inc. 330,000 15,180,000
---------------------------------------------------------------
Guidant Corp. 620,000 30,612,500
---------------------------------------------------------------
45,792,500
---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.93%
AXA Financial, Inc. 508,000 16,287,750
---------------------------------------------------------------
UnumProvident Corp. 250,000 8,234,375
---------------------------------------------------------------
24,522,125
---------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.03%
American International Group,
Inc. 261,937 26,963,140
---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.48%
XL Capital Ltd.-Class A 235,000 12,616,562
---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-1.74%
Lehman Brothers Holdings, Inc. 40,000 2,947,500
---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 154,000 16,988,125
---------------------------------------------------------------
Schwab (Charles) Corp. (The) 660,000 25,698,750
---------------------------------------------------------------
45,634,375
---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.78%
Mattel, Inc. 1,540,000 20,597,500
---------------------------------------------------------------
LODGING-HOTELS-0.46%
Carnival Corp. 272,000 12,104,000
---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.64%
Tyco International Ltd. 200,000 7,987,500
---------------------------------------------------------------
United Technologies Corp. 145,000 8,772,500
---------------------------------------------------------------
16,760,000
---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.61%
Parker Hannifin Corp. 350,000 16,034,375
---------------------------------------------------------------
NATURAL GAS-0.47%
Coastal Corp. (The) 293,600 12,367,900
---------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-2.06%
Diamond Offshore Drilling, Inc. 380,000 12,065,000
---------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 66
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED)
ENSCO International, Inc. 580,000 $ 11,237,500
---------------------------------------------------------------
Schlumberger Ltd. 260,000 15,746,250
---------------------------------------------------------------
Transocean Offshore, Inc. 555,000 15,089,063
---------------------------------------------------------------
54,137,813
---------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-0.70%
Atlantic Richfield Co. 142,000 13,232,625
---------------------------------------------------------------
USX-Marathon Group 175,500 5,111,438
---------------------------------------------------------------
18,344,063
---------------------------------------------------------------
PAPER & FOREST PRODUCTS-1.12%
Georgia Pacific Group 380,000 15,081,250
---------------------------------------------------------------
International Paper Co. 270,000 14,208,750
---------------------------------------------------------------
29,290,000
---------------------------------------------------------------
PUBLISHING-0.68%
Dow Jones & Co., Inc. 194,000 11,931,000
---------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 60,000 3,577,500
---------------------------------------------------------------
Reader's Digest Association,
Inc.-Class A 75,000 2,418,750
---------------------------------------------------------------
17,927,250
---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-0.50%
Starwood Hotels & Resorts
Worldwide, Inc. 575,000 13,189,063
---------------------------------------------------------------
RESTAURANTS-0.10%
Tricon Global Restaurants,
Inc.(a) 65,000 2,612,188
---------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.58%
Home Depot, Inc. (The) 200,000 15,100,000
---------------------------------------------------------------
RETAIL (COMPUTERS &
ELECTRONICS)-1.45%
Best Buy Co., Inc.(a) 544,800 30,270,450
---------------------------------------------------------------
Circuit City Stores-Circuit City
Group 180,000 7,683,750
---------------------------------------------------------------
37,954,200
---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-1.38%
Federated Department Stores,
Inc.(a) 440,000 18,782,500
---------------------------------------------------------------
Kohl's Corp.(a) 100,000 7,481,250
---------------------------------------------------------------
Saks, Inc.(a) 575,000 9,882,813
---------------------------------------------------------------
36,146,563
---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.18%
Family Dollar Stores, Inc. 225,000 4,640,625
---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.44%
Kroger Co. (The)(a) 551,000 11,467,688
---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-1.58%
Dayton Hudson Corp. 289,000 18,676,625
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE)-(CONTINUED)
Wal-Mart Stores, Inc. 400,000 $ 22,675,000
---------------------------------------------------------------
41,351,625
---------------------------------------------------------------
RETAIL (SPECIALTY)-0.44%
Bed Bath & Beyond, Inc.(a) 225,000 7,495,313
---------------------------------------------------------------
Linens 'n Things, Inc.(a) 100,000 3,975,000
---------------------------------------------------------------
11,470,313
---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.15%
Abercrombie & Fitch Co.-Class
A(a) 86,000 2,343,500
---------------------------------------------------------------
American Eagle Outfitters,
Inc.(a) 275,000 11,773,438
---------------------------------------------------------------
Gap, Inc. (The) 150,000 5,568,750
---------------------------------------------------------------
Intimate Brands, Inc. 81,270 3,332,070
---------------------------------------------------------------
Talbots, Inc. (The) 150,000 7,059,375
---------------------------------------------------------------
30,077,133
---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-0.99%
Omnicom Group, Inc. 150,000 13,200,000
---------------------------------------------------------------
Outdoor Systems, Inc.(a) 300,000 12,712,500
---------------------------------------------------------------
25,912,500
---------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.45%
Cintas Corp. 123,700 7,452,925
---------------------------------------------------------------
Gartner Group, Inc.-Class B(a) 7,812 73,238
---------------------------------------------------------------
IMS Health, Inc. 60,000 1,740,000
---------------------------------------------------------------
Viad Corp. 100,000 2,456,250
---------------------------------------------------------------
11,722,413
---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.13%
Brocade Communications Systems,
Inc.(a) 110,000 29,590,000
---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.66%
Concord EFS, Inc.(a) 450,000 12,178,125
---------------------------------------------------------------
First Data Corp. 480,000 21,930,000
---------------------------------------------------------------
National Data Corp. 80,000 1,920,000
---------------------------------------------------------------
Paychex, Inc. 192,037 7,561,457
---------------------------------------------------------------
43,589,582
---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.81%
Western Wireless Corp.-Class A(a) 400,000 21,150,000
---------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-2.65%
AT&T Corp. 355,000 16,596,250
---------------------------------------------------------------
Global TeleSystems Group, Inc.(a) 700,000 16,756,250
---------------------------------------------------------------
MCI WorldCom, Inc.(a) 422,926 36,292,337
---------------------------------------------------------------
69,644,837
---------------------------------------------------------------
</TABLE>
FS-13
<PAGE> 67
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE-1.59%
Bell Atlantic Corp. 200,000 $ 12,987,500
---------------------------------------------------------------
Qwest Communications
International, Inc.(a) 800,000 28,800,000
---------------------------------------------------------------
41,787,500
---------------------------------------------------------------
WASTE MANAGEMENT-0.54%
Waste Management, Inc. 778,000 14,295,750
---------------------------------------------------------------
Total Common Stocks & Other
Equity Interests (Cost
$1,615,087,599) 2,522,522,589
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE BONDS & NOTES-0.87%
COMPUTERS (PERIPHERALS)-0.36%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 $ 1,450,000 9,348,875
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG
DISTANCE)-0.51%
Level 3 Communications Inc.,
Conv. Bonds, 6.00%, 09/15/09 $11,000,000 $ 13,530,000
---------------------------------------------------------------
Total Convertible Bonds &
Notes (Cost $12,998,720) 22,878,875
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
MONEY MARKET FUNDS-3.46%
STIC Liquid Assets Portfolio(b) 45,440,308 45,440,308
---------------------------------------------------------------
STIC Prime Portfolio(b) 45,440,308 45,440,308
---------------------------------------------------------------
Total Money Market Funds
(Cost $90,880,616) 90,880,616
---------------------------------------------------------------
TOTAL INVESTMENTS-100.44% 2,636,282,080
---------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.44%) (11,667,071)
---------------------------------------------------------------
NET ASSETS-100.00% $2,624,615,009
===============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Pfd. - Preferred
Sub. - Subordinated
Notes to Schedule of Investment:
(a)
Non-income producing security.
(b)
The security shares the same
investment advisor as the Fund.
See Notes to Financial Statements.
FS-14
<PAGE> 68
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,718,966,935) $2,636,282,080
-------------------------------------------------------------
Receivables for:
Capital stock sold 99,498
-------------------------------------------------------------
Dividends and interest 1,053,988
-------------------------------------------------------------
Investment for deferred compensation plan 48,076
-------------------------------------------------------------
Other assets 12,253
-------------------------------------------------------------
Total assets 2,637,495,895
-------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 10,772,227
-------------------------------------------------------------
Capital stock reacquired 469,021
-------------------------------------------------------------
Deferred compensation 48,076
-------------------------------------------------------------
Accrued advisory fees 1,342,674
-------------------------------------------------------------
Accrued administrative services fees 10,000
-------------------------------------------------------------
Accrued directors' fees 1,448
-------------------------------------------------------------
Accrued operating expenses 237,440
-------------------------------------------------------------
Total liabilities 12,880,886
-------------------------------------------------------------
Net assets applicable to shares outstanding $2,624,615,009
=============================================================
NET ASSETS:
Class I $2,623,900,667
-------------------------------------------------------------
Class II $ 714,342
-------------------------------------------------------------
Capital stock, $0.01 par value per share:
Class I:
Authorized 1,000,000,000
-------------------------------------------------------------
Outstanding 130,118,500
=============================================================
Class II
Authorized 1,000,000,000
-------------------------------------------------------------
Outstanding 35,504
=============================================================
Class I
Net asset value and redemption price per
share $ 20.17
=============================================================
Class II
Net asset value and redemption price per
share $ 20.12
=============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $72,416 foreign withholding
tax) $ 10,836,685
------------------------------------------------------------
Interest 4,978,635
------------------------------------------------------------
Total investment income 15,815,320
------------------------------------------------------------
EXPENSES:
Advisory fees 15,096,393
------------------------------------------------------------
Administrative services fees 114,068
------------------------------------------------------------
Custodian fees 231,799
------------------------------------------------------------
Directors' fees 22,879
------------------------------------------------------------
Transfer agent fees 49,863
------------------------------------------------------------
Other 467,498
------------------------------------------------------------
Total expenses 15,982,500
------------------------------------------------------------
Less: Expenses paid indirectly (28,145)
------------------------------------------------------------
Net expenses 15,954,355
------------------------------------------------------------
Net investment income (loss) (139,035)
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities 418,809,758
------------------------------------------------------------
Foreign currencies (275,578)
------------------------------------------------------------
418,534,180
============================================================
CHANGE IN NET UNREALIZED APPRECIATION
(DEPRECIATION) OF:
Investment securities 367,179,343
------------------------------------------------------------
Foreign currencies (3,322)
============================================================
367,176,021
============================================================
Net gain from investment securities and
foreign currencies 785,710,201
============================================================
Net increase in net assets resulting from
operations $785,571,166
============================================================
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE> 69
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (139,035) $ 4,083,684
----------------------------------------------------------------------------------------------
Net realized gain from investment securities foreign
currencies, futures and options contracts 418,534,180 123,367,355
----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 367,176,021 30,378,725
----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 785,571,166 157,829,764
----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment
income-Class I (4,242,441) (1,659,397)
----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains-Class I (112,082,098) (156,547,424)
----------------------------------------------------------------------------------------------
Share transactions-net:
----------------------------------------------------------------------------------------------
Class I 124,655,784 180,175,249
----------------------------------------------------------------------------------------------
Class II 680,370 --
----------------------------------------------------------------------------------------------
Net increase in net assets 794,582,781 179,798,192
----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,830,032,228 1,650,234,036
----------------------------------------------------------------------------------------------
End of period $2,624,615,009 $1,830,032,228
==============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,290,320,756 $1,158,384,602
----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (94,294) 4,164,155
----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 417,073,402 117,344,347
----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
foreign currencies 917,315,145 550,139,124
----------------------------------------------------------------------------------------------
$2,624,615,009 $1,830,032,228
==============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-16
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
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 (the "1940 Act"), as a
diversified, open-end management investment company. The Fund consists of two
classes of shares: Class I shares and Class II shares. Class II shares commenced
sales on July 19, 1999. The Fund's investment objective is growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
reported on the NASDAQ National Market System is valued at the last sales
price on the valuation date or absent a last sales price, at the closing bid
price. Debt obligations (including convertible bonds) are valued on the basis
of prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors such as yield, type of issue,
coupon rate and maturity date. Securities for which market prices are not
provided by any of the above methods are valued based upon quotes furnished
by independent sources and are valued at the last bid price in the case of
equity securities and in the case of debt obligations, the mean between the
last bid and asked prices. Securities for which market quotations are not
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. For purposes of determining
net asset value per share, futures and options contracts generally will be
valued 15 minutes after the close of trading of the New York Stock Exchange
("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
as determined in good faith by or under the supervision of the Board of
Directors.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date. The Fund may elect to use a portion of the proceeds of
capital stock redemptions as distributions for Federal income tax purposes.
Distributions from income and net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date.
On October 31, 1999, undistributed net investment income was increased by
$123,027, undistributed net realized gains decreased by $6,723,027 and
paid-in capital increased by $6,600,000 as a result of differing book/tax
treatment of foreign currency transactions, equalization credits and net
operating loss reclassifications in order to comply with the requirements of
the American Institute of Certified Public Accountants of Position 93-2. Net
assets of the Fund were unaffected by the reclassification discussed above.
C. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
D. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
E. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a
FS-17
<PAGE> 71
foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
F. Bond Premiums -- It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
G. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.00% of
the first $10 million of the Fund's average daily net assets, plus 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. Prior to June 30,
1999, AIM had a sub-advisory agreement with TradeStreet Investment Associates,
("TradeStreet").
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1999, AIM was
paid $114,068 for such services.
The Fund has entered into a Distribution Agreement with A I M Distributors,
Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Fund has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class II shares (the "Distribution Plan"). The Fund , pursuant to the
Distribution Plan, pays AIM Distributors compensation at the annual rate of
0.30% of the Fund's average daily net assets of Class II shares. Of this amount,
the Fund may pay a service fee of 0.25% of the average daily net assets of Class
II shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own Class II
shares of the Fund. Any amounts not paid as a service fee under the Distribution
Plan would constitute an asset-based sales charge. The Distribution Plan also
imposes a cap on the total sales charges, including asset-based sales charges
that may be paid by the Class II shares. During the period July 19, 1999 (date
sales commenced) through October 31, 1999, the Class II shares paid AIM
Distributors $195 as compensation under the Plans.
During the year ended October 31, 1999, the Fund paid legal fees of $8,316 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Company's directors. A member of that firm is a director of the Company.
Substantially all shares of the Fund are held of record by State Street Bank
and Trust Company as custodian for AIM Summit Investors Plans I and II, unit
investments trusts that are sponsored by AIM Distributors. Certain officers and
directors of the Fund are officers of AIM and AIM Distributors.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1999, the Fund received reductions in
custodian fees of $28,145 under expense offset arrangements. The effect of the
above arrangements resulted in a reduction of the Fund's total expenses of
$28,145 during the year ended October 31, 1999.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid to directors who are not an
"interested person" of AIM. The Company invests directors' fees, if so elected
by a director, in mutual fund shares in accordance with a deferred compensation
plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the year
ended October 31, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. Prior to
May 28, 1999, the commitment fee rate was 0.05%. The commitment fee is allocated
among the funds based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1999 was
$2,104,224,796 and $2,129,918,843, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $973,683,957
---------------------------------------------------------
Aggregate unrealized appreciation
(depreciation) of investment securities (65,121,247)
---------------------------------------------------------
Net unrealized appreciation of investment
securities $908,562,710
=========================================================
</TABLE>
* Cost of investments for tax purposes is $1,727,719,370.
FS-18
<PAGE> 72
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the years ended October 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class I 13,483,892 $ 237,827,156 13,962,660 $ 208,683,626
-----------------------------------------------------------------------------------------------------------------------
Class II* 36,977 708,414 -- --
-----------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class I 7,006,133 112,308,495 11,672,671 154,897,796
-----------------------------------------------------------------------------------------------------------------------
Reacquired:
Class I (12,707,834) (225,479,867) (12,194,909) (183,406,173)
-----------------------------------------------------------------------------------------------------------------------
Class II* (1,473) (28,044) -- --
-----------------------------------------------------------------------------------------------------------------------
7,817,695 $ 125,336,154 13,440,422 $ 180,175,249
=======================================================================================================================
</TABLE>
* Class II shares commenced sales on July 19, 1999.
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the five-year period ended October 31,
1999 for Class I shares and for the period July 19, 1999 (date sales commenced)
through October 31, 1999 for Class II shares.
<TABLE>
<CAPTION>
CLASS II
JULY 19, 1999
CLASS I TO
---------------------------------------------------------------- OCTOBER 31,
1999 1998 1997 1996 1995 1999
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.96 $ 15.15 $ 12.99 $ 12.14 $ 9.78 $20.68
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------
Income from investment operations:
Net investment income -- 0.03 0.02 0.04 0.04 --
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------
Net gains (losses) on securities (both
realized and unrealized) 6.16 1.23 3.34 1.69 2.81 (0.56)
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------
Total from investment operations 6.16 1.26 3.36 1.73 2.85 (0.56)
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------
Less distributions:
Dividends from net investment income (0.04) (0.02) (0.03) (0.03) (0.10) --
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------
Distributions from net realized gains (0.91) (1.43) (1.17) (0.85) (0.39) --
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------
Total distributions (0.95) (1.45) (1.20) (0.88) (0.49) --
----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ------
Net asset value, end of period $ 20.17 $ 14.96 $ 15.15 $ 12.99 $ 12.14 $20.12
=============================================== ========== ========== ========== ========== ========== ======
Total return(a) 42.79% 9.49% 28.53% 15.61% 31.03% (2.71)%
=============================================== ========== ========== ========== ========== ========== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,623,901 $1,830,032 $1,650,234 $1,261,008 $1,050,011 $ 714
=============================================== ========== ========== ========== ========== ========== ======
Ratio of expenses to average net assets 0.67%(b) 0.67% 0.68% 0.70% 0.71% 1.46%(c)
=============================================== ========== ========== ========== ========== ========== ======
Ratio of net investment income (loss) to
average net assets (0.01)%(b) 0.23% 0.11% 0.29% 0.33% (0.80)%(c)
=============================================== ========== ========== ========== ========== ========== ======
Portfolio turnover rate 92% 83% 88% 118% 126% 92%
=============================================== ========== ========== ========== ========== ========== ======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average net assets of $2,381,357,904.
(c) Ratios are annualized and based on average net assets of $227,867.
FS-19
